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Breakdown of Ready-to-Go Projects in TN, ND Reveal Economic Ripple Effect

A recent analysis of the speed of spending transportation dollars as part of the economic recovery bill is based on "business as usual" and ...

January 23, 2009

A recent analysis of the speed of spending transportation dollars as part of the economic recovery bill is based on "business as usual" and clearly underestimates the ability of the states to deliver ready-to-go projects.

"State DOTs right now are moving to advance thousands of projects, so that contracts can be let in 120 days, as the House bill has proposed," said John Horsley, executive director of the American Association of State Highway and Transportation Officials (AASHTO). "Those projects will enable the transportation industry to keep people at work, and bring construction workers back on the job very quickly. As late as last Friday (January 23) we asked the state DOTs if they are prepared to have 50 percent of the $30 billion under contract within 120 days, as the House bill stipulates. They responded, "Yes, we can!"

( Video statement at: http://www.youtube.com/aashtovideo)

"CBO (Congressional Budget Office) is basing its analysis on past practices for six-year bills, and then projecting more delay that it imagines will take place. This is a new day, a new challenge, and states will deliver on the promise they have made to Congress and to President Obama. We are ready to move. All we need is the green light to proceed."

Attached are two examples of the kind of projects included in the states’ ready-to-go pipeline, which demonstrate the speed with which such projects can proceed.

Tennessee Department of Transportation

(Contact: Julie Oaks, 615-741-2331)

One of the projects that would likely be funded with a stimulus plan is phase two of a new interchange at Interstate 40 and Briley Parkway/White Bridge Road/Robertson Road in West Nashville. TDOT completed phase one of the project in June of 2005. Since that time they have not had available funding to begin/complete phase two of the project. When phase one of the project was constructed, TDOT decided to go ahead and construct one of the piers for phase two in advance. The pier is located in the middle of Interstate 40 and the department felt we would be able to minimize the impacts to motorists during phase two by building the pier in advance, but the pier has come to symbolize our funding constraints as it has stood alone in the middle of I-40 now for three years waiting on funding to complete phase two.

Timing: Generally it takes around one month after award for work to begin, but in this instance TDOT would attempt to expedite this process to have crews on the ground within several weeks of the letting.

Job Creation: TDOT currently has 316 active construction projects underway by 118 different prime contractors that total approximately $1.7 billion. Most prime contractors utilize a host of sub-contractors as well as support engineering consultant firms. TDOT also has engineering supervisors and inspectors on the ground and many times utilize consultant firms to support the inspection process. Additional "ripple" effects: The project would create extra work for:

  • Material suppliers (rock, sand, earth, etc.)
  • Asphalt manufacturers
  • Concrete suppliers
  • Steel suppliers
  • Manufactured products (anything from bridge beams to bulldozers)
  • Law Enforcement – who provide traffic control for our work zones
  • Flagging and other safety companies – who also provide traffic control
  • Signing and striping
  • Local businesses who serve employees (restaurants, gas stations, retail)
  • Consultants – this will free-up some of the back-log of projects creating new opportunities for design work

No list can completely identify all that benefit from this investment in infrastructure, but the theory of Stimulus Projects is that as this money is infused in the economy, people will start to buy goods, automobiles, homes, and services.

North Dakota Department of Transportation

Contact: Peggy Anderson 701-328-2671

The information provided below outlines the impacts of a 12.9-mile, two-lane interstate reconstruction project with concrete pavement. Based on this example, from the point where the North Dakota Department of Transportation receives bids for this project to the completion of the entire project would take approximately seven months.

The following information includes a timeline and breakdown of costs for this type of project.

Timeline: (assumption is that the project is designed and waiting for funding)

  • January 21 - Congress passes and the President signs a stimulus package for highways
  • January 30 - States receive information and details of funding amount from FHWA
  • February 2 - Authorize the project with FHWA (six weeks before bid opening)
  • February 16 - Advertise for bids (four weeks before bid opening)
  • March 13 - Receive bids for project (use accelerated process for DBE – 2 working days)
  • March 17 - Award bid (send out contract and contract bond to contractor)
  • March 23 - Contractor starts to mobilize
  • April 10 - Receive contract and contract bond back from contractor
  • April 28 - Contractor and subcontractors ready to start
  • October 30 - Project completed

Type of Work

Work Schedule

Traffic Control

April 28 – October 30

Pavement Removal and Crushing

May 4 – July 31

Earthwork and Drainage

May 18 – October 2

Aggregate Base

June 1 – September 4

PCC Pavement

July 6 – August 21

Bituminous Pavement (shoulders)

August 24 – September 18

Permanent Signing and Guardrail

September 21 – October 16

Seeding and Erosion Control

September 21 – October 16

Clean Up

October 19 – October 30

For this particular construction project, it is estimated that it would cost approximately $21 million.

Number of jobs

Normally on a job like this, there would be 15 subcontractors that would do about 30 percent of the cost of the project ($6.3 million). The prime contractor would have 150 employees and a payroll of approximately $2.3 million. The 15 subcontractors involved in the construction process would have 125-140 employees combined and a total payroll of approximately $1.5 to $1.9 million.

Project payments would be:

Month

Amount

Running Total

May:

$1,000,000

$ 1,000,000

June:

$2,800,000

$ 3,800,000

July:

$9,500,000

$13,300,000

August:

$4,800,000

$18,100,000

September:

$1,700,000

$19,800,000

October:

$1,200,000

$21,000,000

Construction engineering

If the construction engineering were to go out to a consultant, it would cost about 7 percent of the contract cost ($1.4 million) and would take 8 permanent staff and 8 temporary staff to manage this project.

Additional "ripple" effects

Several studies for North Dakota roadway construction projects have estimated the overall Gross Receipts Multiplier (GRM) to range from 1.0 to 3.2, meaning the original money is spent, on average, 1.0 to 3.2 times in the state’s economy. However, the typical number seems to be between 1.5 and 2.5 depending on the nature of the project and the rural versus urban or special interest location of the project.

As such, the most reasonable Gross Receipts Multiplier for the sample project of I-94 (Youngman’s Butte to Eagles Nest) is approximately 1.5, meaning this estimated $21 million project will generate approximately $32 million of impact to the state’s economy. The "extra" economic impact is generated when suppliers, contractors, workers, etc. spend the profit they make on the services and materials they sell to the project. Some examples of indirect recipients of the economic impact include fuel wholesalers, local cafés, temporary housing suppliers, local recreation providers, and the general vendors providing everyday needs for the workers and investors of both the direct and indirect project suppliers. In particular, tracing the route of the money through the local café could entail a path similar to:

A. Contractor pays the highway worker (this payment does not roll into the economy until the worker spends the money)

  1. Highway worker eats at the local café (starting the count for the gross receipts multiplier)
  2. Café pays waitress
  3. Waitress buys groceries at the local market
  4. Market buys packaged food from out of state supplier (multiplier of 3)

Alternately,

  1. Highway worker eats at local café
  2. Café buys packaged food from out of state supplier (multiplier of 1)

After combining all of the various "paths" for the economic impact, the overall impact equates to an approximate return of 1.5, or $32 million for the $21 million investment on this sample project.

Horsley Statement on Video

Watch AASHTO Executive Director John Horsley’s reaction to the CBO report at:

http://www.youtube.com/aashtovideo

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