With reduced spending at all government levels, public sector construction stagnates
Nearly 30,000 New Hampshirites were employed in the industry in 2006, and it dropped to 21,400 at the depths of the recession
Over the past several years, New Hampshire’s private construction sector has begun to take off as the economy finally shakes off the effects of the recession. But the public construction – work on roads, bridges, schools, hospitals, economic development projects and the like – has tanked, resulting in continued stagnation in the long-suffering industry.
The doldrums have nothing to do with the government shutdown that seized up Washington for a few weeks in October. They are a result of a government slowdown in spending that has been a decade or more in the making. And it hasn’t just been in Washington, but in Concord as well.
There isn’t any one single factor involved. In fact, there are several: sequestration, a school building moratorium, the state’s Medicaid enhancement tax, repeal of a state surcharge on car registrations. In other words, it’s a reluctance to approve any increase in government spending.
This has indirect ramifications for the state’s economy. Business groups have listed such things as transportation infrastructure, workforce housing and a well-educated and healthy workforce as requirements for a thriving economy.
One way to consider the health of the public construction sector is to check employment – the average number of jobs in construction. Nearly 30,000 New Hampshirites were employed in the industry in 2006, and it dropped to 21,400 at the depths of the recession. There has been some gain since, but not much.
Then there are future construction contacts. So far this year, contracts for residential projects have gone up 24 percent over 2012, signaling a long-awaited revival in the housing market.
Nonresidential building, however, has been stagnant, down 2 percent, despite reports of a revival in private commercial construction, thanks to the institutional building drag.
But nonbuilding activity, which includes roads, bridges and other infrastructure, has dropped 21 percent from a year ago.
While economists caution against the use of bare-bones contracts statistics because they fluctuate wildly, sector-specific statistics and interviews flesh out details of the picture, which might please those who want to lower taxes but frustrate those who build for a living.
Roads and bridges
The highway construction industry hasn’t faced actual federal budget cuts, but it has suffered from the lack of an increase.
“It’s like going 22 years without a raise,” complained Christian Zimmermann, president of Belmont-based Pike Industries.
Zimmermann was talking about the federal and state gas tax, which were last raised in the early 1990s. But he also could have been talking about the general level of federal funding, which has stood at about $150 million a year over the same period.
Meanwhile, he said, “the cost to make a ton of hot mix since 1991 to 2013 has quadrupled.”
According to Zimmermann, the same money that once resurfaced 800 miles of road now only covers 200 miles. Lower volume means fewer workers. He’s now at 340, down from 425 a decade ago. And Pike, which used to have 16 asphalt plants in New Hampshire, now has eight.
But things haven’t really remained the same.
The gas tax hasn’t gone down, but motorists are buying less gas, thanks to more fuel efficiency, conservation and the economy.
In addition, the state used to match the federal grant with $30 million to $35 million of its own money, said Bill Cass, director of project development for the state Department of Transportation. But in 2009, Washington allowed states to use credits earned by working on federal highway projects to come up with the match. That has meant not only less money for roads, but more of it directed to turnpike projects.
“The state is neglecting roads that are not turnpikes,” said Gary Abbott, vice president of the Associated General Contractors of New Hampshire. For those projects, “it is very, very tight.”
The state tried to infuse some cash into road-building when it tacked a surcharge to the car registration fee, but lawmakers took that away in 2011.
Another factor is the bond picture.
Bonds have been issued in anticipation of federal revenue, but such anticipation is no longer guaranteed. The next federal highway bill comes up in January, just in time for the next round of negotiations over the federal budget.
The result: “Much of the bonding could go away,” said Patrick McKenna, director of finance for the New Hampshire Department of Transportation.
All this is reflected in the state’s 10-year highway plan, which decreases from $250 million in spending in 2015 to about $203 million in 2024.
Audley Construction has its hands full with Interstate 93 construction and other projects, but the nature of the company’s other work “has changed dramatically,” said Ryan Audley, vice president of the Bow-based firm.
“The money is being used to maintain the assets that we currently have” as opposed to new construction, he said, meaning more competition, slimmer margins and employment for 20 fewer workers at Audley.
Schools and municipalities
School building projects used to be the mainstay of companies like Hutter Construction in New Ipswich, but not anymore, thanks to the school building moratorium.
“There isn’t anything in the state budget” to fund school construction, said Lars Traffie, president of the firm. Institutional building used to account for 70 percent of Hutter’s work. Today, it’s 30 percent, and the company has shifted to retail and manufacturing work to keep workers employed.
It isn’t that there isn’t a need. Two-thirds of school facilities in the state were built more than a half-century ago, according to the New Hampshire School Boards Association.
It used to be that the state gave out school building aid like a blank check. If a district met the criteria, the state would provide up to 30 to 60 percent of the funding.
But to cut costs, lawmakers decided to change school building funding to a need-based competitive grant process, but they put off funding that process until the next legislative session.
If approved, applications would be due July 2015, and awards wouldn’t go out until January 2016. That means school construction would not start up again – at the very earliest – until the following spring.
Spending by municipalities has not picked up the slack. Town and city budgets were been basically flat from 2001 to 2012, according to data analyzed by the New Hampshire Center for Public Policy Studies.
The New Hampshire Municipal Bond Bank – which works with both school districts and municipalities – issued about $127 million in municipal bonds in 2005. That amount fell to $72 million in 2012, with $53 million so far this year.
Hospitals and universities
Hospital construction, ubiquitous during the recession, has since slowed to a near standstill.
Applications to the state Certificate of Need Board, which totaled $245 million in 2007, fell to $20 million in 2012. Thus far in 2013, there has only been one such application – for a $908,000 mobile MRI unit.
“Without a doubt, we’ve seen major construction,” said Andrew Ellis, an attorney who consults on such projects, “but going forward, there has been a conservative approach because of fiscal constraint and uncertainty over the Medicaid enhancement tax. Safe to say, you are not going to see a plethora of large multimillion-dollar capital improvement projects.”
The New Hampshire Health and Education Facilities Authority, which finances both hospital and university construction, has seen a falloff in projects at both ends, said Executive Director David Bliss as even colleges cut back because of the recession and possible cuts in the student loan program.
In 2008, the authority granted 32 bond issues worth some $218 million. By 2012, there were 18 worth about $98 million. So far in 2013, there have been 17, worth $66 million.
The authority’s ability to offer lower-interest bonds to nonprofit organizations through tax credits hasn’t lessened, said Bliss, but that too is up for grabs in any possible budget-cutting free-for-all in Washington.
“The tax credit program comes up every 10 years or so, but this is more serious,” said Bliss. “It was coming from Congress, but now the president has put it on the table.”
Construction of the $14.5 million Brookbend East apartments, which replaced an aging public housing project with 75 new units in Keene, required four federal programs, three of which have been or are being cut in Washington.
The Low Income Housing Tax Credit – which attracted the bulk of the private financing – has not been tampered with, at least not yet, said Bill Shanahan of the Northern New England Housing Investment Fund, which sells off many of those credits to investors.
As for the other Brookbend funding, some $2.2 million came through the federal HOME program via the New Hampshire Housing Finance Authority. But HOME – the largest federal block grant to state and local governments for affordable housing – has been cut more than 40 percent at the national level, partly because of publicity over misused funds and partly because of sequestration. In 2004, New Hampshire Housing received $5.25 million in HOME grants; in 2013, it received $3 million.
Another $900,000 for the Brookbend project came from through Community Development Block Grant funds, which have been cut by about a third over the last decade and is also affected by sequestration. (The House proposed even more severe cuts during the last budget negotiations.) Brookbend also is eligible for federal Section 8 rent subsidies. That program was also cut by sequestration, though there was an effort to replace the funds.