US House mulls doubling of highway spending

08 May 2008 19:30  [Source: ICIS news]

WASHINGTON (ICIS news)--The US House on Thursday began looking for ways to fund a two-fold jump in federal spending to $311bn (€202bn) annually to make necessary repairs and improvements to US highways and other transportation infrastructure.


Such a major increase in federal funding for roads, highways, bridges, mass transit and freight rail would represent significant demand growth for the US chemicals sector. 


A joint hearing held by the House Committee on Transportation and Infrastructure and the Budget Committee took testimony indicating that current US federal transportation infrastructure spending of some $106bn/year would have to be increased by $126.5bn just to make needed repairs across the country. 


According to Peter Orszag, director of the Congressional Budget Office (CBO), another $184.8bn would be required each year over several decades for expansion of highways and other transport infrastructure needed to ensure that the expanding US economy can continue to prosper at home and compete globally.


Current federal spending on roads, highways, rail and waterway infrastructure is funded by an 18.4 cents/gal tax on gasoline and a 24.3 cents/gal tax on diesel fuel.  Both tax rates have been unchanged since 1993.


Orszag said that to meet just part of the new infrastructure spending needs, the gasoline tax alone would have to be raised to as much as 40 cents/gal and that other fees - such as peak congestion road tolls - would have to be instituted.


Raising gasoline taxes would be a tough sell for Congress at a time when voters are already clamouring over the high cost of fuel.


If it can be funded - and Orszag said the US has no option but to do so - annual federal spending of some $300bn on transportation infrastructure improvements would drive increased demand for a wide range of chemicals and chemicals-based products, including construction materials, adhesives and sealants, concrete additives, paints, coatings and polymers, foams and insulation, among others.


According to the American Chemistry Council (ACC), construction activity generates about $8 in spending on chemicals and chemicals-derived products for every $1,000 of expenditure.


Indirect construction spending on chemicals-related products may be twice that amount.  For example, concrete work typically requires large supplies of plywood forms, and plywood production consumes a lot of methanol derivative formaldehyde.


Based on the lower average of $8 of chemicals consumption for every $1,000 of construction spending, an increase of about $232bn in annual federal highway spending would generate some $1.85bn yearly in additional chemicals-related demand.


The House has just begun consideration of infrastructure funding needs, and no decisions on tax increases are expected until next year - after the US national elections in November.


($1 = €.65)


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