Texas Road Finance Part II: Economic Impacts Infrastructure Spending Boosts Economy

by TJ Costello and Ginger Lowry Published June 2016

As we saw in Part I of this article, Texas spends a mountain of money on its roadways — and needs to spend more if we want to keep traffic moving across our rapidly growing state.

Reliable transportation infrastructure is critical to economic development. Industries can thrive or die depending on the reliability and speed of their transportation options. A 2016 survey of corporate executives by Area Development magazine, for instance, ranked highway accessibility second among the top 10 site selection factors, just behind the availability of skilled workers. Highway accessibility has ranked first or second in importance in this survey for more than a quarter-century.

Yet in Texas and across America, basic transportation infrastructure is aging and increasingly at risk. According to a 2013 study by the American Society of Engineers, inadequate roads could cost the U.S. economy more than 400,000 jobs by 2040, particularly in high-value and high-paying sectors such as tech and manufacturing.

Efforts to expand and repair our roads also carry an economic impact, however — a large and beneficial one.

Driving Costs

As noted in Part I, Texas roadways face significant challenges. The state’s population is expected to rise to nearly 45 million by 2040, yet traditional transportation funding is based on per-gallon motor fuels tax rates that have not risen since 1991, and ever more fuel-efficient cars have further depressed gas tax revenue. The Texas Department of Transportation (TxDOT) estimates it will require about $60 billion in the next five to 10 years to improve connectivity and traffic flow in Texas’ urban areas, as well as an additional $20 billion for statewide connections and border-trade projects.

For Texas motorists, the costs of inadequate roads are cumulative and personal. According to the transportation research organization TRIP, the average American motorist pays an additional $516 each year in added vehicle operating costs due to driving on poorly maintained roads. But many Texas drivers pay more, with additional costs averaging $838 in San Antonio, $815 in El Paso, $772 in Houston, $716 in McAllen and $549 in Corpus Christi.

Investments in new roads, improvements and routine repairs can extend the life of the state’s roadway system, preventing or postponing more expensive reconstruction while reducing transportation and commuting costs and improving access to goods and services.

Returns on Investment

Transportation investment is an effective way to stimulate economic development. IHS Global estimates that every $50 billion invested in federal highways and public transit programs generates an average of $31 billion in personal income tax receipts and $6 billion in federal corporate tax receipts due to increased economic activity.

Transportation spending affects both the level and geographic distribution of economic activity. Such investments yield near-term benefits in employment; a recent White House analysis cited job creation in the construction, manufacturing, retail trade and professional and business service sectors (Exhibit 1).

Just as important, however, are long-term economic benefits including greater competitiveness, lower prices, higher productivity and higher incomes.

In general, transportation investment affects the economy in two ways: by increasing the demand for construction services and building materials, and by enhancing the connectivity of businesses and people.

Exhibit 3: Commuting in the 10 Most Populous States, 2014

Source: U.S. Census Bureau, 2014 American Community Survey

Pay Now or Pay Later?

While road construction costs have risen rapidly in recent years, this growth has slowed dramatically since the Great Recession ended, particularly in the all-important category of borrowing costs. As the national economy continues to recover, however, prices will rise. Any further delays in transportation improvements may compromise the state’s budget and make future decisions more expensive and more painful.

The Texas economy relies on the speedy, reliable and cost-efficient transport of components, finished goods and raw materials to and from state, national and international markets. Advanced communications and cost-cutting business innovations, such as just-in-time delivery and push-style distribution, demand ever-faster shipments.

Poor roads cost Texans money — and sometimes their lives. Extra fuel, repairs, lost time and reduced productivity all have a negative impact on the economy by affecting the competitiveness of Texas businesses. Transportation infrastructure spending, by contrast, positively affects local and state economies by connecting businesses, customers, goods and services more efficiently, which in turn enhances business expansion as well as safety. FN