The Obama administration and the government agencies it runs have fallen right into the "figures don't lie" trap in efforts to convince the populace that the $787 billion in cash appropriated in the American Recovery and Reinvestment Act is rapidly being infused into the American economy, when in fact the vast majority of the money remains locked in federal Treasury vaults in Washington, D.C. In a report released yesterday, the third in a series of every other month reports on progress of stimulus spending, the Government Accountability Office proudly reports that, of $27.6 billion appropriated for highway infrastructure projects in the stimulus bill, $18.0 billion, or 65.1% of the funds, has been "obligated" to 7,000 paving and bridge projects. Sounds impressive.
Buried deeper in the text of the 156 page GAO report is the number which tells the real story of failure of the stimulus appropriation to do anything at all in a hurry to save or create jobs in the construction industry: more than six months after passage of the legislation appropriating all this cash to fund "shovel ready" projects and put construction tradespeople back to work, only $1.4 billion, or a little less than 5.1% of the money, has actually been spent, flowing into the hands of contractors and subcontractors on whose payrolls the rescued tradespeople are meant to be working. At that rate, it would take ten years for all the appropriated money to begin circulating in the real economy of our industry. The shovels were ready, but the bureaucrats and their check cutting apparatus were not.
Of course, anyone in the construction business familiar with the "bell shaped curve" of cash flows on construction projects knows that it won't take ten years for the money to flow out of federal vaults, but the GAO report itself acknowledges that the projects to which this cash has been allocated will last about three years long on average, and since notices to proceed are just beginning to go out, and the peak cash flows can't be expected for at least half of that three year period, the real impact of the stimulus spending won't be felt by construction businesses until 18 months from now, or two years after the legislation was signed into law.
The other significant fact buried in the body of GAO's September 23, 2009 report on stimulus spending which is most telling for construction businesses bidding on and working on these projects is this: profit margins on this work have been shaved razor thin by contractors competing for the work. GAO reports it has been told by state highway officials that bids for stimulus work are coming in within a range of 12% to 35% below state engineer estimates of the cost of the work. This cutthroat competition could lead to a horrible shakeout of the contracting business community, with failing contracting businesses and material suppliers laying off workers, and performance and payment bond sureties facing burgeoning claims by unpaid workers, trade contractors and suppliers, and having to spend billions to take over and finish the work on contracts which were seriously underbid.
This likely fallout of the stimulus appropriations, one of the oft overlooked unintended consequences of hasty and ill conceived government action, will be compounded when fiscal responsibility initiatives to balance future federal budgets result, as they surely must, in reduced future infrastructure appropriations. The pending battle over long term federal highway trust fund reauthorization is just one example. It remains to be seen whether the stimulus was really a shot in the arm of truly additional funding for the construction industry, or only an acceleration of spending which was going to happen anyway, and will be backed out of federal and state capital budgets in 2010 and future fiscal years.
Your business is lucky if it is already in this tiny construction lifeboat while the industry as a whole continues its Titanic-like plunge to the bottom of the economy. However, it could be a long, long time before any other ship cruises by to rescue the survivors, and food and water will be in short supply.
Buried deeper in the text of the 156 page GAO report is the number which tells the real story of failure of the stimulus appropriation to do anything at all in a hurry to save or create jobs in the construction industry: more than six months after passage of the legislation appropriating all this cash to fund "shovel ready" projects and put construction tradespeople back to work, only $1.4 billion, or a little less than 5.1% of the money, has actually been spent, flowing into the hands of contractors and subcontractors on whose payrolls the rescued tradespeople are meant to be working. At that rate, it would take ten years for all the appropriated money to begin circulating in the real economy of our industry. The shovels were ready, but the bureaucrats and their check cutting apparatus were not.
Of course, anyone in the construction business familiar with the "bell shaped curve" of cash flows on construction projects knows that it won't take ten years for the money to flow out of federal vaults, but the GAO report itself acknowledges that the projects to which this cash has been allocated will last about three years long on average, and since notices to proceed are just beginning to go out, and the peak cash flows can't be expected for at least half of that three year period, the real impact of the stimulus spending won't be felt by construction businesses until 18 months from now, or two years after the legislation was signed into law.
The other significant fact buried in the body of GAO's September 23, 2009 report on stimulus spending which is most telling for construction businesses bidding on and working on these projects is this: profit margins on this work have been shaved razor thin by contractors competing for the work. GAO reports it has been told by state highway officials that bids for stimulus work are coming in within a range of 12% to 35% below state engineer estimates of the cost of the work. This cutthroat competition could lead to a horrible shakeout of the contracting business community, with failing contracting businesses and material suppliers laying off workers, and performance and payment bond sureties facing burgeoning claims by unpaid workers, trade contractors and suppliers, and having to spend billions to take over and finish the work on contracts which were seriously underbid.
This likely fallout of the stimulus appropriations, one of the oft overlooked unintended consequences of hasty and ill conceived government action, will be compounded when fiscal responsibility initiatives to balance future federal budgets result, as they surely must, in reduced future infrastructure appropriations. The pending battle over long term federal highway trust fund reauthorization is just one example. It remains to be seen whether the stimulus was really a shot in the arm of truly additional funding for the construction industry, or only an acceleration of spending which was going to happen anyway, and will be backed out of federal and state capital budgets in 2010 and future fiscal years.
Your business is lucky if it is already in this tiny construction lifeboat while the industry as a whole continues its Titanic-like plunge to the bottom of the economy. However, it could be a long, long time before any other ship cruises by to rescue the survivors, and food and water will be in short supply.
