The impact of inflation upon U.S. highway maintenance and construction costs

Abstract

Over the past ten years, per mile costs for highway maintenance and construction have risen much faster than general wholesale and retail prices in the U.S. economy. This paper examines historical data on highway maintenance costs, highway construction costs, and general wholesale prices in order to help explain the disproportionate impact of inflation upon highway costs and to project future highway costs increases through 1985. Time-series regressions are used to model highway costs increases as functions of cost increases in the general wholesale sector. Results indicate that construction costs respond quickly to economic changes, with average cost increases 1 1 2 times the general inflation rate. In contrast, maintenance costs tend to be more stable over time and respond slowly to inflationary pressures. These differences can be attributed to differences in the contractual procedures which state and local governments use to supply maintenance and construction. Finally, an examination of highway expenditure increases legislated by the Surface Transportation Assistance Act of 1978 indicates that they are insufficient to compensate for expected cost increases.