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Status of the Nation's Highways, Bridges, and Transit:
2002 Conditions and Performance Report

Chapter 8: Comparison of Spending and Investment Requirements
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Index
Introduction
Highlights
Executive Summary
Part I: Description of Current System
Ch1: The Role of Highways and Transit
Ch2: System and Use Characteristics
Ch3: System Conditions
Ch4: Operational Performance
Ch5: Safety Performance
Ch6: Finance

Part II: Investment Performance Analyses
Ch7: Capital Investment Requirements
Ch8: Comparison of Spending and Investment Requirements
Ch9: Impacts of Investment
Ch10: Sensitivity Analysis

Part III: Bridges
Ch11: Federal Bridge Program Status of the Nation's Bridges

Part IV: Special Topics
Ch12: National Security
Ch13: Highway Transportation in Society
Ch14: The Importance of Public Transportation
Ch15: Macroeconomic Benefits of Highway Investment
Ch16: Pricing
Ch17: Transportation Asset Management
Ch18: Travel Model Improvement Program
Ch19: Air Quality
Ch20: Federal Safety Initiatives
Ch21: Operations Strategies
Ch22: Freight

Part V: Supplemental Analyses of System Components
Ch23: Interstate System
Ch24: National Highway System
Ch25: NHS Freight Connectors
Ch26: Highway-Rail Grade Crossings
Ch27: Transit Systems on Federal Lands

Appendices
Appendix A: Changes in Highway Investment Requirements Methodology
Appendix B: Bridge Investment/Performance Methodology
Appendix C: Transit Investment Condition and Investment Requirements Methodology
List of Contacts

Highway and Bridge Spending Versus Investment Requirements

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).

Q.
Does this report recommend any specific level of investment?
A.
No. The analysis of investment requirements in this report is intended to estimate what the consequences may be of various levels of spending on highway system performance. The comparisons in this chapter between current spending and the highway and bridge investment requirement scenarios are intended to be illustrative only. They are not intended to endorse any of the investment requirement scenarios as the “correct” level of transportation investment.

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).

    
Exhibit 8-2

Average Annual Investment Requirements versus 2000 Capital Outlay
 
  2000 CAPITAL OUTLAY ($BILLIONS) INVESTMENT REQUIREMENTS (BILLIONS OF 2000 DOLLARS)
COST TO MAINTAIN PERCENT DIFFERENCE COST TO IMPROVE PERCENT DIFFERENCE
Highway Preservation
$25.9
$29.7
14.6%
$39.1
50.8%
Bridge Preservation
$7.6
$7.3
-4.0%
$9.4
22.4%
System Expansion
$26.0
$32.9
26.7%
$49.9
92.4%
System Enhancements
$5.1
$6.0
17.5%
$8.4
65.3%
Total
$64.6
$75.9
17.5%
$106.9
65.3%

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.

    
Exhibit 8-3

Highways and Bridges Investment Requirements and 2000 Capital Outlay, Percentage by Improvement Type
 
  SYSTEM PRESERVATION SYSTEM EXPANSION SYSTEM ENHANCEMENTS TOTAL
HIGHWAY BRIDGE TOTAL
Cost to Improve Highways and Bridges
36.6% 8.8% 45.4% 46.7% 7.9% 100.0%
Cost to Maintain Highways and Bridges
39.1% 9.7% 48.8% 43.3% 7.9% 100.0%
2000 Capital Outlay
40.1% 11.8% 52.0% 40.1% 7.9% 100.0%

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.

Q.
How does the improvement mix for the investment scenarios in this report compare to those in the 1999 C&P?
A.
The investment scenarios in this report suggest a shift from preservation to capacity improvements relative to the previous report. One reason for this is the inclusion of incident delay in HERS (See Appendix A). As a result, the model now finds an additional benefit to capacity improvements that was not previously considered. The change also reflects recent trends in physical conditions (which have improved) and operating performance (which has declined), resulting in a relatively larger backlog of cost-beneficial capacity improvements.

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.

Q.
How were future State and local highway funding levels projected?
A.
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 forecasts total State receipts for highways based on estimates of future fuel consumption, State general fund revenues, and nominal Gross Domestic Product (GDP).

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.

Q.
How do the projected highway capital expenditures for 2000-2003 presented in this report compare to the projections made for the 1999 C&P report?
A.
Total highway capital expenditures in 2000 and the projections for 2001-2003 are substantially higher than the projections made for those years in the previous report. The 1999 report projected nominal expenditures of $57.3 billion in 2000, increasing to $64.6 billion by 2003.

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.

    
Exhibit 8-4

Projected Highway Capital Expenditures 2000-2003, All Levels of Government
 
YEAR PROJECTED CAPITAL EXPENDITURES STATED IN BILLIONS OF NOMINAL DOLLARS PROJECTED ANNUAL RATE OF INFLATION* PROJECTED CAPITAL EXPENDITURES STATED IN BILLIONS OF CONSTANT 2000 DOLLARS
AMOUNT INCREASE OVER PRIOR YEAR AMOUNT INCREASE OVER PRIOR YEAR
2000
64.6
 
 
64.6
 
2001
68.9
6.6%
2.8%
67.0
3.7%
2002
71.6
3.9%
1.9%
68.4
2.0%
2003
74.2
3.6%
2.2%
69.3
1.3%
* Based on CPI projections from the Fiscal Year 2003 Budget.

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.

    
Exhibit 8-5

Average Annual Investment Required to Maintain and Improve Highways and Bridges Versus Projected 2001-2003 Capital Outlay
 
YEAR PROJECTED CAPITAL EXPENDITURES STATED IN BILLIONS OF CONSTANT 2000 DOLLARS COST TO MAINTAINHIGHWAYS AND BRIDGES COST TO IMPROVEHIGHWAYS AND BRIDGES
ANNUAL CUMULATIVE AVERAGE ANNUAL AVERAGE ANNUAL PERCENT ABOVE PROJECTED SPENDING AVERAGE ANNUAL PERCENT ABOVE PROJECTED SPENDING
2000
64.6
 
 
75.9
17.5%
106.9
65.3%
2001
67.0
67.0
67.0
75.9
13.3%
106.9
59.5%
2002
68.4
135.4
67.7
75.9
12.2%
106.9
57.9%
2003
69.3
204.6
68.2
75.9
11.3%
106.9
56.6%

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.

    
Exhibit 8-6

Average Annual Investment Requirements Versus Current Spending 1995, 1997, 1999, and 2002 C&P Reports
 
REPORT YEAR RELEVANT COMPARISON PERCENT ABOVE CURRENT SPENDING
COST TO MAINTAIN HIGHWAYS & BRIDGES (LOW SCENARIO*) COST TO IMPROVE HIGHWAYS & BRIDGES (HIGH SCENARIO*)
1995
Average Annual investment requirements for 1994-2013 compared to 1993 spending
57.5%
112.6%
1997
Average Annual investment requirements for 1996-2015 compared to 1995 spending
21.0%
108.9%
1999
Average Annual investment requirements for 1998-2017 compared to 1997 spending
16.3%
92.9%
2002
Average Annual investment requirements for 2001-2020 compared to 2000 spending
17.5%
65.3%
* The investment requirement scenarios are not fully consistent between reports. See Chapter 7 and Appendix A.

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.

Q.
How do changes in the “funding gap” since the 1995 report relate to changes in highway capital expenditures over that time?
A.
The Cost to Maintain gap has decreased from 57.5 percent (based on 1993 data) to 17.5 percent (based on 2000 data), while the Cost to Improve gap has decreased from 112.6 percent to 65.3 percent. From 1993 to 2000, constant dollar highway capital outlays increased by 21.6 percent.
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