Construction Activity Continues to Grow in 2007

By Christina Fisher | September 28, 2010

Construction activity in the mid-Atlantic region shows no sign of slowing. The transportation, military, manufacturing, and bio-tech sectors will flourish and positively impact the communities where new facilities — and the infrastructure and commercial businesses to support them — are being planned or are already under construction. While this rapid and expansive growth presents many challenges, primarily with financing, it means great news for contractors and the construction industry in Maryland, Virginia, Washington, D.C., and the Carolinas.

Maryland is bracing itself for a huge influx of new residents and new jobs as military bases close elsewhere and personnel are reassigned to the region. Current estimates expect more than 60,000 military and civilian jobs to be created in the next several years as Fort Meade and Aberdeen Proving Ground (APG) expand. What does this mean to the construction industry? Implementing the base realignments are estimated to cost $25 billion, with about 75 percent of that going towards construction projects at Fort Meade and APG. Another $10 billion will go towards modernizing research and development centers at APG.

While many communities are aggressively marketing themselves to defense contractors, they are simultaneously working on plans to handle the corresponding burden on their infrastructures — roads, schools and public utilities — and lure commercial businesses to the area. Municipal planners are bracing themselves to accomplish major capital improvements in the next five years to seven years. While housing sales have gone through a downturn in the past year, this trend is not expected to continue and some analysts anticipate that Maryland could see residential development explode.

From a transportation standpoint, the incoming BRAC jobs have spurred mass transit construction in the region. Anne Arundel and Howard counties have entered into an agreement with Fort Meade to partner in the construction and operation of a transportation hub that will service Fort Meade and the Odenton areas as well as provide routes to BWI. Baltimore and surrounding counties are also looking at finally implementing a 100-mile regional transportation system that would link MARC trains, light rail and the subway — a plan that is seen as critical to the economic growth of the region. Currently $250 million has been allocated toward planning and engineering of the Red Line, a 10-mile east-west rail route from Woodlawn to Canton. Another priority is the Green Line, which would extend the subway from Johns Hopkins Hospital to Morgan State University. In the distant future — but potentially a reality — is the "Maglev" project linking Baltimore and Washington. This futuristic transit system would lift, guide and propel a train using magnetic levitation technology at speeds up to 300 miles an hour. So far, the federal government has allocated $90 million toward its development.

In the near-term, however, Governor Robert Ehrlich has approved a $3.7-billion transportation spending "blueprint" as part of the 2007 state budget approved by the General Assembly. This amount represents a $25.8-million increase. Governor Ehrlich also allocated an additional $10.8 million for FY 2006 and $15 million in deficiency appropriations to cover money that was cut from the transportation budget last year. In all, more that 20 counties and 149 municipalities will receive state transportation dollars.

In addition to allocating state funds, Maryland is also exploring public-private partnerships (P3) to improve transportation in the state. These P3 approaches are being used successfully in other states to accelerate much-needed transportation projects and are supported on a federal level. The state is looking toward P3's participating in the construction, operation and financing of a project. It does not intend to sell any system or corridor to private interests.

Governor Ehrlich's five-year $13-billion transportation program continues to benefit the state. Some of the major accomplishments include the first new Express Toll Lanes on I-95 north of Baltimore, the completion of the first Woodrow Wilson Bridge span, the start of the Intercounty Connector, the completion of light rail double-tracking, new MTA hybrid buses, the opening of a new cruise terminal at the Port of Baltimore, and the continued success of the new Southwest Terminal.

The construction industry in North Carolina is also doing well, with the General Assembly approving $2.2 billion for building, highway and utility work in July. Other factors that bode well for the industry include $3 million in tax credits for renovating abandoned mills, maintaining the current gas tax, and discontinuing the annual transfer of $195 million in highway funds for other uses. The General Assembly also allocated $650 million in funds for several large projects including the expansion of the N.C. Museum of art and a new public health laboratory; $560 million for emergency reserves and construction repairs; $206 million for additional building projects; $400 million for new highway projects; and approximately $800 million for UNC projects.

Throughout the region, toll roads are becoming a reality as a means of financing highway projects. Currently there are two $800-million toll road projects under consideration in the state that could be awarded in 2007. While the DOT is projected to spend only $650 million — or half the level of recent years — legislators did provide for repayment of $115 million borrowed from the highway trust fund in 2002 for next year.

While North Carolina's economy is only expecting to grow at a modest rate next year — about 1.5 percent — this is only considered a "pause in the expansion that should continue in 2007," according to UNC Charlotte economist John Connaughton.

Helping this growth and spurring development is the fact that North Carolina has world-class universities and is considered among the best places in the nation for technology and business development. North Carolina tops the Southeast in attracting new industrial plants and ranks fifth nationally in business growth, while the Mooresville-Statesville area is the nation's No. 1 rural region according to Site Selection magazine.

The state continues to attract major investment by new firms moving to the area and to foster a business environment for existing firms to expand. For example, Fidelity Investment plans to invest $100 million to build a facility in Research Triangle Park, bringing 2,000 jobs to Wake County. Maersk Inc., with 254 jobs at its offices in Charlotte, plans a $60-million expansion after receiving a Job Development Investment Grant.

Also contributing to the state's economy and providing jobs for the construction industry is NASCAR, which will begin construction of its new Hall of Fame in Charlotte in 2007. The Hall of Fame is expected to bring $62 million annually to the state's economy and 700 jobs to the Charlotte area. NASCAR's impact is not to be taken lightly. Motorsports businesses contribute $6 billion a year to the state's economy and bring 24,000 jobs to the region, and there are more than 1,000 motorsports-related businesses across North Carolina.

North Carolina is also benefiting from base realignments and closures. Fort Bragg is in the midst of planning and building for 20,000 new soldiers to arrive from other locations over the next five years. Defense spending in the state increased 33 percent last year to nearly $3 billion, with the spending benefiting several areas outside the state's traditional military centers. Cumberland County, home to Fort Bragg and Pope Air Force Base, saw an increase in spending of 57 percent over 2005. Onslow County, home to Camp Lejeune, saw $390 million in federal defense spending, while the federal government spent $200 million in Craven County, site of the Marine Corps Air Station at Cherry Point. For the construction industry, this meant $842.6 million — over $100 million in growth. This trend is only expected to continue as these installations prepare for and absorb military personnel and their families from other locations.

According to the Carolinas AGC Construction Barometer, the construction industry in the Carolinas is expected to grow strongly into 2007, including private construction (up 3.9 percent), highway and utility (up 2 percent). Therefore, Carolinas contractors are presently working to expand their businesses with increased long-term borrowing, increased heavy equipment purchases and significantly increased hiring plans for skilled construction labor. While contractors in the region are still concerned over rising construction materials prices and the potential for a shortage of skilled labor, these factors are expected to be manageable.

While future projections on the construction industry vary slightly between the Upstate and the Lowcountry in South Carolina, both regions agree that there will be moderately stronger growth in 2007 according the Carolinas AGC Construction Barometer. The Upstate's economy tends to be closely linked to the Charlotte region, which has lost some businesses to South Carolina due its attractive tax incentives.

Several major projects from all construction industry sectors are under way across the state. In Lancaster County, developer Dell Webb is building a 1,580-acre Sun City community that could have as many as 4,427 homes and 6,000 residents by the time it is completed. Since October, three major economic development projects have been announced in the state: Poly-America, a 400-job, $100-million investment in Chester County; Johnson Controls, a 200-job, $35-million investment in Florence County; and the Market Common, a $600-million residential and commercial development in Myrtle Beach.

As with the other states in Construction's region, South Carolina also benefits from military spending. Fiscal year 2007 will bring $92 million for defense-related projects in the state. Duke Energy is also eyeing the state for construction of a $6-billion nuclear plant near Gaffney, although a plant would not be online before 2016.

SCDOT recently rated second in the nation for cost effectiveness even though it ranks at the bottom of the 50 states in the amount of total highway funds received per mile of state owned roads. The state has not adjusted its state motor fuel fee since 1987. These are just two factors that Executive Director Elizabeth S. Mabry points to as she outlines the state's transportation needs. Also citing the end of the "27 in 7" bonding program, increased construction materials costs and less federal funding, Mabry has suggested adjusting the fee on motor fuels, reducing reliance on the state gas tax and indexing funding for inflation. She also outlined a 10-year plan that would result in a $1-billion increase in transportation funding at the end of the period.

Meanwhile, the SCDOT continues to pursue "the most important new proposed construction project in the state," which is the I-73 project running from Michigan to South Carolina. In order to complete South Carolina's portion of the project as quickly as possible, the SCDOT is requesting conceptual proposals for financing, design-build development and the operation of a new interstate highway system along the new alignment. The project is to be supported totally or substantially by private investments, including user fees and innovative financing methods.

Virginia, too, is being touted as the best state for business by, ranking in the top 10 in all six indicators — business costs, economic climate, growth prospects, labor, quality of life, and regulatory environment. To continue this award-winning business climate, Governor Timothy M. Kaine recently unveiled his Economic Development Strategic Plan that includes increasing Defense Department contracts for Virginia firms by $1.15 billion; increasing foreign direct investment from $270 million to $300 million; increasing the economic impact of tourism from $16.5 billion to $18.5 billion annually; and formulating specific regional economic growth goals by 2008.

Again, military base realignments and the Pentagon play key roles in Virginia's economy. The Pentagon is moving offices and personnel further south to Prince William County and the Quantico area. Infrastructure work has started on an 80-acre $800-million development that will include 400,000 square feet of office space and 526 residences. This is not the only development of this size as others are going up in the 1-million-square-foot-plus range. All of these projects are in anticipation of the 44,000 jobs that are expected in 2007 in the Northern Virginia region, with projected growth only expected to increase.

In addition to growth in the government and military sectors, Virginia continues to expand its biotech sector. The state's recent prize? The recently opened $500-million Howard Hughes Medical Institute at the Janelia Farm Research Campus in Loudoun County. Virginia is also vying for a nonstop airline service from Washington, D.C., to Beijing, which could generate up to $333 million in economic expansion and create approximately 4,000 jobs in the area.

Transportation concerns in this heavily congested region of the country continue. While Governor Kaine expressed his dissatisfaction that the 2006 General Assembly Special Session on Transportation adjourned without consensus on a statewide transportation financing plan, VDOT still unveiled a comprehensive Business Plan for Fiscal Year 2007 that is already paying dividends. Currently, VDOT has completed several major projects throughout the state on time and on budget. It has consolidated its maintenance and traffic engineering functions into a new focus on systems operations, and outsourced 77 percent of interstate maintenance expenditures with plans to outsource the rest by 2009.

As VDOT continues to reform its operations, it plans, among other things, to increase use of P3 projects; continue strong financial management practices, including the elimination of $867 million in construction deficits; continue to shift urban construction responsibilities to the cities; and create an asset management system to track the conditions of highway and related structures to direct financial resources — which amount to approximately $3.8 billion for fiscal year 2007 — where they are most needed.

Misc. Civil Other Civil Roads & Hwys. Total Civil Buildings Total
2003 $3,160,734,569 $1,593,768,882 $752,383,777 $5,506,887,228 $13,743,787,494 $19,250,674,722
2004 $607,707,320 $1,794,254,549 $613,905,999 $3,015,867,868 $17,029,041,965 $20,044,909,833
2005 $3,055,611,160 $2,097,140,814 $1,963,065,943 $7,115,817,917 $18,484,529,419 $25,600,347,336
2006 $1,545,107,311 $3,548,841,596 $2,417,195,726 $7,511,144,633 $20,248,654,651 $27,759,799,284
2007 $1,973,135,760 $3,267,388,560 $3,248,684,302 $8,489,208,622 $20,497,556,968 $28,986,765,590
Information is based on construction starts data compiled by Reed Construction Data.