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Government Construction Outlook
HISTORICALLY, PUBLIC CONSTRUCTION
accounts for about 25 percent of total construction spending. Currently, that figure is running at about 31 percent as state, local and federal governments increase spending and the private sector decreases spending. Public spending in March 2009 rose to an annualized $309 billion, according to the Department of Commerce, Washington, D.C. The federal governmentís spending normally accounts for only about 7 percent of that total, but currently represents about 8.5 percent.
Government spending is broken into three parts: federal, state and local. Due to the importance of government spending to the construction sector, all eyes are on the American Recovery and Reinvestment Act of 2009 to help bolster what otherwise will be a down year for total construction put in place. FMI Corp., Raleigh, NC, however estimates that only $94 billion of the total $787 billion from the ARRA will be devoted to construction, and that amount will be spread throughout four to five years. For the remainder of 2009, about $24.3 billion will be spent on construction with only $4.77 billion for buildings and residential construction. Highway construction will receive $16.2 billion, water and environmental construction, $2.7 billion, and $650 million will go to power projects. Although those totals reflect overall spending from the ARRA, most of it will go through state and local budgets.
STATE BUDGET SHORTAGES
While contractors are scrambling to understand which projects will be funded by the ARRA, some are finding that projects that may have been close to going out to bid are being delayed as state and federal agencies wait to see if their projects will be funded. Now that individuals have filed their taxes for the year, states are discovering larger-that-expected budget shortfalls. Unlike the federal government, states must balance their budgets each year. These shortfalls are expected to continue into 2010 and beyond, depending on how swift the recovery is. Currently, state budget shortfalls are averaging 16 percent. Even though public funding for construction projects will not decline as quickly as public construction this year and next year, except continued project delays and cancellations.
The latest results of the FMI Nonresidential Construction Index for the second quarter 2009 indicates that only 23 percent of nonresidential contractors expect the ARRA to increase their backlogs by up to 5 percent in the next year, and 88 percent have not yet seen any construction activity from the act. It is clear that contractors who normally serve public markets are seeking to bid on government contracts. The early, shovel-ready projects mostly involve infrastructure, and many are finding these projects often are smaller repair and refurbishment projects.
Besides the necessary economic stimulus generated by government projects, federal projects are helping to stimulate two significant trends: green construction and the use of building information modeling technologies to improve the construction process and project collaboration. Those initiatives should not only save money, but also serve as examples and test beds for new construction technologies. Although many of the green projects will barely change the total construction put in place, they indicate some changes in trends. For instance, $305 million of the $3 billion in investments planned by the Bureau of Land Management, Washington, will be directed toward landscape restoration and renewable energy, and $143 million of that total will be directed toward construction of buildings and installation of solar energy systems to reduce energy costs and carbon footprints.
Significant federal funds-$1 billion- have been directed to the National Institutes of Health, Bethesda, MD for repairs to facilities that work on planned NIH buildings. Additional energy projects are included in the Washington-based Department of Defenseís share of the ARRA, including $300 million to develop near-term energy-efficient technologies and $100 million for the DODís Energy Conservation Investment Program. Most DOD projects around the country will be small projects to repair or replace roads, roofs and HVAC systems.
The increase in government spending stimulates the economy and is a recognizable start toward rebuilding U.S. infrastructure. Judging by the size of growing deficits, most of the needed infrastructure projects wonít get started until private investment begins again and more people go back to work and improve the tax base.
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