1 Impact of Inflation on Road Construction Expenditures

Impact of Inflation on Road Construction Expenditures / Minnesota DOT

The Minnesota State Highway Investment Plan (MnSHIP) outlines a 20-year strategy for investing in the state highway system. The most recent document, published in 2017, outlines investment priorities for the period from 2018 to 2037 (http://minnesotago.org/application/files/3414/8431/5979/ MnSHIP_Final_Jan2017.pdf). One of the figures included in the plan uses historical inflation trends to illustrate the declining purchasing power of revenue due to construction costs growing at an annual rate of approximately 4.5 percent. This cost growth rate exceeds the projected annual revenue growth rate of approximately 2 percent, which is expected to erode over half of the buying power of revenues by 2037. As a result of this analysis, MnDOT was able to communicate its financial situation with stakeholders and could better manage the risks associated with continued construction cost increases over the planning period.

Anticipated Construction Revenue by Year Including Adjustments for Inflation

Source: Minnesota DOT. 20-Year State Highway Investment Plan 2018-2037.

Read more in the chapter: 6.3.2 Using Trend Data to Make Program Adjustments