At first glance, the forecast for the year ahead calls for clear skies.
Inflation and interest rates remain relatively low. State and local tax revenues are up.
Fed up with traffic congestion, in November voters in 14 states agreed to $40 billion in new or higher taxes and bonds to build and maintain streets, roads, and bridges. Initiatives passed not only in the largest states (such as California, where voters approved a state-record-breaking $20 billion bond issue), but also in those with declining populations (like New Jersey, where voters approved a gas-tax increase expected to generate $78 million annually).
Also late last year, Texas became the first state to be allowed to use private-activity bonds to raise money for highway projects under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), the five-year, $244 billion surface-transportation guaranteed-funding legislation President Bush signed into law in 2005. Under SAFETEA-LU, states can issue and transfer to private companies up to $15 billion in tax-exempt bonds; Texas is using the provision to raise almost $2 billion.
The Bush administration has allocated $400 million this year to the Department of Homeland Security's Infrastructure Protection Program, and after factoring in material costs and inflation, the American Road & Transportation Builders Association expects highway and bridge construction to grow 1% to 2%.
But dig a little deeper, and the outlook gets murkier.
Though price increases have slowed, asphalt and cement remain prohibitively expensive (see article on page 29).
To balance their budgets, many states are cutting shared-revenue programs to local governments, prompting them, in turn, to reduce the amount of general funds available for public services—or, rather, public works, as police and fire remain politically immune to spending cuts.
In addition to accounting for retiree benefits, a Government Accounting Standard Board (GASB) rule that requires public employers to reveal the full future cost of retiree health care—not just this year's cost—went into effect Dec. 15. According to The Economist(Nov. 18, 2006), many states can barely meet their pension requirements, much less retirees' health care costs.
User fees also are under attack, especially from the telecommunications industry, which is a vital source of permitting fees.
According to a national coalition of cities, counties, and finance officers, state and local governments nationwide could lose up to $8 billion a year in revenue if a bill that would exempt some telecommunication services from taxes and user fees (including right of way fees) becomes law this year.
Even if the measure fails, fees for other services—like water—are under pressure from states that have imposed levy freezes that prevent rate increases.
To get a handle on how public works departments are being financially supported in their efforts to care for the infrastructure, both on a day-to-day level as well as for major improvements, we asked readers in early November to share their 2007 budgetary expectations. We received 440 responses, a 1.4% response rate.
We also asked readers what activities represent the greatest challenge for their department this year. Water, wastewater, and stormwater issues edged slightly ahead of streets, roads, and bridges—not surprising, given the age of much of the nation's sanitary sewer systems and federal regulations that are prompting communities to establish utilities to pay for required improvements to stormwater systems.
Also not surprisingly, larger communities are receiving larger budget increases.
While parks and recreation are often the first to go when general funds get low, staffing in all departments is becoming increasingly difficult. Salaries aren't high enough to attract and keep talent, departments face hiring freezes that force overtime (sometimes without pay), and positions aren't being filled after workers retire.
To continue providing quality service with fewer bodies, many departments are outsourcing non-core activities—but they're not always satisfied with the results. “Contractors do a good or adequate job in the beginning of the year but become less effective as the year goes by,” says one respondent from the Midwest. “They take their work for granted.”
Design-build, a project-delivery method where a single entity is responsible for both designing and constructing a project, was mentioned by respondents in almost every region of the country as a way to manage costs. Most states have passed or are considering legislation that alters procurement statutes to allow public agencies to enter into design-build contracts. Only seven states—Alabama, Indiana, Iowa, Kansas, Michigan, Rhode Island, and Wyoming—lack such legislation.
In the end, respondents were sanguine about their role in delivering public services, as evidenced by the one who said, “Things will be what you make of them.”