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    Credit: Source: PUBLIC WORKS 2007 forecast survey

    2007 operations & maintenance budgets
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    2007 capital improvement budgets

At first glance, the forecast for the year ahead calls for clear skies.

Inflation and interest rates remain relatively low. State and local tax revenues are up.

Fed up with traffic congestion, in November voters in 14 states agreed to $40 billion in new or higher taxes and bonds to build and maintain streets, roads, and bridges. Initiatives passed not only in the largest states (such as California, where voters approved a state-record-breaking $20 billion bond issue), but also in those with declining populations (like New Jersey, where voters approved a gas-tax increase expected to generate $78 million annually).

Also late last year, Texas became the first state to be allowed to use private-activity bonds to raise money for highway projects under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), the five-year, $244 billion surface-transportation guaranteed-funding legislation President Bush signed into law in 2005. Under SAFETEA-LU, states can issue and transfer to private companies up to $15 billion in tax-exempt bonds; Texas is using the provision to raise almost $2 billion.

The Bush administration has allocated $400 million this year to the Department of Homeland Security's Infrastructure Protection Program, and after factoring in material costs and inflation, the American Road & Transportation Builders Association expects highway and bridge construction to grow 1% to 2%.

But dig a little deeper, and the outlook gets murkier.

Though price increases have slowed, asphalt and cement remain prohibitively expensive (see article on page 29).

To balance their budgets, many states are cutting shared-revenue programs to local governments, prompting them, in turn, to reduce the amount of general funds available for public services—or, rather, public works, as police and fire remain politically immune to spending cuts.

In addition to accounting for retiree benefits, a Government Accounting Standard Board (GASB) rule that requires public employers to reveal the full future cost of retiree health care—not just this year's cost—went into effect Dec. 15. According to The Economist(Nov. 18, 2006), many states can barely meet their pension requirements, much less retirees' health care costs.

User fees also are under attack, especially from the telecommunications industry, which is a vital source of permitting fees.