This view shows Interstate 64 near the Bottoms Bridge exit in New Kent County. The state budget includes funding to help widen a 29-mile "gap" of I-64.

Secretary of Transportation Shep Miller has a simple message for road builders struggling to complete Virginia transportation projects for prices that may not cover the rising costs of materials essential for doing the work — the state has your back.

Miller, a former member of the Commonwealth Transportation Board, said the Virginia Department of Transportation is looking for ways to ease the pain for road builders and other companies that deliver projects in the state’s $24 billion six-year transportation improvement plan. The state has already set aside about $200 million in reserves for potential cost overruns.

“There are some levers we’re trying to pull to help them,” he said in an interview on Friday. “At the end of the day, we don’t want anybody to get crushed here through this inflationary process.”

Road builders and other transportation contractors say liquid asphalt, concrete and PVC pipes, and steel reinforcement bars all have become harder to buy at any price. They say some suppliers and subcontractors are walking away from contractual commitments because their own material and labor costs are higher than what they would be paid for the work.

“We’re in an unprecedented time,” said Ed Stelter, vice president of procurement at Faulconer Construction Co. near Charlottesville. “It is important for us to lock down pricing we have counted on for the products we’re buying to build the infrastructure.”

Inflation has shown signs of easing, primarily because of gasoline prices that fell by $1.19 a gallon for unregulated fuel in Virginia from a peak of $4.86 a gallon in mid-June to $3.67 a gallon on Wednesday. But the average price of diesel was $4.88 a gallon in Virginia that same day — $1.21 a gallon higher than regular unleaded gasoline — and that’s a cost that construction contractors can’t avoid.

“It’s a different marketplace because of the people who use it,” said Morgan Dean, spokesman for AAA Mid-Atlantic.

Virginia transportation contracts generally included contingencies to adjust prices for costs, including motor fuel, asphalt and structural steel for reinforcement rods, but companies say it’s not enough.

“It’s not covering all the expenses,” said Rich McDonough, a consultant and retired senior district manager at Lane Construction Corp., based in Fairfax County. “The contractors are eating a lot of it.”

The General Assembly set aside $450 million in the budget this year to pay for potential cost overruns on state capital projects, such as buildings around Capitol Square and on public college and university campuses.

It didn’t earmark money for potential transportation cost over-runs.

House Appropriations Chairman Barry Knight, R-Virginia Beach, said legislators are looking to Miller and the Commonwealth Transportation Board to find ways to protect contractors from unmanageable costs.

“We’ve got to keep these people from closing their businesses,” Knight said.

VDOT set aside almost $130 million in reserves in June and an additional $70 million in July to provide cushion for contractors and local governments in transportation projects. The agency says it will continue to “reprioritize” use of transportation funding as necessary to adjust for inflation in ongoing projects.

“You shift your resources to meet the current commitments first,” said Laura Farmer, chief financial officer at VDOT.

The inflation strain on road builders and other contractors on state projects also fuels debate over state funding for transportation. Gov. Glenn Youngkin emphasized again last week that he thinks it is ample to support additional cuts in state taxes, including those levied on gasoline and other motor fuels.

“We don’t think the phrase ‘there is plenty of money in transportation’ is accurate,” said Gordon Dixon, executive vice president of the Virginia Transportation Construction Alliance. “It’s not what the needs are, it’s not what the costs are.”

Youngkin has been thrice denied by Senate Democrats this year in his attempt to temporarily roll back gasoline taxes and cap future increases for inflation. One proposal would have suspended the state gas tax, then 26.2 cents a gallon, for three months and capped the annual inflation index at 2%.

The tax rose by 7% on July 1 — a little more than 2 cents a gallon at the wholesale level — under an inflation index that the assembly approved as part of a sweeping transportation funding package in 2020.

Youngkin’s proposed temporary tax freeze would have cost the state transportation fund about $437 million, but road builders say the real damage to funding would have come through the 2% cap on the inflation index, which Dixon estimated at $300 million a year.

“It was not a temporary hit,” Dixon said. “It was a permanent, long-term hit to transportation.”

It’s a debate that’s not going away. Youngkin promised earlier this month to propose cutting the gas tax next year, when all 140 assembly seats are up for election.

“I want people when they fill their tanks to think about Senate Democrats,” he said at a rally in Virginia Beach.

Last week, Youngkin confirmed a revenue surplus of about $2 billion for the fiscal year that ended on June 30, although he also attempted to add $1.2 billion in money that the assembly had already appropriated but not spent. The money rolled into the two-year, $165 billion budget that took effect on July 1 and is already committed for financial reserves and one-time projects, including widening of a 29-mile stretch of Interstate 64 east of Richmond.

The governor also noted that the Transportation Trust Fund — representing a portion of all transportation funding in Virginia — ended the fiscal year with a $2.75 billion cash balance, which he said was an increase of two-thirds over three years. All transportation revenues — including regional taxes and federal funding — exceeded $9 billion in the fiscal year.

The bottom line for Youngkin is that Virginia has plenty of money for tax cuts, including his proposal to set aside $400 million of the surplus for a new taxpayer relief fund he will include in the revised budget he will unveil in December for assembly action next year.

Miller, whom the governor appointed as transportation secretary in January, said his boss is right.

“Without question, we had more money than we’ve ever had, so the governor is correct,” he said. “The surpluses we’ve received, he wants to see them going to the benefit of the taxpayers who are paying for them. They deserve a benefit, too.”

But Miller also recognizes that Virginia has a big stake in the survival of the contractors it relies on to build roads, bridges and other transportation infrastructure.

“When people start going out of business, it doesn’t help anyone,” he said.

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Youngkin, speaking to the General Assembly money committees, said his new proposal to set aside $397 million in a new taxpayer relief fund is "a down payment" on additional tax cuts.

The biggest reason is the drop in gasoline prices from a record-high on June 14, when the average price at the pump was $4.86 a gallon, to an average of $3.68 a gallon on Tuesday.

This view shows Interstate 64 near the Bottoms Bridge exit in New Kent County. The state budget includes funding to help widen a 29-mile "gap" of I-64.

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