A transportation wave of delays, cancellations begin amid budget cuts

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Billions of dollars worth of transportation projects are being delayed or canceled across the country as state and local governments make spending cuts due to the coronavirus pandemic.

Fourteen states and 19 local authorities have delayed or canceled road, transit and airport projects worth $8.58 billion, according to a report released this week by the American Road and Transportation Builders Association.

Alison Black, senior vice president and chief economist at ARTBA writes a weekly report on the impacts of COVID-19 on state and local transportation revenues and projects.

This comes as state and local governments have or are putting together budgets for fiscal year 2021 and are reassessing what and how to spend on infrastructure, with some sources saying it will likely be one of the first areas to be cut.

“Per the budgeteers we’ve talked to and state and local officials, effectively one of, if not the first area that’s going to get cut on the state and local level is going to be infrastructure projects,” said Adie Tomer, a fellow at the Brookings Institution.

That could mean delaying or canceling maintenance projects as well as long-range capital projects. Tomer said government officials will not cut income assistance or food assistance and said education is notoriously difficult to cut from budgets, leaving infrastructure the last man standing.

“You could make a valid argument that a road filled with potholes can still work, it’s just not ideal,” Tomer said.

It is ideal for localities to save money in the near term and at the very least cut infrastructure capital projects because of uncertainty around travel demand, said Marc Scribner, senior transportation policy analyst at the Reason Foundation.

“It’s a fairly logical response to take a hard look at what they were planning in terms of capital projects and at the very least delay those until they have a better idea of whether or not people will actually be using this infrastructure,” Scribner said.

Scribner is seeing a general trend of project delays due to COVID-19, and said states and local governments are hoping for another round of federal aid.

The Coronavirus Aid, Relief and Economic Security Act — the CARES Act — gave $150 billion to state and local governments and was passed in March. Transportation groups are still hoping to get more federal funding. This week, Senate Majority Leader Mitch McConnell committed to enacting another coronavirus rescue package later this month.

If the federal government does come to the rescue, Scribner expects projects that were initially thought to be delayed will get ramped up.

“At least until we see more certainty from what the federal government is going to do this year, I think the general rule of thumb is to delay a lot of these capital projects,” Scribner said. “It might be a great time to do maintenance if people aren’t using these facilities as much and you could potentially have more time to do it and be less destructive if we had normal travel activity.”

Kevin DeGood, director of infrastructure policy at the Center for American Progress, expects tens of billions of dollars of cuts from states’ departments of transportation in the immediate and long term.

If governments already signed contracts and are in the construction phase for infrastructure projects, they will finish out that work. However, they may hit pause on longer-term projects, DeGood said.

DeGood also noted that some issuers may decide to issue less debt because they don’t know how their revenues will pan out. Some infrastructure projects are backed by sales tax revenues, which have decreased significantly due to the pandemic.

Alison Black, senior vice president and chief economist at ARTBA, said some states and localities will continue to use bonding as a tool due to low interest rates.

“However those do have to be paid off with future revenue streams,” Black said. “So if you’re looking at a prolonged economic downturn, you’re really tying up your future resources.”

In New Mexico, the state legislature passed a budget that would authorize $75 million in transportation bonds for its state department of transportation. However, lawmakers reduced general fund appropriations for major road projects by $45 million.

Some states have taken a different approach, such as the Arizona State Transportation Board, which is likely to defer $155.5 million in planned bond issuances, accounting for $540.4 million in projects, according to ARTBA’s report.

Black does see some states pulling back their general fund money which would go toward transportation projects, but noted that the general funds are a small part of transportation budgets.

“You’ll see states and local governments dealing with this in different ways,” Black said. “Certainly for local governments, they are very much more dependent on sales taxes, property taxes, that revenue base. So we are seeing, some local areas pulling back on infrastructure.”

Black also hasn’t noticed many states borrowing from the federal government’s Highway Trust Fund. The HTF, funded by gas taxes, has depleted over the years. Its existing funding is set to expire in September.

If states do use HTF money, they are setting it up with some sort of additional bonding capacity. During the last economic downturn in 2008, states did the opposite and raided the HTF, Black said.

The difference between the two economic downturns is how the revenue impact has hit the HTF now since fewer people are on the road and contributing to gas taxes.

“In 2008, there was definitely an economic slowdown and you did have, as people lost their jobs, there was an economic impact in terms of people filling up their gas tanks,” Black said. “It is not like what we are seeing in this pandemic, which is hitting transportation revenues in a very different way than we tend to see in a general economic slowdown.”

States are also pulling back state-funded projects and during an economic downturn tend to pull back on their grants to local governments, Black said.

In April, North Carolina’s DOT faced a $300 million budget shortfall for its fiscal year ending June 30, according to ARTBA’s report. All but 50 major projects scheduled to start in the next 12 months will be delayed. Those projects are financed by bonds and federal grants.

Ballot initiatives are also taking a hit and are being postponed. According to ARTBA, 10 states and regional authorities have vetoed, canceled or postponed legislative initiatives or ballot measures related to transportation funding worth $132.8 billion.

Overall, Black is not seeing as many canceled projects as expected.

“A lot of states are trying to wait and see how long this lasts,” Black said. "If we recover and the economy starts to get moving sooner, that’s a different scenario than if this is a prolonged situation.”

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