Road construction is an important $2.5 billion economic engine in the commonwealth that threatens to stall out later this year.
Kentucky’s governor and the state’s General Assembly came to agreement on funding roads and the Kentucky Transportation Cabinet at nearly the last hour of the 2014 legislative session. While their mutual cooperation is great – and surely vital to the state’s transportation infrastructure – it is only a small part of a looming patch of rough road to be traveled before the buck finally stops.
States rely on the federal government for the bulk of the money on interstate and many other large road projects, but the Kentucky Transportation Cabinet (KTC) pays contractors first, and then waits for reimbursement from Washington after KTC sends them invoices. It’s a typical practice.
However, KTC pays the road construction companies as work progresses over the months, and projects can take years to finish. Besides having to practice leapfrog accounting, the KTC faces the specter of a crucial federal Highway Trust Fund drying up this summer. It’s normal functioning is being counted upon for one in four dollars in the commonwealth transportation budget. Congress must act soon or roadwork in Kentucky and across the nation could languish or grind to a halt.
To avoid risking an empty bank account before federal reimbursement occurs, states can issue Grant Anticipation Revenue Vehicle (GARVEE) Bonds for major projects receiving Washington funding. However, GARVEE bonds are not backed by a guarantee that the federal government will provide the expected financing for repayment. States must repay the bonds using the federal funds they expected to receive in the future for designated projects, and they are considered a safe investment.
Commonwealth officials are cautious about risking the state’s resources, though.
“While they are an option, we don’t want to use them until funding issues are settled,” said Kentucky Transportation Secretary Mike Hancock. “We have also chosen not to issue bonds of any type until this blows over.”
Paying it forward
It is a serious complication that the majority of government monies come from the federal Highways Trust Fund (HTF) that is currently projected to run dry around August 2014. Congressional committees are looking at ways to replenish the fund in the short term, but the Congressional Budget Office issued a long-term baseline projection last February predicting an HTF shortfall of $172 billion over the next decade.
Given that it is an election year, the prospect of new taxes to bolster revenue is unpopular even though the federal gas tax of 18.4 cents per gallon has not changed since 1993 when gas averaged $1.11 a gallon and, according to the Federal Highway Administration, now costs the average family about $95 per year. Federal Secretary of Transportation Anthony Foxx, former Secretary Ray LaHood and some legislators have called for an increase in the gas tax, but there has been no congressional response to date.
Arguments for raising the tax include statistics that show Americans are driving less and in much more efficient vehicles, reducing fuel usage and thus the amount collected on a gas tax established 20 years ago. Diesel fuel, compressed natural gas and other fuels used in vehicles already have a tax of 24.3¢ per gallon which, by most accounts, means gasoline would likely be the only fuel considered for a tax increase.
The secretary’s balancing act
This all puts KTC secretary Hancock in a somewhat precarious position.
“While Kentucky is a crossroads state for travel and interstate commerce, we are at a bit of a fiscal crossroads, too, in light of the Highway Trust Fund. There are projects we had to say go or no-go to this spring because the bulk of construction happens in warm weather,” he said. “We had no choice but to take a chance on some projects, (even) knowing funds could be unavailable. It’s incredibly difficult to decide which ones to fund given the uncertainty in Washington.”
Hancock is in a position to have a very broad assessment of roads and funding across the United States because he is the current elected president of the American Association of State Highway and Transportation Officials (AASHTO). He presided over the organization’s 100th anniversary meeting May 28-30 in Louisville.
The KTC is responsible for just about anything with a motor that moves in Kentucky. It oversees and regulates highways, airways (airports and aviation), public transportation (available in some form in all 120 Kentucky counties), waterways, railways, highway safety, vehicle registration, driver licensing and a broad range of other things. The department has over 4,700 employees across the state. The agency funnels a lot of money back to the cities, counties and citizens of the state when you add in those KTC hires to build or inspect roads and bridges, to engineer projects, mow right of ways and perform a world of other services.
The generally accepted cost-per-mile to build a two-lane road in suburban and rural areas is $2-$3 million, and $3-$5 million in urban areas, most of which enters local economies in the form of payroll, taxes, real estate and right-of-way purchases, and general commerce; four-lane roads are approximately double that number. According to the Federal Highway Administration, each $1 billion invested in roads supports nearly 28,000 jobs, of which over 9,500 are construction alone.
“There’s an old saying in this business that says every dollar invested in roads ‘turns over’ seven times,” said Hancock, “and the evidence points to that being quite possible.”
Build and re-build … if there’s capital
Of the work generally referred to as road construction, over 80 percent is the expansion, repair and refurbishing of existing roadways. There is currently less than $20 million slated for new construction out of the $5.1 billion approved by the General Assembly for the present biennium. Recent federal spending includes few new road miles as well – the 2011 budget (the last year the Federal Highway Administration published numbers) committed $2.2 billion for new projects versus $31.8 billion to improve existing highways and bridges.
On the federal level, a variety of programs provide funding. The Moving Ahead for Prosperity in the 21st Century Act (MAP-21) signed in July 2012 budgets $105 billion for surface transportation projects in FY 2013 and 2014. Due to expire Sept. 30, 2014, it is one of several programs for which many are urging re-authorization.
Counties are concerned because they are responsible for 63 percent of the state’s road miles according to the National Association of Counties (NACo), which is pushing Congress to provide better funding for county road and bridge projects. NACo also says that under MAP-21, funding for “locally owned bridges and federal-aid highways decreased 30 percent” and that funding available to Kentucky for those bridges and highways went down by 21 percent.
Beyond MAP-21, there are programs with names like ISTEA, TEA-21, SAFETEA-LU and others, some dating back as far as 1991. With the HTF’s looming insolvency, this patchwork of programs is becoming more important, but the future of some of them is up in the air, too.
Beyond roads and bridges
The improvements across the state continue apace.
“Kentucky has a good reputation with the federal administration, and we are known for working with other states on projects. For instance, we have worked closely with Ohio on the Brent Spence Bridge in Northern Kentucky, and with Indiana on the Louisville bridges project,” Hancock said. “It required a lot of cooperation between these states and federal highway staff, and that’s rare on projects of this magnitude. It’s paying off very well for us and the others, and we believe the federal folks appreciate it, too.”
KTC has also been very proactive in ensuring that our state is not a bottleneck in the interstate highways. Work continues apace to make I-65 six lanes all the way from the Tennessee line in the south to the Ohio River. The work continues to do the same on I-75 from Berea to Northern Kentucky. Work also continues on the bridge at Lake Barkley, and on US 460 in Pikeville.
Another project is Kentucky’s segment of I-69 stretching 156 miles from near Henderson, Ky., on the Ohio River to Fulton, Ky., on the Tennessee border. Work is starting also on the Mountain Parkway in Eastern Kentucky beginning with a section running from Helechawa to Salyersville – it is the section with the most accidents-per-mile along the long-proposed parkway route.
KTC also provides or supports public transportation of one sort or another in all of Kentucky’s 120 counties. For some residents, especially in rural areas, this may be the only way they have to shop or receive medical treatment.
Many only think about KTC or local road crews when they encounter a pothole. But those at the KTC are keeping a close eye on potholes in the road to funding. Given the immense depth and breadth of its reach, and its importance to everyday life in the commonwealth, if the looming hole in the Highway Trust Fund checkbook does open, it will be a jolt that could knock portions of the economy out of alignment.
Frank Goad is a correspondent for The Lane Report. He can be reached at [email protected]