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Paying it forward

The recent surge in gasoline and diesel prices is certain to reverberate throughout the transportation sector in the months and years ahead

By Kathryn Buxton

The day gasoline crossed the $4-a-gallon threshold signalled a major shift for the transportation industry. The news media focused on the pain consumers were feeling at the pump, and consumers continued finding ways to cut their driving with carpools, bikes, vanpools and public transportation – in short, driving 1.8 billion miles less nationally than in April 2007. That was a total decline of 30 billion miles in the six months from November 2007 to April 2008 (a 1.7 percent decrease over 2007). Businesses scrambled to adjust to skyrocketing fuel costs. Government agencies, including the Maine Turnpike Authority and the MaineDOT saw the results of careful long-term planning walk out the door.

“Revenues are down and costs are going up – that’s what we’re dealing with,” said Peter Merfeld, Maine Turnpike Authority chief operating officer.

The Turnpike Authority had sounded a warning bell in the week leading up to Memorial Day, when University of Southern Maine economist Charles Colgan released his forecast for holiday travel based on turnpike vehicle counts. Colgan heads USM’s Center for Tourism Research and Outreach (CENTRO) and he predicted that after years of steady increases in the holiday weekend traffic, Maine would see a 3.5 percent decrease at the York Toll Plaza. The culprit was gas prices that were 22 percent higher than the year before.

Colgan’s prediction was pretty close: actual traffic at the turnpike’s gateway toll plaza was off by almost 3 percent. And while CENTRO’s forecasting focuses on tourism trends, Colgan says no crystal ball is needed to see how gas prices are going to affect Maine’s overall economy – and its transportation sector in particular.

“The basic conclusion is this: people are driving less,” Colgan stated simply. “They are using less gas and diesel and, therefore, fuel tax revenues are going to fall.”

Falling, but how far?

According to the Maine Revenue Service, Highway Fund receipts were down by an estimated $1.8 million through the end of May. On its own, that figure would not likely grab headlines. But according to Marc Cyr, principal analyst for the Office of Fiscal and Program Review and a member of the state of Maine’s Revenue Forecasting Committee, the real news is that the lion’s share of those declining revenues – $1.1 million – came in just one month – May, when gasoline and diesel began its precipitous climb in price. In fact, fuel tax receipts, which make up the majority of Highway Fund revenues, were ahead by $600,000 by the end of April, making the drop in fuel tax receipts even more notable.

“That [drop in revenue] certainly is going to be an issue for the Highway Fund if the trend continues,” said Cyr. He said the fall off will likely be discussed the next time the revenue forecasting committee meets in August, although the real forecasting work will be done at the group’s meeting in early 2009.

 “The gorilla on the block is the price of oil and trying to predict where that will be next year,” said Cyr. That has not been so easy lately, he said. Last year, all indications were that prices would level off. The recent steep increases have caught everyone off guard.

 USM’s Charles Colgan believes that gasoline is currently “overpriced,” and that it eventually could fall back to about $3.50 per gallon. That could signal a return to a semblance of normalcy. Yet Colgan notes that the writing is on the wall for the Highway Fund, while user fees will continue to give the Turnpike Authority a more predictable income stream.

“At $3.50 a gallon gas, we’ll drive more, but we’re going to be driving more fuel efficient cars,” said Colgan adding that, even with Maine’s fuel tax indexing, revenues will not be able to keep up to the demand for highway and bridge maintenance.

Pat Moody of AAA Northern New England said his organization is seeing its membership struggle with high gas prices. Out-of-gas calls to AAA’s road service have skyrocketed. People are also looking for more cost-efficient transportation. “We operate a motorcycle driving school, and before we used to average eight people per class,” said Moody. “For the past four months, we’ve had 24 people in every class.”

$4 fallout

How higher gasoline and diesel prices are paying forward can be seen in increased costs at the job site where fuel isn’t the only commodity that’s on the rise. Asphalt has nearly doubled in price since 2006; the current market price for asphalt is hovering around $90 a ton. Steel prices are on the rise as well, driven up by increasing demand worldwide.

Doug Hermann of Wyman & Simpson, Inc., said he has seen prices skyrocket on the highway and bridge projects his company is working on this summer, including the Mayall Road Bridge on the Maine Turnpike. “H-pile is double from a year ago and sheet pile has doubled, too,” said Hermann. Concrete reinforcing steel has increased in price substantially, and, of course, that has had a big impact on job costs.

“We’ve got equipment that burns 100 to 200 gallons of fuel a day – excavators, loaders and pile driving equipment,” said Hermann. With all of the material cost increases, estimating jobs has become more difficult, particularly on rehab projects where the contractor can’t lock in materials at the bid price.

“You can’t buy the stuff ahead of time, and a lot of times you don’t know exactly what you’re getting into,” said Hermann.

For MaineDOT and the Maine Turnpike Authority, those cost increases are far and above anticipated increases allowed for in their long-term plans. For the turnpike, that has meant instituting some cost saving measures on the paving contracts currently underway. The authority typically repaves 7.5 miles every year, and this year is no different.

“This year we’re not milling out the entire width of the highway. We’re only milling the travel and the passing lanes,” said the turnpike’s Peter Merfeld. He added that the Turnpike Authority has been working with MaineDOT paving experts and is now specifiying a finer asphalt mix at a depth of 1 ½ inches that promises to help contain costs. Previously, the turnpike has specified a coarser mix at a depth of 2 inches. This summer the turnpike also has seven bridge projects in the works, and Merfeld said the agency was lucky to have bid the projects early enough to lock in lower steel prices. He said that the turnpike board and staff are already looking ahead to 2009 when the full impact of this inflationary cycle will be felt.

“We’ve never seen anything like this before. It’s unprecedented,” said Bruce Van Note, MaineDOT deputy commissioner for operations and budget. Like others, he said, MaineDOT is watching to see what continued effect the market will have on fuel tax revenues and will incorporate that into the planning for the coming biennium that is already underway.

The “good news” according to Van Note is that, with leadership from Governor Baldacci, the legislature has already begun the move to new funding sources during the past two sessions. He said the department has been able to get seven highway construction projects into the pipeline, projects that had been put on hold because of recent Highway Fund shortfalls. The bridge bill, passed this spring, is another bright light. It means that there will be $40 million more per year available over the next four years ($160 million total) to begin tackling the state’s enormous backlog of deficient bridges.

“But for those two things, the highway construction picture would be considerably more bleak,” said Van Note.

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