It's looking good for another year of construction growth in the West — but with major cost increases.

The dollar volume of new construction reached an all-time high during the last months of 2005, and the new year shows all the signs of being another good one for construction in Mountain America, but with a number of caveats. First, and most important, the territory is a large one and not all states, counties or cities will fare equally. New Mexico and Wyoming, for example, continue to experience state budget surpluses while the region's other states fight to minimize deficits. Wyoming, the territory's least populous state, is in the envious position of trying to find efficient, productive means of dealing with an unexpectedly large $1.8-billion surplus — and potentially as much as $125 million a year in additional funding may go to the state's highways.

Second, and almost too obvious to bear stating, some construction categories will fare better than others. With the SAFETEA-LU transportation funding measure at last approved and in place, this should be a particularly good year for highway and mass transit spending throughout Mountain America. Sewer/water construction will climb, but not as much as it would had Congress made more money available through the primary federal clean water and drinking water programs; the need is there, but adequate funding is not. Military/defense expenditures and new civil works construction will both likely see increases in the year ahead, but not nearly as large as those of other categories. Power/utility construction is another category that should have a great year, as the territory looks to exploit its tremendous reserves of coal, oil and gas, both to fuel in booming local demand for more energy and to meet the growing needs of other areas of the country. A $3-billion, 1,500-mile natural gas pipeline, for example, is planned from Colorado and Wyoming east to Ohio to tap huge Eastern markets. Finally, building construction is actually a rather broad range of categories, some of which will do extremely well in some areas but not in others, and some of which will decline as the market is saturated. Residential construction, for instance, will generally see a slower year than the past several, thanks to rising mortgage interest rates — but there will be notable exceptions as growth continues strong in some areas. Office buildings and retail are segments that are wholly dependent on local market conditions. Education and healthcare are the two segments of the building category that should see continued strong growth throughout Mountain America.

Last, and possibly most important in 2006, major cost increases may play a substantial role in the volume of new construction; the dollar volume of new starts may climb considerably, even though the actual volume of work does not. Steel and oil price hikes have been impacting the industry for over a year now, and cement shortages, with consequent price increases, have troubled some areas. Now, thanks to two major hurricanes, the impact of those shortages and price increases is likely to become even more severe, with forecasters predicting the full impact of Katrina and Rita will hit construction by mid-year as rebuilding efforts escalate along the Gulf Coast. Thankfully, oil prices have declined considerably from their post-hurricane highs, because damage to refining and transportation capacity was not as severe as first believed. But as the economies of the impacted areas begin to recover, increasing demand for petroleum may drive prices back up. Labor and materials costs are sure to climb nationwide as Gulf Coast reconstruction efforts ramp up in the months ahead.

• By a 50-21 vote the Utah Legislature has approved, and Gov. Jon Huntsman Jr. has signed, a pact settling the Sierra Club suit over the Legacy Parkway. The agreement will allow construction on the 14-mile highway near Great Salt Lake in Davis County to resume in May. Total cost of the project has now reached $685 million.
• Though Colorado voters approved Referendum C, allowing the state to keep rather than refund an estimated $3.6 billion in tax revenues over the next five years, they defeated Referendum D, which would have used the retained revenue to back $1.2 billion in bonds to fund 55 high priority highway projects. Now, Governor Bill Owens has asked the 2006 legislature to approve spending $296 million of the revenues retained under Ref C for highway improvements this year. A battle in the Legislature is expected.
• The Wyoming Legislature will decide the fate of three bills that would appropriate roughly $125 million a year to widen and otherwise improve many of the state's two-lane highway. WYDOT has identified 10 initial segments to be widened.
• Work will begin early this year on another $67.4-million freeway extension project on Loop 202 in the Phoenix area and community leaders in the Valley of the Sun are pushing for accelerated construction of freeways under the 20-year transportation plan approved a year ago under Proposition 400.
• The Nevada Transportation Board approved a record $1-billion road construction and maintenance program for fiscal 2005–06, and Gov. Kenny Guinn is urging a state gas tax increase to fund still more work.