Soaring Road Construction Costs Threaten State and Local Projects

TARRYTOWN, NY—Highway and street materials have increased 21% since last year due to hikes in petroleum-based energy costs and other material products in addition to truck and driver shortages. Inflation for construction materials far exceeds the already high inflation for consumer goods, a trend that, if it continues, threatens to sap the spending power of money flowing to states and localities from Washington in President Biden’s signature infrastructure law, a leading national road building organization reported.

The cost of highway and street construction materials has increased by 21% in the last year, reported a senior economist of the American Road & Transportation Builders Association (ARTBA). Joshua Hurwitz, PhD, spoke to more than 100 members and guests of the Construction Industry Council and Building Contractors Association on Oct. 12 in Tarrytown. He noted that the rising cost of road construction is in line with increases in the broader construction industry, where prices have gone up 20% in the last year. The high price of diesel and other petroleum-based products certainly plays a major role in those cost increases, because diesel-powered tractors, trucks and machines are used extensively throughout the process of turning rocks and other raw materials into streets and sidewalks, ARTBA noted earlier in a report.

But other factors are at work, too. There’s a shortage of both trucks and truck drivers. Lumber, steel and copper components have also ratcheted up in price.

“Since late 2020, the transportation construction industry has confronted unprecedented pandemic-related cost increases and often-limited availability for key commodities and materials,” ARTBA noted,   explaining that the inflation numbers show the “extraordinary nature of the current market.”

ARTBA pointed out that the costs of materials is a national overview, meaning that the situation could vary by location.

“Many states and regions are experiencing even more exaggerated cost spikes for certain commodities. Also, this data does not measure any shortages or delivery times for materials, another troublesome recent trend,” ARTBA noted.

In his presentation to the CIC-BCA, Dr. Hurwitz reiterated many of the top-line challenges New York State faces, and he explained in detail the erosion to construction purchasing power that inflation is having on public works programs.

In his presentation “New York, IIJA and the Road Ahead, With Attention to Region 8,” Dr. Hurwitz offered an overview of the broad economy and the construction industry.  “We’ve experienced very extreme inflation over the last few years, particularly in 2021 and 2022. It has affected capital programs across the U.S.,” he began.

“Going back from 2015 through mid-2020, all leading indices indicate we were growing by less than 2% per year—somewhere around 1.6% to 1.7% per year. They were all growing together.”

But then things changed. “Between the third quarter of 2020 and the end of 2022, we saw a 21% annual increase over more than two years in that federal highway index, a 16% annual increase in the U.S. BLS PPI and 7% at CPI.” The federal government in its monetary policy, he noted, strives to achieve a rate of 2% per year. “You can see two year growth at 7% growth is very high.”

“So in real terms, if you look at the total from 2018 to 2022, these are actually higher with a conservative adjustment for inflation,” which he calculates about -3% in sending power.

“Using a conservative inflation adjustment (CPI-U), the average annual Regional 8 programming for FY 2023-2027 is 4% larger than FY 2022,” he reported. But when adjusted for inflation using the CPI-U index, the upcoming five-year total (FY 2022 through FY 2027), is actually -3% compared with the previous five-year period.”

His run for Congress was a significant win, he explained, because of the natural and unnatural headwinds and diverse composition of the district. He was the first person of color to represent upstate New York in Congress. “It’s the eighth most rural district in the Congress, with 5,000 family-owned farms,” he explained. He also noted it is an election district that Donald Trump won two years earlier, in 2016, by seven percentage points.

Apparently, the bruising campaign for the congressional seat paid off.  “My opponents showed me wearing a hoodie, made me out to be a thug.” The Mr. Tough Guy image apparently plays well once you get to Congress because he arrived with helpful experience and grass-roots insights, and he acted quickly. He served as chairman of a House agriculture subcommittee as well as the House Transportation & Infrastructure and Small Business committees, the latter of which is in line with the more than 27,000 small business enterprises in the congressional district.

He pointed to his record of bipartisanship and accomplishment in the House, noting, “I delivered 18 bills that were signed into law—10 under Trump, eight under Biden.”

When the pandemic hit, he was successful in securing federal support for frontline and essential workers and small businesses through essential loan repayment relief for small enterprises. His Direct Support for Communities Act delivered $10.8 billion to New York State counties, cities, towns and villages for economic recovery.

He has a rare perspective as having been both a part of creating the $1.2 trillion IIJA bipartisan infrastructure law and is now back at the state level where he directly sees the impact that law is having.

He pointed to the 800,000 good-paying jobs the law will create nationally as well as what’s needed: lots of project work and programs. He said 80% of the roads are in disrepair, noting that old 19th century water systems made from wood, still in use today, can finally be replaced.

“New York is getting significant funding to repair our highways, our bridges, our transit, roads, water, broadband, clean drinking water,” Mr. Delgado said. He noted there are 1,700 bridges and 7,000 miles of highway in poor condition that can finally be upgraded through the $11 billion in federal aid apportioned for programs and $2 billion in bridge replacement.

“Public transportation also benefitted mightily from this infrastructure bill, he added. “In 2021 New Yorkers were spending an extra 58% of their time commuting, and he pointed to a significant percentage of transit vehicles that were beyond their useful life.

In a nod to the members of organized labor at the meeting, Lt. Gov. Delgado explained that the infrastructure bill has provisions that “expressly provide that Davis-Bacon labor standards apply to all construction projects receiving funding by the particular programs created by and through the law.”

Pivoting into an area of unvarnished truth—harkening back to his days as a hip hop producer—he urged the audience to be vigilant in holding political leaders accountable for their pledges and their actions. He denounced leaders and those in positions of power who fan the flames of hate, and who are doing it for their own benefit to ascend in power. Those leaders are toxic, he said, causing pessimism and cynicism…and people start checking out.”

“What upsets me, to be candid with you, are people who walk around and call themselves leaders in the name of public service and fail intentionally in this regard. If you’re a leader, a political actor, or a public servant, this is your job. Otherwise, why are you here? Get out.”

He concluded, “My plea to you is to really start sizing people up who call themselves leaders. Really size them up. Forget the left-right stuff. Just ask yourself, is this person the real deal, does this person actually give a damn? Does this person really care about me and my family or is he or she just blowing smoke….  We need to elevate the bar. It has become very easy to lie and get away with it. And not suffer the repercussions. Don’t accept the BS. Don’t accept it. Hold folks’ feet to the fire. Hold my feet to the fire. Enough with the gamesmanship, enough with the nonsense. I’m with you, I care about you.”

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