The American Recovery and Reinvestment Act of 2009 (ARRA) promised a major windfall for infrastructure projects when it was signed into Congress by President Obama.
According to the FMI Corp., today states continue to face serious fiscal problems that could force them to institute deep budget cuts and tax increases over the coming year. In the face of widespread deficits, most ARRA funds were viewed by state governments as fiscal relief, and implemented as a stop-gap measure resulting in artificial inflation of highway construction spending set to rapidly deflate in late 2010 and 2011.

The coming hangover as funds dry up will be exacerbated by completion in 2010 of the bulk of ARRA-sponsored transportation projects, increased state budget deficits, the delayed passage of a new federal highway bill and continued slow economic recovery.

ARRA got funding on the ground fast, giving state economies a boost for the near-term. However, industry associations believe that the impact of ARRA will wane as the contract deadline of September 2010 passes, and the awarded projects reach completion. If Congress does not intervene, FMI foresees a dramatic drop-off in highway construction spending and other infrastructure-type projects once the stimulus wave passes.

Compounding the issue of dwindling ARRA funds is the continuing state budget crisis, which is a major obstacle to much-needed infrastructure upgrades. States have been operating hand to mouth on federal stimulus money, though the intent of the funds was to stimulate economic expansion. When the supplementary funds run out, sustained budgetary strife at a state level will again put the overall economy
at risk.

A near-constant series of personnel reductions, tax hikes, increases in fuel excises and budget cuts will continue to take their toll on the output of each state as they look to address looming deficits in 2011. Short of federal fiscal relief, the steps taken to avert budgetary shortfalls could shave a full percentage point off the GDP, according to estimates by the Center on Budget Policy and Priorities.