Asphalt sector cautious on Biden infrastructure plan

US president Joe Biden's proposal to invest roughly $115bn in roads and bridges could lay the groundwork for increased asphalt demand over the next eight years, but its detractors worry about other long-term funding sources for the nation's surface transportation needs.

Biden's sweeping $2 trillion, eight-year infrastructure spending package, the American Jobs Plan, will earmark $115bn in funds to help repair an estimated 20,000 miles of roads and highways and 10,000 bridges.

The spending will be funded primarily through a higher 28pc corporate tax rate and by eliminating certain tax loopholes on corporations. The corporate tax rate was slashed under former president Donald Trump via the Tax Cuts and Jobs Act in 2017, from 35pc to 21pc.

Biden's proposal would come on top of current spending on US roads and highways that is chiefly paid for by the Highway Trust Fund (HTF), which has seen its outlays exceed revenue for years. The HTF is primarily funded via the federal gasoline tax, which has not been raised since 1993 and has consistently failed to keep pace with inflation. Last fall, lawmakers authorized a one-year extension of the FAST act, maintaining the solvency of the HTF at current spending levels through fiscal year 2021. The FAST Act is expected to provide $46.4bn or 94pc of federal highway and road funding in 2021, according to the American Road and Transportation Builders Association (ARTBA).

Biden's plan will undoubtedly provide some support for federal highway funding but will not be enough to replace the FAST Act, leaving some uncertainty around the topic of where other public highway funding will come from after the FAST Act extension expires in September.

Biden's plan has elicited a measured reaction from the US asphalt sector, by now used to the partisan gridlock that has repeatedly sidelined previous infrastructure bills in Congress including those promised by the Trump administration. Despite infrastructure often being hailed as a bipartisan issue, Biden's proposal may not pass in a narrowly divided Congress. In addition to raising taxes the bill aims to address the divisive issue of climate change by bolstering infrastructure surrounding electric vehicles, retrofitting thermal power plants with carbon capture technology and investing in research and development for alternative energy resources.

Still, many industry leaders have welcomed the proposal as a critical first step to increasing long-term funding for roads.

"Assuming Congress passes a five-year surface transportation authorization bill with increased investments for the core federal highway program, and enacts President Biden's American Jobs Plan, 2022 and beyond should see significant increases in highway investments...it would represent the largest year-over-year increase in highway funding," said a spokesman for the National Asphalt Pavement Association (NAPA).

It could also take several years before the bill translates into higher asphalt demand. States and local municipalities rely on stable, long-term federal highway funding to design multi-year road construction projects that require extensive forward planning.

Some uncertainty remains about asphalt end-use in 2021. So-called "shovel-ready" road construction projects might be lower, as contractors took advantage of less congested roadways during the Covid-19 pandemic to race through project backlogs in 2020. Despite a hit to state revenues last year caused by the pandemic, many states have still managed to preserve highway funding through program cuts or by transfers from their general funds.

"While there was significant concern about state transportation revenues in early 2020, we have seen many of these funding streams stabilize," said ARTBA chief economist Alison Black.

By Calder Jett and Maria Ahmad