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Why plunging asphalt prices haven’t sparked an infrastructure boom

A massive NYC pothole. (Image: Wikimedia Commons)

If you haven’t repaved your driveway or parking lot yet, now might be the time to do so.

Over the past 18 months, asphalt prices have plummeted from about $600 to a ton to about $300 a ton. That’s because petroleum prices dropped during the same time period, and that’s the biggest cost factor for asphalt mix, which is needed for driveways, parking lots and roads.

At first blush, it may seem like falling asphalt prices would be a boon for public-road building contractors. You’d think governments would want to get as much road work done right now before the price of asphalt starts to rise again. In theory, this explosion of construction would boost contractor revenue in the short-term while helping improve our roads.

Seems like a win-win scenario, right?

It turns out falling asphalt prices haven’t been such a boon for contractors because governments have very limited annual funding for infrastructure improvement like new roads, according to T. Carter Ross, spokesperson for the National Asphalt Pavement Association. Governments can’t take advantage of low asphalt prices to give contractors much more work, because they’re already using all the funding they have for roads every year.  

“The amount of work our road system needs far outstrips the available funding at every level,” T. Carter Ross said to Yahoo Finance.

To be sure, roads partly pay for themselves, via tolls and state and federal taxes added to the cost of gas for your car. However, gas taxes and motor vehicle license fees covered just 41.4% of funding for road construction in 2013, the last year for which data is available, according to the Tax Foundation. That tax-focused think tank further noted that this ratio is likely to fall over time “as state gas tax rates do not keep up with inflation.”

The state of roads may be particularly bad because for over a decade before 2015, the US went without a long-term federal bill for road funding. While Congress finally passed a five-year bill to fund roads and other infrastructure projects in 2015, it hasn’t been sufficient to compensate for years of underfunding.

Last year, the Business Roundtable — a pro-business association of CEOs — put out a paper noting “much of the nation’s infrastructure has fallen victim to neglect, underfunding, under-appreciation and the natural erosion that comes with age.”

To be clear, local governments may be able to use the low price of asphalt to repave a few more of these eroded roads than they would if asphalt were more expensive. They could also be getting some more bang for their buck because contractors might end up lowering their bids to compensate for the lower cost of the asphalt, according to Carter Ross.

Unfortunately, the number of newly paved roads will be limited since local governments can’t ramp their spending up too much — even though it doesn’t make economic sense to defer the spending to the future when asphalt will likely be priced higher.

Rayhanul Ibrahim is a writer for Yahoo Finance.

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