Modest growth in education construction continues

Education construction spending increased at a 20% annual pace during the last six months, continuing a surge of new starts that began in the summer of 2006. Huge gains in both public budget reserves at the end of the 2006 fiscal year and in higher education capital fund investment returns facilitated many of the new project starts. However, education construction spending will drop to a 10% increase for all of 2007 and to 7% for 2008.

Reed Construction Data projects that the value of education construction starts will dip later in 2007 with year-end totals not much different from those of 2006. The slowdown will result from the downturn already under way in public budget reserves and investment returns.

While fund availability is used to establish school and college construction activity levels, the project mix depends on enrollment demographics. The recent K-12 project mix will continue through 2008. K-5 spending is declining; middle school spending is keeping pace with project costs, and high school spending is rising quickly. The demographic enrollment bulge is now in the ninth grade.

Expect the project mix to reverse course in 2009, based on U.S. Department of Education enrollment projections for the next five years. High school enrollment rose 7.4% during the last five years but will drop 3% over the next five years. K-8 enrollment fell 0.2% during the last five years but will rise 3.7% over the next five years. Total K-12 enrollment gains are projected to be relatively small from 2007 to 2010 compared to 1998-2003. Six states will account for 75% of K-12 enrollment growth: Texas, Florida, Arizona, Georgia, North Carolina, and Nevada. Most states will experience enrollment declines, with four states—New York, Pennsylvania, Michigan, and Ohio—accounting for more than 60% of declining enrollment. Spending will continue to expand faster in the higher education segment, where full-time enrollment is projected to increase 8.2% over the next five years.