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Pennsylvania’s ACT 89: One Year Later

26 Feb 2015

As originally seen in Asphalt Contractor.

Pennsylvania has been the poster child for transportation issues facing the United States. A recent 60 Minutes episode highlighted the state’s bridge ailments. The American Society of Civil Engineers, in its 2014 Infrastructure Report Card for Pennsylvania, gives the state’s bridges a D+ and its roads a D-.

And yet, many states could be looking at Pennsylvania as a role model: Pennsylvania is one of the few states to step up and pass legislation to address its road and bridge woes. ACT 89 went into effect on January 1, 2014 – and in the one year since the legislation has become law, there has been progress made in reducing the total number of structurally deficient bridges, improving overall roadway quality, and growing the construction industry and improving the business climate. In this article, we’ll take a look at the legislation and the improvements it’s made in its first year.

What is Act 89?

At its core, Act 89 is a user fee increase that will generate an additional $2.3 to $2.4 Billion annually by its fifth year. The legislation kept access fees (registration/license) low and instead focused on user consumption. It eliminated the flat gas tax of 12 cents charged at the pump and rolled it into the Oil Company Franchise Tax (OCFT) charged at the wholesale level. It also removes the artificial cap on the OCFT over the course of five years. The legislation also included provisions that may allow for additional flexibility, such as counties enacting a $5 registration fee for highway and bridge projects – but it is largely tied to the gas tax, which had not been adjusted in Pennsylvania since 1997 (as a reference, the federal gas tax has not been adjusted since 1993).

As states across the country wrestle with how best to generate new funds for highway maintenance and construction, user fees – through tolling, fuel- and vehicle-related taxes or registration fees – are generally seen as the most practical. Gordon Denlinger, a State Representative (R – Lancaster County) at the time Act 89 was passed, attributed the success of the bill to a bipartisan effort and recognition by some who are generally against revenue increases that this is necessary investment.

“There are times when elected officials, including those who like myself squeeze the nickel pretty hard, need to accept the responsibility of governing, display some guts, and move the [transportation] ball forward,” said Denlinger. “Responsible leadership means letting go of some of those sacred cows and taking a serious look at the true needs that are out there – needs like public safety and economic growth.”

Even with the new “user fees”, Pennsylvania residents have not been hurting at the pump. One year after the legislation was signed into law, the price of gas has actually dropped due to lower oil prices. Regular gas cost approximately $3.38/gallon on November 26, 2013. That same gallon of gas costs approximately $2.96/gallon exactly one year later.

“So far there’s been a net increase of zero — gasoline prices are lower today than they were when the bill was passed,” says Jack Mills, owner and president of Plum Contracting. “People are happy. They’re getting all this work and all this money and these better highways and bridges, and it hasn’t really cost them any more.”

Progress One Year Later

The effects of Act 89 are already taking shape. PennDOT reports hundreds of new projects – spanning everything from rail and aviation to roads and ports – have been made possible by Act 89. A particularly harsh winter expedited investment in the spring to fix potholes and buckled pavement. A provision that allowed the state to bond up to $500 Million allowed PennDOT to bond $150 Million to expedite repairs, and that aggressive approach has put the state ahead of where they thought they would be just one year later.

“We’re probably going to deliver between $2.3 and $2.4 Billion of improvements this year, which is about $250 Million more, depending on where we come in at the end of the year, than we initially estimated and promised,” says Pennsylvania Transportation Secretary Barry Schoch. “So I would say not only are we on schedule, but we’re ahead of schedule for delivering the benefits of Act 89.”

The state – often noted for its poor bridge ratings – has aggressively planned to reduce the total number of structurally deficient bridges through Act 89 and other means.

“Every year 300 bridges become structurally deficient,” says Schoch. “So you have to do 300 bridge repairs or replacements, or you’re losing ground. We’ll do about 450 this year, so you’re picking up ground. We also, because of our Public-Private Partnership (P3) law, and the new funding, have a pending selection for an entity to come in, design, build, finance, operate and maintain 558 structurally deficient bridges, replaced from the ground up, in about 3-1/2 years, rather than what would have taken us probably 10 years to get to. That’s going to dramatically knock the number of structurally deficient bridges down.” 

Construction Industry Grows

Whenever transportation funding is discussed, one of the main supporting arguments is job creation and the effect it has on everyone from material suppliers to equipment dealers and manufacturers. That promise has been realized in Pennsylvania after the first year.

“Last year our maximum employment was 105. This year, our last payroll I had 145 employees,” said Mills.

Mike Savastio, President/CEO of heavy equipment dealer Groff Tractor and Equipment Inc., reports similar growth:

“We’ve added probably 15 percent to our workforce this year,” he says. “We’ve added five new salesmen, 12 new technicians. Quite frankly, we’d probably be hiring more if we could find people. It’s still somewhat of a challenge. Everybody’s ramping up at one time, so there’s a little bit of a competitive environment out there.”

Workforce development – whether equipment operators or technicians – is a challenge the entire construction industry faces. Dan Hawbaker, president and CEO of Glenn O. Hawbaker, Inc., sees the increased funding as a way for his industry to attract and retain young workers – and show them that careers in construction can be rewarding.

“With some secure funding, that gives us a look at the future to say now we can afford to get into training programs,” he says. “With the economy picking up, now we’re recruiting people because we have to. We’re looking forward to 2015 to make sure we have a workforce. We can afford to get into capital expenditures and look at them more seriously than we have in the past two or three years.”

“This year already in 2014 with the increased spending, I have purchased over a million dollars worth of equipment,” says Mills. “The last 3 years, with the lack of funding, we have struggled with capital improvements with my company. But now that I know that there’s funding, it lets me look a little bit further ahead to some of the things that I want to do with this company.”

David Beinhower, CFO of E.K. Services, Inc., sees the greater backlog of work as a confidence builder, both in his company’s ability to add more capital, and in his employees’ ability to see a future with the company.

“We made some investments in new equipment, probably added about $700,000 worth of equipment to our fleet,” he says. “When you have employees on a particular project, and you don’t show them maybe the next project, or maybe even two projects beyond where you’re at, they feel like they’re working themselves out of a job, whereas here they can see the backlog. It brightens their outlook on employment. We can be more committed and show them our long term goals as well.” 

Making Pennsylvania more Competitive

All of these factors tie together another important economic factor: the ability to attract new businesses. According to a recent corporate executive survey at AreaDevelopment.com, the top two site selection factors for attracting new companies to an area are the availability of skilled labor and access to highways.

“In Pennsylvania our competition is not only regional, and not only within the United State. The scope of our competition is across the globe,” said Denlinger. “If Pennsylvania’s infrastructure is up to standard and we are poised for industrial and manufacturing growth, companies looking to site facilities are going to know they have a good partner here in state government. Pennsylvania’s transportation package is helping to put us in game-ready position.”

“If you talk to some of our folks who haul oversize loads, permit loads, it’s somewhat cumbersome to get through the state because of the number of (weight limited) bridges,” says Schoch. “So this continual investment over time will make us more attractive to these companies that are coming to Pennsylvania.”

When all is said and done, Act 89 helps create jobs and expands the state’s ability to compete globally – but at a local level, it helps accomplish that while ensuring the safety and wellbeing of those who use that state’s highways and public transportation systems.

“Governing wisely carries with it a moral obligation for public safety that is embedded in the transportation issue,” concluded Denlinger. “Transportation infrastructure is a core responsibility of government. Leaders who embrace that simple fact have taken the first step toward making good long-term decisions for the benefit of those they serve.”