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California Infrastructure Outlook

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  • Infrastructure investment remains a key priority for California as the state’s infrastructure was given a grade of D+ by the American Society of Civil Engineers in 2017.

  • Deferred maintenance for infrastructure in California is estimated at $67 billion, with the Department of Transportation accounting for $47 billion of this amount.

  • The Road Repair and Accountability Act of 2017, also known as SB 1, will invest $5.4 billion annually over the next decade to fund the repair and enhancement of the state’s transportation system.

  • Contractors will have significant opportunities to benefit from this investment but must be proactive in positioning their business, including their surety facilities, for the anticipated work.


 

Infrastructure investment remains a top priority of local, state, and federal agencies throughout much of the country as the U.S. infrastructure system was ranked 9th in the World Economic Forum’s 2017 Global Competitiveness Report. Despite this ranking and the size of the economy, the U.S. invests 50% fewer funds toward infrastructure projects than its international peers. Researchers forecast that $150 billion in annual investment will be required between 2017 and 2030 to support the maintenance and construction of the nation’s infrastructure.

In California, the state of critical infrastructure rated a D+ grade from the American Society of Civil Engineers (ASCE) in 2017. The following are key takeaways from the ASCE report card:

  • Driving on roads in need of repair cost each driver $844 per year;
  • 5.5% of bridges are rated structurally deficient;
  • Investment in drinking water is estimated at $44 billion;
  • Investment in wastewater is estimated at $26 billion;
  • 678 dams are considered to be high hazard potential; and
  • The state’s schools have an estimated capital expenditure gap of $3.2 billion.

The poor quality of infrastructure not only presents safety hazards for the general population impacted by deficient roads, bridges and water systems, but also negatively impacts the state’s overall economy. Strategic investment in infrastructure will not only improve the quality of life for the state’s citizens but increase the productivity of businesses by improving transportation infrastructure, expanding ports and creating opportunities for the construction industry.

California is aware of these issues and has made significant strides to support infrastructure. The passage of the state’s Road Repair and Accountability Act of 2017, also known as SB 1, will mean $5.4 billion is earmarked annually over the next decade to fund the repair and enhancement of the state’s extensive transportation system.

The American Road and Transportation Builders Association (ARTBA) recently released six reports indicating that the passage of SB 1 will lead to $183 billion in economic activity and user benefits over the next ten years. This includes the creation of 68,200 jobs each year.

The ARTBA reports focuses on six regions within the state that will benefit from SB 1:

  • Inland Empire will generate $15.6 billion in economic activity;
  • Los Angeles will generate $29.2 billion in economic activity;
  • Orange County will generate $9.2 billion in economic activity;
  • San Diego and Imperial Counties will generate $13.8 billion in economic activity;
  • San Francisco Bay Area will generate $34.5 billion in economic activity; and
  • San Joaquin Valley will generate $20.1 billion in economic activity.

The impact of this investment should be felt by all Californians.

California’s governor, Jerry Brown, released the 2018 Five Year Infrastructure Plan (“Plan”) as part of the 2018-2019 Governor’s Budget Summary. The Plan estimates that statewide deferred maintenance for infrastructure is $67 billion with the Department of Transportation accounting for $47 billion of this amount and the Department of Water Resources accounting for $12 billion.

The Plan proposes the investment of $61 billion in state infrastructure over the next 5 years with $55 billion of this investment going towards transportation and the High Speed Rail Authority. The Plan will allocate $2 billion per year for maintenance and repair of the State Highway system to address the deferred maintenance noted above. These investments are anticipated to address many of the issues noted by the ASCE and ARTBA with California’s infrastructure challenges.

Abundant opportunities for contractors that are well positioned operationally and financially to take on additional work are already in the pipeline. As the majority of the budget will be allocated to the Department of Transportation, it will be essential for contractors to work proactively with their surety company to plan for upcoming surety needs. The failure to clearly communicate go-forward business strategies and surety needs could leave some contractors on the sidelines, as they lack sufficient surety capacity to pursue desired projects.

The Bond Exchange is working with our contractors to implement long-term, strategic surety programs that will support the realization of our client’s business goals. Our broad market access and industry leading expertise ensures that we can deliver the most competitive surety programs in the marketplace. Please reach out to Jim, Yung or Austin to discuss how we can assist your company achieve its objectives.

 
Austin Neff