State and Local Investment Gets Lift From Rising Revenues
December 15 2018 - 06:15PM
Dow Jones News
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)
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