WASHINGTON— Fitch Ratings says the United States is downshifting just as President Obama is expected to include transportation spending as a major part of the job creation program he will present to Congress Thursday night.
Both the slowing economy that Fitch was concerned about in a report it issued Wednesday, and the lack of a clear transportation policy from Washington, are creating substantial uncertainty for state and local officials as they contemplate planning and financing new projects.
“It is actually true that we are seeing transportation agencies backing away from the market, so if there’s a need to issue debt or finance I think people are being a little bit more cautious in this environment,” said Will Kempton, chief executive officer of the Orange County Transportation Authority in California.
Interest rates are attractive and construction bids are running 10% to 20% below what they were in better times, “but the long-term picture and whole prospect of increasing your debt load at a time when there’s so much uncertainty” is a real deterrent, Kempton said.
President Obama has been clear in recent speeches that transportation spending will be a major part of his jobs plan. But the White House has been coy about specifics.
“If I’m perfectly honest with you I still don’t know what he’s going to talk about — that’s the problem,” complained Janet Kavinoky, executive director of transportation and infrastructure for the U.S. Chamber of Commerce.
Market participants have heard the president will unveil a $200-300 billion package with about $50 billion for transportation. Where he will find the money is subject to speculation. Some sources said the plan will be paid for with spending reductions in other areas, or that he may ask Congress to offset the cost by raising tax revenue in later years.
Despite all the criticism of optimistically-labeled “shovel ready” projects in the Obama stimulus program, “those dollars, that investment, did produce job returns,” Kempton said. Orange County got $200 million and “put it to work right away,” he said.
Transportation accounted for about $43 billion out of the $787 stimulus bill. But those funds have been spent and now Obama has a real “show me the money problem,” said Joshua Schank, CEO of the Eno Transportation Foundation. “The money’s not there and until you fix that problem — until you address that problem all these speeches are kind of meaningless. And he’s going to have to take more of a bold stand on revenue.”
Fitch’s economic analysis suggested bold stands on revenue could be problematic. The agency tracks airports, bridges, toll roads and tunnels across its ratings portfolio.
Its data showed traffic falling as much as 10% year over year during the Great Recession. Growth resumed again in February 2010.
The most recent Fitch data indicated that growth in traffic volumes began slowly declining on tolled facilities and was headed toward zero growth for the second quarter of 2011.
Fitch analyst Tom McCormick said the report is not a full-fledged warning. “Essentially it’s an observation that says, look, you can see that there is some slowing economic growth and it’s reflected in transportation data. It doesn’t say, look, we’re headed to a double dip. It does say that we are slowing down.”
McCormick believes Fitch’s ratings have built in an appropriate amount of economic uncertainty so that current ratings don’t need to be changed. Most public infrastructure facilities should be able to weather little-to-no-growth scenarios over the next three to five years. But a second recession would put heavy pressure on bond issuers.
“They just went through cost-cutting to get through the last one and manage their finances, and you would go through a second cycle of that,” he said.
Transportation agencies worry as much about political as economic uncertainty.
“Right now states are looking at their five to seven to 10-year plans and seeing complete uncertainty from the federal government. You cannot have a pipeline of projects ready to go if you ... don’t know where a chunk of capital is coming from,” Kavinoky said.
That problem goes back to 2009 when the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA-LU, the last long-term transportation bill, expired.
Congress and the White House have been unable to agree on a replacement since then. Instead, transportation funding has been subjected to 20 short-term extensions.
“I think he’s going to have to come up with a longer term sustainable funding program,” says Ken Graham, CEO of HNTB Infrastructure.
Some sources think that an infrastructure bank will be part of the Obama program. It would make low-interest loans, and possibly grants, to infrastructure projects. But Eno’s Schank thinks that’s not going to be in the president’s plan on Thursday.
“I think he realizes that he’s not going to win that battle,” he said. “You’re not going to get Congress to say let’s put a bunch of money into a pot and let the president or the administration decide where that money’s going. That’s not going to happen.”
Nor could a bank be created and put into operation quickly, he added.
It’s not clear anything will happen quickly. Thursday morning, Sen. Barbara Boxer, D-Calif., plans to try to get the Environment and Public Works Committee that she chairs to approve a four-month extension of funding.
House Transportation committee chairman Rep. John Mica, R-Fla. hasn’t committed to any extension plan.
House Majority Leader Eric Cantor, R-Va. on Wednesday responded to Obama references about giving states more flexibility.
“Right now there is a requirement that states set aside 10 percent of the monies they get for things that are not related to vehicular transportation,” Cantor said. “Maybe we ought to lift that set-aside requirement and allow for the states to spend the money that they think is needed for their transportation requirements.”
Many House Republicans are want to eliminate bike and pedestrian project funding, but Cantor didn’t specify whether he would try that in a legislative extension or a long-term bill.
“We as the industry have to be ready to react or act when this very partisan approach to transportation” finally produces a result, said HNTB’s Graham. “At some point things will align and things will come together.”
Time is short for Congress to come together on a comprehensive bill before the 2012 elections.
“If the president comes out strong and says here’s the revenue, here’s the accountability, here’s the purpose, now Congress here’s the plan, you do it, there’s a shot that we could do it, get this done,” said Schank. “If he comes out and just says we should be investing more in transportation because it creates jobs, then that’s more of a campaign speech, that’s not a real call to legislative action.”
