The news from Washington is mixed on them outlook for heavy construction. There has been a recent flurry of announcements assigning stimulus funds or awarding contracts for specific rail and alternative energy projects. But at the same time, Congress has begun to scale back federal subsidies for these projects, including rescinding some earlier appropriations. Long planning and construction cycles assure that rail and alternative energy will be steady for most of 2011 and that jobsite work will continue steady well into 2012. Then the shutoff of funds into the pipeline will weaken market activity late in 2012 and beyond.
Construction funding took a big cut in the recent compromise on the 2011 budget which cut total fiscal year spending $38 Billion below last year and $78 Billion below the Presidents 2011 fiscal year request. Compared to last year, the cuts included $1.7 Billion for energy and water (not all construction money), hundreds of millions from Justice and Commerce, $800 Million from GSA for federal office buildings, $6.6 billion for military construction as the base realignment program winds down and $3.2 Billion rescinded in the Highway program for earmarked projects never undertaken.
More funding cutbacks should be expected in about five weeks when the Senate and the President will have to compromise again to secure raising the federal debt limit. Some of these added cuts could be in the 2011 budget but most will likely be in the 2012 budget beginning in October. This battle could be longer and uglier than the $38 billion deal approved last week. The Treasury has some tricks to keep over the limit debt off the books for a while.
Rail and alternative projects have the most risk of losing expected funding because both programs build facilities that can only be operated with large subsidies from federal taxpayers of rail and power users. Bridge and airport projects also have more than average risk of losing expected funding. Both of these are tainted with suspicion that many individual projects have been rewards for influential members of Congress and not essential to transportation system maintenance or expansion.