News Column

CONSTRUCTION MARKET OPTIMISTIC: The Stimulus Package One Year Later

May, 2010

Rob Kuznia, Staff Writer

For those in the construction industry, the Great Recession wasn't a recession at all, but a depression that hasn't ended.

The industry's unemployment rate has reached 25 percent, which is nearly triple the overall U.S. jobless rate.

Enacted more than a year ago, the stimulus package was supposed to prevent this from happening, or so many people thought.

But in the year since President Obama signed the $787 billion American Recovery and Reinvestment Act into law in February of 2009, construction's employment outlook has gone from dismal to devastated.

Back then, the industry's nationwide jobless rate was an already sky-high 18 percent. With joblessness now hitting one-in-four construction workers, the industry's current unemployment rate easily surpasses those of the prior recessions of the last 30 years.

"I've had more friends go out of business in this last year than I've had in a long, long time," said Joseph Troya, vice president of California-based Consolidated Contracting Services, No. 98 on Hispanic Business magazine's annual list of the nation's 500 largest Hispanic-owned companies.

So has the stimulus failed the construction industry?

Industry analysts say not at all. It's just that the plunge has been astonishingly steep, so much so that most experts doubt the construction industry will ever fully recover.

"We are anticipating a return to normal within the next three or four years, but the new normal is going to be substantially down from where the old was," Bill Davis, executive vice president of the Southern California Contractors Association, told HispanicBusiness magazine.

Ken Simonson, chief economist with the Associated General Contractors of America, said the stimulus has been "extremely helpful."

"But it just can't be expected to overcome the tremendous drag on state and local construction spending," he told Hispanic Business magazine.

While the stimulus has been a boon, certain aspects of it have been deficient, Mr. Simonson said. Chief among them is the surprisingly slow rate at which the money has trickled into the pockets of contractors.

The $787 billion stimulus package included about $135 billion for the construction industry. It's by far the biggest infusion of government cash into the trade. But to date, only a fraction of the $135 billion -- no more than $20 billion -- has actually been spent.

Meanwhile, the recession has claimed about 2.1 million construction jobs, and the stimulus package has created or saved a "few hundred thousand," said Mr. Simonson.

The largest share of these jobs was created from highway-related projects -- the fastest construction category to put boots on the ground.

The disappointingly slow spending in the other construction segments such as high-speed rail and the smart grid -- didn't exist before, Simonson said. They've thus been virtually invented from scratch.

But poor planning and bad policies are also to blame, he said. For instance, the federal General Services Administration -- which is spearheading the renovation of federal buildings and courthouses -- suffered from an "embarrassment of riches," in which it didn't have enough staff to distribute its $5.5 billion in stimulus money in a timely fashion.

Another little-known culprit is the Recovery Act's "Buy American" clause, which prohibits stimulus money from being spent in other countries unless waivers are obtained. This has blocked U.S. construction projects -- such as $7.4 billion worth of water and wastewater treatment upgrades -- in which parts can only be manufactured outside the country.

But stalled spending doesn't mean cancelled spending. Eventually, all $135 billion will be landing in the hands of contractors.

Some of it has gone out the door in recent months.

In late January, the federal government awarded $8 billion in stimulus money to high-speed rail projects around the country.

More than a quarter of that money went to California, whose bullet-train project is furthest along. The high-speed rail project, which California voters approved in 2008, will shuttle passengers from San Francisco to Los Angeles at speeds of 220 mph.

Construction won't begin until 2012, but when it does, the monumental undertaking will employ tens of thousands of people, said George Pla, president and CEO of Cordoba Corp., an L.A.-based civil-engineering and construction management firm, which is overseeing the design and construction of the $40 billion project.
"The funny part of it is, you know it's a real project when people start fighting about where the alignment should go and where the stations should be," he told Hispanic Business magazine. "These are good problems to have."

As for Cordoba Corp., it plans to add up to 50 employees to its 110-member roster by year's end.

The stimulus has also been a godsend for Mr. Troya. His Consolidated Contracting Services -- which he co-owns with Tony Elias-Calles
-- won an $18 million stimulus-funded job to build a community clinic north of San Diego. That represents about a third of the company's entire annual revenues.

But like so many other projects, construction won't begin until 2011.

"Unfortunately, it's not a 2010 project," Mr. Troya said, adding, "we normally don't do a lot of public works projects, but the economy being what it is, everybody's got to adjust or be eliminated."

Mr. Troya said the 20-year-old company doesn't plan to add to its roster of 47 employees for the stimulus job.

"We're a very conservative company," he said.

In Arizona, the four-year-old Andale Construction -- an underground utilities contractor -- enjoyed immediate success in the boomtown of the Phoenix valley. But the Great Recession applied the brakes, and 2009 was its toughest year. Now it has applied for stimulus-funded job at a military base for $10.8 million, which is triple the amount of its highest year in revenues.

"We've got our fingers crossed," said company founder Luis De La Cruz.

The wrecking ball of the real-estate collapse has been especially destructive in California. Here, rueful construction statistics are the norm.

The statewide construction unemployment rate exceeds 30 percent, and the hemorrhaging hasn't let up. In February alone, the state lost 21,000 jobs.

What's worse, the industry in California is bracing for a new wave of foreclosures, said Mr. Davis of the Southern California Contractors Association.

"I think we'll return to where we were by 2015 or 2016," he said. "What I'm really saying is we'll get back about half of that market, not the full amount."

Across the nation, the news isn't all bad.

U.S. construction actually added 15,000 jobs in March -- the first increase since 2007. But industry analysts are far from satisfied. Many ascribe the uptick to a seasonal aberration: the recent winter storms on the East Coast led to a glut of postponed projects that are only now getting under way.

All told, between February of 2009 to February of 2010, just 10 of 337 U.S. metropolitan areas added construction jobs, according to an April report from the American General Contractors Association.

Many of the increases tended to occur in the central and eastern regions, in states such as North Dakota, Wisconsin, New York and New Hampshire.

Two hundred and thirty cities experienced double-digit declines, while only two cities experienced double-digit increases, the largest being in Eau Claire, Wisc., which added 600 jobs.

Hardest hit was Houston, Texas, which lost more than 25,500 jobs, a decline of 13 percent.

Kristen Ogden, director of publications for the AGC of Texas, said the stimulus package has brought major relief to the Texas construction trade, essentially doubling the amount of contracting by the Texas Department of Transportation from 2008 to 2009.

"That stimulus money is definitely a life saver," she told Hispanic Business magazine. "I wouldn't say the industry is completely flush with money, but it definitely served its purpose as a stopgap."

All in all, the construction industry has yet to benefit from its biggest boost of stimulus relief, but even after the wave hits -- and even after a recovery takes hold -- the industry may find itself permanently resized.
It is of the utmost importance for many out-of-work construction employees to get re-trained, possibly in green-energy fields, said Congressman Raul Grijalva, a Democrat from Arizona.

"Some of the jobs lost during the recession are not going to come back," he told Hispanic Business magazine. "So bringing those individuals in for adult basic education, vocational training and career training in preparation for different opportunities is also part of the strategy for recovery."



Source: HispanicBusiness Magazine. All Rights Reserved.


Story Tools