This section starts by comparing the average annual investment requirements estimated in Chapter 7 with the 2000 highway and bridge capital spending outlined in Chapter 6. A second analysis compares average annual investment requirements with projected spending for 2001- 2003, since highway capital investment is expected to rise during this period as a result of the higher funding levels under the Transportation Equity Act for the 21st Century (TEA-21).

As was noted in Chapter 7, it is important to consider the relationship between the future funding gaps identified in this chapter and the parameters used in the Highway Economic Requirements System (HERS) and National Bridge Investment Analysis System (NBIAS) models. In particular, if highway travel were to increase at a faster rate than is projected in the Highway Performance Monitoring System (HPMS) sample data set (as affected by the elasticity procedures in HERS), then the funding gap would be larger; should the growth in vehicle miles be less than currently forecast, then the reverse would be true. The specific impacts that changes in the vehicle miles traveled (VMT) growth projections and other key parameters would have on the investment requirement estimates are discussed in Chapter 10.

Average Annual Investment Requirements Versus 2000 Spending

Exhibit 8-2 compares the average annual investment requirements under the Cost to Maintain and Cost to Improve scenarios (See Chapter 7) with 2000 highway and bridge capital expenditures. The average annual Cost to Maintain Highways and Bridges projected for the 2001-2020 period is $11.3 billion (17.5 percent) higher than 2000 capital expenditures, while the estimated Cost to Improve Highways and Bridges exceeds current spending by $42.2 billion (65.3 percent). Expenditures for bridge preservation in 2000 slightly exceeded the corresponding component of the Cost to Maintain scenario, which is drawn from the Maintain Backlog scenario in NBIAS (See Chapter 7).

Types of Improvements

Exhibit 8-3 compares the distribution of highway and bridge capital outlay by improvement type for the Cost to Improve Highways and Bridges and the Cost to Maintain Highways and Bridges with the actual pattern of capital expenditures in 2000. In 2000, 40.1 percent of highway and bridge capital outlays went for system expansion. The investment requirement scenarios developed using the HERS and NBIAS models suggest that it would be cost-beneficial to increase the share of capital investment devoted to system expansion in the future. For the Cost to Maintain Highways and Bridges, 43.3 percent of the projected 20-year investment requirements is for system expansion. If funding were to increase above this level, the analysis suggests that even more cost-beneficial system expansion expenditures would be found, so that for the Cost to Improve Highways and Bridges, 46.7 percent of the total investment requirements is for system expansion.

As discussed in Chapter 7, investment requirements for non-modeled items were determined by assuming that any future increase in this type of investment would be proportional to increases in total capital spending. For system enhancements, the percentage for the Cost to Improve Highways and Bridges and for the Cost to Maintain Highways and Bridges were set at 7.9 percent, to match the percentage of expenditures in 2000.

Investment Requirements Versus Projected 2001-2003 Spending

The passage of TEA-21 has resulted in significant increases in Federal highway funding (See Chapter 6), which are projected to continue through 2003. This will help reduce the gap somewhat 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. Federal cash outlays are projected to be fairly stable from 2001 to 2003.

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. The model predicts that annual increases in State highway funding (in nominal dollars) will range from 4.4 percent to 6.0 percent during the period from 2000 to 2003. This would actually represent a slowdown in funding increases, since State funding for highways increased at an average annual rate of 11.1 percent from 1997 to 2000.

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 Expenditures

Exhibit 8-4 shows projected expenditures by all levels of government for highway capital projects in current dollars and constant 2000 dollars. As indicated in Chapter 6, historical capital expenditures are converted to constant dollars using the Federal Highway Administration (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.

Stated in constant 2000 dollars, highway capital expenditures are expected to rise from $64.6 billion in 2000 to $69.3 billion in 2003, a 5.5 percent increase, with over half of the growth occurring in 2001.

Comparison of Investment Requirements and Projected 2001-2003 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 20-year period would have to match the cumulative investment requirements specified for that target. For example, if spending in 2020 matched the average annual investment requirements identified as the Cost to Maintain Highways and Bridges, but spending in 2001 through 2019 fell below this threshold, highway and bridge conditions would be expected to decline. Highway and bridge conditions and performance would only be maintained under this scenario if the cumulative average annual spending for the 2001-2020 period reached $75.9 billion (in constant 2000 dollars), the average annual Cost to Maintain Highways and Bridges.

Exhibit 8-5 compares the Cost to Maintain Highways and Bridges and the Cost to Improve Highways and Bridges with projected spending for the years 2001 through 2003. The row for 2000 is included to relate the table to Exhibit 8-2, but the 2000 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 $68.2 billion average annual expenditures shown for the year 2003 represent the average expenditures for the 3-year period 2001 to 2003.

Exhibit 8-5 shows the gap between projected cumulative average annual spending and the estimated average annual investment requirements closing slightly between 2000 and 2003, to 11.3 percent for the Cost to Maintain and 56.6 percent for the Cost to Improve.

Comparison with Previous Reports

The comparison between spending and investment requirements in this chapter matches the presentation in the 1999 report, but differs from earlier C&P reports. Exhibit 8-6 compares the estimated differences between current spending and average annual investment requirements for this and the 1995, 1997, and 1999 reports.

The percentage difference between current spending and the Cost to Maintain Highways and Bridges is up only slightly from the 1999 report. Note, however, that the definition of the Maintain scenario has changed slightly in each report (See Chapter 7). As shown in Exhibit 8-6, the 1999 C&P report estimated that average annual investment requirements were 16.3 percent above current spending.

The difference between current spending and the Cost to Maintain Highways and Bridges is also smaller than comparable figures from recent C&P reports. While the 1995 C&P report did not directly compare average annual investment requirements for the Cost to Maintain Highways and Bridges with 1993 report-related capital outlay, the difference would have been 57.5 percent. An analysis of the data in the 1997 C&P report (not presented then, but created for the 1999 C&P) would have shown a 21.0 percent difference between the average investment requirements to Maintain User Costs, and 1995 spending.

Based on the information in the 1995 C&P report, the difference between the Cost to Improve Highways and Bridges would have been 112.6 percent, similar to the 108.9 percent gap based on the 1997 report. This difference fell to 92.9 percent in the 1999 C&P report and has shrunk considerably to 65.3 percent in this report.