Conditions and Performance Chapter Listing

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Introduction

Summary

Highway and Bridge Spending Versus Investment Requirements

Transit Capital Spending Versus Investment Requirements

Investment Requirements Versus Projected 1998-2003 Spending

The passage of the TEA-21 will result in significant increases in Federal highway funding. This will help to close the gap between the investment requirement scenarios and current spending levels identified earlier in this chapter. As indicated in Chapter 6, due to the nature of the Federal-aid Highway program as a multiple year reimbursable program, the impact of increases in obligation levels phases in gradually over a number of years. The largest percentage increases in cash outlays for highways by the Federal Government are expected to occur in 1999, 2000, and 2001. Federal cash outlays are projected to increase in 2002 and 2003 as well, but are expected to grow more slowly than inflation.

State and Local Funding

State and local funding for highway capital outlay has increased in every year since 1981, and has grown in constant dollar terms over time. In 1996, the FHWA commissioned the development of two State Highway Funding Models to forecast future State highway funding levels. These models are used in the development of supporting materials for the annual FHWA budget submission. State Highway Funding Model I predicts that annual increases in State highway funding will range from 4.5 percent to 5.1 percent during the period from 1997 to 2003. This report assumes that State and local government funding for highway capital expenditures will increase by approximately the same rates.

Projected Federal, State and Local Capital Expenditures

Exhibit 8-5 shows projected expenditures by all levels of government for highway capital projects in current dollars and constant 1997 dollars. As indicated in Chapter 6, historical capital expenditures are converted to constant dollars using the FHWA Construction Bid Price Index. However, there are no projections available for future values for this index, so the expenditure projections were converted to constant dollars using forecasts of the Consumer Price Index (CPI) instead.

Exhibit 8-5. Projected Highway Capital Expenditures 1998-2003, All Levels of Government

Stated in constant 1997 dollars, highway capital expenditures are expected to rise from $48.7 billion in 1997 to $56.5 billion in 2003, a 16 percent increase. The growth in capital spending is expected to outpace inflation in each year during this period, with the largest increases occurring between 1999 and 2001.

Comparison of Investment Requirements and Projected 1998-2003 Spending

When making multi-year comparisons of spending and investment requirements, it is important to note that the investment requirements shown in this report are cumulative. To achieve a given performance target at the end of 20 years, cumulative spending over the 20year period would need to match the cumulative investment requirements specified for that target. For example, if spending in 2017 matched the average annual investment requirements identified as the Cost to Maintain High-ways and Bridges, but spending in 1998 through 2016 fell below this threshold, highway and bridge conditions would be expected to decline. Highway and bridge conditions would only be maintained under this scenario if the cumulative average annual spending for the 1998-2017 period reached $56.6 billion, the average annual Cost to Maintain Highways and Bridges.

Exhibit 8-6 compares the Cost to Maintain Highways and Bridges and the Cost to Improve Highways and Bridges with projected spending for the years 1998 through 2003. The row for 1997 is included to relate the table to Exhibits 8-2 and 8-3, but the 1997 values are not included in the cumulative capital expenditure figures shown. The "Average Annual" column shows the average annual capital expenditures corresponding to the years included in the "Cumulative" column, i.e., the $51.3 billion average annual expenditures shown for the year 2000 represent the average expenditures for the three-year period 1998 to 2000.

Exhibit 8-6. Average Annual Investment Required to Maintain and Improve Highways and Bridges Versus Projected 1998-2003 Capital Outlay

If State and local government spending increases at the predicted rates, then combined highway capital spending by all levels of government is projected to reach $56.5 billion in 2003. This is virtually identical to the $56.6 billion average annual Cost to Maintain Highways and Bridges. However, the "gap" between cumulative average annual spending and the average annual investment requirement for this scenario would not be eliminated at this point, since spending from 1998 through 2002 is projected to be below the Cost to Maintain threshold. Average annual capital expenditures from 1998 through 2003 are expected to reach $53.6 billion, $3.0 billion below the average annual Cost to Maintain Highways and Bridges. Spending would need to increase an additional 5.7 percent to reach the Cost to Maintain level.

Exhibit 8-6 shows the gap between cumulative average annual spending and the average annual investment requirements closing steadily between 1997 and 2003. If highway capital expenditures by all levels of government continue to grow faster than inflation beyond 2003, capital expenditures might exceed the Cost to Maintain Highways and Bridges within the 20-year period covered by the investment requirement projections.