Operations & Technology

Obama Signs Stimulus Bill With $135+ Billion For Construction

February 20, 2009
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State budgets, IP sink.

President Obama signed the American Recovery and Reinvestment Act Feb. 17. AGC estimates that the act includes $135-144 billion for construction, most of which must be obligated by Sept. 30, 2010. (Missouri announced it had awarded a bridge project a few minutes after the bill became law.) That total covers the following (in billions):  
    • Transportation, $49 ($28 highways; $18 transit/rail; $2 airports)
    • Water/environment, $21 ($6 nuclear waste; $7 water/wastewater; $5 Corps of Engineers)
    • Buildings, $30-$38 ($7 Department of Defense; $6 General Services Administration; $9 other federal; $8 housing; $0-9 schools/other local)
    • Energy/technology, $30 ($11 “smart grid”; $7 wireless/ broadband; $6 energy grants; $5 weatherization)
In addition, numerous tax provisions should add to demand for construction: “qualified” school construction bonds; “Build America” bonds; bonds for “recovery zones,” tribal areas, renewable energy, energy conservation; and modified renewable energy, conservation credits.

Other tax cuts will help contractors directly: higher limits on the size of total investment and amount of equipment eligible for expensing; a continuation of “bonus” depreciation; an increase in the carryback period for net operating losses from two to five years for small businesses with less than $15 million in gross receipts; and a delay from 2011 to 2012 in the start of 3% withholding on government contracts.

AGC has posted detailed information about amounts, distribution formulas and timetables, state-by-state allocations where available, and limitations at www.agc.org/stimulus. AGC encourages contractors and suppliers of construction services, materials and equipment to submit examples of jobs saved or created by stimulus projects, and to report cases where stimulus funds are not being awarded timely or appropriately.

The stimulus money may not fully offset cuts in state budgets, however. “At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well,” the Center on Budget and Policy Priorities reported Feb. 10. “Combined budget gaps for the remainder of this fiscal year [FY] and state [FY] 2010 and 2011 are estimated to total more than $350 billion.”

The Northern Virginia Transportation Alliance reported yesterday that on Friday, “the Commonwealth Transportation Board approved a mid-year reduction of the FY 2009-2014 Six-Year Improvement Program (SYIP) that resulted in highway funds being reduced from $7.9 billion to $6.0 billion. Transit funding increased by $200 million over the amount approved in June 2008. Overall, the revised $8.9 billion FY 2009-2014 SYIP is $2.6 billion less than the previous FY2008-2013 SYIP.”

Recent reports underscored the importance of stimulus in the absence of other demand for construction. The Federal Reserve reported today that industrial production (IP) in manufacturing sagged 2.5% in January, seasonally adjusted, and 13% from a year ago.  IP in manufacturing of construction supplies shrank 3.4% and 17%. The Fed noted, “The factory operating rate moved down 1.7 percentage points, to 68.0%, the lowest rate of utilization since this series began in 1948.” Factory capacity utilization is one indicator of demand for manufacturing construction.

The architecture billings index, which measures the percentage of architecture firms with higher or lower billings compared to the prior month, “dropped to a historic low level in January,” the American Institute of Architects reported today. The subindex reflecting billings by firms with commercial/industrial practices moved up slightly from the record lows of the previous three months, but the institutional- and mixed-practice measures hit new lows and the residential-practice subindex tied the low set in December. The index dates back to 1995.

Reed Construction Data reported that the January 2009 value of construction starts compiled by the firm rose 5.3% from January 2008 but was 23% lower than in December, “an unusually large cutback. The only similar drop in recent years was in September 2005 and that was reversed the following month,” Chief Economist Jim Haughey commented. “Heavy-project starts fell 13% in January (month over month), although starts increased slightly for highways as public works managers took advantage of suddenly more competitive bidding and plunging asphalt prices. Commercial starts declined 23%....Institutional starts declined 28% [albeit] from an exceptionally high December total. The commercial market is still significantly weaker than the institutional market.”

Housing starts and permits fell for the seventh straight month in January, the Census Bureau reported today.  Starts fell 17% to a seasonally adjusted annual rate of 466,000 units, while permits for new housing construction fell 4.8% to a rate of 521,000 units-both record lows for the 50-year-old series. Single-family starts fell 12% from a month ago and 50% from January 2008. Multifamily starts were down 28% and 62%. Single-family permits dropped 8.0% and 50%; multifamily permits climbed 1.6% from December but tumbled 51% from a year earlier.

“Extended mass layoff events [lasting 31 days or more] and separations reached their highest levels in program history (with data available back to 1995),” the Bureau of Labor Statistics reported on Friday. “Construction firms recorded 843 extended mass layoff events and 100,922 separations, the highest levels for the industry on record. While most construction layoff events were due to the end of seasonal work and the completion of contracts, the number of layoff events due to slack work/insufficient demand more than doubled over the year.”

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