Education construction holds up during recession

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education construction holds up during recession

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Jim Haughey

RCD Chief Economist

May 18, 2009

The mild recession for education construction results from the nearly $200 Billion in state and local government general aid in the economic stimulus plan. These new funds offset about half of the negative impact of reduced tax receipts in FY ’09-’10. Without the stimulus funds a deep recession in public education construction would occur in 2009-10. Instead, much of the recession is offset and the balance is deferred to 2011-12.

April starts for education projects fell 14% from March to the lowest total in more than three years but starts are only down 8% year to date. Most state and local governments and nonprofit institutions are cautiously delaying project starts until their worsening 2010 budget positions are clearer. Tax and fee increases are being widely considered to shore up the 2010 budget and permit scheduled construction projects to be started.

A 3-4% dip in education construction spending is forecast into early 2010 with a recovery by the end of the year to the early 2009 peak level. Education construction spending will be unchanged in 2009 and up 1.3% next year, not keeping with even modest project cost increases. The drop will be much larger in the states with the worst recessions and worst budget positions. Among larger states, this includes California, Florida, New York, Illinois and New Jersey

In the past year public education spending is up 6.4% but spending in the smaller private sector dropped 0.4%. Over the next year public spending will worsen more than private spending. Funding for private education projects is very sensitive to current economic conditions, specifically tuition payments from current income and investment earnings.

College construction spending is 12.2% higher than a year ago but K-12 spending is up only 3%. Colleges boosted spending for instructional space 20.6% over the past year. Dormitory spending was up only 5%. This is the result of relatively rapid expansion of community colleges and part-time programs for working adults. The small expansion of K-12 construction spending was entirely for high schools, up 7.9% in the last year. Middle school construction spending was about steady and elementary spending fell about 3%. These differences mirror enrollment changes with the peak enrollment now in the 10th grade.

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