California Asphalt Magazine Forecast 2017

2017 FORECAST ISSUE

The Uphill Struggle for Road Funds

INSIDE: The UCLA Anderson Forecast State Transportation Funding Saga Q&A with Gary Richards

San Jose Mercury News reporter

Proposition 65

Scientific panel reviews asphalt

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Publisher’s Letter Dear Readers, One of my favorite management books is Stephen R. Covey’s timeless “The 7 Habits of Highly Successful People.”

Under the category of “Continuous Improvements,” Covey talks about taking time to “sharpen the saw,” which is another way of saying it is important to take time out from the day-to-day crush of activities to make incremental improvements in work, lifestyle and spirituality that will pay long-term dividends.

This past month the CalAPA staff has taken upon itself to spend some time focusing on this principal. But rather than participating in an exotic retreat or other navel-gazing activity, the time was spent in a more practical and decidedly less glamorous task: Categorizing and preserving vital records, and purging old and outdated files.

Our association has a records-retention policy that provides basic guidance on how long we should retain certain types of records before they are destroyed, and with all the concerns about privacy and identify theft, we are careful to make sure that old records are disposed of in a safe and secure manner.

But beyond basic office records, the association also maintains documents of historic nature dating back to the founding of the association in 1953, and they are a fascinating treasure-trove of information that we are handling with care to preserve for future generations. And as often as not, some of these records show that issues from earlier eras are evergreen and continue to be addressed in one form or another today.

We were amazed, for example, to examine the leather-bound book of minutes from the 1950s and note that the association conducted meetings back then, as we do today, at the venerable Jonathan Club in downtown Los Angeles. Do you think issues related to specifications are something new? Think again. Here’s an entry in the official minutes book from the Dec. 8, 1953 meeting of the association’s board of directors: “The problem of specifications were then discussed and a committee consisting of Ray Best, Bob Noble, Jacques Yeager, Jay Brown and George Sherman was appointed to meet and fully discuss all phases of the matter. This committee will be called together and meet in the near future, and begin dealing directly with City, County, State and Federal officials.”

What about marketing and promoting asphalt? Here’s an entry from May 25, 1988 meeting: “NAPA has invited all state associations to participate in a marketing partnership program.” Although participation was not approved by the board at that time, CalAPA and other state associations in recent years have contributed funds for such efforts.

It was also interesting to read various permutations of the newsletter and other communication vehicles to inform the membership of association activities and issues that may impact the their businesses. Again, some issues reported have a ring of familiarity today. For example, in the Nov. 10, 1997 issue of the association’s “Asphalt Bulletin,” it was reported that “Superpave implementation is proceeding rapidly in many states. Some feel too rapidly.” Elsewhere in the same issue it is reported that “Pavement smoothness will be a major pay item in the new Caltrans QC/QA spec.”

References to transportation funding, or the lack of it, appear frequently throughout the records, as does concern about legislative and regulatory shenanigans.

The staff takeaway from all of this is clear: informing and educating the industry, representing their interests and doing everything possible to shield them from harm is a never-ending endeavor. Many have contributed to this noble goal over the years and continue to do so, and it’s an honor to follow in their footsteps.

We hope you enjoy this “forecast” issue of California Asphalt magazine, which attempts to look in the future. But in doing so, we are also mindful of the lessons of the past.

Sincerely,

Russell W. Snyder Executive Director California Asphalt Pavement Association 4

California Asphalt Magazine • 2017 Forecast Issue

Contents 4

Publisher’s Letter

8

UCLA Anderson Forecast

14 16

JOURNAL OF THE CALIFORNIA ASPHALT PAVEMENT ASSOCIATION

Real Refiner's Refiner's Cost Cost of of Crude CrudeOil Oil Real (Mil.Units) Units) (Mil.

(2009$/barrel) (2009$/barrel)

60 60 40 40 20 20 00

Federal N N Federal (Percent) (Percent)

18 18 16 16 2.0 2.0 14 14 12 12 1.5 1.5 10 10 1.0 1.0 88 66 0.5 0.5 44 0.0 0.0 22 11998822 1199886611999900 1199994411999988 22000022 2200006622001100 22001144 22001188

80 80

CalAPA's 7th Annual 'Better or Worse' Survey

U.S. Housing HousingStarts Starts U.S. Vs. Mortgage MortgageRate Rate Vs.

2.5 2.5

100 100

11997788 11998833 11998888 11999933 11999988 22000033 22000088 22001133 22001188

HousingStarts Starts Housing

MortgageRate Rate Mortgage

Page 8

State transportation funding plan: Now you see it, now you don’t The road to a comprehensive state transportation funding plan for California in 2016 was filled with twists and turns, and ultimately reached a deadend. What’s in store for 2017 is anyone’s guess

22

Q & A with Gary Richards

30

State panel of Prop. 65 scientists follow industry recommendation on asphalt

Page 16

Reporter for San Jose Mercury News California Asphalt Magazine

On the Cover:

Photo illustration designed by Aldo Myftari of Construction Marketing Services. Cover art concept selected by Matteo Adnan Moro.

Gary Richards Page 22

CALIFORNIA ASPHALT PAVEMENT ASSOCIATION www.calapa.net

HEADQUARTERS: P.O. Box 981300 • West Sacramento • CA 95798 (Mailing Address)

1550 Harbor Blvd., Suite 211 • West Sacramento • CA 95691 • (866) 498-0761 EXECUTIVE DIRECTOR: Russell W. Snyder, CAE, rsnyder@calapa.net MEMBER SERVICES MANAGER: Sophie You, syou@calapa.net TECHNICAL DIRECTOR: Brandon Milar, P.E., bmilar@calapa.net.

GUEST PUBLISHER: Russell W. Snyder, CalAPA PUBLISHED BY: Construction Marketing Services, LLC • P.O. Box 892977 • Temecula • CA 92589

(909) 772-3121 • Fax (951) 225-9659 GRAPHIC DESIGN: Aldo Myftari CONTRIBUTING WRITERS: Russell W. Snyder, CalAPA; Brian Hoover, CMS; David Shulman, Senior Economist, UCLA Anderson Forecast; Jerry Nickelsburg, Senior Economist, UCLA Anderson Forecast, Adjunct Professor of Economics, UCLA Anderson School.

ADVERTISING SALES: Kerry Hoover, CMS, (909) 772-3121 • Fax (951) 225-9659 Copyright © 2017 – All Rights Reserved. No portion of this publication may be reused in any form without prior permission of the California Asphalt Pavement Association. California Asphalt is the official publication of the California Asphalt Pavement Association.

This bimonthly magazine distributes to members of the California Asphalt Pavem­­ent Association; contractors; construction material producers; Federal, State and Local Government Officials; and others interested in ensuring that asphalt remains the high quality, high performance pavement choice in the state of California.

6

California Asphalt Magazine • 2017 Forecast Issue

(Percentof ofNational NationalIncome) Income) (Percent

5.5 5.5 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0

11999900 11999944 1199998

The UCLA Anderson National Forecast

First Pass at Trumponomics:

From a Reckless Monetary Policy to a Reckless Fiscal Policy

By David Shulman, Senior Economist, UCLA Anderson Forecast, December 2016

C

ontrary to prior expectations, stocks soared and interest rates surged on the election of Donald Trump. It seems that both the stock and bond markets were pricing in the radical reversal in fiscal policy occasioned by his election while ignoring the negative impacts of his immigration and trade policies. Put bluntly, the markets are now anticipating stronger real growth, and at least for a while, higher inflation and higher interest rates. We believe that the markets have got it right with respect to direction.

Our first pass at Trumponomics, which still remains quite vague, makes the following policy assumptions: • $300 billion/year annual mostly higher-end personal tax cuts effective in Q3.

• $200 billion/year corporate tax cut effective in Q3 with $50 billion of revenues associated with the repatriation of foreign earnings that quarter.

• $20 billion/year infrastructure program effective in Q4.

• $20 billion in higher defense spending in 2018.

• $20 billion/year Medicaid/ACA cuts effective in Q4.

• Relaxed energy, environmental and financial regulation.

• Modest changes to immigration except for border wall/ fence.

• Modest changes to trade policy yielding net reductions in food and aircraft exports phasing in starting mid- 2017.

The net result is a massive fiscal stimulus on an economy at or very close to full employment and is directionally what a host of liberal economists have been advocating for the past five years. To be sure 8

the mix of tax cuts and spending is far different from what they desired, but make no mistake this is real or even reckless fiscal stimulus.

How so? The federal deficit will roughly double to over one trillion dollars by 2018. Simply put, an economy operating at full employment should not have a deficit equal to 5% of GDP; the budget should be in balance or in surplus. Thus, in the next recession the federal deficit will make the deficits associated with the financial crisis look small.

In a way going policy will be the mirror image of the past five years as the reckless zero interest rate/ QE policy gives way to its fiscal equivalent. Further, Europe will follow the U.S. with more aggressive fiscal policies to meet the growing populist challenge.

In response to higher inflation and the exploding federal deficit, the long quiescent Fed will become more aggressive with respect to monetary policy. This month’s expected increase in the federal funds rate will be followed up with many more pushing the rate up to above 2% by the end of 2017 and above 3% by the end of 2018.

Remember President Trump has two vacancies to fill right away and Chair Yellen’s term expires in January 2018. Trust me, we will have a much different Fed under President Trump. Similarly, the yield on 10-year U.S. Treasury Bonds is forecast to exceed 3% by the end of 2017 and 4% by the end of 2018. We know this sounds aggressive but it looks like we are in for, what economists call, a regime change.

With $500 billion in tax cuts arriving in the third quarter of 2017, we expect economic growth to

accelerate from the recent 2% growth path to 3% for about four quarters.

Thereafter, growth will slip back to 2%. Why so little? First it is hard to stimulate an economy operating at about full employment and second the higher interest rates we foresee will begin to bite. In order to maintain 3% growth or higher the economy will need a productivity miracle. Whether that will come, as the Trump partisans expect, from the supposed supply-side effects of the tax cuts and the proposed regulatory reforms, remains to be seen. We would also note that our forecast is likely higher than what Trump’s Democratic opposition would expect.

In this environment, employment will continue to grow with job growth on the order of 140,000 a month in calendar 2017 and 120,000 a month in calendar 2018. The unemployment rate is forecast to fall to around 4.5% by the end of 2017 and remain there through 2018. Further, as the labor market tightens wage growth will accelerate to 4% or more from the middle of 2017 on.

With year-over-year core inflation already rising above 2%, it should be no surprise to anyone that this rate will accelerate to at least a 2.5% pace; a forecast we view as conservative. As oil prices rebound, headline inflation will approach 3%.

Therefore if we are roughly right about the economy operating at full employment with an unemployment rate of 4.5%, inflation exceeding 2.5% and the prospect of a one trillion dollar annual federal deficit, it should surprise no one that interest rates would be heading much higher.

California Asphalt Magazine • 2017 Forecast Issue

Real Refiner's Cost of Crude Oil (2009$/barrel)

100

U.S. Housing Starts Vs. Mortgage Rate

2.5

(Percent)

2.0

80

1.5

60

1.0

40

0.5

20 0

(Mil. Units)

0.0 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 1978 1983 1988 1993 1998 2003 2008 2013 2018

The Good The economic growth we envision will be powered by rising consumption, equipment and defense spending. Real consumption spending is forecast to increase at 3% and 3.7% in 2017 and 2018, respectively compared to 2.6% this year. Consumption growth will be dampened by an increase in the saving rate as high-end consumers stash some of their tax savings and benefit as well from the rise in interest rates. The saving rate rises from 5.7% in 2016 to 7.6% in 2018.

The Bad Housing activity will likely be a casualty of the economic environment we envision. The speed of the recent spike in long-term interest reates and the prospect of further increases will dampen housing demand.

Instead of the 1.4 million lovel of housing starts that we were previously looking for in 2017 and 2018, we are now looking for a far more modest level of starts in 1.2 million – 1.25 million range. To be sure, this is an increase from 2016’s estimated 1.17 million starts, but far below what we perceive to be underlying demographic demand of 1.5 million units per year.

The Ugly Although President-elect Trump raged against imports and the trade deficit during the campaign, it looks like he will come up woefully short.

Why? The consumer boom that his tax cuts will ignite will inevitably suck in imports. Further, the change in policy mix from monetary policy to fiscal policy triggered a rally in the dollar making imports cheaper and exports more expensive. Recall where we started, we are not

Housing Starts

18 16 14 12 10 8 6 4 2

Mortgage Rate

assuming a major trade war with our partners around the world. If we are wrong here we are likely wrong everywhere.

A Note on Infrastructure Spending We do not believe that President-elect Trump’s tax credit-based infrastructure plan will pass muster in Congress on the scale he is looking for. Simply put, he is proposing $137 billion in tax credits for private investors to fund major infrastructure projects. The problem is that in order for this to work it requires a revenue stream and there aren’t any revenue streams associated with highway, bridge and tunnel, wastewater and transit maintenance. Thus we anticipate a more traditional infrastructure program amounting to a more modest $20 billion dollars a year of direct taxpayer funding.

We could very well be low here, but it will take time for an expanded infrastructure program to ramp up.

Nowadays, as President Obama discovered to his chagrin, there are very few “shovel ready” infrastructure projects around awaiting funding. We live in a world of environmental impact studies and Davis-Bacon Act labor codes regarding prevailing wages.

Thus, if the President-elect wants quick action, Congress would have to waive or fast-track the environmental requirements and waive provisions of the Davis-Bacon Act. This would be a tough sell for the Democrats, but the Republicans are in the majority.

A Note on the Deficit Several of my colleagues have cautioned me about the so-called “deficit hawks” in the Republican

California Asphalt Magazine • 2017 Forecast Issue

Federal Net Interest Payments on National Debt

(Percent of National Income)

5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0

1990 1994 1998 2002 2006 2010 2014 2018

Party who would fight fiercely against the projected one trillion dollar deficit we are calling for in 2018. My response is that the Republicans want Trump to succeed and they won’t fight him. This is very similar to the evangelical wing of the Republican Party holding its nose and supporting Trump, whose life story certainly raised serious questions for that faction, in the general election against Hillary Clinton. Moreover, the Trump Republican Party is not the party of Reagan; it is more a Jacksonian working class party that cares more about jobs than deficits.

Conclusion The election of Donald Trump signaled a major regime change in economic policy. We are transitioning from a reckless monetary policy to a reckless fiscal policy. In the short run that will bring with it more real growth and inflation along with higher interest rates. However, because the economy is operating at or close to full employment, the growth spurt will be short-lived and we will return to the 2% growth economy of the past seven years.

However, we will be left with mega-deficits that will make it more difficult to fund the retirement and health programs that voters expect. And the real risk is that a more aggressive Trump Administration trade policy would trigger a growth killing trade war. Thus we would caution that because there are so many ill-defined moving parts there is a higher degree of uncertainty in this forecast compared to prior ones. CA 9

The UCLA Anderson California Forecast

Forecasting the California Economy: Dead Reckoning in a Thick Marine Layer

By Jerry Nickelsburg, Senior Economist, UCLA Anderson Forecast, Adjunct Professor of Economics, UCLA Anderson School, December 2016

T

he election is over, now what? Usually in the California report I present some data to help us understand the forces at work on the California economy. For the most part I will eschew this methodology in the December report because we are sailing in unchartered waters.

Instead, what follows is a think piece on what I think are the important moving parts so as to better understand what we must look for as the seemingly random policy of the new administration takes form.

From the U.S. forecast we have an increase in defense spending and an infrastructure package combined with a lower tax rate, particularly for corporations and the highest income earners. The increase in defense spending will be disproportionately directed to California as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here. Moreover, there are few places to build the proposed 150 new warships, and San Diego is one of them.

Regionally, we expect a positive impact in the Bay Area and in coastal Southern California.

The infrastructure package may or may not be directed to California depending on a host of considerations. The Western Electrical Grid needs to be replaced and there is room for high-speed rail and water infrastructure. In addition, there is a need to repair and replace city roads within California. However, California is a sanctuary state and many cities such as Los Angeles and San 10

Francisco are sanctuary cities.

On the campaign trail PresidentElect Trump stated that he would block funds to sanctuary cities.

So how much comes our way is an open question. Given the size of California’s congressional delegation and the fact that this is a big unfunded (except for the assumed stimulated growth) spending program, Paul Ryan may need CA Democrats to vote for the package. In other words, we have no idea about the proposed infrastructure package and California.

Taking a look at the employment situation we find that California, in spite of the 5.5% unemployment rate is effectively at full employment.

Total employment, the number of Californians who are employed, is at an all time record 18.4M, 7.9% higher than the previous 2007 peak. Non-farm payroll jobs are similarly at a record with 16.6M jobs and 7.4% above the previous peak.

So where will the people come from to do the work? Immigration of skilled workers from China and India does not seem to be a likely source as the new Attorney General, a close confident of the President-Elect, opposes an expansion of the skilled worker

visa program. Rather what we should expect is rising wages inducing skilled people who will then be able to afford the California lifestyle to move to the Golden State.

So now the squeeze is on.

California is barely producing housing to meet the native growth of the population. The percentage increase in housing permits during the last year was 3.4%, a decent increase and consistent with our forecast, however it is insufficient to support any significant in-migration.

The passage of housing measures such as the Los Angeles City measure on affordable housing and developer labor costs will retard the already slow growth of housing, at least until such programs are well understood.

When housing supply does not go up and housing demand does, prices increase to ration the limited supply of housing.

In his first interview after the election, President-Elect Trump said that he would start deportations of undocumented immigrants right away. The person in charge of this is the aforementioned Attorney General. It is estimated that between 22% and 26% of [ Continued on page 12 ]

California Asphalt Magazine • 2017 Forecast Issue

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undocumented immigrants live here. Thus California is fertile ground for this deportation policy.

This means many things, but with respect to housing, mass deportations means that the demand for housing will decrease.

As well, rents will go down relative to what they would otherwise have been and not as many people will be squeezed out. The only fly in the ointment is the fact that downward pressure on rents will reduce incentives for building more housing.

In the Central Valley, where Donald Trump did relatively well, look for considerable disruption of its leading industry. As Arizona, Alabama and Georgia found out when they clamped down on undocumented immigrants in agriculture, farmers were unable to harvest all of their crops. It is estimated that half the farm workers in California are undocumented. If these numbers are even close, there will be a crisis in the Central Valley.

Farmers are going to be paying more, perhaps a lot more, for farm labor, if they can find it at all, and it will take some time before they can switch to producing crops that can be harvested by machines.

So in addition to the downward pressure on the demand for goods and services as a consequence of reducing California’s population through deportation, there will be a decline in agricultural output and this will affect State GDP and employment.

And then there are the trade wars. During the campaign, President-Elect Trump vilified China and Mexico for taking U.S. jobs. He promised to renegotiate treaties and agreements to “bring back American jobs.” This, of course, ignores the fact that if the Chinese want to hold dollars instead of RMB, and who wouldn’t, they must sell more to the U.S. 12

than they buy from the U.S. Nevertheless, among the policy proposals were no obvious positive incentives to two of the top destinations for goods coming out of California and the top two countries sending goods through California’s ports of entry to negotiate, only negative ones of very high tariffs.

It may be that the stick works and the trade deals are renegotiated with a larger volume of trade going both ways. It is hard to say, and not the most likely outcome we see with our national forecast. Quite possibly there will be a reduced volume of trade, and depending on whether or not the stick is swung, maybe a greatly reduced volume of trade. Elsewhere we have studied the impact on the Los Angeles economy. It will hit the East Bay, San Diego and the Inland Empire as well. Logistics is an important industry and a serious drop off in activity is bound to reverberate through the California economy.

So where does that leave us?

I am afraid that we economists are not going to be much help in giving definitive answers this time. Stimulus in a tight economy on the one hand, a squeeze in housing on the other, a recession in the State economy in agriculture and in logistics on the third are all just speculations on big events that may or may not occur. We just don’t know at this point. So we have a forecast which is our best guess and incorporates none of the above, but look to all of them to see in

what direction we are wrong.

Enjoy the forecast.

The forecast The current forecast is slightly higher than our previous one through the end of 2017. This reflects the stimulus assumed in the national forecast, particularly through the defense appropriations. The weakness relative to the U.S. after that reflects the fact that California, having already reached near full-employment will benefit less from further stimulus than rust belt states and the fact that deportations of unskilled workers will impact food harvesting and food processing. We expect California’s unemployment rate to have its normal differential to the U.S. rate at 5.2% by the end of the forecast period.

Our forecast for 2017 and 2018 total employment growth is 1.8% and 1.3% respectively.

Payrolls will grow at about the same rate over the forecast horizon. Real personal income growth is forecast to be 3.6% and 3.8% in 2017 and and 2018 respectively. Homebuilding will continue in California at about 120,000 units per year through The forecast horizon.

The information provided in this article is only a small excerpt of the UCLA Anderson Forecast for the Nation and California. To review the UCLA Anderson Forecast in its entirety, please visit their website at www.uclaforecast.com or call (310) 825-1623. CA

California Asphalt Magazine • 2017 Forecast Issue

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CalAPA'S 7TH ANNUAL

‘BETTER OR WORSE’ SURVEY

By Russell W. Snyder

The seventh annual CalAPA “Better or Worse” survey shows respondents are generally optimistic about the coming year even though positive opinions about the future continue to be replaced by negative ones for many.

The brief, non-scientific poll of more than 2,700 "Asphalt Insider" newsletter subscribers, conducted in December, indicated the optimism continues to slide from its peak in 2014, with pessimists slowly growing in number. The number of respondents who ercentage of respondents) said next year would be better than 2016 was 43 percent, compared to 47 percent last year and a record 51 percent the year prior.

012

On the negative side, 21 percent of respondents said next year would be worse than 2016, compared to only 14 percent who took that view last year 2013 2014 2015 and 14 percent in 2014. The "about the same" contingent was 41 percent this year, compared to 34 percent last year and 31 percent in 2014.

Of the overall respondents, about 30 percent were public agency representatives, with the rest comprising asphalt producers, refiners, paving contractors and other companies that are part of the industry plus a smattering of others.

For the first time, the survey added a question, “What is the No. 1 challenge where you work?” That question elicited more than 100 written 14

"Better" (by percentage of respondents) 60

30

50

25

40

20

30

15

20

10

10

5

0 2010

2011

2012

2013

2014

2015

"Worse" (by percentage of respondents) 30 25 20 15 10 5 0 2010

2011

2012

responses, with lack of being able to attract and retain qualified workers the top issue (28 written responses), followed by lack of funding (18 written responses).

“Fluctuations in transportation funding make it difficult to maintain a qualified workforce,” said one industry respondent, while a local agency representative offered, “Retirements of longtime employees leaving a knowledge gap in the workforce.”

Yet another industry respondent editorialized that it was a challenge “finding people entering the

2013

2014

2015

industry with a work ethic and no sense of entitlement.”

The main survey question is purposefully vague: “For your company or organization, how do you think 2017 will compare to 2016?” The choices were “better,” “worse” or “about the same / don't know.”

However, most of the voluntary comments offered up by survey respondents centered around how much work is expected in the coming year. The answer varied by company, agency and region, reflecting the size and diversity of California's massive

California Asphalt Magazine • 2017 Forecast Issue

0 20

economy and the many economic micro-climates that are spread across the state.

As in previous surveys, the weather largely depends upon where you are standing. Some respondents commented that work was booming, while others were very disappointed.

“Not much has changed so far,” said one local agency representative, while an industry representative said, “More work is coming out to bid and we seem to be more competitive and picking up more work.” Economists similarly note that California's economic growth has been uneven around the state.

“2016 was the best year we have had in 20 years,” one Northern California industry comment read, while another from Southern California noted “we had a tremendous 2016.” Elsewhere, however, an industry respondent lamented, “No funding source means no projects = no revenue!”

Many local agency representatives offered comments such as “not much has changed so far” and some without a strong local source of transportation funds predicted dire consequences for the road network. “Downturn in gas tax revenue, and lack of action by the state, is drastically shrinking the road budget,” wrote one local agency representative.

Industry respondents had roughly the same level of optimism for the coming year as agency personnel, the survey found. A total of 160 people took part in the voluntary on-line survey, which was conducted from Nov. 14 to Dec. 12. CA

Selected comments from the ‘Better-Worse’ survey: Question: How do you think 2017 will compare to 2016?

Selected industry Comments:

before new Federal money is injected. In addition, Federal money still requires matching funds, whether state or local.

We had a tremendous 2016.

Not enough public works activity.

Not much changes in government work.

Politicians can’t get their act together and fund to properly maintain our existing infrastructure.

Downturn in gas tax revenue, and lack of action by the state, is drastically shrinking the roads budget.

Continued decline in state and local government spending on infrastructure.

Gas-tax monies are drying up.

Drastic negative changes in the bottom line of available monies.

2016 was the best year we have had in 20 years.

We have less money for maintenance activities. For the first time since I have been working here (since 2005) we will not have any seal or overlay projects. We have gone from a $12M budget in 2005 to a $0 budget in 2017.

Strong backlog of residential, commercial and heavy highway work; Strong relationships with general contractors and developers; financial strength and stability of the company.

It looks like agencies will be putting out the same or more work in 2017.

Question: What is the No. 1 challenge where you work?

Selected industry comments:

The number of bids is approximately the same from the previous year.

Hiring qualified new personnel on the operations side.

I believe the economy has finally changed for the better.

Trying to get more work. We have the people and resources in place but there is just not enough work bidding to keep us busy enough.

DOT projects look to be about the same in our area for 2017. 2018 looks like a concern, though.

Selected agency Comments: Not much has changed so far.

The continued stalemate in Sacramento. Lack of resolution at the State level has led to diminished staffing at the local and state level. If transportation funding the local and State level.

If transportation funding at the Federal level is increased, as the President-elect has hinted at, local and state agencies will not be staffed and resourced to accommodate the larger volume of work. It is critical that the State increase transportation funding to not only restore needed work on state and local roads, but allow both state and local agencies to rebound in staffing and resources

California Asphalt Magazine • 2017 Forecast Issue

Overcoming the status quo.

Uncertain and inconsistent revenue streams.

Finding personnel to staff the work we have and pursue new work.

Selected agency comments: Staffing is not sufficient for the present workload let alone increases which may result from action at the state or Federal level.

Lack of funds to do the maintenance and upkeep work that is needed.

Lack of qualified staff.

Having a continuous secure funding source. With gas tax dwindling and cars being more efficient, we receive less money from the gas tax.

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STATE TRANSPORTATION FUNDING PLAN: NOW YOU SEE IT, NOW YOU DON’T The road to a comprehensive state transportation funding plan for California in 2016 was filled with twists and turns, and ultimately reached a dead-end. What’s in store for 2017 is anyone’s guess.

T

hings looked promising enough at the beginning of 2016 that the annual forecast issue of this magazine featured an illustration of the state Capitol with cash spewing from the top of the dome, and events early in the year seemed to support that optimism. In January, Gov. Jerry Brown released his proposed state budget for the 2016-17 fiscal year, a $171 billion spending plan that featured long-sought funding increases for transportation, including programs that could directly impact the asphalt pavement industry.

In keeping with budgets the Democratic governor has submitted in recent years, the plan also set aside money in a “rainy day fund” to serve as a buffer for the next economic downturn, and also emphasized his climate-change agenda. As for specifics, the spending plan offered a blend of tax hikes, fee increases and “cap-and-trade” money to generate about $3.6 billion annually in new money for roads above the previous funding level, including a proposed new $65-per-vehicle highway user fee. The fee was meant to help replenish the depleted state highway trust fund, which has been supported in the past by a tax at the pump but has been under duress due to the advent of high-mileage and electric vehicles in California and the Legislature’s unwillingness to raise gas taxes that were never indexed to inflation. The state’s gas tax devoted to transportation has not been increased since 16

By Russell W. Snyder

the 1990s and has about half the purchasing power it had then.

The budget plan also proposed to dump the much derided and even less understood “gas tax swap” that was enacted during the state’s “Great Recession” budget crisis that Brown inherited when he was elected six years ago.

As proposed, the Democratic governor’s transportation plan would have added up to about $36 billion extra for transportation over 10 years, and also emphasized the governor’s “fix it first” priority of maintenance of existing roads over new construction.

Once the Legislature got its hands on the spending plan, however, the governor’s plans ran into a myriad of different opinions on how transportation should be financed, including concerns from minority Republicans that the state does not utilize existing monies

efficiently. Meanwhile, other policy matters kept moving to the front of the line in Sacramento, denying the good-roads lobby the attention and momentum needed to press for a compromise deal.

Another factor working against transportation was the fact that 2016 was an election year for many, and no politician running for re-election wanted to have a tax-hike vote used against them by political opponents. If there is one universal truth in politics it is this: self-preservation (re-election) is always No. 1 on any politician’s list of priorities.

A “Special Session” of the Legislature on transportation called in 2015 by the governor started to lose steam as 2016 progressed, and the three main proposals for a comprehensive transportation funding plan – the governor’s budget and separate bills introduced by state Senate Transportation & Housing Committee Chair Jim Beall (D-San Jose) and Assembly Transportation Committee Chairman Jim Frazier, D-Oakley were far apart in many key areas.

At CalAPA’s annual “Fly-in” last Spring to the state Capitol in Sacramento, key legislators and committee staff were blunt in their assessment that the Legislature continued to be distracted and that only a concerted effort by stakeholders to keep the issue at the forefront in Sacramento held out any hope of preventing the Legislature from drifting off in other directions. The participants in the “Fly-in” included: Jeff

California Asphalt Magazine • 2017 Forecast Issue

Assemblyman Eric Linder discusses road funding at the CalAPA Capitol Fly-in March 8 & 9, 2016 in Sacramento.

Benedict and Len Nawrocki with Valero, Dan Briggs with Alon Asphalt Co., Don L. Daley Jr. and John Greenwood with California Commercial Asphalt, Brian Handshoe with Kenco Engineering, Tom Hicks with Ergon Asphalt & Emulsions, Jonathan Layne with Sully-Miller, and Jordan Reed with George Reed Co./VSS International.

As the months wore on, CalAPA continued to press lawmakers to look for common ground, and also leveraged the resources of the National Asphalt Pavement Association to highlight numerous opportunities for cities and counties in the new federal FAST Act surface transportation act. Many of the grants require state matches to maximize the amount of dollars that flow to California.

Meanwhile, a new player emerged on the scene, the FixOurRoads coalition, which developed a series of “Tweets” and fact sheets by legislative district to help elected officials understand what projects in their area may be in jeopardy because of dwindling transportation funding. CalAPA is a member of the “Fix Our Roads” coalition, in addition to supporting the work of Transportation California, the

On the steps of the state Capitol (left to right): Jonathan Layne, Sully Miller, John Greenwood, California Commercial Asphalt, Len Nawrocki, Valero, Jeff Benedict, Valero, Brian Handshoe, Kenco Engineering, Dan Briggs, Alon Asphalt Co., Don L. Daley Jr., California Commercial Asphalt, and Jordan Reed, George Reed Co. Not pictured: Tom Hicks with Ergon Asphalt & Emulsions.

California Alliance for Jobs and other pro-infrastructure groups.

By the time California State Transportation Secretary Brian Kelly spoke at the CalAPA Spring Conference April 21 in Ontario, more bad news on the transportation funding front was surfacing. He told conference attendees that the California Transportation Commission (CTC), which allocates transportation dollars to projects, was going to recommend more cutbacks in the face of dwindling transportation funding. The official news came a day later as the CTC officially released the staff report that called for carving out more than $750 million in future projects from the multi-year State Transportation Improvement Program (STIP) because of evaporating transportation funds.

“That is avoidable if the Legislature is engaged on transportation,” Kelly told the CalAPA conference. “I’m hopeful something will get done.”

Nothing did.

Will Kempton, the former Caltrans director who recently returned as executive director of Transportation California, an advocacy group, reacted to the CTC announcement by

California Asphalt Magazine • 2017 Forecast Issue

saying, “Three years ago we began sounding the alarm that continued underfunding in the state’s transportation program for our streets, roads and highways would lead to severe cuts in critically needed projects in every region of the state. These massive cuts provide stark evidence that this day has arrived. The action pending before the California Transportation Commission constitutes the worst cuts in the State Transportation Improvement Program since the creation of the STIP funding structure nearly 20 years ago.”

The news only got worse as the year went on. The Legislature, as widely expected, could not come together to pass a comprehensive $7 billion transportation funding package.

The major elements of the governor’s highly touted funding plan were stripped from the state budget that was finally signed into law in June. A blended bill authored by the two top transportation policymakers in the Legislature, Sen. Jim Beall and Assemblyman Frazier, could not get out of the Statehouse, and was later parked in the “special session” of the Legislature, so technically it was 17

alive until Nov. 30, but with no concerted effort to move the bill died an ignominious death in what became known derisively around the Capitol as the “not-so-special session.”

Transportation funding at the Capitol was officially dead for the year, and CalAPA’s Asphalt Insider newsletter ran an “obituary” on its demise.

The steady drip-drip-drip of bad news on the state of California’s deteriorating road network continued unabated throughout 2016. TRIP, a transportation research group supported by NAPA and others, released reports showing roads and bridges in the Golden State were falling apart at an alarming rate, and commutes were worsening. In one such example, TRIP’s “Rough Roads” report released in November, urban areas in the United States were evaluated and a list developed of the areas with the highest percentage of major roads and highways with pavements that are in “poor” condition and provide a rough ride. Three California urban areas with populations above 500,000 held the top three spots on the list: San Francisco-Oakland (71 percent), Los Angeles-Long Beach-Santa Ana (60 percent), and San Jose (59 percent), with San Diego coming in 15th (46 percent). In the list of regions with populations between 200,000 and 500,000, California cities popped up on the list at No. 1 (Concord, 75 percent), Victoria-Hisperia-Apple Valley (No. 3, 61 percent), No. 4 (Antioch, 60 percent), No. 9 (Stockton, 46 percent), No. 20 (Santa Rosa, 36 percent), No. 21 (Thousand Oaks, 35 percent) and No. 24 (Modesto, 32 percent).

If there was a silver lining in 2016, however, it came thanks to voters who imposed taxes on themselves in several 18

Brian P. Kelly, Secretary, California State Transportation Agency spoke on the administration perspective on transportation funding at the 2016 CalAPA Spring Asphalt Pavement Conference & Equipment Expo on April 20-21.

California communities to pay for transportation. Overall in California, such “self-help” counties generate about 60 percent of funding for transportation in the state. On Election Day in November, more urban and Democratleaning areas tended to pass the local transportation measures, with some notable exceptions, while the measures came up short in areas with a more balanced Democrat/Republican voter registration makeup.

Significantly, all but one of the 15 county measures received a majority vote, but six were unable to muster the steep twothirds Constitutional requirement for passing a tax increase.

The transportation-related measures worth billions of dollars that passed were: Los Angeles County Measure M; Monterey County Measure X; Merced County Measure V; San Francisco Proposition J; Santa Clara Measure B; Santa Cruz Measure D; Stanislaus County Measure L; and a multi-county measure in the Bay Area to support BART, Measure RR. The Northern California measures will generate an estimated $12.3 billion for transportation,

according to the California Alliance for Jobs. Los Angeles County’s massive Measure M was expected to generate $840 million per year and could end up generating $120 billion over 40 years.

The transportation-related measures that came up short were: Contra Costa County Measure X; Humboldt County Measure U; Placer County Measure M; Sacramento County Measure B; San Diego County Measure A; San Luis Obispo County Measure J; and Ventura County Measure AA. In California, meanwhile, the election results for candidates were decidedly more Democratleaning, with Democratic challengers knocking off some Republican incumbents in the Assembly and giving Democrats more than two-thirds of the seats in the lower house. That is significant because, like ballot measures, the California Constitution requires a two-third vote for the Legislature to approve a budget or raise taxes.

Notable Republican members of the Assembly who lost their seats to Democratic challengers were Eric Linder (60th Assembly District, covering part of the Inland Empire), Young Kim (65th Assembly District, covering part of Orange County) and David Hadley (66th Assembly District, covering the South Bay area of

[ Continued on page 20 ]

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Los Angeles). Linder and Kim were both members of the Assembly Transportation Committee and have been supported by the CalAPA Political Action Committee.

Overall, Democrats in 2017 will hold a 55-seat “supermajority” in the 80-member lower house, a much different outcome from the national election.

Democrats who are considered more pragmatic toward business won several key legislative districts in California, including Cecilia Aguilar-Curry, who defeated Charlie Schaupp for the 4th Assembly District, Tim Grayson, who defeated Mae Torlakson in the 14th Assembly District, Raul Bocanegra, who defeated Patty Lopez in the 39th Assembly District, and Blanca Rubio, who defeated Cory Ellenson in the 48th Assembly District. Because of California’s relatively new “top two” primary system, several districts had candidates from the same party on the ballot on Nov. 8.

In the 40-seat state Senate, there will be 27 Democrats and 13 Republicans next year, also a “super-majority. A key race watched by the road-building industry was the 3rd Senate District, won by moderate Bill Dodd over a more liberal Mariko Yamada. The vast district stretches from the North Bay near San Francisco to Davis, Woodland and other suburbs of Sacramento.

Dodd has been supported previously by the CalAPA Political Action Committee.

The party balance of California’s largest-in-thenation Congressional delegation remained unchanged, with Democrats holding on to 39 of 53 seats, but there were some notable races that attracted notice. State Attorney General Kamala Harris defeated fellow Democrat Loretta Sanchez to replace retiring U.S. Sen. Barbara 20

Boxer. Isadore Hall III lost a narrow race for the 44th District in the Los Angeles area against fellow Democrat Nanette Diaz Barragan, 51.2 percent to 48.8 percent, and longtime Republican Rep. Darrell Issa narrowly beat back a Democratic challenger, Doug Applegate, 51.1 percent to 48.9 percent, for the 49th District that is located in the San Diego area.

The populist wave nationally that swept Republican Donald Trump to the White House and gave Republicans control of both the Senate and U.S. House of Representatives largely missed California, which remains firmly in the grip of Democrats and the federal and state level, as well as many local jurisdictions, mostly in urban areas.

So what lies ahead in 2017 and beyond? Much like Greek mythology, which tells the story of Sisyphus, the king of Ephyra who was punished by the gods and forced to repeatedly roll a giant bolder up a hill only to watch it come back to hit him for all eternity, the path to securing a comprehensive transportation funding plan for California has seemed to be a sisyphusian task. Some longtime stalwarts of transportation policy also have stepped away from the boulder, including Transportation

California’s Kempton and the California Alliance for Jobs’ Jim Earp, both to retirement.

There is also increasing risk that the governor’s favored High Speed Rail project, which continues to generate negative headlines amid soaring costs, will set up a “road vs. rail” battle over dwindling transportation funding.

A Republican Assemblyman from the Central Valley, Jim Patterson from Fresno, has already fired the first shot, introducing a bill in the Legislature, AB65, to prohibit the state’s High Speed Rail Commission from using any dollars meant for roadways to pay off rail debt.

The outcome in 2017 is anything but certain, but CalAPA and many other likeminded groups and individuals will continue to do everything possible to keep pushing the transportation funding boulder upward and keep the issue at the forefront of the policy debate in Sacramento this year and beyond. The state’s future economic prosperity and quality of life are depending on it. CA Russell W. Snyder, CAE, is executive director of the California Asphalt Pavement Association

California Asphalt Magazine • 2017 Forecast Issue

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Q&A with

Gary Richards Reporter for San Jose Mercury News

By Russell W. Snyder

Editor’s Note: Gary Richards is one of the most experienced and respected transportation reporters in America, having written the popular “Roadshow” column and other transportation-related stories and investigative pieces for the Pulitzer Prize-winning San Jose Mercury News for more than 20 years. His articles on the on-line edition of the newspaper are consistently among the most read pieces in the paper. The California Asphalt Pavement Association in 2014 recognized his many contributions in educating his readers about transportation-related issues and advocating on behalf of long-suffering commuters by inducting him into the association’s “Hall of Fame” as an “Honorary Member.”

He took time out from the daily crush of deadlines to give his views to California Asphalt magazine on how we get around, what is important to his readers and his thoughts on the future of transportation.

California Asphalt Magazine: You’ve been reporting on transportation for more than 20 years, and have become known as the voice of the commuter in the Bay Area. Tell us what is important to people in your area.

What do they care about?

Gary Richards: The first thing on their minds is potholes. I know here in San Jose the streets are really crumbling, and so almost every sales tax measure on the ballot this year and the last couple of years has included quite a chunk of money for street repairs. The vote down here (Nov. 8) on Measure B was nearly 72 percent, and I’m convinced it was pothole repairs was the real incentive for voters to get out and support it.

Those are things that may not necessarily get you to work faster, or are capacity increasing, but they are clearly important to drivers.

CA: It seems like voters have responded to these local transportation-related measures very well.

GR: Very, very well. When I get a call about a surface street or a freeway that needs work for paving, and I can tell them that it’s on the docket and it’s going to happen next summer or something like that, they are thrilled, and they are willing to spend money to do that.

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CA: The local agencies that put these measures on the ballot, and deliver the projects, often call it “promises made, promises kept.”

GR: But it’s also the appearance of the road.

In our area we have had a rash of graffiti and litter outbreaks, just in the last two or three months, and that really frustrates Gary Richards Reporter for San Jose people. There were a Mercury News couple of election-related, Donald Trump-type markings on sound walls, and even though this area did not go for Trump at the ballot box, they didn’t like it.

Another thing is, they are willing to invest in other ways to get to work. One of the key issues down here was getting the funding to complete BART. CA: That’s the Bay Area Rapid Transit subway and trains, a 106-mile system that carries 129 million riders a year and connects San Francisco and the various communities that surround it in the Bay Area.

GR: Right. One of the key issues here is getting the funding to extend BART to downtown San Jose. BART has always been very popular down here in San Jose mainly because we don’t have it yet. I’m doing a contest right now to guess when the BART Warm Springs extension will open – they are about a year behind their timetable. Usually when I do a contest, like to guess the gas price, I’ll get a couple of hundred entries. In the BART to Warm Springs contest, I got over 1,100 entries and they just keep coming in. I just stopped counting.

CA: Interesting. But what about roads? Freeways, highways and local roads still carry the bulk of transportation trips, even in an area with established transit systems like BART, MUNI and others.

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www.sakaiamerica.com California Asphalt Magazine • 2017 Forecast Issue

(800) 323 0535 23

[ Continued from page 22 ]

GR: There wasn’t much new highway work on this sales tax list of measures. There were some interchanges and a couple of places where they would add an extra lane, but all of the other sales taxes except one were very heavily oriented toward adding extra lanes. It wasn’t a big issue this time. I think most readers realize we’ve done a lot of widening in our area.

CA: Well, BART is showing its age, and some regional rail lines are getting crowded. People are noticing.

GR: On Caltrain, some people who have a 45-minute commute to San Francisco have to sit on the floor of the train.

CA: What about carpool lanes or toll lanes?

GR: Some people don’t like them. They say,” I pay for this road widening. Why do I have to pay to use it?”

They also complain about the express lanes down here in the South Bay. The express lanes have a double white line, which means you can only get in and out at certain points. That really frustrated drivers. In fact, they are changing it. They’re going to a normal carpool lane, where you can enter and exit at any point, and the readers seem pleased by that. A lot of people who don’t like to pay still pay, but the other issue is more practical.

How can I still make my exit? When they did it on 680, coming down the Sunol Grade in Santa Clara County, if I got off at a certain exit, now I can’t get off there unless I get off earlier or later – that really angered people.

CA: So, to sum up your observations, it seems like motorists take some ownership in their method of travel. If they are driving, they want to route to be as free of congestion as possible, well-maintained, free of graffiti and litter, and easy to access.

GR: Exactly. And they are dying for all electronic tolling on the bridges.

CA: Toll bridges are a key feature in the Bay Area, which is dominated by the San Francisco Bay and has seven toll bridges crossing it at various points carrying hundreds of thousands of vehicles daily. The toll plazas can get pretty backed up during rush hour.

GR: They are dying for all electronic tolling on the bridges. In three or four years I think they are going to do that on the Dumbarton Bridge. The other thing, I’ve got a story that’s going to run in a couple of days on it, is about how SAMTRANS is leading a study on should there be more reversible lanes. They are considering that on the Dumbarton.

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CA: For our readers not familiar with Northern California, the Dumbarton is the southernmost toll bridge across the San Francisco Bay, connecting the Peninsula communities of Palo Alto, East Palo Alto and Menlo Park with Newark, Union City, Fremont and other East Bay communities.

GR: It’s a longshot, and many years away, but there was legislation this past year that called for Caltrans to look at reversible lanes. There are a lot of limitations, but on the Dumbarton Bridge those limitations are not very many. Eighty percent of the commute traffic is going one direction. Caltrans wants to see at least a 65 percent/35 percent split, meaning that at least 65 percent of the travel is in the peak direction. On the Dumbarton, 80 percent of the people are commuting in the peak direction and only 20 in the non-peak direction, so they are looking at that.

CA: So, how is the perception among your readers on the current state of transportation funding?

GR: Many people in the public think there should be more of that money going to maintenance. The frustration I hear from readers on that is, “Hey, I already pay my gas tax. Why can’t they repair 680 or 580?” So there is a frustration there among some people that we have enough money. But then when you talk to them, and you explain to them that the gas tax hasn’t gone up since the first Bush was in the White House, that makes them pause. They understand inflation. They see the price of their house today, particularly in Santa Clara County, compared to what it was in 1991 and it’s pretty amazing.

There is a faction that would like to see the gas tax raised, but the chances of that happening are very slim. I know that Jim Beall (the Senate Transportation & Housing Committee chairman from San Jose) is sponsoring legislation to boost transportation spending by $6 billion a year – a huge number – and that would have gas-tax increases in it. But whether that’s going to get through the Legislature, even though there is a Democratic supermajority right now, remains to be seen.

CA: Historically, polling in California has found raising the fuel tax does not garner enough support to overcome the two-thirds approval threshold for raising taxes because of the perception that pump prices are too high already.

GR: If they are ever going to put a gas tax hike on the ballot, it is right now when the prices are pretty reasonable. But once it gets to that $4 a gallon mark it gets to be a lot harder.

CA: That’s the revenue side, but what about the expense side? Do your readers feel the money we have now is being spent efficiently?

California Asphalt Magazine • 2017 Forecast Issue

GR: When they see things like all the ADA (Americans with Disabilities Act) requirements for curbs and ramps, the whole “complete streets” thing, they don’t understand or they get frustrated by that and are asking, “Why are you doing that at the curb when there are potholes in the street?” They don’t understand the “complete streets” concept, or the concept of a “road diet.” There may be a road that is two lanes each way, and they are going to be reconfigured to one lane each way, with a center turning lane and adding bike lanes.

Bike lanes are one of the issues that get people really riled up because they don’t see many people biking right now, even though the numbers are increasing. So, I guess, to answer your question, they don’t understand the whole funding thing. We did one “road diet” project down here and they were just incensed by it. But it turns out that all of the money came from a grant, and it wasn’t their gas taxes paying for that.

CA: Transportation funding in California is very complex and it is difficult for good-road advocates to explain how it works and what is needed. It’s an ongoing challenge.

GR: I’ll give you another example. One of the regional bridge toll measures contributed quite a chunk of money for adding an extra bore in the Caledott Tunnel (Editor’s Note: The Caldecott Tunnel, on State Route 24, carries traffic beneath the Berkeley Hills and connects Oakland and Berkeley in Alameda County to central Contra Costa County to the east. The facility consists of one tunnel for eastbound traffic, one for westbound, and one tunnel that was reversible to accommodate commuting patterns. A fourth bore was added in 2013, eliminating the daily reversible traffic operation). Many drivers thought, “Hey, they are raising my bridge toll, which in 1991 was $1.” (Current tolls are generally $5 and are only collected in one direction of travel, but may be headed higher). They ask, “Where did that money go?” But when I point out to them that it is going to the Caldecott Tunnel, and use that as an example, they are OK with that. The thing that is interesting about toll bridges is when they do polling, the county that favors bridge tolls the most is Santa Clara County, and we don’t have bridges down here.

CA: That’s the dark side of a democracy. It has sometime been described as two wolves and a lamb voting on what’s for dinner. But since we are on the general topic of self-interest, what else do people in your area want?

GR: When I first started doing this, the big question was, “Why doesn’t BART come to San Jose?” That was an easy answer: voters are paying for it. The second big issue was, “Why is my traffic light always red?” They California Asphalt Magazine • 2017 Forecast Issue

would love to see more synchronized traffic lights to get them through better than they get through now.

There will be a row of traffic lights, but you can only get through two or three intersections because the fourth intersection has heavy cross-traffic. People don’t always see that. They just see they have a red light and they get frustrated by that.

CA: Have there been any issues that, over time, motorists have come to accept?

GR: Two things that drivers are much more agreeable with – I used to get a lot of calls from people who say, “I hate metering lights. Get rid of those suckers.” I don’t get that nearly as much anymore. Now it is, “Why aren’t the metering lights on on 680?”, or, “Why aren’t there more ramp meters on 101?” They do understand now, a great many of them, that metering lights do help the flow of traffic.

CA: Fascinating.

GR: The other thing is carpool lanes. The question I’m getting now is, “Why do the carpool lane hours end at 9 a.m.?” They think it should be going to 10 or 10:30 a.m. And that’s going to change as we get more express lanes, the hours are going to be from 5 a.m. to 8 p.m., and on I-80 where they are doing the “smart corridor” the hours could be even longer.

CA: OK, so looking ahead, what do you think are the prospects for the governor and the Legislature coming to agreement on a comprehensive transportation funding plan? There was a lot of talk in 2016, but not much action. Do you think something can be done in 2017?

GR: I actually think it will take two years.

CA: (Audible groan).

GR: The reason I say that is, the voters in the Bay Area just voted on sales tax measures for transportation, and for all of the measures in the Bay Area except for Contra Costa County and San Benito County, everyone that had a sales tax passed it, and all by two-thirds.

Even in smaller counties, like Santa Cruz and Monterey, they got a two-thirds vote – barely – but they got it. I wouldn’t have guessed that. I think people understand that the state has a $59 billion deficit in road repairs.

The only question I have is, is it too soon to come back in 2017? Is there going to be a pushback from voters, or are they on a roll? Normally you would like to do it in a presidential year, for voters to get involved. Donald Trump is talking about investing in infrastructure. How is he going to do that? If the feds raise the gas tax a 25

few cents, that would be OK. If they tie the gas tax to inflation, I think people could deal with that. You were optimistic last year, and so was I. Am I as optimistic this year? No, but they need to keep the pressure on.

You just can’t drop the ball, because you will lose interest.

CA: It seems like our elected officials in Sacramento and in Washington understand the problem, but can’t seem to come together on a comprehensive plan to pay for it.

GR: When you asked me that question about if readers feel the money is being spent right, one constant complaint is the High Speed Rail. Even though money for that project would come from other areas, there is a perception that there is $6 billion or $8 billion there that we could use to repave 101. That’s a constant theme.

CA: What is your take on High Speed Rail? Do you think it will ever get built? They have broken ground for construction, but they have a long way to go, and many funding and legal hurdles yet to clear. As currently envisioned by the High Speed Rail authority, the system would run from San Francisco to the Los Angeles area by 2029 and a trip would take about three hours on trains that could travel more than 200 mph. The system would eventually extend to Sacramento and San Diego and have 24 stations.

GR: They are moving along. I think it’s got a chance.

But where is all the money going to come from? It is so expensive. Would I like to see high-speed rail? Sure. It’s one of the few transportation measures that I almost voted no on. I usually tend to vote yes on the measures that I can vote on. That was one that really gave me pause. The goal is great, and 20 or 30 years from now the air traffic corridors will be jammed and the freeways will be jammed, but I guess I have mixed emotions on it. I guess I am more pessimistic than I am optimistic.

CA: And what about ridership?

GR: Now you are seeing transit ridership drop. Not so much BART and Caltrain (the Peninsula commuter rail), where ridership is growing. But at a lot of the local transit systems, the ridership is down. And that makes you wonder, gee, traffic is bad, why is ridership down?

Well, it’s the impact of Uber, Lyft and other ridesharing services like that. If I take Caltrain to the Diridon station down here in San Jose, and I need to go to the Golden Triangle, am I going to wait for a transfer? No, I’m going to hail a ride. I think the transit districts are caught in a conundrum right now. The locals aren’t gaining ridership at a time you would expect them to gain ridership.

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CA: On the subject of ride-sharing and other emerging technology, such as driverless cars, it really seems like there is a major disruption ahead in how we get around.

The Bay Area, home to the Silicon Valley, seems as good as a test bed as anywhere.

GR: When I go back and look at 10 years ago, in 2007, Apple came out with its new phones and revolutionized how I get my traffic information. Think of what it will be like in 10 years. I kept thinking autonomous cars were two or three decades away. I don’t think that anymore.

For someone with limited mobility, or who doesn’t drive, could have a car that could take me to work and get me around, I would take a look at it. One of the things Google did was, they took a guy who was legally blind, got him a driverless car. What did he use it for?

He went to the dry cleaner, he went to the pharmacy.

He did his little errands that he can’t do now, and he was just thrilled. It gave him a little more freedom. And with our population aging the way it is, the next 10 years are going to be fascinating. I’m still not convinced that everyone’s going to give up their cars and get cars with driverless capability, but a number of people will.

One of the interesting things with driverless cars will be the impact to traffic, because they will be following the speed limit. There are those who want everyone to go faster. I can’t predict the future, but I know it’s going to change.

CA: A bold prediction! But even these exotic new vehicles, outfitted with driverless technology, will still travel on pavements that, presumably, will need to be maintained properly.

GR: Oh, yes. One of the questions I usually get on this issue is, “What if there is a huge pothole? Will my driverless car be able to detect that and steer me around that or slow me down?”

CA: But there are many traffic experts who say that if you take the human equation out of the car, that will improve traffic flow because it will be smoother and less prone to disruption due to brake lights, weaving, tailgating, driving while impaired, and other bad behavior. A rule of thumb I have heard is that about half of traffic congestion is caused by crashes, stalled vehicles and other non-recurring incidents.

GR: Certainly the constant lane-changers on the freeway, they can really mess up traffic. If you have a guy in the fast lane, and all of a sudden he wants to get over to the middle lane, and he jumps back into the fast lane. And a half a mile later it is his exit, so he’s back in the slow lane. Some people are very perceptive to how that messes things up. [ Continued on page 28 ]

California Asphalt Magazine • 2017 Forecast Issue

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CA: Speaking of perceptions, our publication covers the asphalt pavement industry, and studies show that asphalt covers about 94 percent of roadways in California and across the United States, with the remaining consisting of concrete. Do your readers discern a difference in these two pavement types?

GR: They absolutely do.

CA: So what are they telling you?

GR: I’ll give you an example. There’s a stretch of 101 that’s kind of sunken. And readers understand the need for concrete there because they believe it drains the water better and things like that. However, overall they love asphalt. It’s quieter. They just did a 10-mile stretch of 280 in the Menlo Park area, and it all went in as asphalt. The general reaction is, a) I can see my lane lines better, b) it’s quieter, and I think they would prefer asphalt overall. They certainly do see the benefits of asphalt.

CA: What about smoothness? National surveys have consistently shown that is very important to motorists.

Not just a well-maintained road that is free of potholes, but a smooth ride. Caltrans and our industry are working on new pavement smoothness standards and construction techniques with a goal of a smoother roadway surface. Are you hearing anything about that from your readers?

GR: Oh, yes. The ride on 280 in the Menlo Park area – we just went for a trip to the City the other day – and I could have taken a nap the pavement was so smooth. It was so nice. Plus, right now, in the rain, with concrete you can’t always find your lane lines. But along 280, they stuck out like they were glowing in the dark. People like that. On Highway 17 they put in special pavement for drainage purposes – I call it the popcorn pavement (known as “Open-Graded Friction Course” in Caltrans parlance). They do notice that. When they built Highway 85 down here, because it was sunken in many areas, they went to concrete almost the entire length and the biggest complaint I get about 85, not only from people living near there, is noise. When we came home last night, I could hear the freeway and we are 5 miles away.

I’m used to it, but there are a lot of people who have never gotten used to it and they would have preferred to see a quieter freeway. When you explain to them that the reason it is concrete is because the residents in that area wanted it sunken, well, they got what they wanted.

CA: There are other quality-of-life issues beyond just potholes and traffic congestion. Living in a quiet community free of traffic noise is one of them.

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GR: The other issue I have with concrete is the number of people who get flat tires. People notice the bumpier ride, and if their tires are worn at all the car will vibrate left to right, so they don’t like that either. They can’t figure out what’s wrong.

CA: Since many of our members are involved with construction of roads and freeways, what is the perception of the highway worker?

GR: I think people are more understanding of road workers out there. And not just road workers, but other motorists who are in cars that stall and get hit. I’m always preaching, “Hey, don’t stop along the freeway if you can avoid it.”

It’s like the analogy of the moth being attracted to a flame. They understand that. And the new “move over” law, I think they are better at obeying that. But it only takes a handful of cars to ignore it. If they see a Caltrans truck up ahead and they zip over to the fast lane and they lose control, they don’t understand where their eyes are going. You steer where your eyes are looking, oftentimes.

CA: It sounds like your readers who get behind the wheel are pretty tolerant of road work because they understand it is necessary to maintain the transportation system.

GR: The only intolerance I see is they get very frustrated by street-sweepers on the freeway. That’s because sweepers can back up traffic for a long time.

But do they get frustrated when they see a crew out there doing guardrail repair, or getting ready for a paving job? I think they understand that most of that work is done at night, and I don’t get many complaints about that.

CA: Do people differentiate between construction and maintenance? Between, say, a Caltrans worker and a local agency maintenance worker or private contractor?

GR: No they don’t. They always think it is all Caltrans.

I’ll get inquiries like, “Caltrans is working on First Street in downtown San Jose. Why?” I have to explain to them it’s not Caltrans. For most people, if they see a guy or a woman out there with a vest on, they think it’s Caltrans.

CA: If you had one thing to say to our audience, which consists of not only the asphalt pavement industry but many local, city and county agency representatives, what would it be?

GR: Realize that when you are approving money for new roads or smoother roads, it’s an investment, Look at it that way. You know what traffic is like compared to 20 years ago. What about another two or three decades? Help people understand that we need to invest in the future. CA California Asphalt Magazine • 2017 Forecast Issue

STATE PANEL OF PROP. 65 SCIENTISTS FOLLOW INDUSTRY RECOMMENDATION ON ASPHALT

By Russell W. Snyder

n independent state panel of scientists, tasked with reviewing research on paving asphalt and health, has concluded that further study on the topic is a “low” priority for state regulators.

The finding is consistent with an industry recommendation.

Placing asphalt in an unfavorable light, or mischaracterizing asphalt, could be harmful to the industry and result in additional regulatory scrutiny, the potential for lawsuits, and hamper efforts to follow existing environmental, health and safety regulations and permitting.

The state Office of Environmental Health Hazard Assessment (OEHHA) on Sept. 9, 2016 officially opened a 45-day public comment period leading up to the Nov. 15 meeting of the Carcinogen Identification Committee (CIC) in Sacramento.

The CIC is a panel of five scientific experts, appointed by the governor, who provide guidance to the state on which substances should be considered a priority for further study and possible inclusion on the California's official list of Proposition 65 chemicals.

Proposition 65, a ballot measure approved by voters in 1986, requires the state to develop a list of substances known to cause cancer and birth defects in humans and that the public be warned about such hazards.

Currently, the official Proposition 65 list includes more than 800 substances, and Proposition 65 warning signs are ubiquitous throughout California.

30

Above: NAPA’s Dr. Howard Marks testifies Nov. 15 before the state Carcinogen Identification Committee in Sacramento.

CalAPA was joined by the National Asphalt Pavement Association (NAPA) and the Asphalt Institute in presenting detailed information on decades of scientific study and regulatory review that found no such risk in the use of paving asphalt in an occupational setting.

Non-occupational risk was virtually non-existent, the studies showed.

"From the perspective of the human health evidence, it does seem to have been addressed in a number of forums," said Dr. Peggy Reynolds, a CIC panelist, when commenting on the information presented by industry and OEHHA staff.

After reviewing written comments submitted by industry, and listening to testimony by Dr. Howard Marks, NAPA's vice president for Environment, Health & Safety, the panel voted to designate paving asphalt a "low priority" for further study at this time.

The only other options available to the panel were “medium” priority and “high” priority. Unlike some other substances, there were no written comments or public testimony about asphalt beyond what was presented by industry.

Roofing asphalt, one of the other substances considered, received a “medium” priority, even though it only represents a sliver of the overall roofing market in California. Aspartame, an artificial sweetener, was placed in the “high” category, largely due to the widespread exposure to the public in the form of diet soda and other food.

There had been speculation that the work of an international body, the International Agency for Research on Cancer (IARC), to evaluate potential cancer risks of asphalt would attract attention of OEHHA. That body, based in Lyon, France, released its finding in 2011. In a subsequent

[ Continued on page 32 ]

California Asphalt Magazine • 2017 Forecast Issue

[ Continued from page 30 ]

lawsuit, the California Court of Appeals, 3rd District, in October of 2012 upheld a Superior Court decision that would seem to preclude OEHHA from including substances on the Proposition 65 listing based exclusively on the findings of the IARC. IARC’s report concluded that paving asphalt should be included in a broad category of substances (Category “2B”) that “possibly” cause cancer. The list includes many everyday items, including cell phones and coffee. State asphalt pavement associations, including CalAPA, joined forces with the National Asphalt Pavement Association (NAPA), the Asphalt Institute (AI) and others to pool funds for several years to pay for technical expertise and analysis to ensure IARC had sufficient objective data to make an accurate assessment.

An unfavorable outcome at the CIC hearing, which could possibly lead to a Proposition 65 listing of asphalt, was deemed as a serious threat to the industry

in California. The California Asphalt Pavement Association (CalAPA), the National Asphalt Pavement Association (NAPA) and the Asphalt Institute (AI), with the guidance of the CalAPA Environmental Committee, joined forces to create a special task force to develop an effective response to the CIC inquiry.

Expert toxicologists with experience with the OEHHA Carcinogen Identification Committee were retained, and written comments were developed to make that case that the CIC should not give asphalt a priority listing. The comments, chiefly developed by NAPA and reviewed by numerous other experts, were submitted to the state Oct. 21. The 15-page letter, filled with citations of numerous scientific studies, concludes that "over the past three decades of scientific and regulatory agency review, there has been no indication of a human or animal carcinogenic effect from exposure to Paving Asphalt Emissions.”

An industry task force assembled by CalAPA also identified a designated speaker to represent the asphalt pavement industry at the Nov 15 hearing: Dr. Howard Marks, Vice President of Environment, Health and Safety for NAPA. Other experts representing the asphalt pavement and roofing industries were present at the hearing to answer technical questions. In his testimony, which was broadcast live on the internet, Marks reemphasized the key points made in the industry letter. Ultimately, the panel agreed with the asphalt industry position.

According to Martha Sandy, Chief of the Reproductive and Cancer Hazard Assessment Branch of OEHHA, the “Low Priority” designation placed on paving asphalt likely means that no additional scrutiny by the agency is warranted for the time being unless new studies are published that contradict the numerous other studies and evaluations that have been done in recent years. CA

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INDUSTRY NEWS Wendell G. Reed February 12, 1928 - December 11, 2016 Even the weather was sad as family and friends said goodbye for the last time to one of the towering figures of the asphalt pavement industry in California, Wendell G. Reed.

Reed passed away at his Modesto home Dec. 11 with his wife, Norma, his children and grandchildren at his side.

He was 88. He had been President of George Reed, Inc., a California based construction materials and heavy highway contracting firm and Chairman of the Board of Basic Resources, Inc, its parent firm which owns many other construction and construction-related companies including Reed International, 7-11 Materials, and VSS International. He had been in construction management for 66 years.

“He was an icon in our industry,” said Bill Darnell of Valero Energy. “He set such a high standard for character and dignity. He was cordial with everyone but he was also a businessman and an entrepreneur. You never got ny gobbledygook from him.”

Darnell said Mr. Reed was a visionary industry leader.

“He knew which direction the industry was heading. He made good moves at the right time, which benefited his company but also the industry. He left a positive imprint on the entire construction industry in California.”

Mr. Reed was a former chairman of the Northern California Asphalt Producers Association (NCAPA), which eventually became known as the California Asphalt Pavement 34

Association (CalAPA). “He was always there when you needed him,” said former association Executive Director Roger Smith, a CalAPA Life Member. “He was a big supporter of the association and the industry.”

“He was an incredible son, brother, father colleague, mentor and boss,” said his son, Jeff Reed, who eventually took over as president of the family business. “His door was always open to everyone and he always had time to talk to everyone.”

Mr. Reed was laid to rest following a funeral mass held Dec. 15 at the St. Stanislaus Catholic Church in Modesto, Calif., attended by hundreds of family, friends and others who were touched by his life.

The skies were slate-gray and a steady drizzle marked the occasion. His two sons and daughter took turns offering a eulogy that included personal stories and fond memories. The service included music from

Dixieland jazz band honoring his love of music, and the band took up an up-tempo version of “When the Saints Go Marching In” as Mr. Reed’s funeral procession headed off to his final resting place.

Wendell Guilford Reed was born in Stockton on February 12, 1928, to George and Rose (Zimmerman) Reed, founders of pioneer paving contractor George Reed. His father began his career in 1920 when he formed a company with his brother, C. E. Reed. In 1944, George formed George Reed, in Modesto, which was incorporated in 1962 becoming George Reed, Inc. Mr. Reed grew up in Tracy, Calif., before the family moved to Modesto, where Mr. Reed graduated from Modesto High School in 1946 while owning and operating a Richfield gas station on Morris Ave. He later attended Modesto Junior College before transferring to U.C. Berkeley to complete his Bachelor of Science degree in Civil Engineering. While in high school and college in the 1940s, to make ends meet he had an eight-piece dance band, The Downbeats, where he played piano. After graduation, he worked as a quality control engineer and project manager for a few years with the U.S. Army Corps of Engineers, San Francisco District, on military airfield projects in Hawaii, Salt Lake City and Castle Air Force Base in Merced, Calif.

Mr. Reed joined his father's firm, George Reed, in 1953. He recalled starting as a laborer with his father saying “When

California Asphalt Magazine • 2017 Forecast Issue

you learn to use this shovel I’ll give you an asphalt rake.” He was named vice president in 1962 and following the death of his father in 1974, he became president. During his career the firm grew from under $150,000 annually to $250 million annually, employing over 800 people.

Mr. Reed had been involved in various leadership positions with the Associated General Contractors of California, including serving as president in 1982 and Chairman of the Chapter’s National Affairs Committee.

Active in the local community, he was past chairman of the Salvation Army Board and life member. He received the Salvation Army “Others’ award in 2003. He served on the Board and as a Trustee of the Modesto Symphony and was a member of the American Arbitration

Association, the Commonwealth Club of California, American Society of Military Engineers, The Old Fisherman’s Club, St. Francis Yacht Club, Del Rio Country Club, and the Modesto Rotary Club.

In June of 2015 he was honored as the Grand Marshall of Modesto’s American Graffiti Parade and Festival by the North Modesto Kiwanis and a star was placed for him on Modesto’s 10th Street sidewalk Walk of Fame.

He was preceded in death by his beloved parents, George and Rose Reed and his brother Richard Reed. He is survived by his wife of 64 years, Norma Mae (O’Brien) Reed, his children, Jeffrey Randolph Reed (Margaret) of Vacaville and Modesto, Cathy Reed Bussey (Howard) of Pittsford, N.Y. and Gregory Brien Reed (Kristen) of Modesto. He is also survived by grandchildren,

California Asphalt Magazine • 2017 Forecast Issue

Jordan Reed of Sacramento, Cameron Reed (Josh Hattersley), Berkeley, Matthew Reed (Jamie), Seattle, Wash., Rhiannon Bussey Gaborski (Thomas), Henrietta, N.Y., Kendra Bussey, Braunschweig, Germany, Alyssa Bussey (Jean-François Roy), San Francisco, Evan Bussey, Pittsford, N.Y., and Connor, Garrett and Kevin Reed of Modesto and two greatgrandchildren Alexander and William Gaborski.

The family said remembrance contributions would be appreciated to The Salvation Army, 625 I Street.

Modesto, Calif., 95354, or the Community Hospice Foundation, 5368 Spyres Way, Modesto, Calif., 95356. CA

35

INDUSTRY NEWS In Memory of George Thomas Davis December 21, 1952 - October 13, 2016

George Thomas Davis “Tom” passed away on October 13, 2016, at the age of 63 in Villa Park, CA. He was born in Cedar Rapids, Iowa on December 21, 1952 to George and Betty Davis. He graduated from Washington High School in 1971, attended Cornell College in Iowa where he majored in Geology, and completed his education with a Masters in Environmental Studies from Cal State Fullerton.

Tom met the love of his life, Teri, after he moved to California in 1980. They married on February 19, 1983. They later had two wonderful children, Kristen and Geoff.

Tom started his career with Martin Marietta in the Midwest and worked for Livingston Graham when he moved to California. He later moved to Calmat and Vulcan Materials. After that, he worked as a land use planning consultant before he started Davis Consulting Services in 2010, with his wife Teri. His daughter, Kristen, joined the company in 2012. Tom is well known in the aggregate industry and had over 40 years experience there.

Tom was very passionate about the family business Davis Consulting Services. He grew the business to have work in a wide variety of 36

industries such as construction aggregates, inert debris operations, recycling, and TV and radio broadcasting. He was very knowledgeable in mine permitting, SMARA compliance, preparation of reclamation plans, conditional use permits, inert debris operation plans, waste discharge requirements, waste load checking programs, aggregate resource feasibility analyses, etc.

Tom was blessed to have his daughter Kristen work as a project consultant for the family business.

He was a wonderful mentor to Kristen and was very proud of all she has learned over the years and the business woman she has become. In honor of her father, Kristen will continue to grow the family legacy of Davis Consulting Services.

Over the years Tom was very active in the California Mining Association, CalCIMA and other construction aggregate associations. He was a long time CalCIMA member and supporter of the CalCIMA Environmental Committee. Tom was integral in the adoption of the Inert Debris Engineered Fill Operation regulations by the CA Integrated Waste Management Board and the current AB 901 recycling regulatory processes.

Left: Tom working in the field.

Middle: Tom and Kristen at CONEXPO-CON/AGG in 2014.

Right: Tom and his wife of 33 years Teri.

Perhaps what Tom was best known for was his service to others. He exemplified the Rotary motto of “Service Above Self.”

His time in Rotary spanned approximately 30 years and Tom helped numerous people in the community and around the world.

He was most passionate about his tree nursery project, trips to Mexico to administer polio vaccinations, and the “We Give Thanks” project in Anaheim.

When not involved with his business and Rotary, Tom enjoyed traveling around the world with his wife, working on home projects, adding to his international coin collection, having swimming and bbq parties with his family and spending time with his two cats.

Tom touched many lives with his kind and generous spirit, his patience, his quick wit and engaging personality.

Tom is survived by Teri, his wife of 33 years, his sister Karen Jessen, and his children Kristen and Geoff. CA

California Asphalt Magazine • 2017 Forecast Issue

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Bomag America............................................ 7

Pavement Recycling Systems....................19

CalAPA......................................................... 38

Pine Test Equipment...................................31

Coastline Equipment................................... 7

Peterson CAT................................................ 2

CEI Enterprises, Inc.................................... 39

Quinn Co....................................................... 2

Diversified Asphalt Products.....................21

RDO Equipment Co................................ 5, 29

E.D. Etnyre & Co......................................... 37

Roadtec........................................................11

Hawthorne CAT............................................ 2

Sakai...................................................... 23, 29

Herrmann Equipment, Inc......................... 26

Scott Equipment........................................ 33

Holt of California.......................................... 2

Sitech........................................................... 35

Johnson Machinery..................................... 2

Sully-Miller Contracting Co...................... 34

Kenco Engineering..................................... 37

Valero Marketing & Supply......................... 3

Matich Corporation.................................... 33

Volvo Construction Equipment & Svcs....13

Nixon-Egli Equipment Co........... Back Cover

IF A CAR DRIVES ON THE ROAD AND NO ONE HEARS IT, THAT’S

DRIVABILITY To reduce road noise and help keep neighborhoods quiet, asphalt pavement engineers have developed special mixes like open-grade negraded surfaces, as well as modi ed, rubberized and stone-matrix asphalt that can lead to pavement-tire noise reductions as great as 7 decibels. * No wonder 83% of engineers, developers, transportation o cials and other key stakeholders chose asphalt as the quieter ride.** Smoother, quieter, fewer delays… that’s drivability. That’s asphalt.

L E A R N M O R E A T W W W. D R I V E A S P H A LT. O R G

* World Road Association (PIARC). Quiet Pavement Technologies. Report 2013R10EN,2013 **Edelman Berland Survey, 2013

The APA is a partnership of the Asphalt Institute, National Asphalt Pavement Association and the State Asphalt Pavement Associations.

38

California Asphalt Magazine • 2017 Forecast Issue

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