Rising Oil Prices Mean Fewer U.S. Streets Will Be Repaved This Summer

Escalating asphalt prices are taking their toll on summer street repairs and construction. The summer is usually the time when cracks, pockmarks, and potholes are repaired after harsh winter weather. State and local governments, however, do not have the funds needed to meet the extra cost of paving roads. This is because governments did not plan on facing such steep increases in costs, and budgets are also less robust this year than they have been in the past. Falling home values have meant revenue from property taxes has declined. Americans are also cutting back on their driving; the Department of Energy reports demand for gasoline has dropped 1.0% thus far this year, resulting in less revenue from gasoline taxes and road tolls, which states use to help cover highway and street construction costs.

The federal government, just like state and local governments, is dealing with smaller funds for infrastructure construction. The federal budget for fiscal 2009 calls for cutting highway investment to $39.4 billion, which is $1.8 billion less than the previous year. According to the American Road and Transportation Builders Association (ARTBA), it is also $1.8 billion less than called for in the 2005 highway and transit law, SAFETEA-LU. Potentially adding further complication to these funding cuts are the political discussions suggesting a temporary suspension of the Federal Motor Fuels Tax. The "gas tax" directly supports the Highway Trust Fund and is a key source of highway funding. The combination of a smaller budget and rising materials costs translates into fewer highway construction projects.

Across the country, construction plans have been delayed, scaled back, or all together cancelled because of the astronomical costs. State and local spending on highway construction varies considerably between states. Total highway and street construction, measured by the Bureau of Labor Statistics, declined 0.7% in May, to $77.8 billion, seasonally adjusted. After highway and street construction spending increased a solid 7.4% in 2007, Global Insight expects construction put-in-place for highway and street construction to decline 4.2% this year and another 0.8% in 2009 due to the higher prices for building materials. We believe that by 2010, when asphalt price gains decelerate, highway and street construction is likely to increase.