The Wisconsin Economic Outlook report released recently by the Wisconsin Department of Revenue suggests that Wisconsin will follow national trends and experience moderate growth through 2007. This growth is particularly strong given the $600 million in tax cuts and property tax credits agreed to by Governor Doyle and the Legislature.
The Wisconsin economy is expected to maintain relatively strong income and employment growth, contributing to expected revenue increases of 3.6 percent in Fiscal Year 2008 (FY08) and 4.0 percent in FY09. Total personal income is expected to grow 5.4 percent in 2006, followed by slower but healthy growth in 2007 of 4.8 percent and 4.7 percent in 2008. Employment growth is expected to be 1.0 percent in 2006, slowing to 0.6 percent in 2007. The return to more normal growth trends should produce employment growth of 1.1 percent in 2008 and 1.2 percent in 2009.
A downturn in the housing market and a more cautious consumer have contributed to the national slowdown. However, business capital spending and exports are expected to support further growth.
"The Wisconsin Economy is feeling the impact of a slower national housing market, but our economy is well-positioned to reverse that trend and continue to show solid growth in the next biennium, "said Revenue Secretary Michael L. Morgan.
Personal income growth will continue to outpace inflation by a strong margin, with real personal income growth expected to increase by 2.5 percent in 2006, followed by growth of 2.8 percent in 2007 and 2.7 percent in 2008.
The Outlook Report indicates that the strongest job growth will occur in the Education and Health Services and Professional and Business Services sectors. Jobs in Education and Health Services are projected to grow by 3.4 percent this year, followed by growth of 2.1 percent in 2007 and 2008. Jobs in Professional and Business Services are projected to grow by 2.3 percent this year, followed by growth of 2.1 percent in 2007 and 3.0 percent in 2008. Jobs in Leisure and Hospitality Services will show a healthy gain of 2.7 percent in 2006, but will be subject to slower growth over the next two years, projecting gains of 0.8 percent in 2007 and 0.9 percent in 2008.
The Outlook Report also includes estimates of General Purpose Revenues (GPR) for the current fiscal year and the upcoming biennium. It is expected that total FY07 GPR will increase 3.8 percent relative to FY06 to $12.49 billion. This is $69 million below the January 2006 Legislative Fiscal Bureau (LFB) estimate for FY07. For the upcoming biennium, total GPR is expected to increase by a healthy 3.6 percent in FY08 and 4.0 percent in FY09.
Access to the complete Wisconsin Economic Outlook report is available at www.dor.state.wi.us.
Construction in '07 Will Still Be in a Growth Mode
By Steve Stone, ABC of Wisconsin
Surveys done by various magazines and companies are all showing a growth year for 2007. However, the high demand and cost for material will continue to be a factor in decisions to build.
Here in the Midwest we may not see the same growth rate that other areas will experience, but from what our members have been telling us, most are still finishing up this year and have jobs lined up to start. Commercial and industrial building has been strong while new changes in DOT work will not be good for those companies that depend on it for business.
The Fed is still very cautious about inflation and this has resulted in higher primes. Hopefully the experts will be correct in their thinking that the economy will slow enough in the second half of 2007 and rates will come back down. This factor may determine when some projects get started.
Materials will continue to demand premium prices as world consumption continues to increase. The types of material used in commercial building are showing increases that are higher than inflation, and only lumber is showing signs of easing due to Canadian imports. In commercial work, lumber price softening will not offset the higher price of steel, copper, concrete, gypsum, and other materials. Lumber is used in much larger quantity in the residential market, and as we all know by now, that market is sluggish at best.
Qualified workers will continue to be a source of concern across the industry. With the effort to control illegal immigration, any attempt to bring in outside help will meet with strong opposition. As an industry we must continue to emphasize formal and informal training programs for current and future employees.
So how does ABC of Wisconsin see 2007? We see it as a good year for our industry. We will continue to see commercial growth, though at higher cost and we will hope that fuel cost reductions remain stable.
Economic Forecast 2007
Wisconsin Underground Contractors Association
By Richard Wanta, executive director, WUCA
Although the housing industry is down and the State of Wisconsin is below budget relative to available funding of highway construction, the underground segment of the contraction industry is expecting a good year in 2007. For eleven months of our fiscal year 2006, reported man-hours of construction for the six-county Milwaukee area were 1.42 million man-hours versus 1.47 million hours one year prior. Actually the underground contracting industry in Southeast Wisconsin installing water, sewer, tunnel, and utility infrastructure did well the past five-years! The six-county Milwaukee area includes Racine, Kenosha, Washington, Waukesha, Ozaukee and Milwaukee counties, where most of the largest projects are being done to repair our old underground infrastructure. We expect 2007 to be as good for the following reasons:
The WUCA Labor Policy Committee successfully negotiated five-year water, sewer and tunnel labor agreements in the six-county Milwaukee area with three unions. We are currently in the fourth year of five-year agreements that expire May 31, 2008. Therefore, we expect labor peace in 2007.
We Energies' construction of a $2.5-billion coal-burning plant in Oak Creek, Wisconsin, continues with a multimillion-dollar water intake pipe into Lake Michigan to feed the new plant.
The Milwaukee Metropolitan Sewerage District agreed to spend $128 million on collector and interceptor sewers in 2007 compared to $54.5 million in 2006. Much of those monies are for the Harbor Siphon project, a new north 27th Street tunnel segment, a major interceptor sewer in Wauwatosa, and other sewer projects like Warnimont and Hart Parks. They also budgeted $30 million in watercourse work compared to $33.6 million in 2006. In a recent settlement with the state attorney general due to alleged dumping of 4 billion gallons of sewage into Lake Michigan in May 2004, the MMSD agreed to a $900-million overflow reduction plan. The MMSD also continues to investigate partial combined sewer separation under their 2020 Facilities Plan due December 30, 2006. Our association office continues to lobby for an annual program of funding over the next 20 years to pay for partial combined sewer separation. The city of St. Paul, Minnesota, separated their combined sewers over 10 years, and the city of Atlanta is separating 27 percent of 330 miles of combined sewers due to excess rainwater in their sanitary sewer system.
Milwaukee County budgeted $750,000 in 2006 and $2 million for sewer work in 2007. Prior to 2006, the county did not even know that they owned sewers on their golf courses, zoo, airport, etc., apparently because sewers are out of sight and out of mind until something breaks or the toilets no longer work. Yet when the state recently sued area municipalities due to excessive inflow and infiltration of rainwater in the sanitary sewer system, the county quickly found those old sewers and agreed to some repairs. One major sewer problem is along Lake Drive near Bradford Beach.
The city of Milwaukee increased their 2007 sewer maintenance budget and started a storm water fee to help fund future projects.
We still have relatively low mortgage interest rates that help with private development work. Our members install water, sewer, gas, and electric services to those new home subdivisions.
Through court order to remove excess rainwater from entering their sanitary sewer mains, area suburbs agreed to make repairs in 2007. Work was started in Whitefish Bay, Shorewood, and in other area communities.
We continue to have relatively low inflation.
Although concerned about our aging workforce and the shortage of young people entering the construction trades, we currently have an adequate workforce. The average age of construction labor today is 40 years of age. As we stated in the past, we need a sustained jobs program to train and keep young people employed. If the city of Milwaukee created a 20-year program of partial combined sewer separation and street repair, we could provide numerous long-term work opportunities to train a younger workforce. When you think about family-supporting jobs for area residents, only the Wisconsin construction industry can provide them as Milwaukee manufacturing jobs have been dwindling for years. The construction industry does not pay poverty wages and fringe benefits!
Everyone should be optimistic about the underground contracting industry in 2007 and beyond. Consumers will always need basic services of water, sewers, gas, and electricity. Although consumers can postpone a new home or the government can delay reconstruction of a street or highway due to a weak economy or high interest rates, try living without water, sewers, heat, or light in your home or business. Our challenge is to convince the buyers of our services to protect their investment and bid projects as protection of those basic services that consumers take for granted.
State Business Tax Climate Index
By Curtis S. Dubay and Chris Atkins, The Tax Foundation
The State Business Tax Climate Index ranks how "business friendly" the 50 state tax systems are, providing a roadmap for state lawmakers, business owners and citizens concerned with keeping their state's tax competitive.
The Tax Foundation presents the 2007 edition of the State Business Tax Climate Index (SBTCI) as a tool for lawmakers, the media and individuals alike to gauge how their states' tax systems compare. Policymakers can then use the SBTCI to pinpoint changes to their tax system that will explicitly improve their state's standing in relation to competing states.
How much states collect in taxes is critical, but how they take it is also important. In other words, quite apart from whether a state's total tax burden is higher than in other states, it can enact (and many states do) a set of tax laws that cause great damage to the economy.
The SBTCI is designed to measure the competitiveness of each state's tax system so lawmakers, the media and the public alike can determine how their state compares to other states. They can also use the SBTCI to identify specific changes that will increase the competitive standing of their state.
Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same. Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with these politically motivated preferences, the less likely it is that business decisions will be made in response to market forces. The SBTCI rewards those states that apply these principles in five important areas of taxation: individual income taxes, major business taxes, sales taxes, unemployment insurance taxes, and taxes on wealth or assets such as property.
The SBTCI places 113 variables into five component indexes, each measuring a different sector of a state's business tax climate. The five component indexes are the Corporate Tax Index, Individual Income Tax Index, Sales Tax Index, Unemployment Tax Index, and Property Tax Index. The total score for each state is calculated based on the scores on each of the five component indexes. Using the economic literature as our guide, we designed these five component indexes to score each state's business tax climate on a scale of zero (worst) to 10 (best). Each component index is devoted to a major area of state taxation and each has two equally weighted sub-indexes, some of which include several categories and variables under them. Overall, there are 10 sub-indexes and 113 variables.
The 10 best states in the Tax Foundation's 2007 State Business Tax Climate Index are as follows:
WyomingSouth DakotaAlaskaNevadaFloridaTexasNew HampshireMontanaDelawareOregon
The 10 worst states in the Tax Foundation's 2007 State Business Tax Climate Index are:
47. New York
48. New Jersey
50. Rhode Island
To access the full report, visit www.taxfoundation.org.
Wisconsin Earth Movers Association Forecast
Unfortunately the forecasts for the next two years are not exactly the best for the Wisconsin Earth Movers. After having quantities between 17 million to 24 million cubic yards (cy) the last few years, there is a large drop-off in the future. For fiscal year 2007, the estimate will amount to a little over 11.2 million cy. Fiscal 2008 improves a little bit, but will still only amount to about 14 million cy. The reasons given by WisDOT were prices of items rising, large increases in right-of-way costs, and a large increase in the construction of structures on the major projects.
It appears that before the program can begin increasing quantities again to where they were, the legislature is going to have to come up with solutions in increasing the revenues for highways. This also includes allocating major projects that the public community is demanding for safety and economic reasons.
On other matters, the earthmovers have been working for the last three to four years to get uniformity in the administration of 1) 3x EBS payment; 2) the method of payment for using waste, excavation within the R/W but not in the grading limits, and use of EBS to replace borrow taken from off the project; and 3) contactor initial staking. All three issues should be resolved this year.
An exciting event in the near future is the use of GPS on grading equipment to achieve the final product without the use of stakes. DOT will either be letting a pilot project or giving a contractor the option of piloting one of their own projects. It's an exciting future and could improve the quality of construction. The WEMA Annual meeting will have a presentation concerning GPS use.
One saving issue the earth movers have had is ASP 5, the cost escalation clause for fuel increases. There have been revisions to the base price, which was increased to $1.80 beginning in the November letting by WisDOT to try to meet the current cost so no adjustments are required. Another revision was adding the item of granular backfill as one of the items that can be adjusted.