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Healthier public coffers will benefit education

May 01, 2005 |

After two lean years—the result of the last recession on public budgets, donations and capital fund earnings—the supply of construction funds has recovered enough to restart expansion in the education market.

Spending for education facilities has only kept pace with rising building materials prices over the last year, but a return to a 10% plus inflation annual growth pace is expected by midyear and will persist at least into 2007. The spending level in the short-term is independent of demand; there is always unmet demand from rising enrollments and desired program improvements. But it is the supply of construction funds that sets the amount of construction spending.

State and local tax receipts, investment earnings, and the profits that fund donations have all been improving for two years. Some state and local budget balances have not yet recovered enough to fund the construction of new schools. They are concentrated in the Great Lakes industrial and the Southeast textile regions, where job growth has not yet begun, as well as in California, which is still in debt from previous overspending.

Early in 2005, public education construction spending is expanding marginally while private project spending continues to decline, especially for higher education. Public K-12 spending increased 3% in last quarter from the previous quarter, while public higher education spending declined 4.5% over the same period. Elementary schools were the fastest-growing project type for most of last year but middle and high school construction spending has been growing faster than elementary for about six months.

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