The perfect storm
A combination of market forces brings Maine’s transportation system to an historic crossroads
Ask anyone in the transportation field about the challenge of budgeting the funds to maintain Maine’s highways and bridges, and you likely will get the same answer: “We’ve never seen anything like this before.” What engineers and planners are referring to is a perfect storm of circumstances that has arisen during recent months: high fuel prices, skyrocketing construction costs, a financial market meltdown and a downturn in vehicle miles driven.
At MaineDOT and the Maine Turnpike Authority, those circumstances have made efforts to program highway maintenance and reconstruction projects challenging at best. The first dramatic outcome from this market turbulence was MaineDOT’s announcement in late August that it was suspending its 2008 paving program due to fast-escalating asphalt prices – liquid asphalt prices had climbed from $307.50 per ton in January to $765 per ton in early August.
Rising construction costs “did kind of catch us by surprise,” said MaineDOT Deputy Chief Engineer Ken Sweeney. “I don’t know if anybody could have predicted the run-up in prices that we experienced earlier this year.” By August 12, when the department made its announcement, escalators built into MaineDOT paving contracts had kicked in, causing the state to burn through $105 million of its planned $107 million paving budget for the 2008 season. In a typical season, the department puts aside $3 million for contingencies such as contract escalators. This past summer, Sweeney estimated, there were between $10 million to $20 million in overruns associated with increased costs for asphalt and fuel.
Sweeney said that the decision to shelve $13.6 million in paving projects – representing about 85 miles of highway – is part of a wait-and-see strategy. By mid-September, liquid asphalt had dropped to about $712 dollars per ton and was likely to fall more by year’s end. Still, Sweeney believes that wherever prices end up, they will be much higher than they were in January 2008: how much higher is the big question.
“We don’t know if we now have a new bottom…whether $750 a ton is going to be the new price or whether it will go down more and stay down,” said Sweeney.
While MaineDOT’s Sweeney talks about “a new bottom,” Maine Turnpike Authority Chief Operations Officer Peter Merfeld describes his agency’s work to establish “a new baseline” as it adjusts to higher maintenance costs.
The budget issues facing MaineDOT are mirrored at the turnpike, although the turnpike’s situation has been amplified in the short term by a drop in highway travel. In August alone, travel was down by 6 percent; the first two weeks of September showed an even sharper decline. With falling traffic comes falling revenue, and even though the typically conservative organization had planned for only moderate traffic growth (+2 percent), it is now faced with decreasing revenues for the first time in its 61-year history. That has led the authority to trim its 2008 and 2009 operating budgets significantly.
While some of those savings have come from streamlining operations, E-ZPass efficiencies and the reduction of staffing through attrition, the authority also has reduced the scope of several projects, according to Merfeld. “We’ve eliminated some contingencies and are only doing what we need to get done,” said Merfeld.
That means the authority will continue to repair and replace its aging stock of bridges in the northern section of the turnpike – bridges that were built before the advent of the interstate and modern bridge design standards. But in many cases, the emphasis will be on repairing bridges rather than rebuilding them.
“We’re looking at them and saying ‘Is this a safety hazard?’ and if not, we’re not spending the money,” said Merfeld. He also noted that a $2 million reconstruction project planned for a 1.5-mile section of road in Wells this fall has been sidelined. Instead, Merfeld said, contractors will lay down a maintenance layer of asphalt that will buy some time before that piece of road can be rebuilt. The retooled price for that project? Approximately $100,000.
While cost-cutting has helped ease some budget pressures, “there’s only so much we can do without reducing levels of service,” said Merfeld. (He was quick to add that the announcement this fall that the turnpike was planning to delay widening of the highway in Portland was not a budget-driven decision. That is, he said, a function of lower than projected traffic volumes.)
In the coming months, as the authority and the legislature look ahead to 2010, the authority envisions an operating budget that is likely to be lower than the one approved for 2009 due to the drop in revenues. This is what Merfeld calls a “new baseline” with high energy prices continuing to place upward pressures on operating and maintenance costs – and keeping traffic and revenues trending down. As revenues drop though, and energy prices continue to climb, the turnpike may have to enact additional cuts in other areas .
“Nobody knows what’s going to happen,” said Merfeld. “At best right now, it’s a guessing game and we’re looking at a new baseline – not necessarily a worst case scenario – but keeping in mind that energy costs are not likely to go down” to pre-2008 levels.
Still, unlike MaineDOT, the turnpike is structured on a business model with a board of directors and a charter that protects the investment of its bondholders. That charter was approved by the Maine Legislature in the 1940s, and throughout the years it has served to protect the safety and efficiency of the highway. “The turnpike is part of the interstate system and even though traffic is down this year, we have to remember that millions of people and businesses rely on this road. We have to maintain this highway to a reasonable standard. We don’t have a choice,” said Merfeld.
Maintaining Maine’s highways is the goal at MaineDOT as well, and Sweeney expressed hope that the department would be able to resume its paving program next year. He said the department, though, will be keeping a close eye on asphalt prices and, if they rise again, will be ready to adjust its paving programs accordingly. “If the price [of liquid asphalt] jumps to $900 or $1,200 per ton, we’ll be in the same predicament,” said Sweeney. “We only have so much money.”