Introduction

In keeping with a practice begun early in this century, on January 31, 1985 the President submitted to the Congress a proposed federal budget for FY 1986 (beginning on October 1, 1985). Although Congress will not approve the budget exactly as submitted, the proposed budget nevertheless offers valuable insights into future directions in construction spending. This year the budget proposals are of particular interest because of the many major changes proposed for FY 1986.

A novel feature of the 1986 budget is that it contains, in a supplement to the regular budget, 10-year projections of federal physical investment and assessments of civilian investment needs for selected purposes. This annual report is required by legislation approved in October 1984 (Public Law 98-501). However, these projections are simply extrapolations of past trends, and do not represent the Administration's policies regarding future spending levels. For example, for FY 1986 these projections indicate a level of federal public works spending that is 9 percent greater than the amounts that are actually proposed in the FY 1986 budget. This report will be discussed in more detail in the May/June issue of the Construction Review.

The FY 1986 budget report also provides line-item estimates of federal spending in the current fiscal year (1985) and actual spending in the latest complete fiscal year (1984). For this article, construction-related line items have been abstracted from the President's budget proposals for fiscal years 1982 through 1986. From these five documents, spending estimates are available for each line item for the fiscal years 1980 through 1986. These line items are listed individually in Tables 6 through 13, and they are summarized in Tables 1 through 5. Definitions are given at the end of the text, and a glossary of abbreviations and acronyms follows Table 13.

Trends in Federal Construction Expenditures

Federal construction-related expenditures are expected to increase by $6.7 billion in FY 1985. The FY 1985 total of $50.5 billion would be the highest level of construction spending since 1981. However, in FY 1986 construction expenditures are budgeted to decline by $4.2 billion, or 8 percent. Major reductions or terminations are proposed for at least 24 construction-related programs in FY 1986, with very few significants increases. The proposed 1986 reductions are more severe than they would appear from these tabulations, because this analysis of federal spending is done on an "outlays" basis rather than on "obligations" basis. (Definitions are in the last section of this article). A number of programs which are budgeted for no new obligations in FY 1986 would still have a high level of outlays in that year, based on obligations which were incurred in previous fiscal years.

The trends in federal spending vary widely among the different categories of construction. Expenditures for military construction, highways, and federal hospitals are expected to increase in FY 1986, even after allowing for 5 percent construction price increases in 1985 and 1986. Funding for sewage treatment facilities is budgeted to decline slightly, and substantial declines are budgeted for conservation and development, federal industrial, housing, and other construction (See Tables 1 and 2).

Military construction has been the fastest-growing category of federal construction expenditures since 1982. Between FY 1981 and FY 1986, military construction is expected to have increased by 121 percent in current-dollar terms, and by 94 percent in constant dollar terms. Expenditures for this purpose are expected to increase by 13 percent in FY 1985 and a further 26 percent in FY 1986. In constant-dollar terms (assuming 5 percent inflation) military construction would increase by 8 percent in FY 1985 and 20 percent in FY 1986.

Federal Expenditures as Percent of Total Construction

Federal construction expenditures finance virtually all federally owned construction, plus a large amount of nonfederal construction. Thus, the value of federal construction-related expenditures is much greater than the value of federally owned new construction put in place. In FY 1984, only 25 percent of federal construction expenditures were for federally owned construction, while 55 percent were for structures owned by state and local governments, and 20 percent were for privately owned structures (see Table 3).

Most federally owned construction is done by private construction firms under contract with federal agencies. The only major exceptions is the TVA construction program, which has a large in-house construction force.

Federal Expenditures

Federal construction-related expenditures accounted for only 4.9 percent of total federal expenditures in FY 1984, compared to 7.9 percent in FY 1980. In FY 1985, the construction share is expected to increase slightly to 5.1 percent, primarily because of large increases in Federal-aid Highways grants, TVA investments, Rural Housing Insurance loans, and Rural Electrification and Telephone loans. The proposed budget for FY 1986 calls for construction-related expenditures to decline to 4.6 percent of total federal expenditures (see Table 5).

Loan Guarantee Programs

In FY 1985, it is estimated that federal agencies will guarantee a total of $47.0 billion in construction-related loans. This would be 8 percent more than in FY 1984. Most of the increase will be accounted for by FHA mortgage insurance, which is expected to increase from $21.9 billion to $25.3 billion. Other large gains are estimated for FmHA Rural Development Insurance, the Rural Electrification Administration, the Small Business Administration, and the U.S. Synthetic Fuels Corporation.