Before the figures started to show a decline, stimulus-funded projects remained high through the first half of 2010. By the third quarter of this year, stimulus-funded projects were back down to $900 million, according to McGraw-Hill Construction. A similar retreat can be seen for institutional buildings.
Not only are federal stimulus funds drying up, there seems to be little hope that federal spending on construction will do better than remain flat, while state spending declines. The assumption that construction is stuck with the status quo was cited by ARTBA economist Alison Black as the main reason ARTBA is not more optimistic about 2012. "The highway bill is still up in the air for 2012, and that means the static federal investment we have seen for the last several years will continue," Black says.
"The Budget Control Act of 2011 is in line with the move toward reduced federal spending,"says MCH's Murray. "Through fiscal 2010, the federal government had assumed a supportive stance toward construction programs. After the November 2010 elections, with Republicans gaining control of the House of Representatives, that supportive stance changed."
The fiscal appropriations passed by Congress in April contained flat or reduced funding for numerous construction-related projects. The federal-aid highway program was frozen at fiscal 2010 levels, and $2.5 billion in contract authority to states was rescinded. The mass-transit account was cut 20%, and high-speed rail received zero funding. The clean-water state revolving fund was reduced 27%, while the drinking-water SRF was slashed by 30%. Financing for military-related projects in the U.S. was reduced by 16%. "When fiscal 2012 appropriations are eventually finalized, they are virtually certain to contain diminished federal support for numerous programs," Murray says.
In light of big drops in public-sector dollars, institutional building starts are expected to drop 15%, to $93.6 billion, in 2011 and slip another 2%, to $92.1 billion, in 2012, according to MHC. School construction, in particular, would drag down the sector, with total spending forecast to drop 13%, to $40.9 billion, in 2011, with another 4% decline projected for 2012, according to MHC.
Public buildings also remain on a downward skid: Starts are estimated to drop 23%, to $30.2 billion, in 2011 and another 1%, to $29.9 billion, in 2012. "Overall, this sector is in the midst of entrenchment, and I don't see how that could change in 2012," Murray says.
Health-care starts are expected to drop 4%, to $22.5 billion, this year. Murray says new federal health-care legislation and, as a means of reining in the federal deficit, the threat of reductions in Medicare and Medicaid have had a dampening effect. Despite this uncertainty, he still expects the health-care market to increase by 2% next year.
Environmental pubic works starts also are expected to drop from historic highs. Since tallying $38.3 billion in starts in 2008, activity has been in decline. This year, it is forecast to hit $28.6 billion followed by a 5% drop, to $27.3 billion, in 2012.
Private non-residential building construction should start a comeback in 2012. Murray predicts that, next year, the dollar value of total commercial and manufacturing building starts will increase 7%, which includes a 5% gain for both stores and shopping centers and office buildings.
Although Murray says he expects total construction starts to remain flat in 2012, he is careful to note that such results would be based on roughly 2% GDP growth. If the economy sees a double-dip recession, total construction could drop another 7%. However, Murray thinks another recession is unlikely.