California Asphalt Magazine – 2021 Forecast Issue by CMS

2021 FORECAST ISSUE

INSIDE: Industry trends to watch in 2021 UCLA Anderson Economic Forecast CalAPA's exclusive 'Better or Worse' survey SB1 work ramps up

COMPLETE TOUGH MILLING APPLICATIONS WITH PRODUCTIVE RESULTS

CUTTING WIDTH

4.02 ft

OPERATING WEIGHT

48,153 lbs

HORSEPOWER

325 hp

Cat® PM312 Cold Planers The new PM300 models with a track undercarriage combine enhanced production capabilities, optimized performance and simplified service to complete tough milling applications with productive results. For more information, contact your nearest California Cat dealer today.

www.hawthornecat.com San Diego 800-437-4228

www.holtca.com Central Northern California 888-294-9778

www.petersoncat.com Bay Area & Northern California, Oregon, and Southwest Washington 844-349-4353

www.quinncompany.com Central & Southern California 888-842-2155

© 2020 Caterpillar. All Rights Reserved. CAT, CATERPILLAR, LET’S DO THE WORK, their respective logos, “Caterpillar Yellow”, the “Power Edge” and Cat “Modern Hex” trade dress as well as corporate and product identity used herein, are trademarks of Caterpillar and may not be used without permission. www.cat.com / www.caterpillar.com

Big projects, big performance Bakersfield Bakersfield, CA 661.387.6090

Corona Corona, CA 951.277.7620

Fresno Fresno, CA 559.834.4420

Sacramento Sacramento, CA 916.504.2300

San Diego Lakeside, CA 619.441.3690

San Leandro San Leandro, CA 510.357.9131

Turlock Turlock, CA 209.410.6710

facebook.com/volvoces instagram.com/volvoces twitter.com/volvoces

Construction Equipment & Services

www.vcesvolvo.com

DD110C

| Volvo Double Drum Compactor

Unlock the full potential of your machine with Compact Assist, the optional Intelligent Compaction system. For an efficient job, Compact Assist offers real-time insight into the work using pass mapping and temperature mapping. When Density Direct is enabled, the operator is able to easily track density values to help eliminate any destructive over compaction.

Volvo Construction Equipment & Services offers you a range of compactors so you can choose the machine that best matches your needs. Whether youâ&#x20AC;&#x2122;re compacting on a highway or airport, wide or deep pavements and on Roller Compacted Concrete (RCC), Warm Mix Asphalt (WMA) or any other material â&#x20AC;&#x201C; Volvo compactors boast the best compaction in the market place. Whatever your requirements, Volvo has the best compactor for the job.

Publisher’s Letter Predicting (and influencing) the future One of CalAPA’s core functions is to serve as an early warning system for our members. We spend a considerable amount of our time and resources to understand our industry, the markets, the regulatory and economic environment, and the myriad of threats and opportunities that they present. Sometimes those changes are imminent, or they may be far off in the future. Emerging trends are also important to assess, to put everything in context. And then there’s always the “Black Swans,” or unexpected events (like a global pandemic) that come along and upend everyone’s careful plans and preparations. The importance of focusing on the future is two-fold: The more we understand what’s coming at us, the better we can prepare for it. Also, we may have an opportunity to positively influence events before they happen, which is much better (and less expensive) than constantly being in reaction mode. This insight is useless, of course, unless we get it in the hands of our members. That’s why the future is woven into our “Member Alerts,” our newsletters and in our meeting agendas. It is prominently featured in our conference programs and the topic of debate at our Board meetings. Over the past decade, one of the ways we have predicted future events is a popular newsletter feature, “Top 10 Predictions” for the coming year. This story always runs the first week of January, and comes on the heels of our annual roundup of highlights of the previous year. This list is certainly not scientific, but rather represents a summary of key items we feel confident are likely to happen in the coming year that will impact the asphalt pavement industry in California. The list is literally a year in the making, and is based on our staff gathering information from a wide variety of sources, including combing through research and technical reports, studying business analytics, interviewing subject-matter experts and thought-leaders, and other data-gathering and analysis. There’s also a smattering of gamesmanship involved. In other words, in some cases we have been working on a key initiative and feel confident enough about the ultimate outcome that we can actually predict it before it happens. Other times we predict something that ends up not coming to pass, or we are caught off guard by the unexpected. In all cases, we own up to it. Whenever we publish our list of predictions, we also include a link to the prior year’s story so everyone can see how we did. As I mentioned, a few things we never saw coming. They include a global pandemic in 2020, or a global glut in oil that led to dramatically lower prices in asphalt for the latter part of the last decade. We also didn’t predict that the economy would emerge from the last recession with the most durable economic expansion on record. In some cases, we made a prediction that came true, but not always at the exact time we thought. The $50 billion Road Repair & Accountability Act of 2017 (SB1) did pass the Legislature as we forecast, but a year later that we predicted (there may have been a bit of wishful thinking influencing that prediction). We were right, however, when we said a repeal was headed to the ballot box in 2018, and it would ultimately be rejected by voters. We also correctly predicted the emergence of various environmental regulations, the success of the long-life asphalt pavement strategy, and the creation of the Joint Training & Certification Program for materials technicians. CalAPA was heavily engaged in all of those issues. We had a few clunkers, too. We predicted the formation of a state Asphalt Pavement Association in Nevada in 2020, but a pandemic intervened. We also predicted that Congress would eventually pass a long-term surface transportation bill, but what we got instead was a series of short-term fixes and no meaningful action on addressing the anemic Highway Trust Fund. In every case mentioned above, and a thousand others, CalAPA was involved in assessing the future, influencing it as much as possible for the betterment of our industry, and communicating that information to our members as far in advance as possible. This annual forecast issue of our magazine is dedicated to that principle. 2020 was a year like no other, and 2021 promises to also be filled with drama, intrigue and (hopefully) much more good news than bad. If we have done our jobs right, at least as it pertains to the asphalt pavement industry in California, there should be few surprises.

Sincerely,

Russell W. Snyder, CAE Executive Director California Asphalt Pavement Association

California Asphalt Magazine • 2021 Forecast Issue

COASTLINE Equipment

GRADE CONTROL BUILT-IN DIRECTLY FROM THE FACTORY CALIFORNIA

Long Beach, CA (562) 242-7400 · Bakersfield, CA (661) 399-3600 · Oxnard, CA (805) 485-2106 · Santa Ana, CA (714) 265-5500 · Santa Maria, CA (805) 922-8329 · Sylmar, CA (818) 890-3353

IDAHO

Jerome, ID (208) 324-2900 · McCall, ID (208) 634-3903 · Meridian, ID (208) 888-3337

NEVADA

Elko, NV (775) 777-7070 · Las Vegas, NV (702) 399-2700

www.coastlineequipment.com/topcon-grade-control

Contents Volume 25, Issue 1

Exhibit 7

The housing market shows continued strength, propelled by record-low mortgage rates and working-from-home: NAHB/Wells Fargo Housing Market Index reaches new highs and housing starts expected to remain high through 2023

Housing Starts ( 000s SAAR) 2,400

Home Builder Confidence Index F

2,200

Publisher’s Letter

1,800

1,600 1,400

1,200

The UCLA Anderson Forecast

1,000

800 600

400

Exclusive: Confidence shaken in our 11 annual 'Better-Worse' survey; COVID-19 and economic uncertainty among top concerns for 2021

200 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

90 80

2,000

Page 8

Source: U.S. Census Bureau, U.S. Department of Housing and Urban Development, National Association of Home Builders, and UCLA Anderson Forecast Notes: The NAHB/Wells Fargo Housing Market Index measures home builder confidence. Data are available through November 2020. Housing starts data are available through October 2020. Forecasts for housing starts are for November 2020 and onwards.

A year like no other: COVID-19 public health crisis cast a shadow over the asphalt industry in California in 2020 & promises to influence events well into 2021

Page 16

On the road to recovery

Construction spending remains robust in state budget for 2021-22 On the Cover:

Cover design by Aldo Myftari of Construction Marketing Services using resources from Freepik.com.

Page 22

CALIFORNIA ASPHALT PAVEMENT ASSOCIATION www.calapa.net HEADQUARTERS: EXECUTIVE DIRECTOR: TECHNICAL DIRECTOR: REGIONAL DIRECTOR: MEMBER SERVICES MANAGER: GUEST PUBLISHER: PUBLISHED BY: GRAPHIC DESIGN: CONTRIBUTING WRITERS: ADVERTISING SALES:

P.O. Box 981300 • West Sacramento • CA 95798 (Mailing Address) 1550 Harbor Blvd., Suite 211 • West Sacramento • CA 95691 • (916) 791-5044 Russell W. Snyder, CAE, rsnyder@calapa.net Brandon M. Milar, P.E., bmilar@calapa.net Bill Knopf, wknopf@calapa.net • (442) 400-9697 Sophie You, syou@calapa.net Russell W. Snyder, CAE, CalAPA Construction Marketing Services, LLC • (909) 772-3121 P.O. Box 892977 • Temecula • CA 92589 Aldo Myftari Russell W. Snyder, CAE, CalAPA, Brian Hoover, CMS Kerry Hoover, CMS, (909) 772-3121

Copyright © 2021 – 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 Pavem ent Association; contractors; construction material producers; Federal, State and Local Government Officials; and others interested in asphalt pavements in California and gaining exclusive insight about the issues, trends and people that are shaping the future of the industry.

California Asphalt Magazine • 2021 Forecast Issue

A NEW KIND OF POWER TOOL

MADE FOR HIGHWAY MILLING Roadtec mills combine power with durable construction and flexibility. The 1050 horsepower RX-900 offers superior material evacuation, ACE™ Automated Control of Elevation, and Auto Cut™ entry making it your best choice for milling.

Dedicated to Your SuccessSM

See the full range of products at roadtec.com

1.800.272.7100

1.423.265.0600

The UCLA Anderson Forecast for California

The Economic/Pandemic Question: To Close or Not to Close? By Jerry Nickelsburg

SUMMARY • As 2020 draws to a close, labor markets in California are weaker than those in the U.S. overall. • Non-pharmaceutical interventions (such as mask mandates and restrictions on business operations) tend to be more restrictive in CA than elsewhere. • Across the U.S. in October 2020, states with more restrictive non-pharmaceutical interventions tended to have higher unemployment rates, though historical evidence suggests that more restrictive non-pharmaceutical interventions may not significantly affect economic activity in the near term and may help in the long term. • Looking to the future, the forecast for the state is for the technology sectors, residential construction, and logistics to lead the recovery, and for California post-pandemic to grow faster than the U.S. INTRODUCTION Since the pandemic-induced recession began last March, we have said that the course of the pandemic, and the public health policy response to it, is critical to the economic forecast. As well, we have pointed out that we do not know what the future will bring with respect to the pandemic. What we do know is that the pandemic is raging across the country once again. California has responded, as before, with more restrictive non-pharmaceutical interventions (NPI) via mask mandates, closures, and gathering restrictions. There is still much that is unknown, however for purposes of our forecast, we are assuming that by summer a large number of people will have received one of the vaccines. In this California report we ask two questions: where are we now? And what are the likely future effects of the more restrictive NPIs on the state’s economy? The short answer is that the state has higher unemployment than in the U.S. overall, and the state is due to grow faster than the U.S. once restrictions are lifted and the pandemic is in the rearview mirror. SECTORAL EMPLOYMENT RETROSPECTIVE The near-term recovery in employment in the state depends critically on the course of the pandemic. We are confronting new highs in COVID cases and 8

California Taxable Sales

800 (Bil. $, S.A. Annualized) 750 700 650 600 550 500

2012

2014

2016

2018

2020

2022

changing restrictions on economic activity. In the 2020 recession a few sectors have been shouldering the brunt of the job loss. On a year over year basis, including the recovery of some of the lost employment occurring between April and October (2020), leisure and hospitality, retail, and education remain the weakest. Since October 2019, 1.37 million non-farm payroll jobs in California have been lost. Leisure and hospitality and education account for 55% of the job loss, with almost 80% of the education employment decline in the public sector. Another 15% of the job loss is in retail and other services for a total of 70% of all unemployment in the state. These sectors will also be impacted by the rate of recovery as they each involve a higher level of human contact than other economic activity. Regionally the recession has been uneven as well. However, unlike the great recession, there is not the bifurcated impact of inland vs coastal California. San Francisco, the North and East Bay, the Great State of Jefferson, and the San Joaquin Valley have all contracted by about the same percentage. The Inland Empire, Silicon Valley, San Diego, Sacramento and the Delta have fared better and contracted less. Some of this is due to the impact of a shutdown in tourism. San Francisco is a major destination for international tourists, and Napa and Sonoma for domestic California Asphalt Magazine • 2021 Forecast Issue

tourists. The Inland Empire has been rebounding with residential construction and logistics, and Silicon Valley with the demand for new software technologies for the new way in which business and socializing are being conducted today. HUMAN CONTACT SECTORS: HOW LONG UNTIL RECOVERY What is different now from last June when we did this analysis is the new, more acute, wave of infections. It is possible that we are in for a long winter and that the pandemic will not cease to have a major impact on the leisure and hospitality, retail, other services, and education sectors until widespread vaccination occurs. In our national forecast we assume that this is late spring to early summer 2021. What that means for the recovery of the human contact intensive sectors is that their recovery, which began in June, will experience a hiatus until the coming June. To be sure, some will find employment in other sectors, but in an economy that is demanding technical skills, it will be challenging. There is one important caveat. Our shelter-in place and zoom-fatigue has been said to create an enormous pent-up demand for human interaction. That being the case, we can expect a little more rapid recovery. Nevertheless, 2024 remains the most likely return-to-previous peak employment in these sectors. IS CALIFORNIA FALLING BEHIND? Through the initial phase of the recession, March/ April 2020, the contraction in employment in California looked much like the contraction nationwide. One would expect California to recover in line with the national economy based on these data. The differences would be in the faster growth from the tech sectors and the slower growth from the sectors serving international tourists. Otherwise, for a change, California looked to be quite average in the recessions impact. However, the expansions in the state and in the U.S. overall look a bit different. California has one of the highest unemployment rates in the U.S. Tourism is one reason. Another is that the extent of the government intervention in California via NPI compared to other states is somewhat different, and that raises the question, what are the near-term and long-term economic impacts of the NPI policies in California? ECONOMIC IMPLICATIONS OF CLOSURES To begin to answer the question we look at the relationship between non-pharmaceutical interventions (NPI), a fancy way of saying shutdowns, gathering restrictions and mask mandates, and indicators of the labor market (the unemployment rate and employment growth rates). To analyze the relationship between labor markets and NPIs, we culled data gathered by California Asphalt Magazine • 2021 Forecast Issue

California Unemployment Rate

16 (Percent, S.A.) 14 12 10 8 6 4 2

2012

2014

2016

2018

2020

2022

California Construction Employment

950 (Thous., S.A.) 900 850 800 750 700 650 600 550

2012

2014

2016

2018

2020

2022

the University of Oxford and aggregated by the New York Times. From these data we assigned each state a value with 0 indicating the least restrictive NPIs, 1 moderate, and 2 most restrictive during the month of October 2020. In a regression of unemployment rates on this measure of public health policy, policy variation explained just under a quarter of the unemployment rate differences between states (as measured by the regression’s R-squared). Using this model, we derived an unemployment for each state as if all states were at the least restrictive NPI level. While California is not in the middle of the pack, it is not far off, about 1.3 percentage points higher than the average. A higher implied unemployment rate in the state is due, at least in part, to the fact that California is host to over 20% of all foreign tourists coming to the U.S.; tourists who are no longer making the journey. If we repeat this exercise using a model that includes an indicator control for states with significant international tourism (California, Nevada, Hawaii, New York and Florida), California’s implied unemployment rate is lower than the average for all other states. 9

We can also look at the relationship between payroll employment and NPIs. Using the same NPI variable as before in a regression to explain the change in total non-farm payroll employment by state from October 2019 to October 2020, we find similar results. The NPI variable explains a third of the variation in growth rates in employment across states. Moreover, in this regression, the counterfactual growth of employment in California with all states set to have the least restrictive level of NPIs rests squarely in the middle of the pack. From these simple regressions we learn two things about the forecast. First, since California, as a matter of public health policy, tends towards more restrictive NPIs than many other states, so long as the pandemic rages, employment growth will be slower and the unemployment rate higher than in the rest of the nation. Second, the underlying economy is not necessarily weaker than other states in the U.S., though each state has its own labor market idiosyncrasies. Will more restrictive NPIs have longer term adverse effects on the California economy? There is not a lot of evidence to work with, but recent studies of the 1918/1919 Influenza Pandemic suggest the opposite. THE FORECAST Although the timing may be offset with California beginning a significant recovery later than some other states, we expect the California recovery to ultimately look very much like the U.S. The recovery in CA will be slower in the leisure and hospitality and retail sectors due to the disproportionate reliance on international tourism, and mixed in transportation and warehousing due to the shift to online shopping on the one hand and the expected continuation of the trade war with China in a Biden administration on the other, but faster in business, scientific and technical services and in the information sector due to the demand for new technologies for the new way we are working and socializing, and faster in residential construction as Californiaâ&#x20AC;&#x2122;s shortage of housing relative to demand drives new developments. The unemployment rate for the 4th quarter of this year is expected to be 8.9%, and for the entire years 2021, 2022 and 2023 we expect average unemployment rates of 6.9%, 5.2% and 4.4% respectively. Our forecast for 2021, 2022 and 2023 is for total employment growth rates to be 6.1%, 3.4% and 2.2%. Non-farm payroll jobs are expected to grow 3.6%, 3.8% and 2.5% during the same three years. Real personal income is forecast to fall by -1.0% in 2021 as transfers from the stimulus packages expire and grow by 2.1% and 3.4% in 2022 and 2023. In spite of the recession, the continued demand for a limited housing stock coupled with low 10

California New Car Registrations

2.2 (Mil., S.A. Annualized) 2.0 1.8 1.6 1.4 1.2 1.0 0.8

2012

2014

2016

2018

2020

2022

California Nonresidential Construction Authorized By Building Permits, Real Value

36 (Bil. 2012 $, S.A. Annualized) 32 28 24 20 16 12

2012

2014

2016

2018

2020

2022

interest rates leads to a forecast of a relatively rapid return of homebuilding. Our expectation is for 123K net new units in 2021; a 16.2% increase from 2020 and continuing to grow to 132K for 2023. Needless to say, this level of home building means that the prospect for the private sector building out of the housing affordability problem over the next three years is nil. CA Jerry Nickelsburg is the director of the UCLA Anderson Forecast and an adjunct professor of economics. The UCLA Anderson Forecast is published quarterly and is a unit of the UCLA Anderson School of Management. The information provided in this article is only a small excerpt of the UCLA Anderson Forecast for the Nation and California. Visit www.uclaforecast.com to review the UCLA Anderson Forecast in its entirety. For information regarding sponsorship of the UCLA Anderson Forecast, please call (310) 825-1623.

California Asphalt Magazine â&#x20AC;˘ 2021 Forecast Issue

WHEN IT COMES TO ASPHALT PAVING HAS WHAT YOU NEED

CR 1030 W Rubber Tire Paver

BW138AD-5 Tandem Vibratory Roller

BM1200-35 Cold Milling Machine

SB2500 Material Transfer Vehicle

RX700 Milling Machine

CP130-II Commercial Paver

Centennial Oil Truck

ChipSpreader

CP100-II Commercial Paver

NORTHERN CALIFORNIA

SOUTHERN CALIFORNIA

(916) 783-9333

(909) 877-5597

9220 Viking Place Roseville, CA 95747

2711 Lilac Ave. Bloomington, CA 92316

The UCLA Anderson Forecast for the Nation

A Gloomy COVID Winter and an Exuberant Vaccine Spring By Leo Feler

SUMMARY • Because of rising COVID infections and increased social distancing, we’re forecasting slower growth in real GDP for Q4 2020 and Q1 2021, of 1.2% and 1.8% SAAR, respectively. • With mass vaccinations, we forecast robust growth in Q2 2021 of 6.0% SAAR, and then consistent growth above 3% well into 2023. We expect the economy will reach its previous peak by the end of 2021. • These headline numbers don’t capture the economic misery that so many are experiencing. Currently, 20.5 million Americans are receiving some form of unemployment insurance benefit. Nearly nine percent of Americans live in households that are not current on rent or mortgage, 12 percent live in households where there was either sometimes or often not enough food to eat, and about one-third live in households where it has been somewhat or very difficult to pay for usual household expenses during the pandemic. • We expect the housing market to remain hot through at least 2023, with housing starts at their highest levels since 2007. • Even with a strong recovery beginning in Q2 2021, we expect only modest core inflation, around 2.1–2.2% per year, and gradual improvement in unemployment. We forecast that unemployment will remain above 5% through 2021 and will only fall to 4% by 2023. Mass vaccinations and a release of pent-up demand will lead to a boom in economic activity beginning in the second quarter of 2021, but until then, there will be a lot of unnecessary hardship. Following a record 33.1% annualized growth rate of real GDP in Q3 2020, we are forecasting a weak 1.2% annualized growth rate in Q4 2020 and 1.8% in Q1 2021. This leaves the economy 3.3% and 2.8%, respectively, below its peak in Q4 2019. Based on recent vaccine news, we expect limited vaccinations to begin in mid-December (2020) for health care workers, frontline workers, and vulnerable populations and for vaccines to be widely available for the general population beginning early in Q2 2021. With mass 12

Exhibit 2

Real GDP levels and trends, $ Billions SAAR

Real GDP levels and trends, SAAR 21,500

Forecast

Trend

21,000 20,500 20,000 4.8%

19,500 19,000

2019 peak 3.3% 2.8%

18,500 18,000 17,500 17,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023

Source: U.S. Department of Commerce, Bureau of Economic Analysis and UCLA Anderson Forecast Notes: Real GDP growth rate, seasonally adjusted annual rate.

vaccinations, we forecast robust growth in Q2 2021 of 6.0% at an annualized rate, and then consistent growth above 3% well into 2023. We expect the economy will reach its previous peak by the end of 2021. This, however, will still leave it 4.8% below the trend of where the economy likely would have been without the COVID shock. Currently, 20.5 million Americans are receiving some form of unemployment insurance benefit, compared to 1.5 million this time last year. Nearly nine percent of Americans live in households that are not current on rent or mortgage, of which nearly one-third say that eviction or foreclosure in the next two months is either very likely or somewhat likely, and 12 percent live in households where there was either sometimes or often not enough food to eat. About one-third of Americans live in households where it has been somewhat or very difficult to pay for usual household expenses during the pandemic. On the other end of the spectrum are households that have seen their savings and asset values swell. For those fortunate to maintain employment and income during this pandemic, their financial situation is better than before. Home values have increased, equity values have increased, and limited consumption opportunities during the past nine months mean California Asphalt Magazine • 2021 Forecast Issue

California Asphalt Magazine • 2021 Forecast Issue

Exhibit 4

Real consumption of goods and services, $ Billions SAAR

Real consumption of goods and services, SAAR

Forecast

9,500

Services

9,000 8,500

+1.3%

8,000 7,500 7,000 6,500 6,000 -2.2%

5,500

Goods

5,000 4,500 0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023

Source: U.S. Department of Commerce, Bureau of Economic Analysis and UCLA Anderson Forecast Notes: Real consumer spending in 2012 $ billions, seasonally adjusted annual rate. Annualized % change shown between Q3 and Q4 2020.

Exhibit 7

Housing Starts ( 000s SAAR)

Home Builder Confidence Index

2,400

2,200

2,000

1,800

1,600 1,400

1,200

1,000

800 600

400

200 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

that these households have been able to accumulate at least an additional $1.6 trillion in savings. With mass vaccinations by mid-2021, we expect a boom in services, led by leisure, hospitality, entertainment, and recreation. Once vaccines are widely available, our assumption is that households will not only resume their consumption of services, but those that accumulated savings during the pandemic will overcompensate for the past year by consuming more services than they normally would. We expect a significant surge in spending on restaurants, recreation, travel, and accommodation, as well as in healthcare services, as people resume non-urgent and elective healthcare visits. We also expect an increase in clothing purchases as individuals adjust to going out once again. But following a year of higher goods purchases, we expect consumers will reduce consumption of recreational goods, household goods, electronics, and other durable goods. These changes represent a return to our former habits, and in our forecast, it means a reversion to long-run trends. What we did less of during the pandemic, we’ll do more of once the pandemic is over. That includes activities involving in-person interaction. What we did more of during the pandemic, we’ll do less of once it’s over. That includes the stay-at-home purchases of the past year. We may never fully return to pre-pandemic habits, but without the constraints imposed by the pandemic, we’ll adjust our consumption behaviors to be more like before. Housing will likely remain red-hot well into 2023, mitigating weak construction investment in commercial, state and local, and mines and wells. We forecast that housing will remain strong well into 2023. Home builder confidence is at a record, and permits and housing starts continue to increase. Underlying this are five factors. First, interest rates are likely to remain low for an extended period of time, which will fuel demand for home purchases. Second, without COVID concerns, sellers who were reluctant to put their homes on the market this past year may enter the market and relieve current inventory constraints. This is likely to be a case where supply begets demand, and the increased options induce more people to become buyers. Third, we’ll have more clarity on whether working from home will be sustainable over the longer-term once pandemic constraints are no longer binding. This clarity is likely to induce additional rounds of people relocating away from urban cores to suburbs and

Exhibit Unemployment 10 rate Unemployment rate Forecast

13.0

8.8

6.8

3.9

3.6

3.5

2019

6.6

6.1

5.8

5.4

5.0

4.8

4.6

4.4

4.2

4.1

4.0

3.9

3.8

2020

2021

2022

2023

Source: U.S. Bureau of Labor Statistics and UCLA Anderson Forecast

larger homes. Fourth, there’s a demographic bubble of millennials aging into their prime earning and home-buying years. This demographic shift will continue to fuel higher demand for home purchases. And fifth, as unemployment begins to come down and there’s less economic uncertainty, buyers who were reluctant to enter the market this past year may be more likely to enter to take advantage of continued low mortgage rates. As for where housing markets will be red-hot, there are a lot of unknowns. Once the economy fully reopens, urban cores will regain some of the amenity value lost during the pandemic, but demographic shifts, with millennials starting families, and continued opportunities to work from home will make the suburbs more attractive. The flip-side of strong residential investment will be weak investment in commercial, state and local, and oil wells. If the higher rates of working-from-home and online shopping persist to a moderate extent after the pandemic is over, we’ll be over-supplied on office and retail space, and there will be little demand for additional commercial investment, at least in urban cores. State and local construction is likely to take a hit as state and local governments reduce infrastructure budgets in response to lower tax revenues and the need to replenish rainy-day funds. Finally, the domestic oil industry has been decimated by low oil prices, and we foresee diminished ongoing investment in oil wells for the next several years. Brick-and-mortar retail and commercial offices will need to adapt to survive and become more about providing experiences. The pandemic has taught us that we can run many of our errands online and we can do much of our work productively from home. This requires rethinking how we use our retail and commercial spaces. In order to compete with online retailers, brick-and-mortar retailers will need to differentiate themselves and provide not just a means to fulfill necessities, but also a shopping experience. This requires providing the ability to sample products (e.g., Apple Stores, Ulta Beauty, Sephora, Costco), offering assistance and recommendations (e.g. Ace Hardware, BestBuy), and cultivating a sense of community engagement (e.g., Lululemon, independent book stores). With the accelerated adoption of e-commerce, brick-and-mortar retailers will need to innovate so that their physical locations focus more on providing experiences while their online marketplaces fulfill necessities. Even with a strong recovery beginning in Q2 2021, we expect only modest inflation and gradual improvement in unemployment and trade. Our forecast is that core inflation will average 1.8% for 2020 and remain muted through 2023, hovering around 2.1–2.2% per year. There is considerable excess capacity to absorb a surge in consumer 14

demand without leading to an increase in prices. This also means there is little risk of the Federal Reserve needing to increase rates to contain inflation, and the Fed Funds Rate is likely to remain near zero at least through the end of 2023. We forecast that the unemployment rate will decline gradually as the economy picks up and people re-enter the labor force. Nearly 1 million women exited the labor force this fall because of home schooling and caregiving necessities, and more than 2 million have left the labor force since the beginning of the year. Their re-entry into the labor force will mitigate how quickly the unemployment rate will decline. We don’t expect the economy will reach 4.0% unemployment until the end of 2023. The ‘20s will be roaring, but with several months of hardship first. With a vaccine and the release of pent-up demand, the next few years will be roaring as the economy accelerates and returns to previous growth trends. We expect a surge in services consumption and continued strength in housing markets to propel the economy forward. There will be a few areas of weakness as the economy adjusts to a post-pandemic normal with more working-fromhome and online commerce than we had before, and for better and worse, some parts of the economy will never be the same. For better, the pandemic has accelerated technological disruptions that have made education and healthcare more accessible, through online courses and telehealth. For worse, it has permanently eliminated many service and retail sector jobs and made the economy more unequal. Right now, the key issue is how we will make it through to an exuberant spring. These next few months will be dire, with rising COVID infections, continued social distancing, and the expiration of social assistance programs. Additional timely fiscal relief would prevent unnecessary hardship and allow the economy to maintain the structural relationships that will help us recover more quickly once vaccines become widely available. CA Leo Feler joined the UCLA Anderson School of Management and the UCLA Anderson Forecast as a senior economist in 2020. The UCLA Anderson Forecast is published quarterly and is a unit of the UCLA Anderson School of Management. The information provided in this article is only a small excerpt of the UCLA Anderson Forecast for the Nation and California. Visit www.uclaforecast.com to review the UCLA Anderson Forecast in its entirety. For information regarding sponsorship of the UCLA Anderson Forecast, please call (310) 825-1623.

California Asphalt Magazine • 2021 Forecast Issue

OUR SERVICES • Paving Grade Asphalt

• Asphalt Rejuvenating Agents

• Railcar Logistics

• Cut Back Asphalt

• Asphalt Release Agents

• Asphalt Delivery Services

• Asphalt Emulsions

• Dust Palliatives

• Asphalt Spreader Services

Paving Roads in the Northwest for over 50 years www.albina.com HEADQUARTERS Vancouver, WA 360-816-8016

VANCOUVER TERMINALS Vancouver, WA 360-816-8550

MADRAS TERMINAL Madras, OR 541-475-6638

KLAMATH FALLS TERMINAL Klamath Falls, OR 541-884-5100

Confidence shaken in our 11th annual 'Better-Worse' survey; COVID-19 and economic uncertainty among top concerns for 2021 EXCLUSIVE

By Russell W. Snyder, CAE

The results are in. The 11th annual CalAPA "Better or Worse" survey shows respondents sharply divided about prospects for 2021, reflecting a state battered by a global pandemic and the resulting economic uncertainty. The brief, non-scientific poll of more than 2,500 CalAPA "Asphalt Insider" newsletter subscribers, conducted in November and December, found optimism sharply down from last year but still higher than was registered during the depths of the last recession in 2011. The number of respondents who said 2021 would be better than 2020 stood at 33 percent, compared to 47 percent last year. That is in stark contrast to 2011, when the “better” number was just 20 percent. The comments seemed to indicate, however, a belief that it would be hard to top the depressing news of a year dominated by the coronavirus global pandemic. “COVID sucks!” commented one respondent, a noted figure in academia. Added a state agency representative: “Can it really get worse than 2020? Maybe I better not ask that.” If there was a glimmer of optimism in the year, it was that road construction was generally designated “essential” by California state and local authorities and allowed to continue. SB1, the Road Repair and Accountability Act of 2017, continued to generate billions of dollars into state and local 16

transportation coffers, which was translated into paving projects that are the bread-and-butter for the industry. “SB1 money is continuing to trickle in,” one prominent asphalt producer commented. “City and county jobs are paving with more

material and bidding at larger dollar amounts.” Added a survey respondent in the pavement preservation space: “Even though there is a pandemic, I see local, state and federal governments still wanting to improve infrastructure and keep jobs alive.”

California Asphalt Magazine • 2021 Forecast Issue

On the negative side, 31 percent of respondents said 2021 would be worse than 2020, a sharp increase in pessimism from the 13 percent who felt that way a year ago and a record high for the question. The previous high “worse” percentage in the history of the survey was 25 percent recorded in 2010. About 31 percent of respondents said the coming year will be about the same as 2020, slightly down from a year ago. Much of the pessimism was related to lack of work, particularly in rural areas, and a decrease in private work. “Churned through a lot of backlog in 2020, which has not been replenished at the same rate,” one supplier commented. Added an asphalt and aggregate producer: “Not enough jobs to bid on.” Of the overall respondents, about a quarter 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 fifth year in a row, the survey added an optional question, “What is the No. 1 challenge where you work?” That question elicited 127 written responses. Workforce issues continued to dominate the comments, including the difficulty in finding qualified workers, being mentioned in 39 of the 127 comments. “Experienced workers,” “qualified labor” and “finding good people” were the various ways this challenge was articulated by both publicand private-sector survey respondents. Several commented on the inability to find workers to match the challenging and varied work conditions, and high expectations, that face anyone considering a career in construction. “Recruiting and hiring hardworking people with a positive

growth mindset,” one agency representative commented, while another added simply: “Lack of work ethic.” As the workforce ages and enters retirement or moves to other fields, the survey suggests, the churn in personnel continues to create conflicts between industry and agency personnel. One survey respondent described the top challenge this way: “Dealing with knowledgeable people. Too many transient people in the business now.” Several other respondents cited the increasingly complex regulatory environment as a top challenge heading into 2021, and a few mentioned the additional public health and worker safety

California Asphalt Magazine • 2021 Forecast Issue

restrictions brought about by the COVID-19 pandemic. A dramatic upswing in cases, hospitalizations and deaths as 2020 drew to a close clearly weighed heavily in survey respondents. The pandemic prompted state and local officials to issue a number of restrictions on business activity, travel and public gatherings. While the asphalt pavement industry has been designated an “essential” activity and allowed to continue to operate, a flurry of new worker safety regulations have been issued by state and local authorities aimed at slowing the spread of the virus that thrives on close, human-to-human contact. 17

The main CalAPA survey question is purposefully vague: "For your company or organization, how do you think 2021 will compare to 2020?" However, most of the voluntary comments offered up by survey respondents to justify their opinion 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 economy and the 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 brisk, while others were disappointed, particularly in rural areas of California. Several respondents noted a drop-off in private work.

A total of 187 people took part in the voluntary on-line survey, which was conducted from Oct. 29 to Dec. 11. Survey respondents sometimes waxed eloquent as they looked back over 2020 and looked ahead to a new year. “2021 depends on the health and vitality of the economy and public agency spending ability; both of which have question marks outstanding at this time,” one survey respondent, an equipment manufacturer, said. “COVID mayhem, budget uncertainty and reworking a million things to identify the million possible scenarios,” said a local public works agency representative. “What a mess. That said, projects, while smaller, are still moving.” Others felt compelled to justify their answers. After predicting 2021 would be better than 2021, one industry respondent said, “Just hopeful I guess.” A paving contractor added a sentiment shared by many: “Almost anything will be better than Covid-19/2020.” CA Russell W. Snyder, CAE, is executive director of the California Asphalt Pavement Association (CalAPA).

Do you want to be featured in California Asphalt Magazine? For editorial or advertising inquiries please contact: Kerry Hoover

909.772.3121 18

California Asphalt Magazine • 2021 Forecast Issue

PAVEMENT SPECIALISTS MICRO SURFACING SLURRY SEAL FIBER SEAL ASPHALT RUBBER CHIP SEAL CAPE SEAL CRACK SEAL

CONSTRUCTION OFFICES:

EMULSION PLANT LOCATIONS:

3785 Channel Drive West Sacramento, CA 95691 916.373.1500

Redding, California 530.241.1364

6751 W. Galveston Street Chandler, AZ 85226 480.940.9690

West Sacramento, California 916.373.1500 n

MACROPAVER: 13024 Lake Road Hickman, CA 95323 209.874.2719

PROUDLY SERVING THE WESTERN UNITED STATES

Bakersfield, California 661.323.5904

Free Estimates • 1.800.748.6551 • vssiestimating@slurry.com • www.slurry.com Macropaver • 1.209.874.2357 • sales@macropaver.com • www.macropaver.com

A year like no other: COVID-19 public health crisis cast a shadow over the asphalt industry in California in 2020 & promises to influence events well into 2021 By Russell W. Snyder, CAE

“Adversity does not build character, it reveals it.” -- James Lane Allen Against the backdrop of a deadly pandemic, 2020 tested everyone’s ability to adapt and persevere, and the asphalt pavement industry in California was no exception. Designated as an “essential” function during the public health crisis, asphalt plants continued to churn out millions of tons of product throughout the year, and paving crews continued to construct roads, parking lots, airfields and other vital facilities that keep society functioning. Owners continued to push out projects in the public and private sector, in some cases benefitting from robust competition, good pricing, reduced traffic disruption and other factors to deliver projects faster and cheaper. Overall, the critical role transportation infrastructure plays in the economy and quality of life of all Californians received renewed attention, and California voters in dozens of elections endorsed measures that invested, by one count , $584 million in improving California highway, street and bridge infrastructure (an 86 percent approval rate), up from $30 million the year prior. As 2020 gives way to 2021, it is clear that the coronavirus pandemic will leave an imprint on our world in the months ahead until widespread distribution of vaccines help the state slowly return to something resembling normal. 22

To be sure, there will be plenty of uncertainty in 2021, but some key themes are emerging that merit close attention, and a few are highlighted below. Flexibility is survival The asphalt industry will still need to contend with workers getting sick, project disruptions and constantly changing safety rules and protocols. Remote work, pressed into service on an emergency basis, will likely recede somewhat as conditions warrant but will still be a viable option to help employers address the work-life balance for stressed and overworked employees. Returning to regular “face-to-face” work will not happen like a light switch, but rather a dimmer switch as everyone gets more comfortable with the new normal. As a largely seasonal activity in many parts of the state, the winter months will afford the construction industry an opportunity to regroup, reassess and gear up for yet another year of transition. That should be about the time when vaccines become widely available. An advisory panel to the Centers for Disease Control & Prevention in December recommended that construction workers be vaccinated shortly after essential workers with public-facing jobs, such as grocery clerks, but ahead of the general public. A California advisory panel followed a few days later with similar recommendations.

Across the state, asphalt parking lots were pressed into services as impromptu COVID-19 testing sites, as well as outdoor dining, entertainment and exercise venues.

As coronavirus cases in the state spiked, receded, and then surged again, the asphalt pavement industry was forced to be flexible, adapting to new safety protocols and finding innovative ways to keep operating. For example, working with Caltrans, guidance on implementing “ticketless” technology for weighmaster certificates issued for asphalt deliveries was published in June of 2020 and put in place at many facilities. The efficiencies born by innovation are likely to stick around and become more widely adopted. Similarly, the Caltrans-industry Joint Training & Certification Program was forced to adapt on the fly in 2020 to conform to public health restrictions that limited the number of trainees that could

California Asphalt Magazine • 2021 Forecast Issue

attend classes, and required physical changes to the materials labs where they performed tests to demonstrate proficiency. At two different times in 2020 classes at California State University, Long Beach, were cancelled due to campus-wide shutdowns, forcing program managers to reschedule classes and Caltrans Independent Assurance personnel to issue provisional certifications or extend expiration dates. Following a March campus shutdown, the JTCP was able to resume in July with reduced class sizes, retrofits of the materials lab and other safety protocols in place. "It has been a monumental undertaking to restructure the program to ensure the safety of all attendees,” Caltrans project lead Jeremy Peterson-Self told CalAPA. “The proactive safety approach taken is key to keeping this essential program running to support our construction projects. A big thanks to all those involved at CSULB and the JTCP Advisory Council for their support." Added Dr. Shadi Saadeh of Cal State Long Beach, the program manager: "I am also thankful for the supportive response and collaboration from Caltrans and the industry leaders. It is exciting to see the synergy of all stakeholders of this program." Classes at CSULB were suspended once again in December when COVID-19 cases spiked in Los Angeles County, but were expected to resume in February. Classes at San Jose State continue to be held. Project managers said continued flexibility throughout the pandemic helped them keep the program on track and certifications in the pipeline. The constantly changing landscape and adaptations prompted one world-weary observer to comment, “We’re all yoga instructors now.” Skilled workers will continue to be in high demand The construction workforce contracted about 4 percent in

California from February to November, according to the Bureau of Labor Statistics data analyzed by AGC of America, but as the economy slowly recovers from pandemic shutdowns it is likely that the demand for qualified, trained workers, particularly field personnel, will remain high. The highly specialized nature of the work performed by workers in the asphalt pavement industry inherently shrinks the pool of available and skilled workers, and the industry’s reputation for pushing workers hard can lead to stress and burnout. The companies that thrive will be the ones that have a worker-centric culture and are a magnet for talent. An aging workforce will continue to be a problem for both industry and agencies, placing a premium on recruiting, training and developing the next generation of workers. It’s time for the industry to face the hard reality that working in the asphalt pavement industry is never going to be as glamorous as other professions. But the work is plentiful, rewarding for those unafraid to get their hands dirty, and can provide a lifetime of good wages and benefits. Seeking out people who see the industry for what it is – an opportunity – will be an ongoing challenge for the asphalt pavement industry in the months and years ahead. Innovative approaches like the national “Women of Asphalt” initiative are breaking down barriers in perception and highlighting the women who are finding success in the male-dominated field. Women of Asphalt has been prominently featured in this magazine and at CalAPA conferences. An image problem? The asphalt industry’s famously insular approach to conducting its business will continue to be challenged in 2021 thanks to more environmental regulations, greater public access to information about our industry and social trends that will be unavoidable. Technology

California Asphalt Magazine • 2021 Forecast Issue

has made the gathering and reporting of environmental data more widespread than ever, potentially arming activists with information to make operating a plant or even running a paving crew fraught with difficulty. Video clips, like one late last year of an unmasked city public works crew, can and do go viral. Technology has evolved to the point where inexpensive air monitors can be set up in a backyard and report information directly to the internet. Water quality reports are already publicly available and searchable. Much of this information can be widely disseminated without context or accountability for accuracy. The new reality is that lots of eyes are on what we do, and everything must be done by the book. Proactive efforts to be good neighbors and be a valued part of the local community are no longer a “would be nice” but have become a business imperative. Rather than reacting to events, time and attention must be invested in a company’s brand identity (not its own view of itself, which is often distorted, but how it is perceived by outsiders), its constituents, presenting factual information and quickly rebutting misinformation. For a more detailed examination on this topic, see the special crisis communications issue of this magazine published in the Spring of 2020 (Vol. 24, Issue 2). A reexamination of race, inequality and social justice The 2020 “Black Lives Matter” street protests may have subsided, but the issues raised are moving into public discourse and the policy arena, spawning sometimes uncomfortable self-examination. Public agencies, large consumers of asphalt, will continue to look inward at what they can do to improve the lot of communities of color, and look outward to influence outcomes via how dollars are allocated. Agencies and some 23

companies have rolled out aspirational mission statements in this regard, but there will be increasing pressure to turn the florid statements into specific, actionable and measurable results that make a difference in people’s lives. In June, California State Transportation Secretary David S. Kim issued the following statement that is just one example of how this issue is being framed: “Transportation systems are about people and improving their quality of life. Unfortunately, those improvements historically have disproportionately benefitted certain segments of the population. Far too often, past transportation decisions quite literally put up barriers, divided communities, and amplified racial inequalities, particularly in our Black and Brown neighborhoods. “The California State Transportation Agency (CalSTA) strongly condemns systemic racism and discrimination in all forms, including those historically entrenched in transportation. Enhancing the lives of all Californians – particularly people of color and disadvantaged communities – by connecting individuals to jobs, healthcare, education and other opportunities lie at the heart of what we do and why. “To that end, CalSTA firmly embraces racial equity, inclusion and diversity. These values are foundational to achieving our vision of a cleaner, safer, more accessible and more connected future. “We will be part of the solution. We will promote policies and programs that reflect principles of diversity, equity and inclusion, and will work with stakeholders to identify areas of improvement. Through these and other efforts, transportation systems have the potential to achieve their intended purpose – to provide safe and equitable access to opportunity and truly enhance quality of life.” You need only spread out a map of the state highway system in California to see this uncomfortable 24

truth in a harsh light, from the tangle of freeways that wind through the poorest neighborhoods in Oakland to the I-105 Freeway that cuts through communities of color in South Los Angeles. Asphalt is prominently featured in freeways, highways, city streets and other facilities in many of these neighborhoods. Construction of the I-105 freeway in Los Angeles County was stopped for a decade by a federal lawsuit, and only allowed to proceed after hundreds of thousands of dollars were spent on job-training and other programs to benefit local communities. The $2.3 billion freeway opened in 1993, a year after a series of riots and civil disturbances nearby stemming from the police beating of a black motorist, Rodney King, and subsequent trial, garnered international attention. The death of George Floyd at the hands of police in Minneapolis in 2020 – greatly amplifying the “Black Lives Matter” movement – may have been separated by more than two decades and almost 2,000 miles from the Rodney King incident, but the persistent theme is that progress in addressing issues of racial inequality is not moving fast enough. Fast forward to December, and newly nominated U.S. Transportation Secretary Pete Buttigieg issued the following statement via Twitter: “Black and brown neighborhoods have been disproportionately divided by highway projects or left isolated by the lack of adequate transit and transportation resources. In the Biden-Harris administration, we will make righting these wrongs an imperative.” What will this look like in 2021? For one, the California Department of Transportation (Caltrans) will be finalizing a “disparity study” to “assess whether minority- and woman-owned businesses face any barriers as part of Caltrans’ contracting processes.” The likely result will be the establishment of more aggressive goals for

participation of minority - and women-owned businesses in state contracting. The disparity study is scheduled to be completed in June. Toks Omishakin, who was appointed Caltrans Director in October of 2019, noted in a video message posted on the Caltrans website: “As we rebuild and transform our transportation system, all benefits must be shared as broadly as possible, including among all types of contractors.” As the COVID-19 pandemic begins to wind down, companies in the asphalt industry will need to look inward to see if their aspirational mission statements and training stand up to scrutiny and the reality of the communities that they serve, and engage with project owners, elected officials and community leaders to develop strategies to address racial inequality in ways that are genuine and meaningful to all. Environment, environment, environment The steady drumbeat about climate change and all its various permutations is nothing new to environmentally-conscious California, but the unmistakable trend is for environmental issues to be front-and-center in 2021 and beyond. Some proposals garnered international headlines, such as Gov. Gavin Newsom’s Sept. 23 executive order calling for 100 percent of automobiles sold in California to be zero-emission by 2035, with medium-duty and heavy-duty trucks to follow in 2045. But many others flew under the radar screen, imbedded in a dizzying array of new laws, requirements and restrictions on how the asphalt industry conducts its business and how construction projects in general get done. Particularly in the area of air quality, the California Air Resources Board fast-tracked rule-making of new regulations covering stationary [ Continued on page 26 ]

California Asphalt Magazine • 2021 Forecast Issue

[ Continued from page 24 ]

sources of air pollution with a particular emphasis on communities that have poor air quality, deemed “hot spots.” The new regulations, the first major change to the “hot spots” law since 1996, are on top of existing regulations imposed by local air districts. The proposal seeks to add nearly 1,000 substances for which emissions would need to be quantified. The latest implementation schedule begins in 2023 and final implementation is set for 2028. Quantifying the cost to asphalt plants to comply with the new rules are still being assessed, but initial estimates range from $5,000 to $10,000 per plant. CARB and local districts also continued to move forward in 2020 with implementation of AB617, the so-called Community Air Protection Program that is creating local citizen boards to pore over various air-quality data and identify areas of concern and propose mitigation strategies. A recent coalition letter to CARB, joined by CalAPA, complained about how industry expertise and input is being marginalized in the work of the citizen boards, more of which are expected to be established in the months and years ahead. The environmental issue of this magazine, published in the summer of 2020 (Vol. 24, Issue 4) examines this issue in greater detail. At the same time, environmental themes are being imbedded into other policy arenas that could restrain development and the ability of California to address its housing crisis. In one alarming data point, California’s population in the year that ended July 1 fell to 0.05 percent, according to the state Department of Finance, the lowest since 1900 and widely attributed to residents fleeing a high cost of living and lack of affordable housing options. Yet policy-makers continue to doubledown on planning principles that seek to have denser housing developed close to transit options 26

and discouraging driving, a principal based on accommodating skyrocketing growth with “densification.” In the arcane planner-speak, LOS and VMT received renewed attention in 2020 and will continue to be debated as development decisions are made across the state in 2021 and beyond. The controversy is an echo of a bill that passed the Legislature in 2014, SB743, that mandated changes to the California Environmental Quality Act (CEQA). The California Natural Resources Agency back in 2018 adopted new regulations for the implementation of the CEQA changes, and a key metric that became widely known in 2020 is the new way to assess the impact of developments utilizing the Vehicle-Miles Traveled (VMT) metric over the previous “Level of Service” metric. The Governor’s Office of Planning & Research issued guidance in 2020 on this topic in advance of a July 1 deadline for its implementation. State officials insisted the guidance won’t impact “fix it first” type of projects funded by Senate Bill 1, the $50 billion Road Repair & Accountability Act of 2017, but rather may come into play with new, capacity-increasing projects. In other words, improvements once viewed as traffic mitigation because they reduced vehicle delays, might now be viewed as causing a traffic impact because they arguably facilitate VMT in some circumstances. Caltrans is working on a proposed VMT threshold. Will future Regional Transportation Plans re-focus on reducing VMTs, rather than facilitating vehicle circulation with road improvements? If LOS is no longer an “impact,” what does this mean for current mitigation schemes? There is some concern that typical highway improvements will be disincentivized without LOS considerations. Local planning agencies will be the lead on this issue, but it may impact the number and type of transportation

improvement projects that ultimately get built in the future. The wild card in the deck is the pandemic trend of people abandoning transit, fleeing cities for suburbs and utilizing more telework. Another environmental issue, Environmental Product Declarations (EPDs), continued to receive attention in 2020 and appears likely to continue to be sought out by project owners in the future to inform their understanding of the environmental aspects of projects. Several Caltrans highway projects have already called for EPDs to be produced on a pilot basis, and the department has said it expects to expand the program in the future. “The purpose of the Caltrans Environmental Product Declaration Implementation Project is to collect EPDs for materials incorporated into construction projects in order to quantify the Global Warming Potential emissions in the manufacturing of those materials for our transportation system,” the Caltrans website states. Several local agencies have also started asking for EPDs from suppliers of numerous construction materials, including asphalt. The asphalt industry continued to engage regulatory agencies and elected officials on environmental issues, including hosting (in-person and virtual) plant tours and other outreach efforts to help regulators understand our industry and encourage realistic and achievable environmental goals. Other environmental issues also made headlines in 2020 and promise to receive additional attention in 2021 and beyond, including the use of recycled plastics in asphalt, how pavements may impact the warming of cities, the so-called “Urban Heath Island” effect, and various asphalt recycling and sustainability initiatives. In California, environmental themes will continue to be woven through all aspects of asphalt production and placement. [ Continued on page 28 ]

California Asphalt Magazine • 2021 Forecast Issue

[ Continued from page 26 ]

Playing to the industry’s strengths While it may appear that the asphalt pavement industry is under assault from all sides, there is opportunity in any crisis (and even in absence of one). The asphalt industry represents local jobs that pay well. Having construction materials close to where they are needed actually is an environmentally friendly principal that can cut through the NIMBY clutter. Judging by what has happened at the ballot box in recent years, taxpayers and transportationsystem users continue to value well-maintained roads and are willing to open their wallets to invest in them. The asphalt pavement industry is the nexus between what motorists and voters want, and how they can see it being delivered. As Buttigieg, the incoming U.S. Transportation Secretary, has mentioned many times, as a former mayor of South Bend, Ind., he understands the importance of potholes to everyone’s quality of life. The asphalt pavement industry also has many sustainable attributes that align with the public’s hunger for progress on Climate Change, and also employment opportunities that can address social justice concerns. Asphalt’s speed-of-construction advantage hits squarely on society’s insistence on instant gratification. A robust partnership with public and private project owners, listening to them, and delivering what they want, are how the industry has built credibility and trust. These are opportunities that extend well beyond a pandemic and lay the foundation for a thriving industry that has served California well for over a century and will continue to do so for many years to come. CA Russell W. Snyder, CAE, is executive director of the California Asphalt Pavement Association (CalAPA).

REFERENCES i

American Road & Transportation Builders Association, Transportation Advocacy Center. Accessed Dec. 22, 2020.

AGC of America “Data Digest,” Vol. 20, No. 46, Dec. 14-18, 2020. iii

California Asphalt magazine, Journal of the California Asphalt Pavement Association, Vol. 22, Issue 6, Fall 2018.

California Asphalt magazine, Journal of the California Asphalt Pavement Association, Vol. 24, Issue 2, Spring 2020.

California Asphalt magazine, Journal of the California Asphalt Pavement Association, Vol. 24, Issue 4, Spring 2020.

California Asphalt Magazine • 2021 Forecast Issue

SINCE 1918

1-800-404-4975 ASPHALT SALES CONTACTS: Toll Free order Desk: 800-404-4975 Phone: 909-382-7400

SERVING RIVERSIDE AND SAN BERNARDINO COUNTIES WITH QUALITY ASPHALT MATERIALS AND SERVICE.

CABAZON ASPHALT PLANT: 13984 Apache Trail Cabazon, CA 92230 Phone: 951-849-8280 REDLANDS ASPHALT PLANT: 8397 Alabama St. Redlands, CA 92373 Phone: 909-792-3650 RIALTO ASPHALT PLANT: 3221 N. Riverside Ave. Rialto, CA 92376 Phone: 909-356-0537 www.MatichCorp.com asphaltsalesgroup@matichcorp.com

800.316.0327

FONTANA 909-822-2200

MINI EXCAVATORS / SKID STEERS BACKHOES / SKIP LOADERS

SANTA FE SPRINGS 562-777-0775

SALES • RENTALS • PARTS • SERVICE

Serving California For 50 Years!

DL250-5-US10

PROGRAM • Option 1: Low rate financing (0.9% for 60M) + 3 year 5,000-hour powertrain and hydraulics extended warranty

SOUTHERN CALIFORNIA’S PREMIER EQUIPMENT DEALER

DL200-5-US10 California Asphalt Magazine • 2021 Forecast Issue

DL300-5K-US10

• Option 2: Low rate financing (0.9% for 36M) + 5 year 7,500-hour powertrain and hydraulics extended warranty

DL280-5-US10 29

By Russell W. Snyder, CAE

ere’s a bit of good news, which seems in painfully short supply these days: Our roads are getting fixed at a rapid clip, resulting in a smoother and safer ride for everyone. You may recall that the Legislature in 2017 passed SB1, authored by state Sen. Jim Beall, D-San Jose, known as the “Road Repair & Accountability Act.” The most comprehensive transportation measure in decades, the bill included modest increases in fuel taxes and vehicle license fees to address our state’s neglected and crumbling infrastructure. The last time California raised pump prices was when George Deukmejian was governor, and the buying power of those dollars had eroded by 50 percent. SB1 was projected to make a $5 billion investment each year in our state and local roads, and included strict protections for transportation dollars, and transparency on how those dollars are spent. SB1 was challenged at the ballot box in the form of Proposition 6 on the Nov. 6, 2018 ballot, but it was soundly defeated. Another measure, to add additional Constitutional protections on transportation dollars, Prop. 69, was approved by eight in 10 voters in June of 2018. Good roads are the ultimate bipartisan issue. The entire state is starting to see the impact of those dollars as they turn into badly needed pavement rehabilitation projects. And in a thin silver lining in a pandemic year, 30

less traffic experienced earlier this year has helped road construction crews accelerate work and complete projects early. Most noticeable to motorists is the condition of pavements as they drive to work, run errands or other essential activities, often as they pass delivery trucks and other vehicles providing the essential goods and services to keep our economy functioning. These days pavement smoothness is measured with lasers and other high-tech equipment to international standards, and those measurements are showing clear progress. The state transportation department, Caltrans, recently reported it is well on its way to meeting its goal of bringing all major types of routes – freeways, highways and rural routes – to good or fair condition by 2027. Repairs to bridges, tunnels and culverts are also making tangible progress, thanks to SB1. The influx of dollars also has enabled Caltrans to deploy innovative design techniques. On Interstate 5 south of downtown, work is well underway on a $370 million freeway reconstruction that includes a special “long-life asphalt” design strategy that will last 40 years or longer, and in a nod to sustainability, includes a substantial amount of recycled asphalt. It is a joint venture by two venerable contractors, Teichert Construction and Granite Construction, ultimately employing hundreds.

While the big projects grab all the headlines, smaller projects also are getting done. In another innovative joint venture, the University of California, Davis and the City of Davis are teaming up on a $1 million project to rebuild a bicycle and pedestrian path connecting downtown to a massive student housing complex to the west. The Russell Boulevardadjacent path is under construction now and will replace a well-worn route that resembles week-old lasagna. The California Transportation Commission, meanwhile, on Dec. 2 approved another 56 projects valued at more than $2 billion to advance more critical repairs and upgrades to roads and highways, which will keep an estimated 100,000 essential construction workers on the job for several years. Overall, Caltrans says SB1 dollars will result in the repair of more than 17,000 miles of pavement, 500 bridges, 55,000 culverts and 7,700 traffic operation systems that help reduce highway congestion, such as ramp meters, traffic cameras and electronic highway messaging signs. It is slow but steady progress, and a nice bit of good news these days. Or as the signs say, “Your Tax Dollars at Work.” CA Russell W. Snyder, CAE, is executive director of the California Asphalt Pavement Association (CalAPA).

California Asphalt Magazine • 2021 Forecast Issue

Full-Size Performance, Short-radius Agility and Quiet Operation

COMPACT YET TOUGH MINI

Model : SK35SR-6E Program : 0% for 54 months and 90 Day deferral options for qualifying customers WORK SMARTER – NOT HARDER

SOUTHERN CALIFORNIA’S PREMIER EQUIPMENT DEALER Fontana / 909-822-2200

www.scottequip.com Serving California For 50 Years!

14635 Valley Blvd., Fontana, CA 92335

Santa Fe Springs / 562-777-0775

10918 Shoemaker Ave., Santa Fe Springs, CA 90670

California Asphalt Magazine • 2021 Forecast Issue

SALES • RENTALS • PARTS • SERVICE MINI EXCAVATORS / SKID STEERS BACKHOES / SKIP LOADERS

Construction spending remains robust in state budget for 2021-22 By Russell W. Snyder, CAE

oad construction is one of the bright spots in Gov. Gavin Newsom’s proposed state budget for the 2021-22 fiscal year that begins on July 1, with SB1 helping to generate billions to improve the state’s infrastructure at historically high levels. On Jan. 8 the governor unveiled his proposed $227 billion spending plan that reflects that the state’s revenues have largely avoided the most-feared impacts of the COVID-19 pandemic. The spending plan included more than $14 billion in COVID-19-related assistance program, and cash payments of $600 to low-wage workers. In a bit of a silver lining in a year dominated by grim pandemic news, the budget envisions the state to accumulate a surplus of about $15 billion because tax collections are running much higher than overly pessimistic projections issued last year. Spending on construction remains robust, and the importance of jobs linked to transportation are squarely in the forefront of the budget. “Our budget reflects and understands the realities of this pandemic,” the governor said during a detailed presentation where he spent a considerable amount of time reviewing the events of the past year, when the global pandemic swept across the state and the nation, triggering public health restrictions on business activity and the most job losses since the Great Depression of the 1930s. State tax revenues did not drop as much as had been feared, however, and the governor proposed a number of initiatives to assist with COVID-19-related

impacts. Among those allocations is a $14 billion investment to provide relief for individuals and small businesses, plus hundreds of millions more for vaccine distribution and school reopening. Transportation spending remained robust, reflecting the continuing impact of SB1 gas-tax revenue. Although fuel consumption dropped early in the pandemic, it has drifted higher and is approaching pre-pandemic levels. The closely-watched budget of the California Department of Transportation reached record levels. “As the Administration continues to prioritize economic recovery and investments in California’s transportation infrastructure, Caltrans has used its share of the additional SB1 revenues to accelerate projects and support creation of new jobs in the transportation sector,” the governor’s budget summary states. “The Budget maintains sufficient planning and engineering

staffing levels to continue developing and designing previously programmed projects.” Programming is government-speak for the schedule of projects in the pipeline. Overall, the Caltrans budget for 2021-22 is projected to be $14.5 billion, compared to $13.4 billion in the current year and $11.7 billion in 2019-20. The total number of Caltrans employees is projected to be 20,668, which is nearly even from this fiscal year and last. The job-creation aspect of work on California’s transportation system, which was heavily promoted during the runup to the passage of SB1, the $50 billion Road Repair & Accountability Act of 2017, was given more prominence in this year’s budget than at any time in memory. Even the title of the transportation section of the budget was renamed to become “Department of Transportation Investments and Job Creation.” [ Continued on page 34 ]

California Asphalt Magazine • 2021 Forecast Issue

INDUSTRY EXPERTS

SUSTAINABLE SOLUTIONS

100% EMPLOYEE OWNED

• Cold Milling/Planing • • Soil Stabilization • Dry Ups • Cold In-place Recycling • Cold Central Plant Recycling • Pavement Preservation

Inquiries? Get In Touch! www.pavementrecycling.com CA LIC. #569352

Kenco Engineering, Inc You spent big money on your equipment... MAKE IT LAST!

Protect your investment with Kenco longer life wear parts. Kenco offers innovative products for the aggregate, asphalt and road building industries.

Call Kenco and let our application specialists protect your investments:

800-363-9859

www.kencoengineering.com

California Asphalt Magazine • 2021 Forecast Issue

[ Continued from page 32 ]

“Job creation is foundational to the state’s recovery from the significant impacts of the COVID-19 Pandemic,” the opening of the transportation section of the budget states, recycling one of Newsom’s favorite words (foundational). “The Department of Transportation (Caltrans) currently estimates that approximately 11,000 jobs are created for every billion dollars spent on highway infrastructure. The California Transportation Commission allocated $22 billion for more than 1,200 projects in 2020, which will create thousands of jobs and spur economic recovery.” SB1, the budget notes, provided “stable, ongoing, longterm funding for both state and local transportation infrastructure priorities. In the years since, Caltrans has moved forward with a number of projects that continue to create jobs.” Elsewhere in the budget it states, “For the four-year period from 2020-21 through 2023-24, $17.4 billion is programmed for new and ongoing state highway repair and rehabilitation projects in the State Highway Operations and Protection Program (SHOPP). SB1 has increased available SHOPP funding capacity by nearly $2 billion annually since 2018-19.” The bulk of pavement rehabilitation work, of great interest to the asphalt pavement industry, comes out of the SHOPP program. During the same time frame, about $2.4 billion will be available for new construction. Jobs are also prominently featured elsewhere in the budget, including the consolidation of various labor-related departments and functions into a new entity, the “Department of Better Jobs and Higher Wages.” The budget proposes $8.5 million to expand construction apprenticeship and multi-craft pre-apprenticeship programs, a pipeline to the 34

construction trades, which could result in approximately 650 jobs. The budget is also largely silent on a controversy that erupted in 2019 when the governor said he wanted to “leverage” $5 billion in transportation funds for climatechange purposes. The budget makes reference to ongoing work by the California State Transportation Agency and stakeholders on a “Climate Action Plan for Transportation Infrastructure,” which is due by July. The state is also bullish on the positive impact of federal dollars on state finances. “The recently enacted federal COVID-19 relief bill provides $10 billion for highway projects, of which California is likely to receive approximately $900 million,” the budget states. “When combined with the more than $500 million California received in the redistribution of federal funding that went unused in other states, California is on track to move forward with all planned projects.” Although not mentioned in the state budget, the incoming Biden-Harris administration has placed transportation infrastructure investments near the top of its list of priorities, which also could bode well for transportation funding. An initial analysis of the budget by Transportation California, a CalAPA partner, found “no new or concerning proposals within the Transportation Budget.” The Legislature will hold hearings and make substantial changes to the proposed budget over the next several months. The state Constitution says the spending blueprint must be approved and signed into law before the new fiscal year begins July 1. Other noteworthy items called out in the governor’s budget include: • Gasoline consumption dropped 8.4 percent in 2019-20 compared to the prior year as the pandemic depressed vehicle traffic. It is projected that gasoline

consumption will continue to decline by 3.8 percent in 2020-22, and then recover to 5 percent in 2021-22. Diesel consumption actually increased by 3.7 percent in 2019-20, largely to the economic activity and deliveries spawned by COVID-19. The budget forecasts diesel fuel consumption to decline by 4.9 percent in 2020-21 prior to recovering in 2021-22 by 2 percent. SB1 hiked gasoline taxes by 12 cents per gallon, but diesel was hiked by 20 cents per gallon. • The budget also seeks to leverage $1 billion in future revenues generated from a special preexisting $3 per vehicle registration fee that is set to expire in 2024. By extending the registration fee, the resulting leveraged funds would be dedicated to light, medium and heavy-duty zero-emission vehicle infrastructure, such as charging stations. • Caltrans has utilized SB1 funds to improve the condition of 6,400 lane-miles of highway pavements in California, which according to the department has exceeded projections. Caltrans has repaired 635 bridges, which is an increase of over 300 bridges from what would have been expected without SB1 funding. The next major budgetary milestone will come in May when the Newsom administration’s Department of Finance issues revised revenue projections for 2021-22. Also, all eyes will be on Washington, D.C., to see if the Biden administration can deliver on a comprehensive transportation infrastructure plan that could be $1 trillion or more. CA Russell W. Snyder, CAE, is executive director of the California Asphalt Pavement Association (CalAPA).

California Asphalt Magazine • 2021 Forecast Issue

TERMINAL BLEND PG-TR AND MAC-TR ARE BACK IN CALIFORNIA

“Adhering To Quality”

END OF LIFE TIRES BLENDED INTO PG BINDERS, CUTBACKS AND EMULSION

ALL PG-TR GRADES AVAILABLE WITH 5%-20% TR

NO SPECIAL MIXING EQUIPMENT NEEDED TO STORE & TRANSPORT

PG 76, 70, 64, 58, 52 TR-M TM

Product Innovation by

“Tires IN the Road” CHANGE ORDER THAT RUBBER PROJECT TODAY

RAPID DIGESTION PROCESS

GREENBOOK SPECIFICATION & CALRECYCLE REBATE QUALIFIED

FOR MORE INFORMATION CALL 1-800-848-0228 “Adhering To Quality”

California Asphalt Magazine • 2021 Forecast Issue

INFO@USPOLYCO.com

INDUSTRY NEWS

CAT® PM822 COLD PLANER — More Power for More Production Special to California Asphalt magazine

The powerful Cat® PM822 cold planer is an 801 hp machine with an operating weight of 80,910 lbs and cutting width of 88 in. The Cat C18 twin-turbo engine is optimized to reduce fuel burn with a high-capacity cooling system that keeps the engine at ideal temperatures for optimal fuel efficiency and lower emissions. Comfortable Work Environment Operator-friendly controls are designed to be intuitive and easy to use. The optional single post power canopy with overhead LED lighting stows and redeploys in under 10

seconds during operation with the simple push of a button. Widedispersion and perimeter LED lighting options keep work areas around the machine well lit. Optional dust ventilation and spray bar systems maximize dust removal.

Integrated Technology Take the guesswork out of producing accurate and repeatable cutting results by using automated functions within the integrated Cat GRADE with Grade and Slope system like obstacle jump and

a Division of Butler-Justice, Inc.

Best Available Control Solutions for Blue Smoke, Odors & VOC’s in Asphalt Plants Patented and Proven as Best Available Control Technology. The most efficient and cost-effective emissions control solutions—now at over 100 hot mix plants nationwide.

Amazing New Technology. X-VOCS removes odors and VOC’s such as Hydrogen Sulfide (H2S) from the Hot Mix Asphalt process. Best when paired with our collectors.

Your Reliable Resource For Asphalt Plant Solutions

Butler-Justice, Inc. Industrial Equipment, Parts & Service Asphalt Plant Wear Parts, Dust Collectors, Burners, Electric Motors, Belt Scales

5594 E. La Palma Ave. Anaheim, CA 92807 (714) 696-7599 mikeb@butlerjustice.com www.bluesmokecontrol.com www.butlerjustice.com

California Asphalt Magazine • 2021 Forecast Issue

automated cut transition. The PM822 can also be enhanced with full 3D milling operation. Cutting System The robust cutting system is designed to withstand the toughest applications and built to last with heavy steel construction and reinforced alloys to resist abrasion. Cat System K rotors are durable, high-performance rotors with efficient material flow and an excellent cutting pattern and are available in a wide variety of spacings. Kicker paddles are reversible for extended life and the tapered dual retention toolholder design eliminates the need for retaining bolts, pins or setscrews, reducing replacement time by up to 50%. Maneuverability and Material Removal A reliable track undercarriage system with well-engineered track geometry provides high tractive effort and better load distribution when milling deep cuts or through hard materials. High-capacity conveyors provide efficient removal of milled material with outstanding discharge control. The belt also reverses for faster cleanup, while magnetic vinyl covers provide quick access to inspect the rollers for wear. Simplified Service The Cat PM822 is designed with long maintenance intervals, large service doors, and power hood for walk-in access to critical components and systems. Track components are maintenance-free with easy to replace track pads. When time to replace high wear components, your Cat dealer is ready to help with repair kits, convenient parts availability and service options for both your machine and the engine. CA

California Asphalt Magazine â&#x20AC;˘ 2021 Forecast Issue

Albina Asphalt.........................................15

Pape Machinery......................................35

Ammann America, Inc............................38

Pavement Recycling Systems................33

Associates Environmental......................37 Butler-Justice, Inc..................................36 CalAPA.....................................................38 Clairemont Equipment............................31

Peterson CAT.......................................2, 37 Quinn Co....................................................2 Roadtec.....................................................7

Coastline Equipment................................5

Sapphire Gas Solutions..........................39

E.D. Etnyre & Co......................................28

Scott Equipment...............................29, 31

GoldStar Asphalt Products........ 20, 21, 27

Sitech.......................................................25

Hawthorne CAT.........................................2 Herrmann Equipment, Inc...................... 11 Holt of California.......................................2 Kenco Engineering, Inc..........................33 Matich Corporation.................................29

TransTech Systems, Inc..........................18 U.S. Polyco..............................................35 VSSI Emultech.........................................19 Volvo Construction Equipment & Svcs....3

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

MEET THE AMMANN FAMILY OF PRODUCTS

NEW

ACP CONTIHRT

Ammann America Inc. 1125 SW101st Road, Davie, FL 33324 Phone (954) 493-0010, Fax (954) 493-0020, info.aaa@ammann.com For additional product information and services please visit: www.ammann.com GMP-2626-00-EN | © Ammann Group

California Asphalt Magazine • 2021 Forecast Issue

In July 2020, Sapphire Gas Solutions was formed by joining Blue Roads Solutions and Thigpen Solutions into one company. The newly formed Sapphire Gas Solutions is still committed to focus on serving the road construction industry with the same quality product fueling capabilities.

NEW NAME, SAME PASSION FOR EXCELLENCE IN ASPHALT Sapphire Gas Solutions is a Texas based LNG and CNG natural gas in the utility, industrial, and pipeline industries. Through years of experience provide LNG and CNG to asphalt plants, pipeline integrity projects, supplemental winter gas supplies, and a myriad of other applications, Sapphire is a true, national, virtual pipeline solution.

In addition to our emphasis on Asphalt Plants and Remote Power Generation, we now also help with: • Winter supply

• Pipeline curtailments

• Heavy fuel replacement

• Supplemental pipeline supply

• Pipeline integrity

• Emergency pipeline outages

sapphirenatgas.com 833-662-5427 sales@sapphirenatgas.com

R E PR E S E NTI N G TH E TO P EQ U I PM E NT LI N E S I N TH E I N DU STRY

California’s Largest General Line Construction and Municipal Equipment Dealer. So. California: 2044 S. Vineyard Ave., Ontario, CA 91761 • (909) 930-1822 No. California: 800 E. Grant Line Rd., Tracy, CA 95304 • (209) 830-8600 www.nixon-egli.com