How State DOTs Are Warding Off Inflation

What happened: Chief financial officers at three state transportation departments (DOTs) – Minnesota, Missouri, and Colorado – each shared strategies for coping with rising transportation construction costs during an April 9 forum moderated by ARTBA Chief Economist Dr. Alison Premo Black. The event was sponsored by the Build America Center of the University of Maryland and also featured Kiewit Senior Vice President Terry Burgis.

Why it matters: Inflation has been a big issue the last 18 months, with state DOTs facing higher prices for operations and capital programs. Its impact varies region to region and with project type, panelists said. Despite price challenges, ARTBA estimates states increased capital spending by 16 percent in state fiscal year 2023, which runs from July 1 to June 30 for most states.

Panelists offered these insights for coping with rising costs:

• Colorado’s Department of Transportation (CDOT) Chief Financial Officer Jeffrey Sudmeier noted that his agency’s estimating process did not keep up with rising costs. To cope, CDOT delayed projects or reduced their scope and created a $30 million ‘cost escalation fund.’
• Missouri’s Department of Transportation (MODOT) Chief Financial Officer Brenda Morris said that supply chain issues and rising material prices has forced MODOT to rethink delivery of projects and decrease purchases, such as dump trucks. A positive development is the legislature’s approval of $2.4 billion in new funding for I-70’s expansion.
• Minnesota’s Department of Transportation (MnDOT)’s Budget Director Sam Brown says inflation has caused project delays. ‘The top idea is uncertainty,’ he said, which means MnDOT uses discretion in spending.
• All three DOTs agreed that a culture of innovation, technology, and flexibility are key to managing inflation.

What’s next: Rising costs mean state transportation agencies and contractors must work together creatively. ‘Market outreach is really important,’ Burgis said. All three state officials noted that cost escalations seem to have plateaued since January.