2009 Will Be A Crap Shoot

By Mike Larson, Editor | September 28, 2010

There are so many powerful economic currents now swirling in the world economy that it is hard to predict what kind of year 2009 will be for the national construction industry as a whole, or for Wisconsin and Upper Michigan's construction industries in particular.

The ever-spreading financial woes that have clicked from industry to industry like falling dominoes have toppled inexorably from the sub-prime mortgage crisis, to the Wall Street banking crisis, to a general credit crisis that is dragging the entire U.S. economy to a slow crawl.

Housing sales and construction are expected to remain slow for another year, or so, and each day's news carries stories of more companies in many industries laying off workers.

In addition, Wisconsin Governor Jim Doyle has said that the state will need to make painfully deep cuts to clean up a budget deficit that would blossom to nearly $5.4 billion by the end of the next biennial budget in 2011.

State revenue is expected to drop for the second consecutive year, so there will be less money to use in balancing the budget and to pay for public construction work — even if it's desperately needed.

On the upside, the federal stimulus package that's expected to be enacted early in 2009 could give a huge boost to public-works projects of all types.

At Western Builder's deadline time in early December, nobody yet knows just how large the stimulus boost will be, how much of it will come to Wisconsin and Upper Michigan, and how that money will be used. It could be a huge shot in the arm, or just a little blip.

Also on the positive side of the ledger are rapidly falling fuel and material prices that offer relief from the skyrocketing increases throughout most of 2008. The lower prices will enable contractors to do more work for the same money in 2009.

Finally, customers that have the money to pay for construction projects in 2009 will likely move ahead, knowing they'll get more for their money by building now, rather than waiting for later.

RCD Expects Wisconsin Construction To Be Up Slightly, Overall

Reed Construction Data (RCD), publisher of Western Builder, projects the total value of overall construction in the state to reach $5.95 billion during 2009. That's a rise of 10.7 percent from $5.38 billion in 2008.

The company uses four categories of projects in making its estimates: "transportation," "sewer/water," "miscellaneous civil," and "buildings."

Transportation Down, Sewer Work Level, Buildings Up

RCD expects transportation work to total $360 million, down 42.8 percent from $630 million in 2008.

Sewer and water work is expected to remain at $320 million, dead even with 2008's volume.

Miscellaneous civil construction — which includes publicly funded projects such as dams, municipal buildings, university construction, and military work — is expected to drop by 8.4 percent, from $415 million in 2008 to $380 million in 2009.

Together, transportation, sewer/water, and miscellaneous civil construction make up the "total highway and heavy" category, which will drop 22.3 percent, from $1.365 billion in 2008 to $1.060 billion in 2009.

Building Construction And Overall Total Expected To Rise

Building construction is expected to rise from $4.01 billion in 2008 to $4.89 billion in 2009 — an increase of 21.9 percent.

The rise in building construction will more than offset the decreases in transportation and miscellaneous civil work, so 2009 is expected to see total work grow by $575 million, or 10.7 percent. The 2009 total is expected to be $5.95 billion, compared to $5.38 billion in 2008.

WisDOT's proposed budget for the next fiscal year is in the range of $870 million to $890 million; that's about $126 million more than last year's budget.

At this point, however, no one knows how the 2009–2011 proposal will fare during revisions by the governor and legislature. Nor does anyone know how much it will be affected by the expected federal stimulus.

Although RCD projects the dollar volume of total transportation work from all sources to be down 42.9 percent, the state's estimated quantities for fiscal year 2009 (which ends June 30, 2009) don't differ dramatically from those of fiscal year 2008. With so many variables affecting construction, WisDOT did not think it prudent to estimate quantities further into the future.

Concrete paving is expected to drop from 2.3 million square yards in 2008 to 2.0 million square yards through the end of fiscal 2009.

Excavating is expected to rise from 16.3 million cubic yards in 2008 to 17.5 million cubic yards in 2009.

Base course usage will be 5.6 million tons, up slightly from 5.1 million last year.

Asphalt usage will drop slightly from 2.9 million tons in 2008 to 2.8 million tons in 2009.

Milling will drop from 7.4 million square yards in 2008 to 6.6 million in 2009.

Finally, striping is expected to be 22.4 million linear feet, down from 23.8 million in 2008.

Some of the major highway projects that will start or continue in calendar year 2009 include: Highway 51/39 near Wausau, Highway 10 from Stevens Point to Marshfield, Highway 12 in Sauk County, Highway 26 in Jefferson County, and Highways 41 and 172 in Brown County, as well as the start of major reconstruction on the I-94 North/South freeway from Milwaukee to the Illinois state line.

Building construction should also improve. Although housing starts are down, construction of educational, commercial, healthcare, industrial, and public buildings continues to be steady.

A few of the projects in this category are at Lawrence University in Appleton, at Epic Systems in Verona, a new Wal-Mart in Waukesha, the Wisconsin Institutes for Discovery in Madison, the new Aurora hospitals near Oconomowoc and Grafton, and numerous buildings for University of Wisconsin campuses.

Among infrastructure projects, water and sewer activity looks as though it will remain even with 2008. The 28 communities served by the Milwaukee Metropolitan Sewerage District (MMSD) must continue work in order to meet a federal deadline for water quality despite any funding challenges. Also, a $52-million floodwater tunnel project for Milwaukee County will begin in 2009.

Power generation and transmission work should remain active, with major projects continuing at traditional power plants, as well as construction of new wind-driven generating facilities and transmission lines.

Based on current projections, 2009 looks to be a bit better overall than 2008, though transportation work will be down considerably.

However, with a number of wildcard economic forces at work, things could take a rapid turn for worse — or better — in the blink of an eye.

Transportation Sewer/Water Misc. Civil Total Hwy & Heavy Buildings Total
2007 $560,247,435 $338,485,999 $417,386,535 $1,316,119,969 $3,420,798,837 $4,736,918,806
2008 $630,000,000 $320,000,000 $415,000,000 $1,365,000,000 $4,010,000,000 $5,375,000,000
2009 $360,000,000 $320,000,000 $380,000,000 $1,060,000,000 $4,890,000,000 $5,950,000,000