Nov 13 2006 11:59AM | Permalink | Email this | Comments (0) |
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Already doing very well with September spending nearly 12% above a year ago, public construction got a “thumbs up” from voters who approved about $40 billion of new highway and transportation funding and even more for other public projects on November 7th. Almost half of the new funds are in California. Caution: this overstates the construction market impact in California where laws require ballot approval of many capital projects. Reed Construction Data anticipated a big influx of new state and municipal funding in the 8% plus growth pace in our public construction spending forecast for 2007-08.

But the impact of the election on the outlook for federal construction funding is not as clear. Normally, a switch to Democratic control of the Congress would mean spending (and tax) increases ahead with additional federal funds for public facilities. But that may not happen this time. The very small Democratic majority will be used effect security and public welfare changes with little, if any, clout left over to boost federal support for public construction. Many of the new Democratic members of Congress were elected after accusing incumbents of voting for too much federal spending and too many “pork barrel” projects, many of them involving construction.

While the new Congressional leadership team is from safe, urban Democratic districts that favor more public facilities, the new members who provide the slim majority largely represent moderate or conservative swing districts in the suburbs and rural areas where voters who usually favor less taxes even if it means less spending choose to vote on security issues in 2006. The new members of Congress know that they have to reauthorize most of the soon to expire Bush tax cuts and keep the alternative minimum income tax from reaching their middle income constituents. The agenda for public debate will certainty change because the committee chairman from urban districts will propose much more public construction spending but only succeed in getting a small amount of it.

The declining balance in the Federal Highway Trust Fund will also be a restraint with little prospect of an increase in federal gas tax. Congress plugged one drain on the transportation funding by switching the federal ethanol subsidy to the general fund instead of the highway fund. But high gas prices are progressively restraining gas consumption and slowing federal gas tax receipts. Most of this impact is still ahead.