….That was one lousy unemployment report last Friday. Even in the context of the truly foul run of such reports of late this one stood out.
We pulled the data that had application to the transportation economy from the report, ‘transportation’ did no worse than other sectors, but no better either. As you can see comparing August of last year and August of this year, employment in the various categories are ‘flat’ to ‘slightly up’ over these twelve months, which reflects the halting economic recovery. When comparing August of this year to the month just previous, construction (which has barely recovered) lost ground (heavy civil which is not shown here, saw a decline); manufacturing, which had been climbing, went (slightly) into reverse; trade at the wholesale level held its own, but dropped 7,800 at the retail level. ‘Air transportation’ was the only sector that brought down ‘transportation and warehousing,’ due likely to a decline in air cargo (as the need for expedited shipments along the supply chain fell) and as both air cargo and air passenger continued to pass along reasonably high fuel prices to consumers and businesses. Our friends in government saw declines at the Post Office (expected), actual increases at state levels outside education, and a decline in local outside education of 6,300. The states are leveling out in terms of tax collection and all those Wisconsin people went back to work (though the recent gyrations of the stock market may impact those revenues), while local still suffers.
The message of this month’s report however lies less in the detail than in the aggregate. With exactly no new net jobs created last month (and with thousands wiped off the previous two months in revisions), there are that many fewer consumers and taxpayers ‘funding’ companies and the various levels of government.
As Congress comes back from recess, one of the first things facing its members will be the extension (likely) of the surface transportation bill for the eighth time, and the renewal of the Federal gasoline tax, at 18.4 cents a gallon.
They are coincidentally expiring at the same time, the end of the month. Headlines will be flying over the coming weeks, but with this distinctly bad jobs report so recently in memory, the weight of the public discussion will shift powerfully towards job creation and job preservation. The FAA shutdown last month, with its temporary loss of jobs at the worst possible time, was universally derided and a deep embarrassment to leaders in both chambers and both parties; decision-makers are still smarting over that one.
Congress wishes badly to demonstrate competence and judgment. Its members also badly wish to be reelected. The swift passage of a new transportation bill or the extension of the existing SAFETEA-LU, and the routine renewal of the gas tax, would be a great way to show that competency. Since the two pieces of legislation go hand in hand, and since there is a moderate to strong job creation side to transportation legislation generally, there is reason to expect quick concurrence on one version or the other among the competing bills….even if reason hasn’t been especially evident to date in DC.
…It’s the type of hypothetical problem the teacher might pass out in a business class.
You’re the boss. Your organization – it’s a quasi-governmental type agency – has suffered a reduction in demand for your services at the 20% level over the past few years. Importantly, this reduction is irretrievable. In other words, nothing that you do – not marketing, not increases in efficiency, not alliances with other organizations – is going to bring that back.
At the same time, you have a work force, good men and women all, who account for 80% of your costs. That’s an enormous percentage, as your rivals over on the private sector calculate that same percentage as 53% for the one and 32% for the other (the first of those rivals have a unionized work force.) Your people have great benefits, from health care to retirement. Worst of all, there are ‘no-layoff’ clauses worked into the labor contracts.
You’ve tossed out the number of 120,000 layoffs, and you didn’t do that for no reason, that must be about the number of job reductions that have to take place to bring your work force into alignment with this decline in demand. That’s about 20% of everybody that works for you. And did I mention that that demand is certain to fall even further? In truth, by 2015, you’d see the number of layoffs at the 320,000 level.
You have a charter that requires a certain level and intensity of service; I don’t know what the penalties are for failing that charter, but here’s guessing it’s nothing good.
Also, you have a $5.5 billion loan repayment due at the end of this month, money that you don’t have. And you’re approaching a lender that itself has people wondering if it’s going to be in arrears in a couple of decades or not.
That’s the layout of the essay question, which is the easy part. The hard part is…what do you do?
It’s the Post Office I’m describing of course, an organization in a world of hurt right now. They do a lot of things right over at that organization, always have really, and there are scores of groups of stakeholders whose business models would be destroyed if the Post Office wasn’t around. It’s a beloved institution by many. It provides a competitive countervailing force to UPS and FedEx, the other entities I spoke of before. As a matter of fact, those companies would argue – with reason – that they compete every day with a heavily-subsidized state agency that has access to funds that they can only dream of.
If you’re the Postmaster General, you approach Congress with the notion that it allow you to declare some sort of bankruptcy, which in the private sector world usually allows for the dissolution of existing labor contracts, as to layoff prohibitions, benefit burden, and retirement costs. There are a number of things that post offices in other countries do to broaden the revenue stream, such as banking or light retail that our Post Office is forbidden to do. Is there any way out there? In truth, that’s probably only nibbling at the edges of this problem. You’re losing billions.
There’s a transportation side to this – any time there is a physical delivery of a person or good or in this case a letter, there is a transportation side to things – as it relates to the competitive structure of the overnight and parcel delivery industry, as it relates to environmental/transportation issues since the Post Office and other agency staffs are often the first to embrace new technology (electric or natural gas fired vehicles), and in the large number of post office closing being considered, each acting in essence as a hub in a hub and spoke system, and each part of the Federal government’s real estate portfolio.
…Timing is everything.
It’s the great bad luck of the transportation bill that it is coming up for its renewal at a time when austerity is the rage and anything with a price tag attached to it is going to be subject to vigorous debate, including in the colorful words of Representative Mica on the House Transportation Committee, a motion to honor America’s mothers. That doesn’t mean it’s not going to get passed though, it will. An extension first, of an indeterminate length – even that is subject to debate – and then in full, adhering either to the revenue-starved House version, or the keep on keeping on Senate version.
It’s the great bad luck of environmental regulations with teeth that their costs are both significant and almost immediate…while the payoffs are often a decade or more into the future. Thus it was that the Obama administration pulled the stricter ozone restriction standards that the EPA was due to put in place soon. Those rules take the parts per billion from 75, the standard now, to 60-70, and accelerates the review that was going to take place anyway in 2013. These are emotional issues with honest opinions on all sides, the best thing to say is that there is no regulation (that means anything anyway), that doesn’t levy some cost on the affected party. The application here to transportation is that cement kilns are a major target of such legislation and cement kilns churn out a major component of the pavement we all drive on every day.
It’s the great bad luck of some small manufacturers that we know that they triggered some equipment and capital expansion expenditures earlier in this year to ramp up for the recovery in demand which surely was going to be here by now, but which to all intents and purposes…isn’t.
….Parsons is a respected competitor and sometimes partner, there was a story about a week ago that I didn’t want to let get away.
The company, by all accounts, approached the Colorado Department of Transportation (CDOT) with a proposal to form a public-private partnership with the state to making improvements to the I-70 corridor through the Rockies.
You don’t have to be a transportation engineer to think through the many issues associated with that stretch, which has enormous climate demands, a short construction season, and geography and space constraints that put most other length of highway to shame. You add all those together, you’re talking an expensive proposition.
The proposal, again by news accounts, seeks a phased approach towards constructing improvements first from C-470 to Silverthorne and then from Silverthorne to Eagle. The environmental study work seemingly has been done over the years, which means that dirt could start getting moved around in 2014.
The proposal asks for nothing from the state, which would make anyone wonder, where’s the money coming from? There’s not a thing inappropriate about this by the way, in fact CDOT seems perfectly happy to have gotten the proposal.
There are only so many sources for money at that level (no dollar amounts have been mentioned, but the CDOT environmental impact study put the cost of such improvements at $10 billion…to put that in perspective, the entire Panama Canal widening taking place right now runs to about $5.5 billion), which suggest a private partner for investment, and since it is an investment, some future revenue stream to provide a return on that investment, which odds are, means that some tolling means is being considered.
The citizens of Denver will cry bloody murder at first, but it may be that they will come around to see that all things in the world need to be paid for and there’s an equity is having it paid for by the direct users of the asset.
It seems clearer and clearer that in the absence of leadership from Washington, and the non-sufficient funding attached to transportation at the national level, we will all be paying more for transportation, paying it more directly, and paying for it at the point of use.
The industry will be watching this innovative plan – if I’ve identified it correctly as a revenue generating PPP – to check on its reception at the public level and the nature of the business plan. – Larry McGurn