Construction spending on education facilities rebounded to double-digit growth last fall, following a brief decline during the summer months. Education project starts increased 27.5% between the first and second halves of 2005, according to Reed Construction Data.
Looking ahead, spending is forecast to increase 14% in 2006, and 11.7% in 2007. Market growth is expected to peak at a 19% annual pace this summer and then slip to 8% by the end of next year. During the past year, construction spending grew fastest for high schools (22%), followed by middle schools (16%), elementary schools (14%), and higher education facilities (10%). With the exception of higher education, this growth pattern follows enrollment trends that show the enrollment bulge is now in the 8th grade. Higher education enrollment is expanding much faster than K-12, but most gains are from students attending part-time or at night so construction is growing less than enrollment.
Relative space needs determine facility construction spending for each age group, but the aggregate level of spending is set by fund availability. Currently, available funds are generous due to several years of very rapid state and local income tax growth, especially corporate income taxes and higher sales tax receipts. Combined, all states had a 6.9% budget reserve at the end of FY 2005, up from about 3% several years earlier. Reserves are growing slightly this fiscal year because economic growth was generally underestimated in state budgets ending June 2006. At the peak of the last business cycle, education construction spending jumped 26% in two years when state budget reserves were more than 10% for those two years.