Morning Equity Briefing
CRH
CRH ID
ARRA funds continue to drive highway growth but lack of clarity on highway bill impacting state obligations
Barry Dixon
| Closing Price | 1789c | Rating: | Outperform | 30/06/09 |
The latest report on obligation of highway funds shows that the total amount of funding obligated by state DOTs to US highway construction has increased by almost 20% in the first two months of the year. This was expected as states were under pressure to obligate all of the ARRA funds by March 2nd.
All of the increase in obligations however is driven by ARRA funds. The underlying obligation of regular federal funds is running at about half of its normal level as state DOTs remained concerned about the lack of clarity surrounding the Federal Highway Programme (SAFETEA-LU) which expired in September and has been running on short-term extensions since.
The Senate vote last week to extend the programme to the end of the current year and to replenish the Highway Trust Fund (HTF) should improve confidence levels and therefore obligations by state DOTs from here on should be better.
Under the US system, once a state DOT has a highway project ready to go, it gets funding approval form the Federal Highway Administration (FHWA) which obligates to pay the federal portion of the contract. The project can then proceed to the contracting stage.
The latest data illustrate the importance of ARRA funds to the US highway construction sector. It also illustrates the importance of ensuring that a definite highway programme is in place. While the extension of the current programme is welcome, the need for a replacement six-year programme is clear and needs to be agreed before the end of this year.
CRH is the largest provider of raw materials into the US highway construction market.