How Highway Funding Works
Understanding how highway funding works can be a Herculean task. To do so, one must go back about 50 years, when motorways first started becoming a necessity in the United States.
Road infrastructure in the US has been funded by the Highway Revenue Act since 1956. This process is commonly referred to as a highway trust fund. Commonly believed to only deal with roadways, the trust fund also pays for public transit systems, traffic mitigation and other highway essentials such as safety signs.
Motorists pay federal fuel tax (about three cents per gallon) to help maintain and sustain federal roads and highways. Initially, this tax was extremely efficient with increased motor vehicle use and slight increases in federal tax to address inflation issues. However, by 2008, the trust fund started running out. This was due to a number of factors, which including a shrinking economy.
In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) authorized federal spending on new programs to address the gap left by a shrinking economy to allow development and maintenance of surface transport in the United States. Currently, the federal government funds around 50% of the total highway market for asphalt companies. In turn, this comprises around 70% of the total asphalt business. The other 30% falls under private enterprises, such as real estate, commercial building or residential roadways. The asphalt industry is also highly fragmented, so smaller companies often focus on smaller contracts.
To fund a highway, Congress must first approve a bill. This bill establishes programs and funding for states. MAP-21 authorizes the funding per state and the Department of Transportation (DOT) will provide funding tot. In 2014, this reached about $40 billion to be allocated to programs like highways, congestion mitigation and safety, among others. The Department of Transportation authorizes the total funds per program and informs the state of the allocation.
Once this is all set, Congress must then pass a second bill known as an appropriations bill. This bill is basically an order to the government to “pay” for highway projects and to look for contractors for approved projects. These contracts are known as obligations. Some obligations fall after these dates, and thus contractors may get paid in stages.
Funding and the “obligation” dates usually fall within a date, and once it’s authorized, work on projects can begin or continue. The DOT normally uses the Highway Trust Fund to pay the states. For asphalt contractors and producers, this means that the DOT normally pays for ongoing projects first. Obligations also allow the DOT to authorize new projects once the obligation is fulfilled. Since majority of large construction work comes from the government, this often means that large asphalting contractors bill the state for work done directly to get paid with federal funds. Currently, federal funding for transportation systems is still an issue in the US.