By Sarah Chaney and Heather Gillers 

State and local government investment in roads, bridges, buildings and other infrastructure hasn't returned to its previous peak, but it is now showing signs -- late in the expansion -- of a real recovery.

Since the 2007-09 recession, slow economic growth and rising expenditures on Medicaid and pensions crowded out infrastructure investment. Spending on school buildings, hospitals and public safety languished.

Now, bigger state and local tax collections, propelled in part by an acceleration in sales-tax receipts from consumer spending, is boosting capital projects and driving a municipal borrowing boom.

At a time when other engines of U.S. economic growth show signs of slowing, public spending at the state and local level could help keep the expansion going.

New money is going into projects aimed at making cities and towns more livable and efficient. Spending on transportation infrastructure in October was up 15% from a year earlier, according to Commerce Department data. Spending on amusement and recreation facilities was up 31% from a year ago.

"From an economic perspective, this is about as good an environment as a state or local policy maker is going to see," said Dan White, director at Moody's Analytics. "If they're ever going to do more one-time investment for infrastructure or put more money in their rainy-day fund ... this is exactly the time when you would expect to see that."

In all, state and local construction spending was up 9.7% in October from a year earlier to an annual rate of $288 billion, still shy of the $296 billion pace reached in March 2009.

Borrowing is supporting the pickup. State and local governments issued $228.45 billion in bonds for new projects in the 10 months through October, a 19% increase from the same period a year earlier, according to data compiled by Citigroup Inc. Some borrowers want to lock in loans now, before interest rates go much higher.

Given the lag between bond issuance and project spending, this year's surge in bond sales bodes well for state and local spending in the coming quarters.

Pent up demand for infrastructure improvements might also keep the upturn going into 2019. After years of stagnation, state and local government spending has fallen from around 13% of gross domestic product in 2009 to 11% more recently.

In Indiana, many cities and towns were unable to repair roads and bridges for more than a decade, restrained by declining revenues. Now, the state is doling out money to localities from reserve funding and gas taxes to finance repairs of roads, bridges and other infrastructure.

Dennis Maple, a corn and soybean farmer in Greentown, Ind., said large equipment often can't be transported across rural bridges because the bridges are too small. "It's detrimental to farmers to travel four to five miles out of the way," Mr. Maple said. "Any time that we have to do extra road travel, [it] takes longer to harvest or plant our crop in a timely manner."

Mr. Maple said the state's recent investment in bridges is visible, but that "[there are] still a lot of bridges to repair."

The improvement in state and local finances has buoyed even Detroit, which sold $135 million in bonds this month, the city's first bond issuance against its own credit since its 2013 bankruptcy.

"We have an upward trajectory on our property tax and on the value of property," John Hill, Detroit's chief financial officer, told reporters.

The bond money will purchase new police cars, firetrucks and other emergency vehicles and fund improvements to parks and recreational facilities in some of the city's more populous neighborhoods.

At the Adams Butzel Recreation Complex on Detroit's east side, the city is planning to replace playground equipment, add parking spaces and improve landscaping, city officials said. The city also plans to add a network of bike paths and replace the roof on the Charles H. Wright Museum of African American History, part of a $1.8 billion capital improvement plan.

Pittsburgh's airport is planning to spend $75 million next year to revamp a terminal. Separate capital funding will provide upgrades to fire alarms, terminal lighting and airport roads.

"We're finally able to generate enough cash to take care of the backlog of capital projects that we had that we hadn't been able to pay for," said Christina Cassotis, chief executive of Allegheny County Airport Authority.

Write to Sarah Chaney at sarah.chaney@wsj.com and Heather Gillers at heather.gillers@wsj.com

 

(END) Dow Jones Newswires

December 15, 2018 18:00 ET (23:00 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.