Constructioneer's 2009 Forecast

As I write the forecast for 2009, the National Bureau of Economic Research has officially declared that the U.S. economy has been in a recession for a year. Surprise! Many economists feel that this will be the worst recession since 1981–1982 and will continue well into 2009. States throughout the country have been revising their budgets, slashing spending and redirecting money in order to avoid deficits yet still fund critical programs.

New Jersey Governor Jon Corzine has specified four areas of attack: immediate assistance, including foreclosure prevention, energy costs, and food costs; short-term job creation, focusing on expediting public works projects and enabling community banks to loan funds to local businesses; long-term business climate changes, specifically on changes in tax policy and the cultivation of alternative energy projects; and continued fiscal responsibility on the state level by keeping state spending in check.

In the immediate term, Governor Corzine's plan will involve addressing the most critical needs of New Jersey families, but his plan will also rapidly advance planned infrastructure projects —the rebuilding of urban and suburban schools, expansion of the Turnpike and Parkway, and construction of a new mass transit tunnel — creating an estimated 43,600 jobs.

In the long-term, Governor Corzine proposes substantial changes in New Jersey's tax policy that will make the state more inviting to small business owners and relocating businesses, while aggressively cultivating the industries of the future to better position the state for years to come in the areas like off-shore wind energy, solar energy, and projects focused on energy conservation and renewable resources.

New York Governor David A. Paterson has announced a comprehensive, two-year $5.2-billion deficit reduction plan that will entirely eliminate the state's $1.5-billion current-year shortfall, protect against further declines in revenue in a volatile economic climate, and make a substantial down payment on next year's deficit.

Governor Paterson's proposed reductions are spread across virtually every area of state spending, including education, health care, human services, the state workforce, and others. These actions would produce $2 billion of savings in 2008–09 and $3.2 billion in 2009–10. In addition to closing the current-year shortfall, the plan would also provide a $548-million cushion against additional declines in revenue during 2008–09. These proposed actions would also reduce the state's 2009–10 deficit from $12.5 billion to $8.8 billion and four-year budget deficit by from $47.0 billion to $35.9 billion.

After implementing Governor Paterson's deficit reduction plan, 2008–09 All Funds spending would still total $119.2 billion, an increase of $3.1 billion or 2.7 percent over the previous year. State Operating Funds spending would total $77.0 billion, an increase of $1.9 billion or 2.5 percent. Inflation is currently projected to be 4.2 percent for 2008–09.

The deficit reduction plan includes several actions related to local governments. The proposal eliminates $41 million in additional Aid and Incentives for Municipalities (AIM) funding for New York City that was added in the 2008–09 Enacted Budget. New York City will still receive an AIM payment of $205 million in 2008–09.

For municipalities outside of New York City, the plan would maintain 2009–10 AIM payments at 2008–09 levels, eliminating a previously scheduled $61 million increase. Even after these actions, AIM payments outside of NYC would still total $755 million in 2009–10, an increase of $290 million or 62 percent compared to 2004–05. Governor Paterson is also proposing to reduce 2009–10 VLT Impact Aid for 17 municipalities by 50 percent compared to 2008–09 levels and limit eligibility for this program to municipalities that already participate. Yonkers would not be impacted by this VLT Impact Aid proposal. Although these actions will not provide savings in the 2008–09 fiscal year, Governor Paterson believes it is important to enact these reductions now so that local governments will have an opportunity to prepare for these changes in state aid before the beginning of their 2009 fiscal years and to modify their spending accordingly to find cost efficiencies.

Delaware Governor Ruth Ann Minner announced that the state would go even further in its efforts to control state spending as a result of the Delaware Economic Forecast Advisory Council (DEFAC) report, which reduced projected revenues for the current fiscal year by $151.7 million and cut Fiscal 2010 revenues by $303.7 million.

"Unfortunately, we must take immediate action to reduce state spending in light of the continually deteriorating economic forecast," Governor Minner said. "We have had a number of management controls in place since the beginning of the fiscal year. We will make these even more restrictive to ensure that we continue to balance the budget. Unfortunately, even with our best efforts, this is a problem that will not be resolved for several months."

Governor Minner has re-instituted a hiring freeze and requested that state agencies submit a 7 percent cut in their budgets for the current fiscal year, as well as cuts of up to 15 percent for the upcoming fiscal year. No mid-year budget cuts are being requested of public or higher education. That is in addition to the review for purchase orders over $2,500 and no job reclassifications, both of which were already in place.

DEFAC reduced projected revenues in nearly every major revenue category, including personal income taxes, corporate income taxes, corporate franchise taxes, bank franchise taxes and realty transfer taxes. Combined with the September DEFAC results, estimates since July have fallen $190.6 million for the current fiscal year and $395 million for the upcoming fiscal year.

Pennsylvania Governor Ed Rendell, who is also chair of the National Governors Association, has been a vocal advocate of the federal economic stimulus plan. At a December meeting between state officials and President-Elect Obama, Rendell stated, "Investments in ready-to-go infrastructure projects are a cost-effective creator of high-paying jobs. These investments should include a broad array of infrastructure projects including airports, bridges, highways, transit systems, ports, rails, clean water, sewers and broadband. We should target high-priority projects so funds can be obligated and invested so that we will see the effects quickly."

With negative economic news dominating the headlines, an atmosphere of uncertainty as the federal government transitions to a new administration, state and local governments in limbo as they wait for news from Washington, and the private sector at the mercy of a financial market in chaos, it is difficult to make any forecast for the coming year. However, with a proposed $700 billion economic stimulus package on the horizon — and state governors asking President-Elect Barack Obama for $136 billion in funds for infrastructure projects that are ready to go within 90 days — the construction industry is poised to be a key player in rescuing the economy in the years ahead.

"This is certainly a challenging and unpredictable time," states Dennis Slater, president of the Association of Equipment Manufacturers. "We need to get dollars into the construction pipeline. An immediate increase in public works funding will help jumpstart the U.S. economy. Construction projects are being deferred and our customers are looking for work. It's estimated that there are currently 3,000 projects that could begin work within 30 to 90 days of a governmental funding commitment.

"Our aging roads, bridges and highways need repair and upgrades. Committing funds to infrastructure renewal not only provides manufacturing and construction jobs, but also helps ensure we have safe and efficient movement of goods and people. An adequate transportation network is essential to commerce and maintaining U.S. competitiveness in global markets.

"We also need a proper investment in our water infrastructure to replace an aging and inefficient system. Here too, more jobs are created at the same time that the public benefits.

"But we have learned from previous downturns how to operate more efficiently, and we are positioned for a rebound, hopefully as 2009 progresses, and into 2010. Government measures to boost infrastructure investment will play a critical role in our industry's recovery as well as strengthening the U.S. economy overall."