Construction's Cushion: Stimulus Funds Staved Off a Worse Decline By Mary Sedor
Article Date: 06-01-2009
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Finally a bit of good news - industry expert assesses the stimulus impact, and dollars begin trickling toward equipment dealers.
Just a few short months after the passage of the $787.2 billion American Recovery and Reinvestment Act of 2009 (ARRA), already there are signs that the federal stimulus bill is starting to breathe life into the construction equipment industry.
Moments after President Obama signed the bill, Missouri became the first state to start work on a federal stimulus-funded project to repair the bridge over the Osage River. Since this first project, economic stimulus dollars have begun to funnel into state and federal agencies, which are working to commit projects for the $130 billion dedicated for construction, $80 billion of which is allocated for infrastructure projects.
As of mid-April, the Obama administration had approved 2,000 highway and transportation projects totaling $6.5 billion. The federal stimulus package earmarked $27 billion for highways and transportation to be administered by the U.S. Department of Transportation.
States are vying to get the most stimulus money the quickest. So far, Illinois ranks the highest, having been awarded 249 projects and $606 million in federal stimulus funds. Texas is second both in number of projects, 164, and for the amount of money, $533 million.
Tennessee, Iowa and Pennsylvania round out the top five for the most number of projects. Also in the top five for the most transportation funding to date are Oklahoma, Tennessee and New Jersey.
Coming in last are Alaska, Florida, Georgia, Idaho, Ohio and Virginia, which have yet to count a single transportation project formally approved under the stimulus package.
A Safety Net for the Industry
“We’re starting to see a glimmer of hope,” said Robert Murray, vice president of economic affairs for McGraw-Hill Construction.
Overall, the stimulus bill is preventing a further slide-off for the construction industry, says Murray. He predicts that for 2009, total construction will decline by 15 percent, but he says it could have gone lower.
“As we view the stimulus bill it is cushioning what would have been a more severe decline for total construction,” said Murray. “Without the stimulus bill, we would have seen a total construction decline, in terms of starts, on the order of 20 to 23 percent.”
For 2009, Murray predicts the construction industry will see a 3 percent decline, followed by a modest, hesitant expansion in 2010.
“In general, what we’re looking at in terms of the kick from the stimulus bill in 2009 is really on the public works side,” said Murray. “It’s going to take a little longer for the money directed at buildings to make it to the construction site. Maybe there will be some federal office upgrades, but that’s really more of a 2010, 2011 event.”
Murray notes that public works, specifically the highway and bridge sector, is showing a 15 percent spending increase in 2009 due to the stimulus bill.
“The normal cycle would have public works eroding more, but the stimulus bill will change the pattern,” he said. “Public works will remain positive as a result. The federal government was quick in getting the money out, and states are quick in spending it.”
Other positive areas impacted by the stimulus bill include mass transit, which could increase 20 percent this year; environmental projects, which are showing a gradual pickup; and electric/utilities – Murray says that work related to power lines will pick up.
“Yes it is a difficult time, and there is a plus in the stimulus bill,” he said. “I think the key for the construction industry going forward is getting the banking industry back to health. We can take some consolation in that construction is a cyclical business. It’s had its tough times before and we do seem to be turning a corner. I do think that in the next year or so we’ll be seeing a rebound.”
Money Trickling Into Dealership
For Oregon, a state with a 12.1 percent unemployment rate – the second highest in the nation – the federal stimulus funds could not come soon enough.
Halton Co., a Caterpillar dealer based in Portland, Ore., whose territory covers northwest Oregon and southwestern Washington, has seen a drastic reduction in new housing starts and commercial construction projects similar to other parts of the country, as a result of the economic downturn, says John Hiatt, vice president of business development for Halton Co.
“Couple those with the credit crunch, and it makes it difficult for projects that were on the books to get funded, and it reduces available work for construction customers in southwest Washington and Oregon,” said Hiatt.
With high unemployment rates in both states (9.2 percent in Washington), along with the credit difficulties and reduction in overall construction spending, Halton Co.’s customers are having a really hard time finding work.
“We are certainly one of the harder hit areas,” said Hiatt.
However, Halton Co. is starting to see signs of improvement in Oregon. The state has received some funding from the ARRA and it is starting to parcel it out in stimulus projects.
“Locally, the governor has created an advisory group designed to allocate and distribute these funds,” said Hiatt.
Oregon recently received $101 million in stimulus money for transportation, which puts the federal ARRA total at $234 million for that state’s DOT.
“The opportunity comes in taking projects that were in the planning stage or were waiting for funding and allows them to come to fruition perhaps years earlier than they normally would have,” said Hiatt. “It allows our construction customers to have jobs to bid at and we’re starting to see some of our customers get those jobs.”
For example, the Oregon DOT had been planning for some time to repave U.S. Route 26. The project received $2.9 million in stimulus money for the project, and the contract was awarded to Baker Rock Resources, a customer of Halton Co., said Hiatt.
“They ended up buying a paver from us,” he said. “What the stimulus money did was give them enough work in their queue to justify the purchase of the machine.
Two additional opportunities coming down the pike in Oregon include the modernization of Terminal 6 at the Port of Portland – an $8.9 million project, and the modernization of the BNSF Railway aimed at boosting Amtrak speed – a $6.9 million project.
“As the projects start to come out into the marketplace the contractors will be able to stay working, keep employees on the payroll, and with that will come a cascade of opportunities for all equipment dealers in terms of parts and service and potentially new equipment sales.”
While Hiatt says the stimulus bill will have an impact on business, he says he doesn’t think that it will be enough to bring the CE industry out of the downturn entirely.
“I think that the projects that come out of the stimulus plan will allow at least a plateau,” he said. “And I think that’s what a lot of folks are looking for – a reduction in the decline. I think it will have some type of effect, but it’s almost more of a stopgap measure until the natural economy shifts.”
Hiatt says he’s not sure why his company has been able to start to see business as a result of the economic stimulus act so quickly. He credits Oregon’s governor with taking a proactive approach on getting the money distributed effectively in the state.
“Or perhaps our state had more shovel-ready projects than others,” he said. “There were several projects that were in the latent planning stages that were eligible for these types of funds.”
To dealers that are waiting for the stimulus money to hit their states, Hiatt recommends staying focused on the customer.
“You have to find ways to use your products and resources to increase the profitability of your customers and really gain a partnership with them,” said Hiatt. “In times like this, the equipment dealer who can find ways to help customers operate more profitably is going to get the business that’s out there.”
Illinois DOT Allocates Stimulus Millions
With Illinois at the top of the list for the number of transportation projects and federal stimulus money, state agencies aren’t wasting any time getting their federal stimulus dollars out the door.
The Illinois Department of Transportation (IDOT) received $936 million in federal stimulus funds, $627 million for IDOT, $281 million for local agencies and $28 million for transportation enhancements, said Eric Harm, deputy director, assistant chief engineer for IDOT.
“The federal stimulus money doubled the amount that we usually get for highway projects,” said Harm.
A requirement of the federal stimulus bill is for states to obligate half of the money in the first 120 days or the money will be reobligated. Harm noted that there are no shortcuts in this process – IDOT has to follow all of the rules and regulations in awarding projects. The types of projects already awarded include resurfacing, patching and bridge decks, in other words, projects that can be completed this year.
IDOT expects to award the entire $627 million by the end of June, said Harm.
Find the Work
Help contractor customers win federal stimulus bids by directing them to these two key Web sites:
- Recovery.gov – this is a “one stop shop” for all of the federal stimulus work available. The site tracks how the federal stimulus money is being spent and has links to every agency.
- FedBizOpps.gov – Federal agencies advertise work on this Web site.
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