The Secret That's Driving Up Highway Costs

Corporate consolidation and shrinking public capacity is a bad combination.

Photo credit: thisisbossi

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When I was in college, I spent a summer working for the municipal road crew in my hometown. The job was pretty much what you’d expect: Filling potholes, clearing away brush from obstructed street signs, weed whacking local parks, etc.

I thought about that job this week as I was reading some new research on what drives highway costs at the state level in the U.S., a county where we have some of the highest infrastructure construction costs in the world. The study — by researchers from Yale, Columbia, and the University of California, Berkeley — is important not just for what it says about infrastructure costs specifically, but corporate consolidation and public capacity more generally.

The study’s authors looked at how highway resurfacing contracts are doled out at the state level, using those as a good proxy for bog standard infrastructure work, as they’re non-controversial and routine. Resurfacing roads is just one of those things states do that no one really cares about unless they bang into a bunch of potholes.

Using a survey sent to state Department of Transportation employees and state contractors, supplemented by state employment data, the researchers found two factors that predict whether a state will have higher costs for road resurfacing: The size of the state DoT and the number of contractors bidding on a project. A smaller transportation department and fewer bidders — two factors which reinforce each other, as a smaller department leads to less bidder outreach — both drive up costs for the public.

To be specific, “A one standard deviation increase in DOT employment per capita is correlated with 16% lower costs,” while “an additional bidder on a project is associated with 8.3% lower costs, or a savings of approximately $30,000 per lane-mile ($460,000 for the average project).”

Fewer contractors bidding on a project leading to higher costs makes intuitive sense, and is in many ways a factor of the corporate consolidation that has gripped not just the construction industry but the entire U.S. economy in recent decades. Per the study, in the last decade most states have experienced a loss of construction firms, with the remaining firms growing larger, a classic sign of consolidation — which, of course, gives those remaining firms more power to dictate higher prices to the state, and to coordinate so as not to undercut each other too much on contract bids.

On the flip side, smaller state departments of transportation also drive up costs. This occurs, in part, because it forces states to rely more on expensive consultants — the study notes that “a one standard deviation increase in reported consultant costs is associated with an almost 20% increase ($70,000) in cost per lane-mile.”

Smaller DoTs also don’t do as good a job detailing projects or estimating costs upfront, or do as much work on bidder outreach, resulting in fewer, higher-priced bids, as well as more costly mistakes in the project design process, in a vicious cycle that bleeds the taxpayer dry.

“The striking decrease in state DOT employment over the last 20 years, especially in the wake of the Great Recession, may have contributed to rising costs,” the study says.

So all else being equal, more public capacity in the form of a larger transportation department and a more competitive construction industry would help your state lower its highway costs.

This is interesting as far as it goes and leads to some pretty obvious solutions for state lawmakers, but the potential lessons go beyond the cost of repaving roads. In short: You need public capacity to build public goods in a way that doesn’t leave taxpayers holding the bag or getting gouged by big corporations.

Studies like this are why I get supremely annoyed by folks who like to talk about the “size of government” as if it’s meaningful measure of anything. Government should have the resources necessary to do the jobs it has to do and do them well.

Are there too many people and dollars sloshing around the Department of Defense? Almost certainly! Can we eliminate the billions of dollars and large bureaucracies at the state level doling out corporate subsidies? Yes, we can!

But as this study shows, the prudent thing to do for the public — in terms of dollars and service — is to have more public transportation employees, to ensure that states can fulfill their core function of building infrastructure without blowing money on consultants and mistakes.

Too often, public policy involves crippling the ability of government to do things well, while still expecting it to do those things. For example, DMVs are annoying because they’re chronically underfunded and understaffed: Fixing that requires more resources, not less.

Another one: Conservatives in Congress have been gutting the IRS for decades, but when the Biden Administration reversed course, lo and behold, the agency was capable of policing tax fraud again, resulting in $1.3 billion recovered from rich folks who hadn’t paid the taxes they owe.

And then: Kentucky stopped contracting with a bunch of useless pharmacy and health care middlemen, in favor of its Medicaid program contracting directly with just one, and saved hundreds of millions of dollars.

All of these are “more” government, but in a way that saves money and makes life better for residents.

Even the smallest of small government advocates agree that the state needs to do some things, so it follows that government should be provided the resources to actually accomplish them in a competent and timely fashion, rather than relying on consultants, non-profits, and “public-private” partnerships that cost more by creating new middlemen and bureaucracies that all take their cut from limited public resources, while leaving public employees overwhelmed, stressed out, and unable to do their jobs well.

That’s clearly been true at the state level for highways — something I hope we can all agree are worth having and maintaining! — but the lesson shouldn’t stop there. More state capacity up front can lead to far fewer boondoggles on the back end, across the economy.

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SIMPLY STATED: Links to a few stories that caught my eye this week.

• “How Local Governments Got Hooked on One Company’s Janky Software”

• Louisiana settled a tax lawsuit against ConocoPhillips, “but declined to reveal whether the oil giant paid any of the $700M in back taxes and penalties initially sought.”

• Ohio is experiencing waves of pharmacy closures.

• Thanks to a new law going into effect, utilities in Maine can no longer spend ratepayer money on political activities.

• 42 state attorneys general signed a letter calling on Congress to apply a warning label to social media platforms due to their potential risks to children.

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— Pat Garofalo