The Five Seasons in Minnesota

By Steven E. Landberg
June 2015

There are five seasons in Minnesota: summer, fall, winter, spring, and road construction season. Anyone driving around the metro area can attest that we are in the midst of a busy road construction season.

This time of year also brings the end of the Minnesota legislative sessions. Entering the 2015 legislative session, many transportation and infrastructure advocates anticipated the passage of a major funding package for our roads and bridges, but the funding bill did not pass. The legislature ended its special session with just enough funding to maintain current levels.

On the national level, Congress faced a May 31 legislative deadline to address funding needs for the Highway Trust Fund. The Highway Trust Fund is the main source of federal money for road, bridge, and transit projects. The fund also pays states for work completed. How did Congress deal with the need to infuse cash into the Highway Trust Fund? They kicked the can down the road (sorry, pun intended), and Congress delayed a decision by pushing the deadline out for two more months. Since the Congressional Budget Office did not see the Highway Trust Fund running out of money until October or November of 2015, no immediate decision was needed.

At Palisade, we are addressing the funding of transportation bills because we believe that within the next few years, there will be passage of major infrastructure legislation. Such legislation may present various opportunities for investors.

Often the opportunity for investment is the result of perception versus the actual funding itself. An example of this occurred a few years ago when there was talk of budget sequestration, and Washington was focused on cuts to the defense budget. As a result, in early 2013 the stock prices of many companies tied to the defense industry lagged during what was otherwise a rather robust stock market environment. When the actual budget cuts in defense spending proved not to be nearly as draconian as originally called for by the sequestration, stock prices of various defense companies rallied. By 2013 year end, companies in the S&P 500 aero and defense sub-industry provided significantly more in stock price appreciation compared to the S&P 500 index itself.

Similar to the impact the budget sequestration had on the defense industry, if there is a heightened discussion of a major infrastructure spending package, it may impact companies tied to the construction, machinery, and engineering industries. So next time you are stuck in traffic due to road construction, look at the activity around you. Observe the companies that are involved in the projects. These may prove to be companies that benefit from the additional dollars being directed to infrastructure projects.

Finally, pay attention to the actions of Congress (if any) and the Minnesota legislature. When the Minnesota legislature closed its special session without a major package for roads and bridges, it was announced elsewhere that the Minnesota Department of Employment & Economic Development allocated over $300,000 from the Job Creation Fund to provide assistance to a company’s expansion plans in Brooklyn Park. The company plans to invest $3 million to its existing manufacturing facilities and add thirty-one production jobs. The updated manufacturing facilities will make small and large asphalt compactors used during road and highway construction. Perhaps this is a sign that the state will actually pass a major infrastructure spending bill in the future. Therefore, we can be guaranteed we will have another year experiencing that fifth season: road construction season. Remember to look around—you might be looking at an investment opportunity.