2017 Texas Construction Industry Forecast
As the 85th Texas Legislative Session officially convenes this month in Austin, lawmakers will have their hands full assessing agendas and creating the budget for the 2018-2019 fiscal year. In addition, all of America will look to its 45th president for leadership in rebuilding the nation's deteriorating transportation infrastructure system.
Following his inauguration on January 20, President-Elect Donald Trump plans to encourage private-sector infrastructure spending via major tax credits for companies that invest in infrastructure construction. Throughout his election campaign, he proposed spending $1 trillion on infrastructure redevelopment, assuring voters that this initiative would be a top propriety during his first 100 days in office.
But how Trump will enact this vision remains to be seen.
Pete Ruane, President and CEO of the American Road & Transportation Builders Association (ARTBA), asserts that "republicans in Congress should heed the call of their party's leader and make urgently-needed improvements of national infrastructure networks a top priority in early 2017."
Texas Department of Transportation (TxDOT) Deputy Executive Director Marc Williams anticipates that the "new federal transportation administration could introduce new opportunities for alternative and innovative financing strategies."
The Associated General Contractors (AGC) strongly supports the idea of funding and building upon existing infrastructure programs that have proved successful in the past. Last fall, AGC members hand-delivered letters to each of the presidential candidates, asking them to focus on shoring up the Highway Trust Fund as part of a long-term federal infrastructure investment plan.
"We were very concerned that people would start looking for a new mechanism that would delay or distract from shoring up the programs that have been successful long term and are going to continue to be successful if we don't underfund them. What we basically said was, "˜Don't look for a new program to fund until you fix the old programs that are successful,'" says Jeff Shoaf, AGC's Senior Executive Director for Government Relations.
Similar to its national counterpart, the Texas chapter of AGC plays a vital role in helping elected officials and Texas citizens understand the importance of smart investments in infrastructure. "A thousand people come to Texas every day. They don't bring roads and they don't bring their water infrastructure with them. We have to provide that," comments Jennifer Newton, Director of Environmental and Public Affairs at AGC of Texas.
AGC members have proactively met with congressional committees in charge of drafting legislation, educating them on things that did and did not work with the American Recovery and Reinvestment Act of 2009, as well as ways to avoid project programming delays.
Shoaf views this open dialogue between members of the general contracting community, lawmakers and stakeholders as a prime opportunity to attract new workers to the construction industry, thereby growing jobs and stimulating the economy.
Strong Programming Measures for 2017 and Beyond
Regardless of what happens in the Oval Office, in the Lone Star State significant strides are being made to keep transportation infrastructure in top form. For FY 2017, TxDOT has slated approximately $5 billion toward traditional-delivery construction projects and another $2.5 billion for design-build construction projects.
Last August, TxDOT gained an unprecedented budgetary advantage when the Texas Transportation Commission approved the 2017 Unified Transportation Program (UTP), which dedicates $70 billion in anticipated funding to major transportation projects and programs over the course of the next decade.
TxDOT uses the UTP to guide construction, development and planning activities, including projects involving highways, public transportation, aviation, freight movement, state and coastal waterways, and rail. The 2017 UTP targets congestion issues in the state's most heavily populated areas and addresses continuing needs within the energy sector and along hurricane evacuation routes. Outside urban areas, the program calls for enhancing and completing interstate highways and better connecting major interstates in rural areas with local roads and highways.
"The UTP reflects TxDOT's commitment to planning for and meeting the mobility needs of our fast-growing state," says Tryon Lewis, Chair of the Texas Transportation Commission. He adds that one major change in the 2017 UTP involves immediately plugging in all reasonably expected funding, or planning dollars, enabling project officials to select projects in a more rational manner for the long term. It is important to keep in mind that the UTP is only a mid-range planning and programming tool and does not guarantee that projects will or can be built.
In TxDOT's 2016-2017 Legislative Appropriation Request, the agency's top three funding sources consist of state highway funds (37 percent), federal reimbursement rates (42 percent), and bond proceeds (10 percent). The remaining 10 percent is derived from general revenue, the Texas Mobility Fund, and concession fees.
The 2017 UTP boosted the planning forecast from about $35 billion in 2016 to just over $70 billion, reflecting an increase that averages $3.5 billion per year. As Texas struggles to keep pace with growing population demands and both urban and rural mobility challenges, this new infusion of capital serves as a breath of fresh air.
"With more certainty on future funding levels, TxDOT has now given our districts greater ability to advance, plan, and develop proposals for future projects. This should reduce the frantic project development that has occurred when additional funding was directed to new projects," says Williams.
A New Performance-Based Project Selection Process
Certain key initiatives within the new UTP focus on House Bill (HB) 20, which requires TxDOT to implement a performance-based planning and programming process to provide the legislature with indicators that quantify and qualify progress toward attaining department goals and objectives. "As legislators, we have a fiduciary responsibility to the citizens of this great state to ensure tax payer dollars are spent appropriately," says State Representative Ron Simmons (R-District 65), who co-authored the bill.
When he signed the HB 20 transportation initiative into law in June 2015, Governor Greg Abbott hailed this effort as a progressive way "to ensure [that] we reduce congestion, increase safety, properly maintain our transportation system and keep Texans moving for decades to come."
HB 20 also mandated that TxDOT establish a scoring system to prioritize projects seeking state funding. Twelve funding categories were created, with the largest amount of funding (nearly $14 billion) earmarked for preventative maintenance and rehabilitation over the next 10 years. Other noteworthy allocations include approximately $28.9 billion for congestion and urban mobility, $6.6 billion to address the state's rural connectivity corridors, $3.5 billion for bridge rehabilitation and replacement projects, and $3.2 billion for safety initiatives.
The 2017 UTP ranks applicable projects per data received from TxDOT's Design and Construction Information System, TxDOT geospatial data sets, and input from TxDOT district and division staff. As appropriate, TxDOT staff coordinated with local stakeholders - including metropolitan planning organizations - to gather intel pertinent to the scoring.
Project scoring today is based on three criteria: (1) TxDOT's strategic goals (e.g., safety, congestion, connectivity); (2) project development (e.g., project phasing and project readiness); and (3) funding availability (e.g., secured or committed funding versus current district cost estimates). With the implementation of HB 20, project scoring is based on various weighted criteria including congestion delays, economic benefits, crash data, and other factors to achieve a performance-based project selection process.
Soaring Population Increases Congestion Issues
Since the early 2000s, state budget writers have faced many difficulties related to the funding of transportation infrastructure, some of which include: uncertainty of federal funding; historically increasing costs; aging of the state highway system; and tremendous population growth.
According to the U.S. Census Bureau, Texas had a total population of 25,145,561 in 2010. The Texas Water Development Board reports that the population will swell to nearly 30 million by 2020, and escalate to approximately 51 million by 2070 - roughly doubling the 2010 population figure.
Careful planning is needed in light of continued rapid population growth, most of which is expected in urban areas. Statistics in the 2015 Urban Mobility Scorecard reveal that, in 2014, urban congestion levels in Texas resulted in $160 billion of wasted time and fuel, including $28 billion of extra truck operating time and fuel.
In 2003, the Texas Legislature responded to these challenges and others by authorizing several alternate methods of funding, such as Comprehensive Development Agreements (CDAs). Still, existing alternative and traditional funding sources (e.g., motor fuel taxes, vehicle registration fees, Proposition 1 and Proposition 7 funding) fall short in meeting statewide infrastructure needs, especially related to roadways and bridges.
The American Road & Transportation Builders Association (ARTBA) reports that national transportation construction and related market activity is expected to reach $247.8 billion this year (a 1.3 percent increase compared to 2016). This is driven largely by growth in highway and bridge private construction activity supporting residential and commercial developments.
Alison Premo Black, ARTBA's Chief Economist, notes that while the Fixing America's Surface Transportation (FAST) Act provides stability for public highway investment, this modest increase in federal program funding barely exceeds anticipated growth in inflation and project costs. Public-private partnerships will continue to be important to state and local markets that have revenue streams to support public and private highway, street and other related construction projects.
Additional Transportation Funding Cuts Down on Project Backlog
One of TxDOT's top priorities is to "deliver a program that provides the safest, most reliable and most effective transportation system within operational limits," says Williams. He adds that the agency also desires to build a larger program, a goal more easily attainable thanks to recent, state-level legislative victories that supplement the state's transportation budget.
One example is Proposition 7, approved by voters in November 2015, which dedicates portions of revenue from the state's general sales and use tax, as well as from the motor vehicle sales and rental tax, to the State Highway Fund for non-tolled projects. Starting in FY 2018, if the state's general sales tax revenue exceeds $28 billion in a single fiscal year, the amount above that mark up to $2.5 billion will go to the State Highway Fund. Beginning in FY 2020, if motor vehicle sales and rental tax revenues exceed $5 billion in a single fiscal year, then 35 percent of the amount exceeding $5 billion will be directed to the State Highway Fund.
"Proposition 7 is poised to bring a much-needed increase in "˜non-borrowed' funding, and will help us close the financial gap between needs and the resources available to meet those needs," says Williams. He points out that additional funding sources will make significant headway in reducing the state's transportation construction project backlog.
At the time of its interview with Texas Contractor, the Texas chapter of AGC was working to put together an educational plan that Texas legislators will review during this month's legislative session. "We want to remind lawmakers that 80 percent of voters approved Proposition 1, and nearly 84 percent approved Proposition 7. They need to keep the promise that they made to voters, that transportation is a top priority, that transportation funding is going to continue, and that those revenue streams are going to remain protected," says Newton.
TxDOT has issued all Proposition 12 and Proposition 14 bonds, and started spending bond proceeds this year. The agency will also consider the use of the alternative funding and project delivery strategies as appropriate.
Marine Highway Designation Alleviates Strain on Roads and Bridges
The U.S. Secretary of Transportation recently approved the designation of the Gulf Intracoastal Waterway from Brownsville to Port Arthur as Marine Highway 69 (M-69). Now eligible to receive federal funding, this marine corridor further supports TxDOT's mission to provide a safe, reliable and integrated transportation system that facilitates the movement of people and goods.
"The new designation of M-69 allows Texas ports to develop projects along the waterway that will help relieve roadway congestion along the Texas Gulf Coast, particularly in urban and energy sector areas," says Texas Transportation Commissioner Laura Ryan.
In addition to supporting crucial connections to Texas ports, this marine highway corridor serves as an environmentally sustainable alternative to land-based freight and passenger transportation systems. "It will also help cut down on highway traffic, and save wear and tear on Texas roads and bridges," adds Ryan.
Potential New Highway Funding Initiatives
The U.S. Department of Transportation's (USDOT's) Federal Highway Administration has been searching for ways to help sustain the long-term solvency of the Highway Trust Fund. "Reliable funding is essential to ensuring we have a sound transportation system to support the economy," says U.S. Transportation Secretary Anthony Foxx. "More investment in transportation in greatly needed, and we must find new solutions to prepare for the travel demands of the nation's growing population."
In August 2016, the agency announced $14.2 million in grants for states under a new program that explores user-based alternative revenue mechanisms. The Surface Transportation System Funding Alternatives grant program, established under the FAST Act, will fund projects to test the design, implementation and acceptance of these mechanisms.
The program will help address some of the concerns outlined in Beyond Traffic, a USDOT report issued last year that examines the challenges facing America's transportation infrastructure over the next three decades. Gridlock nationwide is expected to increase unless changes are made soon.
The eight projects selected last year will pilot a variety of options to raise revenue, including on-board vehicle technologies to charge drivers based on miles traveled and multi-state or regional approaches to road user charges. The projects will address common challenges associated with implementing user-based fees, such as public acceptance, privacy protection, equity and geographic diversity. Administrators will also evaluate reliability and security components of technologies that assess mileage-based fees.
"We're thinking ahead about ways to fund our highway system [to] be equipped for the nation's economic future," says Federal Highway Administrator Gregory Nadeau. "It's a system people rely upon for their jobs and essential services, for businesses to serve their customers and for freight shippers to deliver their goods."
Emerging Trends Shape Future of Transportation Construction
TxDOT is looking to engage more construction techniques that will result in less long-term maintenance, saving tax payer dollars by effectively mitigating operational costs.
For example, a life-cycle cost-analysis on pavement structures to facilitate the design and construction of sustainable pavements is being considered. Also, targeted investments in roadways located within the state's energy sectors will augment safety and boost pavement strength. These proactive efforts and others help to prepare infrastructure for increased activity in the future.
Accelerated construction techniques will be used for certain projects, says TxDOT Director of District Operations Randy Hopmann. TxDOT also intends to provide district personnel with training on accelerated construction techniques, and insight on making determinations for when to employ these measures. "For example, we'll have standard liquidated damages, but we'll also have road-user costs, lane rentals, or incentives for early completion associated with some of these projects," says Hopmann.
Williams adds further: "There continues to be ongoing efforts to implement new technologies to monitor traffic conditions, provide for incident management, measure congestion through delays, and communicate this information to our customers."
For future metropolitan projects in Texas, emerging practices and technologies in mobility and traffic operations will hold significant value.
"Construction is a field full of innovation and entrepreneurship," notes Shoaf. "The contractors that are getting ahead and are successful are the ones who find innovative ways to do things."
Brian Turmail, Senior Executive Director of Public Affair for AGC, concurs. "If you're a road builder in this country, Texas is one of the places you want to be. Texas has done so much to invest in its infrastructure and contractors outside of Texas are looking for ways to get into this market."