AUGUSTA – The fiscal viability of state transportation projects will be evaluated month by month in the wake of a $130 million highway funding shortfall, members of a new state panel learned Thursday.

Last month, the state Department of Transportation announced it would have to defer about one-fifth of the projects it had proposed in the current two-year budget cycle because of the shortfall.

While recent increases in petroleum prices were cited initially as reasons for the shortfall, the resulting hike in construction costs may be more than a temporary blip, DOT officials said.

Rather, an increasing demand for construction materials and resources in India and China may continue to keep prices high for years, they said.

In response to news of the $130 million shortfall, Gov. John Baldacci appointed a group to study the problem and report back to the Legislature and to him in January.

The group met for the first time Thursday in DOT’s offices. It comprises four members from the Legislature’s Transportation Committee; representatives of the Maine State Chamber of Commerce, Maine Municipal Association, Maine Better Transportation Association, Maine Turnpike Authority, and Maine Motor Transport Association; a representative of contractor Lane Construction; Transportation Commissioner David Cole; and representatives of the State Planning Office, the Governor’s Office; and the city of South Portland.

DOT’s Bruce Van Note, deputy commissioner for operations and budget, and others said several conditions came together to create “a perfect storm” of a funding crisis.

He said 40 percent of the gap is tied to a new way federal highway funds are distributed; another 40 percent is linked to construction cost increases; and 20 percent is the result of an aggressive building schedule in Maine that put more projects on the books.

For decades, DOT has published its proposed highway and bridge projects for two years, six years and 20 years out. Municipal officials understood the list to mean the project had nearly a lock on construction.

Not any more, Cole said.

Instead of recalibrating funding and planned projects every two years, as DOT has done in the past, the process is now being completed monthly, Van Note said.

“That’s the process,” Cole said. “Constant reconciliation.”

Letters were sent last month to officials in municipalities where projects were deferred.

Part of its response to the funding shortfall is identifying the high-priority transportation needs, DOT officials told the group. Safety is the top factor in determining those priorities, they said.

“We do have a focus on bridges,” Van Note said.

The work group will divide into three subcommittees to study:

. The impact of project deferrals.

. Funding alternatives.

. Engineering.

The last point triggered discussion about ways to trim costs, such as allowing local oversight of some projects, using nontraditional material like wood composite for bridges, and debating replacement versus repair.

Sen. Dennis Damon, D-Trenton, co-chairman of the Legislature’s Transportation Committee and chair of the work group, said the group’s report would likely not be complete until mid- to late-January.