Stimulus Spending Challenges Agency and Industry Capacity

In a speech yesterday to employees at the Department of Transportation, President Obama announced that 200 federal construction projects funded by the stimulus legislation will break ground in the next few weeks. Nevertheless, FEMA's experience with gargantuan construction spending suggests that both the government agencies charged with spending this money, and the construction industry responsible for completing the funded projects, will have their capacity tested by this huge influx of cash.

At hearings Tuesday, House Homeland Security Chairman Bennie Thompson told the Emergency Preparedness Subcommittee that out of $10.4 billion appropriated for repairs after hurricanes Katrina and Rita, $4.7 billion still has not been spent. Thompson blamed Louisiana Governor Bobby Jindal and Mississippi Governor Haley Barbour for the delays. Without regard to who is at fault, these facts do not bode well for the pace of distribution of the stimulus appropriations which will have to be funneled through state agencies.

Non Residential Construction Spending Increases

According to figures released January 5, 2009, by the U. S. Department of Commerce, nonresidential construction in November 2008 increased 0.7%. Offsetting this modest increase was a 4.2% decline in housing construction, resulting in a net November 2008 construction spending decline of 0.6%.

Total construction spending of $1.078 trillion is down 3.3% from a year ago, while housing construction of $328.3 billion is off 23.4% from a year ago. Nonresidential construction spending of $428.2 billion annually is at an all time high. Government construction spending of $321.95 billion makes up the balance of the $1.078 trillion annual total pace for construction spending.

State and local government construction spending is up 1%, while federal construction spending rose 6%.