Last year, Gov. Mike Easley unveiled a new road-building initiative called N.C. Moving Ahead! By tapping into approved but never issued bonds, the N.C. Department of Transportation could spend an additional $700 million on transportation projects across the state. A lack of competition in the paving business plus a failure to make fundamental reforms means that the condition of North Carolina roads won’t be moving that far ahead.
Spending a pot of gold
Large pots of government money sitting around not being spent tend to attract politicians with ideas of how to put the funds to use. Such was the case last year with Easley’s proposal to make use of the bonding authority of the Highway Trust Fund.
In 1989 the General Assembly authorized additional gasoline taxes and higher motor vehicle-related fees to fund a series of specially designated road projects. These included partial or complete loops around then seven (now nine) cities, and upgrades on 32 intrastate road corridors. A special account, the Highway Trust Fund, was created to handle the revenues and expenses for these projects. When all the designated roadwork is completed, the additional taxes will end.
The early years of the trust fund were plagued by unrealistic cost and revenue projections, which, when discovered, caused the projected completion date of many roads to slip. To speed things back up, the N.C. DOT sought and obtained approval from the Assembly and voters to issue $950 million in bonds for trust fund projects.
Shortly after the bond issue was approved in 1996, a different problem beset the trust fund: It was taking in money faster than it could spend it. Environmental concerns, and in some cases local opposition, slowed work on several of the projects. Actual construction has not started yet on some designated projects even though 15 years have passed since the Highway Trust Fund was created. Indeed, it is entirely possible that some of the roads envisioned in 1989 will never be built. As a result of these delays, the trust fund never had to issue about $700 million of the bonds.
In February 2003, Easley announced his N.C. Moving Ahead! initiative, which would borrow the remaining $700 million but for different purposes. Under Moving Ahead!, which the legislature approved last summer, the funds would be used for maintenance, modernization, and public transportation. Maintenance, in this context, means repaving and rehabilitating existing highways. Modernization refers to improvements to existing roads.
In contrast to the large-scale projects of the trust fund, Moving Ahead! focuses on more mundane but still critical upgrades, such as widening lanes and shoulders, building turn lanes, improving intersections, replacing substandard bridges, and upgrading traffic signal systems. The largest of the projects is the $ 5.5 million repaving of 22 miles of N.C. Route 41 in Duplin County. The majority of the projects statewide come in at well under $1 million a piece. All work is scheduled for this year or 2005.
A list of all the Moving Ahead! road projects can be found online. There are projects in all 100 North Carolina counties.
Public transportation projects, particularly the proposed light-rail systems in Charlotte and the Triangle, get an extra $70 million from Moving Ahead.
No fundamental reforms
While an extra $645 million for road projects is useful, it does not address the underlying problems that road maintenance is systematically underfunded and that the state allocates its limited resources poorly.
A 1998 performance review of the DOT by the accounting firm KPMG Peat Marwick highlights the state’s inability to adequately fund resurfacing. Throughout the 1990s, the DOT’s own guidelines showed that it should repave about 6,300 miles of road per year. In reality, it could only afford to resurface about 3,900 miles per year.
“The Department has estimated that approximately $194 million would be needed each year to meet its annual pavement resurfacing goal,” the audit said. “However, the average annual funding allocation for pavement resurfacing has remained steady at approximately $93 million between fiscal years 1990 to 1997.”
The situation has not markedly improved since 1998. David Hartgen, a UNC- Charlotte professor of transportation studies, estimates that the state would have to increase spending on resurfacing — never mind other improvements — to $400 million to $500 million a year for five to seven years just to catch up.
Also problematic is where and how the DOT spends its money. The condition of roads in North Carolina is not equally good or bad across the state. Most of the counties with a high percentage of their state-maintained roads in poor condition are located west of Guilford County. Unfortunately, no method currently exists to address this imbalance.
“We don’t use condition to pass out most of the dollars,” Hartgen said.
A lack of competition?
To further complicate matters, the DOT is concerned about a lack of competition for paving contracts in parts of the state. When fewer firms bid, the state ends up paying more for a job. To address these concerns, the department is changing its approach in an attempt to get more companies to bid.
The DOT has focused its attention on the state’s largest repaving contractor, Ashland Paving and Construction. The company won 37 percent of resurfacing contracts, worth a combined value of $70 million, last year.
This year, the state has rejected bids by APAC on seven projects in southeast North Carolina. APAC offered to do the jobs for a combined $37 million; the DOT had estimated that $30 million should have been enough.
As a result of high bids, the DOT has decided to postpone repaving U.S. Route 17 in Onslow County until next year. The department will do patching work as necessary to keep the road serviceable through the winter. The work on U.S. 17 is part of the DOT normal road maintenance efforts and not a Moving Ahead! project.
To encourage competition, the department is changing the scope of a number of projects. Instead of bundling several different tasks into a single contract, the DOT is at times dividing them up in hopes of attracting bids from smaller firms. At other times, it is combining more activities into a single mega-contract in hopes of attracting bids from more distant contractors.
The DOT estimates that when only a single firm bids on a project, the price will exceed its initial projection by 6.5 percent.
In addition, the DOT has asked the U.S. Department of Justice to investigate APAC for possible antitrust violations.
“When you’re dealing with the public’s money and the public trust, you have an obligation to be sure that you’re dealing with a fair playing field,” DOT board member Nina Szlosberg told the News & Observer of Raleigh. “Even if there is the appearance of a lack of competition, it’s important that we investigate it thoroughly and put any concerns that we have to rest.”
APAC denies that it is monopoly.
The exact effect of any lack of competition on Moving Ahead! projects is as yet unclear. However, the project mix in southeastern North Carolina leans towards repaving projects, making it likely the issue will come up in the future.
Lowrey is a Charlotte-based associate editor for Carolina Journal.