On December 4, 2015, President Obama signed into law the Fixing America Surface Transportation Act or “FAST Act”. The FAST Act authorizes $305 billion of federal funding from fiscal year 2016 to 2020 for new infrastructure projects such as highways, roads, bridges and transit lines. This bill is significant as it is the first long-term federal transportation funding bill that has been passed since 2005, and it follows 36 short-term extensions.
The FAST ACT authorizes funding of $39.7 billion (a +5% increase) in fiscal year 2016, $40.5 billion (+2%) in FY17, $41.4 billion (+2%) in FY18, $42.6 billion (+3%) in FY19, and $43.4 billion (+2%) in FY20. The roughly 3% compound annual growth rate (CAGR) for funding under the FAST Act lags prior bills, such as SAFETEA-LU in 2005 (+4.5% CAGR over 6 years), the TEA-21 in 1998 (+6.5% CAGR over 6 years), and the ISTEA in 1991 (+4% CAGR over 5 years), but it exceeds the most recent short-term extension bill, MAP-21 in 2012, which was +1.5% CAGR over 2 years (Exhibit 1).
Exhibit 1: Federal Highway Bill Obligation Limits
Source: BB&T Capital Markets, American Road & Transportation Builders Association, house.gov
While the FAST Act may have a lower annual spending increase when compared to prior long-term bills, the more significant effect will come from state transportation departments having five years of funding visibility for the first time since 2005. Previously, many states delayed transportation projects due to uncertainty over funding, but this bill will enable larger, longer-term projects to move forward. We believe the FAST Act will lead to increased bidding opportunities, rising backlogs, and higher earnings for several public companies that are exposed to public construction end markets.
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