A surge in April and May spending brought construction activity for education facilities, adjusted for inflation, up to the early 2002 peak reached in the last building cycle. Accelerated expansion is expected into 2007.
The turnabout is happening on the supply side. Tax receipts have soared after the unprecedented plunge in 2002–03, when progressive income tax rates worked in reverse and taxes on capital gain income virtually ceased.
While enrollment growth sets the scale of school construction over the long-term, it is the availability of construction funds that drives deviations from that trend within a building cycle. The availability of public construction funds has improved sharply over the past year with further strong improvement expected ahead.
Many state and local governments are beginning the new fiscal year with sufficiently higher budget balances to start postponed school projects with no or only modest tax increases. Some states, such as California, have serious non-cyclical economic problems that are still restraining school construction spending. But most state budgets ended with a bigger balance than expected for the 2004–05 fiscal year. Moreover, voter approval of construction bond issues is increasingly likely with now rising consumer confidence and smaller property tax rate increases over the last year.
The added spending will be heavily renovation in the Northeast, where new space needs are minimal, and predominately new buildings in the Southeast and Southwest.