Road Is Smoother Than Expected for Infrastructure, Biden Plan or Not
Traffic and revenue sources for transportation haven’t dried up as much as states expected last year
By Jinjoo Lee
Infrastructure bills have promised big and delivered little in the past.
Will it be different this time around?
Investors certainly seem to think so.
Martin Marietta and Vulcan Materials, which provide building blocks for infrastructure such as concrete, asphalt, sand and gravel, hit record highs this month, soaring 120% and 93% respectively over the past year, compared with the market’s 75% gain.
Both the companies and investors seem bullish about federal support for infrastructure, which is high on President Biden’s agenda.
The details of the new administration’s $3 trillion infrastructure plan, which haven’t been finalized, are likely to shift over time—including the sticker price and the parameters of what counts as infrastructure.
But there are factors outside the plan that already help brighten prospects.
On a federal level, timing matters.
The federal surface transportation funding authorization that passed in 2015, the so-called FAST Act, is due to expire in September after a one-year extension passed last year.
The industry sees an opportunity for a reauthorization and increase in that pool of funding, whether or not it gets folded into the larger infrastructure bill.
That reauthorization seems realistic.
First, action must be taken before the bill expires again in September.
Industry observers agree that it appears to be the least controversial of infrastructure proposals.
Secondly, both houses of Congress have said they would like to increase the funding pool.
The Senate Environment and Public Works Committee in 2019 thought new highway funding should increase by more than 27% compared with original FAST Act levels.
The relevant House committee proposed that the total funding for all aspects of the FAST Act—including highways, transit and railroads—should increase by more than 40%.
Notably, that funding pool provides a lifeline to the Highway Trust Fund, which would have been underfunded if it had solely depended on federal gasoline taxes, which haven’t been raised since 1993.
The increase in surface transportation funding alone would be notable, Martin Marietta’s Chief Executive Officer Howard Nye said in a February earnings call.
“From Martin Marietta’s perspective, whether it’s up 28% or 42%, it doesn’t really matter. Either one of those is the single largest increase that we’ve seen in federal infrastructure investment in over 15 years,” he said.
Meanwhile, state-level funding, which comprises the lion’s share of spending on roads and often depends on gasoline taxes or tolls, is in much better shape than expected, with Americans back on the road.
Last April the American Association of State Highway and Transportation Officials projected that state departments of transportation would see at least a 30% drop in transportation revenues over the following 18 months.
Jim Tymon, executive director of AASHTO, notes that the actual shortfall was lower because traffic resumed much faster than state agencies predicted.
The $10 billion granted to state departments of transportation as part of the Covid-19 relief bill in December also helped cushion the losses last year, Mr. Tymon noted.
The North Carolina Department of Transportation, for example, saw a revenue shortfall of $150 million in its last fiscal year—far less than the $500 million it expected.
Passenger vehicle miles traveled across the U.S. plummeted by as much as 50% in certain weeks last April but quickly rebounded to pre-pandemic levels by June.
Traffic levels haven’t dropped significantly since the summer, according to data from location-based data and analytics firm Inrix.
If traffic was resilient last year, there is little reason to think 2021 will be worse, as America reopens.
Of course, any supplemental support that comes with an ambitious infrastructure package would be music to the private sector’s ears.
The good news is that, as Washington haggles over the details, state transportation agencies and infrastructure companies already have reason to breathe more easily than they did last year.
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