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Reason Foundation

The Rising Costs of Construction

Shirley Ybarra
November 6, 2008, 2:26pm

From the St. Louis Post Dispach article (cited here http://www.reason.org/outofcontrol/archives/2008/11/will_we_see_mor.html) another comment is "The situation is being made worse by rising materials and labor costs for highway and road projects. Nationally, materials costs for such projects were up 22 percent in September from the previous year, according to the American Road and Transportation Builders Association, or ARTBA, the industry advocacy group which has already begun clamoring for attention. http://www.stltoday.com/stltoday/business/stories.nsf/business/manufacturingtechnology/story/aa945b4084278421862574f9000fdde5?OpenDocument We have seen this all over the country. Every state department of transportation is facing spiraling costs as their contractors bid on projects as well as budge woes from declining receipts. For example it was reported in Moorhead, Minnesota that Ottertail County maintains 1052 miles of highway and while funding was expected to increase 15% over the next 10 years, the cost of repairing roads has increased 114% over the last 3 years. http://minnesota.publicradio.org/display/web/2008/10/06/roadconstruction/ Other states are experiencing similar price pressure see for example the graph produced by Washington State DOT http://www.wsdot.wa.gov/biz/Construction/CostIndex/CostIndexPdf/CostIndexGraph.pdf In Minnesota, Tom Worke of the Minnesota Chapter of Associated General Contractors said, "If you bid a job in the spring, by the time you actually place the material in September you could see a 50 percent increase in the price of that product" and then "If you are unable to absorb that increase, you are likely to go out of business." Reportedly policymakers are looking at new ways to fund transportation. "State Rep. Bernie Lieder, DFL-Crookston, who chairs the House Transportation Finance Committee, says the gas tax is an outdated funding mechanism which needs to be replaced." Lieder says "it's also time to consider some tough questions, such as whether Minnesota can afford all of its roads?" "There are going to have to be some choices made," Lieder said. "Unfortunately, sometimes part of the choice is made based on traffic volume. You don't have much alternative because the money just is not going to be there. A lot of those roads we have that are low volume, we probably can't afford to keep them in the condition they're in." Public private partnerships and fixed priced asset management maintenance contracts should be a part of the mix. We have written and recommended states consider these a part of the solution many times.

Shirley Ybarra is Senior Transportation Policy Analyst


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