A Recess Look At Stimulus Progress

So far only $31.1 billion of the $787 billion appropriated in the economic stimulus legislation has been spent. According to Recovery.gov this expenditure has saved or created a mere 150,000 jobs, very few of them in the construction sector, and less than one percent of the recent recession induced job losses in the United States.

Particularly disheartening are the following facts: only 13 of 50 states have received the money appropriated for education programs; 17 states report no jobs created as yet; Alaska governor Sarah Palin has vetoed $80 million of the recovery funds appropriated for her state; and Louisiana Governor Bobby Jindal has rejected $98 million in federal unemployment benefit funds for his state. According to USA Today, in the eight states with over 10% unemployment the contracts awarded amount to only $7.42 per capita, while North Dakota, with the lowest unemployment rate, has received about $26 per capita in stimulus contracts.

What are these state and local officials thinking?

Experts Predict Stimulus Construction Spending Effect Late This Year

Economists for the AIA and the AGCA predict improvement in the state of the construction sector of the economy as a result of the economic stimulus appropriations, but not until the third quarter, and perhaps not as much improvement as hoped for. Kermit Baker, chief economist for the American Institute of Architects told Reuters News Service in an interview that the appropriations "will put some people to work as soon as next month, but will not be a major factor until the third quarter. ... contractors will use existing workers before they bring back people who have been laid off, or start to hire new people."

Ken Simonson, chief economist for the Associated General Contractors of America, told his organization that the appropriations are "not going to be enough to bail out construction right away ... but it's a start."

Stimulus Spending Challenges Agency and Industry Capacity

In a speech yesterday to employees at the Department of Transportation, President Obama announced that 200 federal construction projects funded by the stimulus legislation will break ground in the next few weeks. Nevertheless, FEMA's experience with gargantuan construction spending suggests that both the government agencies charged with spending this money, and the construction industry responsible for completing the funded projects, will have their capacity tested by this huge influx of cash.

At hearings Tuesday, House Homeland Security Chairman Bennie Thompson told the Emergency Preparedness Subcommittee that out of $10.4 billion appropriated for repairs after hurricanes Katrina and Rita, $4.7 billion still has not been spent. Thompson blamed Louisiana Governor Bobby Jindal and Mississippi Governor Haley Barbour for the delays. Without regard to who is at fault, these facts do not bode well for the pace of distribution of the stimulus appropriations which will have to be funneled through state agencies.

Obama Names Spending Oversight Chief

Mollifying some congressional critics of the prospect of unsupervised spending of $800 billion in taxpayer money, president elect Obama named Nancy Killefer, a former Clinton administration Treasury department official, to the newly created White House position of Chief Performance Officer, responsible for detailed oversight of all federal spending under his administration, including the enormous infrastructure spending and tax reduction stimulus package expected in February.

Congressional leaders are now discussing $800 billion as the price tag of the stimulus legislation, which the Congressional Budget Office expects will create a federal deficit of more than $1.2 trillion next fiscal year. The construction industry can expect to get at least $105 billion of the anticipated appropriations, with $30.25 billion for roads and bridges, $20 billion for military construction, $14.3 billion for environmental projects, $12.4 billion for public transit, $10 billion for federal office building construction and renovation, and $4.9 billion for Amtrak. Renewable energy advocates are pushing for a much larger allocation than $500 million for demonstration projects included in HR 7110. Representatives from rural areas of the nation are already looking for specific provisions guaranteeing cities don't gobble up all the infrastructure money. Some provisions likely to be similar to HR 7110 will end up in the new legislation, including "use it or lose it" claw back clauses to force the money out into the hands of contractors, suppliers and tradespeople within 180 days of passage. However, unlike HR 7110, look for language giving cities, counties and other local government units a crack at the cash before it is redistributed from one state to another. This stems from statements by the governors of Texas and South Carolina that their states "don't need the money."

Because of a precipitous drop in domestic steel production during the fourth quarter, look for the "buy American steel" requirement to expand from school construction to all of the infrastructure and transit projects, and also for "buy American" provisions across the board, possibly with limited exceptions for products and materials not available domestically. After all, the idea of this legislation is to put Americans back to work.

Congress has been in session for only two days, and the feeding frenzy is already underway. Every Representative and Senator is looking for ways to bring money to his or her state or district without having any project labeled as an "earmark" subject to elimination by Obama administration watchdogs. No matter what ultimately happens with this legislative package, there will be a big benefit for those construction managers, contractors, subcontractors and suppliers who position themselves to take best advantage of these projects as soon as they are put out to bid.

Non Residential Construction Spending Increases

According to figures released January 5, 2009, by the U. S. Department of Commerce, nonresidential construction in November 2008 increased 0.7%. Offsetting this modest increase was a 4.2% decline in housing construction, resulting in a net November 2008 construction spending decline of 0.6%.

Total construction spending of $1.078 trillion is down 3.3% from a year ago, while housing construction of $328.3 billion is off 23.4% from a year ago. Nonresidential construction spending of $428.2 billion annually is at an all time high. Government construction spending of $321.95 billion makes up the balance of the $1.078 trillion annual total pace for construction spending.

State and local government construction spending is up 1%, while federal construction spending rose 6%.