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The Stim Effect: One Year Later

Fri March 05, 2010 - National Edition
Giles Lambertson

The American Recovery and Reinvestment Act of 2009 (ARRA) was intended to be an effective antidote to high unemployment and stagnant growth in the construction industry. A year after the Act passed, the consensus is that things would have been worse without it. There is no denying the impact on the industry of billions of earmarked dollars.

Yet there is disappointment. While major construction associations continue to voice support for the stimulus package for which they lobbied hard, even they sound a little defensive about it.

“To appreciate the success of the Recovery Act’s transportation provisions, it is necessary to sidestep the political rhetoric about ’outlays’ and jobs created vs. saved,” declared a white paper authored in February by the Transportation Construction Coalition, co-chaired by the American Road and Transportation Builders Association and Associated General Contractors. “The simple facts from the Federal Highway Administration and Federal Transit Administration are that, as of Feb. 17:

• $16.84 billion in recovery act highway funds are under construction;

• $8.46 billion in highway funds have been committed for specific projects;

• $7.24 billion in recovery act public transportation funds have been awarded; and

• $1.07 billion in public transportation funds are pending award.”

Nonetheless, it is almost impossible to “sidestep the political rhetoric” of the ARRA. The stimulus package was a signature initiative of a new administration and was hailed as the major anti-recession weapon in the administration’s arsenal. The politics of the legislation were virtually interwoven with its other provisions.

Assurances repeatedly were given about the number of existing jobs it would save and new jobs it would produce — with a Web site created to track them all. The legislation’s authors said the package of spending programs would spur immediate revival in the building industry via “shovel-ready” projects as well as lay the foundation for longer-term infrastructure renovation and replacement.

Twelve months later, it is safe to say the promise of the Recovery and Reinvestment Act is not fully realized. Clearly, the money helped preserve construction jobs. Less clear is if the money actually stimulated construction activity beyond the work funded by the original federal infusion. It is not clear that the funding had a multiplier effect, that it was seed money for subsequent state and private sector investment. And the debt incurred in funding the initiative is worrisome to many.

Mostly Overlay Work

In Texas, Austin Bridge & Road picked up a stimulus-funded $30 million job in Louisiana shortly after the Act was passed, a project that won’t be complete until later this year. However, the Irving-based company has not landed anything comparable since.

“We have picked up a few others, the so-called shovel-ready projects, mostly asphalt overlays. Those are the kind of projects that take three to six months,” said Jim Andoga, company president, “and that saved a few jobs, but I want to tell you that when those months ended, those people were gone. The stimulus needed to generate projects that were more long-term. Most were short-term.”

Austin Bridge & Road produced just under $500 million in revenue in 2009, but it still was a year of shrinkage. When 2009 began, its payroll numbered almost 1,300. More than 250 positions have been lost since.

“Some contractors had more than half their employees laid off,” added Andoga, who is western region vice chairman of ARTBA. “They had more than 2,000 employees and are down below a thousand now. They tell me, ’Wow! You’ve done a hell of a job.’ Well, we were fortunate to have some other projects. Where we have lost is with the asphalt work, the stimulus jobs.”

Andoga is concerned that he soon will have to cut deeper.

“I look at my professional staff, my engineers and estimators. As the stimulus money goes away, I’m going to have to lay off salaried staff, the jobs that had been protected. I just don’t have that much work to chase, so I am sitting here with an estimating department without any work.

“We are hearing similar stories throughout the country. Yes, there are some companies that were fortunate to have picked up a lot of these stimulus projects, but a lot of that work went very, very cheap.”

At the other end of the country, Chuck Niederriter has a different take on the stimulus funding program. Niederriter is chief operating officer of Golden Triangle Construction Co., and president of Constructors Association of Western Pennsylvania.

“If you don’t think the stimulus has worked, ask Chuck,” President Obama said in mid-February during a press conference marking the one-year anniversary of the ARRA’s passage. Niederriter was on the stage with the president.

Golden Triangle has landed two projects that will begin this summer. The jobs had been on the planning shelf awaiting funding, which the stimulus package now has provided. One is a runway project at Pittsburgh International Airport and the other a state highway improvement project involving concrete overlay on asphalt. The two jobs will employ approximately 100 workers, Niederriter said — “most of whom will be recalled. If we hadn’t gotten this work, they wouldn’t have been called back.”

Niederriter said that last year he anticipated winning stimulus-funded projects for Golden Triangle and subsequently did. “Maybe I even got a little more than I thought I would.”

He said most of the 70 members of the Western Pennsylvania association also are happy with the ARRA program.

“Some of them have more stimulus projects than others. There are a few that didn’t get any, but maybe their competitors won some stimulus projects and opened other jobs for them. I haven’t heard anyone in this industry say it wasn’t a good thing. Our infrastructure is in dire need of this money.”

Maybe Next Year

A total of $180 billion was targeted for construction work out of a $787 billion stimulus pot — which eventually was recalculated and determined to be $862 billion. Most of the construction funding has neither been spent nor obligated, which has contractors hoping that 2010 will see wider diffusion of the money.

“The stimulus is one of the very few bright spots the construction industry experienced last year and is one of the few hopes keeping it going in 2010," Ken Simonson, chief economist of Associated General Contractors, said in a February AGC release. "The stimulus is saving construction jobs, driving demand for new equipment and delivering better and more efficient infrastructure for our economy."

Simonson credited the stimulus with “stabilizing” the jobs picture for the construction industry. In other words, while the industry’s nearly 25 percent unemployment rate may not get much better, it might not worsen.

"The stimulus will keep a bad situation from deteriorating further," Simonson said. "That may not make for great headlines, but it is welcome news for construction workers anxious to continue receiving pay checks."

Niederriter believes there is no disputing the merits of the program.

“For our industry, I don’t know of anyone who would say the stimulus wasn’t a plus. I don’t know why anyone would say that.”

The construction industry perhaps unwittingly was placed in the forefront of the 2009 stimulus debate through popularization of the “shovel-ready” phrase. It captured the idea of a quick transference of money from Washington to companies working on state and local projects. That the transfer was not as quick as advertised has embarrassed stimulus proponents.

“The money didn’t arrive nearly as quickly as the bank payoffs were due,” said an Illinois highway contractor, a member of the Southern Illinois Builders Association. The executive director of the association, Tim Garvey, informally polled board members during a late February meeting and got a mix of responses.

Several told Garvey the stimulus had no impact on their operations during 2009, but they are hoping it will this year. One highway contractor said his company did benefit with road overlays and patching work, but that no jobs were saved, nor new employees hired.

Building contractors on the board reported no work as a result of stimulus funding, but an electrical contractor said he was generally satisfied with the program and had gotten some work from it, including building retrofits and solar panel installations.

A third highway contractor said the money arrived at the state level relatively soon, but was “way, way late” being contracted out by the state. Yet another one was not satisfied with the stimulus because it was not large enough.

Garvey said issues unrelated to the stimulus further muddy the Illinois construction picture.

“The problem is that our state has the worst budgetary condition in the country other than California,” he said. The situation is aggravated by the General Assembly’s apparent unwillingness to act until after this fall’s election, according to Garvey. “The prospect for things improving in Illinois is very dim indeed, very bleak. Our guys are politically paralyzed.”

Machines Not Moving … Yet

Equipment manufacturers and distributors didn’t see a surge of stimulus-related buying in 2009, as some had expected.

“We know this bill isn’t perfect,” Associated Equipment Distributors president and CEO Toby Mack declared a year ago, “but the bill is without a doubt going to expand infrastructure-related equipment markets…”

While a full release of stimulus dollars obviously hasn’t occurred, a significant market expansion hasn’t happened either. In fact, the Equipment Leasing and Finance Association’s leasing and finance Index for January showed new business volume has declined by 24 percent compared to the previous January.

That squares with what Ronnie Rowe has seen from his vantage point as manager of a James River Equipment dealership in Greensboro, N.C. Rowe said most projects in his market area have been highway resurfacing jobs, which he dismisses as “the quick and visible fix. Contractors doing resurfacing don’t have a lot of equipment needs.”

The dealership boss said business activity in 2009 was about as slow as he has seen, including during the “Carter recession” years when interest rates skyrocketed. Oddly enough, he was buoyed somewhat the last weekend of February when he attended the liquidation auction of an equipment dealership in Greensboro. “There was a lot of activity there, so maybe that means people are making moves.”

Rowe actually is hopeful that 2010 will be busier at his place. In conversations with customers and engineers, he has come away expecting some “serious” stimulus-funded infrastructure work — major bridges and off-ramps — in the third quarter of the year.

“That kind of work might take a little of our equipment.”

Last spring, a Maryville, Mo., contractor, Loch Sand and Construction Company, won one of the first stimulus contracts let in the country. Four projects were handed out by the Missouri Department of Transportation in January contingent on passage of the Recovery and Reinvestment Act the following month. Work on all four jobs ensued the day of the signing.

Loch’s $14.5 million job entailed milling off 7 mi. of Interstate 35 in Missouri and overlaying 8 in. of concrete as well as pouring four bridge deck replacements.

“We had about 40 people on that job.” recalled Rob Loch, a principal of the company who works from the firm’s Kansas City office. “Without that job we wouldn’t have had a place to put about 35 of those people. Without the stimulus, I would think construction work in Missouri and Kansas would have been substantially smaller last year.”

But Loch voiced underlying concern about the debt incurred by Washington to float the stimulus funding package. Combined with other federal borrowing, the debt could be reaching a critical mass, he acknowledged.

“I don’t like to spend money we don’t necessarily have,” he said, “but at least the country is getting a substantial product out of it.”

Niederriter made the same point from his office in Pennsylvania.

“The stimulus is not a social program,” he said. “This beats just giving money away. We’re giving back a product, a service that’s needed.”

Nevertheless, the immediate and future cost of the stimulus initiative worries some economists — and possibly some contractors.

In April 2009, USA Today quoted Dr. Eric Fruits of Economics International, a Portland, Ore., firm. The economist was asked how effective he believed the stimulus package would be. He responded that the borrowed money would have to be repaid and when payment time comes, “a job today may come at the cost of someone not having a job in two or three years.”

When contacted in late February, Fruits continued to express skepticism.

“Any sort of money you throw out there is going to have some sort of positive impact,” Fruits acknowledged in a phone interview, “but the objective of the stimulus was to jumpstart the economy, to prime the pump, or as some people put it, to put the paddles on the patient. I don’t think it really has been demonstrated that the stimulus is what has gotten the economy moving.”

Even with a larger chunk of ARRA funding coming into the marketplace in 2010, Fruits and other economists are concerned that the eventual 2011 drop-off in stimulus funding will spark a regression in economic activity and job growth.

“And in the long run,” Fruits said, “it is going to really drag down the economy. The huge deficits are going to become a drag on the economy. Unless we have blockbuster growth in the next five to 10 years, that’s the way it will play out.”

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