Why are Roads a Crazy Disastrous Mess?
The United States owns approximately 9 trillion dollars worth of roads, which underpin our entire GDP. So why do 40% of roads need rebuilt immediately, why are they so underfunded, and how did they get in such disrepair?
I’m a builder, always have been. I’ve built everything from Lego sets to houses, cars, electronics, and everything in between. As a teenager, I wrote a manual on how to fix a transmission. I love building things, and I’m good at it.
About 20 years ago I realized roads were one of the biggest problems we have in society. They’re something we all have in common, and something our civilization depends on deeply. You’d think we’d be really, really good at doing something that is so necessary, but we’re kind of awful at it.
Our roads today are a complete disaster and that is not only crazy, but unacceptable. We have to do better. But to do better, first we have to understand the problem. I think I understand the problem, and I want you to give me the chance to try to explain. It took me 20 years to learn these things, but I’ll try to cut that timeline for you, dear reader.
Roads are a defining characteristic of human civilization, and are valuable beyond measure. They are humanity’s oldest network and everyone is reliant on their continuing operation. Roads have subtle but important impacts on all aspects of the built world around us.
Our society depends on roadways to survive. We have spent thousands of years figuring out how to build, design, and maintain roads. There are dozens of multi-billion dollar companies whose sole focus is on road building. Thousands of years of experience means road building has become constrained. We are conservative in changing how we build roads, because we are so dependent on them.
How important are roads? The average city has less than a week of food stored in it. The average person will starve to death in about a month. If roads are impassable, everyone will be dead within six weeks. That’s how important roads are.
Roads experience a bathtub curve where failure is either pretty quick, or takes years to show up. With an expected life of 15–35 years, it may take five or 10 years for a problem to show itself. Roads are expensive — $1m per lane per mile is a low figure. Cities have thousands of miles of roads. There is reluctance to use unproven methods, so improvements are incremental and well-studied.
“No one has ever been fired for buying asphalt”.
In the last 100 years, only three innovations in road building stand out. These innovations are:
1) the slipform paver for concrete
2) the asphalt paver
3) the interstate system
Most people aren’t familiar with other methods because of how successful these have been. Cobblestones, bricks, macadam, slate, log roads, and other historical methods are not used today. America moves goods further and faster than other nations even though our roads suck.
We’ve only ever had two ways to pay for roads — taxes, and tolls. Cities have the most roads, but tolling a city is impossible. The only historical solution for cities are using taxes to pay for roads.
Taxes are not a market process based on demand. Taxes are a political process, so funding for roads bears little relationship to demand for roads. Instead, funding depends on how well you can make your case to congress.
As you may have noticed, the attention of the legislature is as flighty as a hummingbird. It’s hard to get attention, and attention disappears unless there is an immediate outcome.
Roads take a long freaking time, so the time horizon has a serious mismatch with the attention span. Roads are expensive and need constant funding. Turning the head of the legislature every year to get a huge budget is an impossible task.
On top of this, most people don’t think twice about roads. They exist, we use them, problem solved, discussion over. Nobody protests at the statehouse over roads. It has been impossible to get enough funding from state and federal legislatures for the last, oh, 30 years.
It was easier in the 60s and 70s was because of excitement from the Eisenhower Interstate System. In the 80s that excitement dried up. In the 90s the Feds declared “job done”, patted themselves on the back, and turned off the spigot. 1997 was the last long-term highway funding bill.
The Feds can print cash at their leisure, and often do. But because the Feds do not seem to give a flying crap about funding our roads, the burden has shifted from the Feds to the states. Small problem — states are broke.
The states cannot print cash. The states have to raise taxes to get more cash, and people are taxed out. There’s no space left to raise taxes. The money is gone. The public is broke. Nobody will vote in favor of a tax increase, and no politician will push one forward. Funding measured in dollars per mile of road has collapsed.
Funding of roads is no longer a priority for the Federal Congress. Improved funding of roads is not a possibility for state congress. These are unlikely to change unless something crazy happens. If the I-35 bridge collapse in Minnesota didn’t change that, what can?
Another challenge is that road building is centrally planned. Needs for road improvements are identified as part of a transportation improvement plan (TIP) by a transportation authority. The planned roads are added to a TIP for a scheduled delivery date years in advance, whether five, 10, or 15.
The TIP is used by departments, agencies, and other authorities for coordination of efforts. Funding for roads on the TIP is planned in advance then assembled in the near-term from planned sources for the project delivery. Funding availability is a major constraint on the ability of the authority to deliver the TIP improvements.
As the delivery date for the road improvement approaches, and if funding exists, it goes into a design phase. The transportation authority maintains standards and specifications for the design. The authority develops a basic plan and engineer’s estimate. The road is then “let”, or publicly posted for any qualified parties to bid on the construction. A more involved project may be let for the design and then let again for construction. This is “design-bid-build” and is by far the predominant letting method in the USA.
Regulations detail the process of design, construction, and maintenance for roads. These regulations exist because roads are so important and expensive. However, these regulations are an enormous burden on providers trying to work in this market. Regulations are also a huge barrier to entry for new participants. The regulations are so onerous they exclude almost all innovation, because it’s nearly impossible to innovate when every aspect of how you’re allowed to do something is spelled out by laws.
Accreditation is required for everyone who bids on the project. The letting documents can run hundreds of pages with attachments for compliance notices, affidavits, addendums, legally required language, articles, definitions, and other tedious but necessary things.
You read it all, figure out what it means, look at the drawings, think about how to do what needs done, talk to your people, call the transportation authority’s project manager and talk to them about it, pencil out the figures, hope you didn’t miss anything, fill out all the paperwork, and package it all up in a bid that comes down to one thing: the number.
The number — what’s on everyone’s mind. Which one is it?
One day a few weeks later is the bid opening. It’s all quite dramatic. They open envelopes and say whose number it was, and what the number is. Then when all the envelopes are open, the person with the number is announced and everyone else leaves with mixed feelings. On one hand, they didn’t win. But how the heck is that guy going to do it for that number? You see, everyone but the winner thought it would cost more to do the work. Almost always, the the lowest bidder wins the work.
This process is “low bid contracting”. There are other processes, such as a value matrix or life-time-cost, but using anything other than low-bid is rare. Roads have been let on low-bids for the last 100 years or so. Before that we mostly used a “master builder” method that was in place since Egyptian times.
The winner buys a performance bond for 5% to 20% of the project’s cost. They hold this bond until they complete the project, which could be six months or five years. The winner makes a 3%-5% net margin, as much as 7% if they’re savvy. Someone that makes 10% is either faking quality tests or will never be able to submit a winning low-bid.
The project goes through an “acceptance” phase that lasts three months to three years. Afterwards, all responsibility for maintenance falls to the public authority. This means the builder has every incentive to build a road that begins to deteriorate as soon as the acceptance phase is over. It helps them win low bids, and it ensures regular work. This is the industry standard.
But remember the part where there’s no public money left for roads? Roads are so expensive. Even states and municipalities with billions of dollars can’t pay for a road with cash, but contractors need paid up front.
Municipalities issue general obligation bonds to pay the builder, and repay bonds over time. But the more they bond, the more of their budget goes to bond service, and the less they have to spend on projects. Do you see a death spiral here? Hold on, it gets worse!
If the road drops below some portion of initial quality, often 60% or so, it is longer an asset and becomes a liability. Roads are the largest asset class owned by any given municipality and cost millions per mile. It is devastating when a road lands on the wrong side of the balance sheet, because authorities rely on a healthy balance sheet for their credit rating.
Public budgets are in a CapEx trap. They need to spend money on capital improvements but have enormous operating expenses to keep roads from becoming liabilities. If the roads become liabilities, the municipal credit rating drops, bonding capacity falls, and the city’s finances grind to a halt.
This process, while well-intentioned, has constrained innovation in road-building to incremental progress. After all, the road to hell was built with good intentions. Unfortunately even good intentions aren’t enough for real roads.
Meanwhile, society has been advancing and innovating exponentially in many other aspects. Autonomous vehicles are going to be a huge economic and technological shift in society. We often forget that autonomous vehicles depend on roads, and roads depend on fuel taxes.
If fuel purchases fall by 50%, then so does fuel tax funding, and so does funding for roads. Increasing CAFE standards, while great for the environment, have already been a disaster for road funding, and autonomous cars are going to completely destroy budgets that are already insufficient.
It’s not just funding, though, it’s what capabilities roads enable, or disable, for vehicles. Roads don’t exist in and of themselves. Roads and vehicles are a network and device model. The network, or road, limits the capabilities of the device, or vehicle. We need to get roads in position to enable autonomous cars instead of limiting them.
We need a way to make a massive leap forward in roads to get the full benefits of autonomous vehicles. But unless something really wild happens, innovation in roads must obey the constraints created by the authorities that own and maintain roads on behalf of the public.
The constraints discussed in this article include:
- Disincentives to innovation
- Limited options for revenue generation
- Long lead times for projects
- Project funding uncorrelated to demand
- Heavy dependency on the finished project
- High costs of compliance
- Incentives to limit capital expenditures
- Incentives to shift capital expenditures forward into future operating expenditures
- Disincentives to investment by authorities
- Low ROI for sellers
Those are doozies. Real tough problems. Engineering is all about solving a problem within a set of constraints, and these are good ones.
The solutions to these issues are worth trillions of dollars over the first decade. In my book that’s worth spending some time on. The effects that solving these problems will have on society are valuable beyond measure.
This is a nut worth cracking.
I’m in. Let’s do it.
How?
We’ll get there, bear with me.
(Industry experts who are reading this and shaking their heads: Please tell me if I got something wrong. I love learning and improving. I am more than happy to admit errors and correct them. Please reach out if you see something that needs fixed.)
