Budget has mixed news for construction; AGC writes to Sec. Gutierrez about cement

The President's Budget for fiscal year 2006 (FY06), which was released on Monday, has mixed news for construction. The largest item is the most promising: the Budget recommends spending $284 billion for surface transportation between October 2004 (when the previous authorization act, known as TEA-21, expired), and September 2009 (the end of FY09). This is a huge increase from last year's budget proposal of $256 billion for the same six years. It matches the amount approved by the House last year and included in a bill introduced on Tuesday by the chairman of the House Infrastructure and Transportation Committee. The Budget would increase the obligation limitation or contract authority to $222 billion from last year's proposed $202 billion for the Highway Account and to $40 billion from $36 billion for the Mass Transit Account. The proposed “ob limit” for highways in FY06 is $34.7 billion, up 1% from FY05. The Budget proposes (without description) approximately $1 billion per year in additional Highway Trust Fund (HTF) receipts, by requiring the general fund, rather than the HTF, to pay fuel tax refunds to exempt users, such as state and local governments.

Other FY06 construction-related totals and changes from FY05 in the Budget, compiled by Engineering News-Record (February 14 issue) from Administration and Congressional sources: airport improvement grants, $3.0 billion, -14%; Energy Department environmental management, $6.5 billion, -12%; Corps of Engineers construction, $1.4 billion, -20%; Bureau of Reclamation water/related resources, $802 million, -7%; Department of Defense (DOD) environmental restoration, $1.4 billion, +1%; Environmental Protection Agency water infrastructure, $3.0 billion, -18%, and Superfund, $1.3 billion, +2%; General Services Administration construction, $640 million, -10%, and repairs and alterations, $1 billion, +5%; State Department embassy security, construction, and maintenance, $1.5 billion, no change; Bureau of Prisons buildings and facilities, $170 million, -10%; DOD military family housing, $2 billion, +21%, and other military construction, $5.3 billion, -5%.

Several tax proposals could have an impact on demand for construction. The Administration proposes to create tax incentives for businesses that locate in “opportunity zones,” a variant of existing tax-favored zones. Developers of affordable single-family housing would get a tax credit. Expiring benefits for brownfields remediation and wind, biomass, and landfill gas production facilities would be extended and a new credit for “combined heat and power” property would be created. The New York City Liberty Zone incentives would be replaced with incentives specifically for transportation infrastructure. A total of $15 billion of tax-exempt bonds would be allowed for private highway projects and rail-truck transfer facilities.

AGC's CEO, Steve Sandherr, today wrote to new Commerce Secretary Carlos Gutierrez to urge that he pursue discussions with Mexico and U.S. cement producers to enable Mexican cement to be imported without the current prohibitive anti-dumping duty. World demand for cement may rise this year as tsunami-ravaged regions rebuild. A front-page story in today's Wall Street Journal describes the damage to a Lafarge cement plant in Aceh, Indonesia, that formerly produced 1.2 million tons a year, of which only one-fourth was used in Aceh. The province's deputy governor “says Aceh will now need 'five or maybe 50 times more'” while “A team of Lafarge technical experts visited [the plant] and declared it 80% lost.”

Other recent stories in the Journal suggest the market is improving for construction of shopping centers, offices, and apartments. On Wednesday, the paper reported, “General Growth Properties Inc., the nation's second-largest mall owner in terms of market-cap and number of malls owned, Kimco Realty Corp., a big owner of strip malls, and Taubman Centers Inc. all said occupancy and rents were up….Malls have benefited from a 25% drop in retailer bankruptcies” from 2003. Earlier, the paper reported, “Office values jumped 3.3%, the most in two years [in the fourth quarter], according to [a] study of the top 50 U.S. markets prepared by Reis Inc.…Apartment values were up 1.4%....Companies are beginning to expand into new space as they increase hiring, and in the fourth quarter they absorbed 20 million square feet, the most in four years.” Another story cited Reis's analysis of apartments in the top 64 metropolitan markets, which found, “Tenants occupied 9,717 additional apartment units in the fourth quarter…stronger than any fourth quarter in four years. The vacancy rate rose in part because the number of units built and added to inventory during the quarter-22,976-exceeded the new units occupied, according to Lloyd Lynford, president of Reis.”

Job openings in construction surged 17% in December, seasonally adjusted, to 126,000, the Bureau of Labor Statistics reported Wednesday in its Job Openings and Labor Turnover release (www.bls.gov/jlt). The release also showed how much construction hiring varies by season. Actual hires plunged 21% from 299,000 in November to 236,000 in December, but seasonally adjusted hires dropped only 1%, from 388,000 to 385,000.

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