A heavy highway construction industry lobbying group's Transportation Gridlock Clock is at 926 days and counting -- now that Congress has passed its ninth three-month extension of the federal highway bill.
The American Road & Transportation Builders Association (ARTBA) launched the gridlock counter to draw attention to the time that has elapsed since the expiration of the last multiyear surface transportation reauthorization law. The group argues that bad roads are bad for the economy, since they result in lost productivity, income, and trade.
In a report released last week, "Increasingly Unpredictable Federal Funding Could Stall U.S. Transportation Infrastructure Projects," Standard & Poor's analysts warned that even though "transportation infrastructure is the backbone of the US economy," federal funding for it is "discretionary." Since the start of the last recession, state and federal funding for transportation infrastructure has become increasingly unpredictable, resulting in a domino effect of severe consequences for the economy and public safety, the report says.
The failure by Congress to pass a long-term spending bill to finance the nation's infrastructure is both comical and tragic. Whatever side of the fence you may sit on -- whether you want to slash transportation funding in light of budget woes or you advocate increased spending to repair the nation's crumbling infrastructure and create jobs -- I doubt many can defend the actions (or, more accurately, the inaction) of either political party on this issue.
Congress could actually surpass the three-year ineptitude mark, or 1,095 days on the Transportation Gridlock Clock, unless it passes a multiyear reauthorization of the $286 billion Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which expired Sept. 30, 2009. Since then, Congress has failed to come up with a proposal that could be endorsed by the dysfunctional collection of lawmakers in the House and Senate. Instead, we've received a series of stopgap extensions.
The House and Senate passed the ninth such extension late last month, and President Obama signed it into law March 30. The extension averted -- by one day -- a shutdown of the federal transportation system that would have put nearly 2 million construction jobs at risk. With the latest extension in place, Congress has until June 30 to come up with a highway funding bill.
The combatants in the next presidential election look set, so my confidence that lawmakers will allow one side or the other to take credit for breaking the gridlock and finally adopting a multiyear bill is pretty low.
Right now, the two sides appear miles apart. On March 14, The Senate passed the Moving Ahead for Progress in the 21st Century (MAP 21) bill, which calls for $109 billion in highway and mass transit spending over the next two years. The measure, which passed by a 74-22 margin, would keep funding for roads, bridges, and mass transit at their current levels.
The House had been wrestling with a controversial proposal for $260 billion of federal highway spending over five years. However, the GOP could not muster enough support from its own party to put the measure up for a vote. The Obama administration has floated a six-year funding plan worth $476 billion, but it has really not garnered much support in Congress.
Why should investors care? Quite simply, the failure of Congress to pass a multiyear highway spending plan has direct consequences for the economy. John Horsley, executive director of the American Association of State Highway and Transportation Officials, said in a press release that only a multiyear measure "will remove the uncertainty that is already causing a number of state departments of transportation to delay billions of dollars worth of highway projects that would otherwise create hundreds of thousands of American jobs."
The Transportation Construction Coalition, co-chaired by the ARTBA and the Associated General Contractors Association, expressed similar concerns. In a joint release, the organizations said they were growing frustrated over the failure to pass legislation "that improves the flow of commerce and promotes economic growth." The construction industry continues to struggle with chronic unemployment, the groups said, and the delay in long-term transportation funding prohibits the industry from expanding its workforce and investing in new equipment.
And that is affecting many transportation-related stocks. Take Caterpillar Inc. (NYSE: CAT). Shares of the Peoria, Ill., manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines had climbed from a low of $67.54 in October to more than $116. But market sentiment reversed last month after the company released revised earnings guidance for 2012. Caterpillar dropped its sales target from around $70 billion to a range of $55 billion to $60 billion.
The stock was one of the biggest decliners in the Dow Jones industrial average on Monday, dropping 3%. The shares dipped below $100 Tuesday before rebounding on word that the company was maintaining its dividend.
Industry analysts concur that increased infrastructure spending could help construction equipment makers like Caterpillar boost domestic growth. However, the analysts also warn that uncertainty over federal legislation is holding stocks back.
The most recent McGraw-Hill construction forecast says that, after a 16% decline in 2011, public works construction is expected to drop another 5% this year. This is primarily because of spending cuts and the absence of a multiyear federal transportation bill for highway and bridge construction, McGraw-Hill says.
It appears that the Senate majority and Democrats in the House favor the MAP 21 bill. It is unclear if Republican members of the House will look to compromise on the Senate-passed bill or continue to work on the bill crafted in the powerful House Transportation and Infrastructure Committee, which is chaired by Rep. John Mica, R-Fla.
It remains to be seen if our representatives surprise me and think out of the box for once to craft meaningful legislation that helps rebuild our infrastructure and ignite our economy. For 926 days and counting, they have acted like combative schoolchildren who want their own way. Let's see if they grow up in the next 90 days and remember why they were elected.