The Recession Hits Home

With the national economy now officially in recession, it's no surprise that the construction industry in the Mountain West is feeling the pinch just like everywhere else.

Real estate markets were just beginning to cool off at the end of 2007, but by fall 2008 they had caught up with the chill in all but the worst-hit areas of the rest of the nation. Unemployment is rising. And revenue projections for state budgets are in free-fall, forcing political leaders to choose between cutting programs or raising taxes. The former course is by far the more often taken.

Jim Haughey, Reed Construction Data economist, predicts declines in all non-residential construction categories in the Mountain states during 2009 will produce an overall drop of 10 percent in the value of construction contract awards for the year. The weakest category, Haughey said, will be Sewer/Water (off 43 percent). Building construction will perform best, holding to a 4-percent decline.

But as this report pointed out last year at this time, the downturn's effect on individual contractors will vary depending on where they are and what their specialties are. What follows are reports from each of the state's in Rocky Mountain Construction's coverage area.

Arizona has been one of the fastest growing states in recent years, but it was negatively affected by the recent housing crisis, as well as problems caused by rising energy costs and reduced access to credit.

In August, the Arizona Department of Commerce predicted slightly positive economic growth for the state in 2009. According to an article in the Arizona Workforce Informer, Arizona's economy usually sees employment slowdowns for only short periods of time.

"Since 1990, previous periods of low or negative growth in Arizona have lasted for no more than two to three years," the article stated. "In this business cycle, 2007 showed the beginning of slow growth with 1.2 percent, reflecting the decline in construction employment. Expectations are that Arizona will see improvements by the last part of 2008, with a return to positive growth by the last half of 2009."

As 2009 begins, the state is now in a better position to add more jobs in Arizona, especially with low interest rates for mortgages and more realistic housing prices.

Still, the construction industry should continue to struggle into 2009. However, job josses in 2009 are predicted to be much lower, decreasing 2.7 percent, as employment matches the demand for housing, infrastructure and new development.

By Tony Milo, executive director, Colorado Contractors Association

For years CCA and our partners who advocate for a stable, predictable and adequate funding source for Colorado's transportation system have been saying we are facing a "quiet crisis." That crisis can no longer remain quiet in 2009.

Due to a more than $400-million reduction in funding for the 2009/2010 budget, the CDOT construction program will go from an already inadequate $600-million annual program to less than $200 million. That number should be alarming to everyone who lives, works and plays in our great state. Most states comparable in size to Colorado spend three to five times that amount to maintain their system of roads and bridges and provide safe, reliable transportation options for people and freight.

Gov. Bill Ritter foresaw this pending crisis and in March 2007 appointed a 32-member panel representing a broad range of experts, policy makers, representatives from private industry, community leaders, and citizens. I am honored to have been appointed to that panel. A Technical Advisory Committee was also appointed to help the panel review financing options and other complex aspects of this topic. The 2009 CCA president, Joseph O'Dea of Concrete Express Inc., serves on the TAC.

The panel has done great work and issued a report in January 2008 that identified and quantified the transportation funding problem in Colorado, made specific funding recommendations and illustrated what various funding levels would provide, and put forth options for raising the much-needed revenue. In short, the panel said that the state needed to increase transportation funding by $1.5 billion per year to provide a comprehensive transportation system and $500 million more per year just to maintain the current system of roads and bridges that we have, with no allowance for expansion.

Those numbers are overwhelming in a relatively anti-tax state such as Colorado, where TABOR requires the voters approve any increase in taxes. Late during the 2007 session, CCA and others made an aggressive effort to pass SB 244, which would have created a road and bridge safety fee that would be tacked onto a vehicle's registration fee. There were also proposals to toll I-70 to raise money for that corridor. However, in an election year, all of the proposals were doomed.

Thankfully, the governor asked the panel to reconvene and work through 2008 on:

• A stateside vision for transit;
• Coalition Building;
• Public Education; and,
• Specific Legislative Proposals for the 2009 session.
• Investment in our transportation system will provide jobs for Coloradans and attract new businesses to our state. It will improve our quality of life, foster tourism and help clean our air by reducing congestion. Every dollar spent on transportation construction generates $8 in economic activity.

This must be the year that our elected officials and all stakeholders finally set politics and personal preferences aside and pull together to address the growing problem of our woefully underfunded transportation system. Colorado can't afford to fail in this endeavor, and Coloradans won't accept our elected officials' inaction any longer.

By Mike Gibson, executive director, Associated Contractors of New Mexico

New Mexico has experienced significant growth in transportation infrastructure, utility infrastructure and commercial/retail construction over the past five years. The state's investment in transportation and utility infrastructure has been directly responsible for New Mexico experiencing positive growth in the commercial, retail and residential construction growth.

State Rep. Dan Silva (New Mexico House Transportation Committee chair) has worked with Associated Contractors of New Mexico (AGC highway and heavy chapter) in educating not only the New Mexico Legislature but also the private sector in understanding that quality transportation infrastructure is key to the state's economic development. According to Rep. Silva, without good quality transportation infrastructure, the state's commercial/retail/residential sector will suffer and the state's quality of life will suffer.

Over the last three years, more than $1.5 billion of state and federal monies have been invested in New Mexico's highways and bridge projects. These highway and bridge projects have been spread throughout the state to include both rural and urban communities. This focus has allowed New Mexico to build its infrastructure across the state in order to provide a diversified approach to economic development. In addition, more than $ 750 million in local and state monies have been invested in the state's upgrading of water and wastewater projects. These upgrades to water and wastewater infrastructure assist the local communities to address the current needs and address the projected population growth that New Mexico is anticipated to experience over the next few years.

Currently, Associated Contractors of New Mexico is working with local Chambers of Commerce and local and state political leaders to develop a long-term funding mechanism to address the future infrastructure needs of the state. These funding mechanisms will include regional transportation funding (sales tax dedicated to infrastructure projects), sustained funding from the state (dedicating a percentage of the state's severance tax revenue) and parlaying federal matching funds from the next federal highway legislative bill.

Future challenges to these funding mechanisms will include the insolvency of the federal highway trust fund, declining state revenue projections and the current state of the national economy. Fortunately, these challenges provide opportunities for New Mexico "to step up to the plate" and make bold business and political decisions. These decisions will position New Mexico to stay competitive in the national and global marketplace.

By Warren B Hardy II, president, Associated Builders and Contractors of Las Vegas

Contrary to popular belief, Southern Nevada has never been immune to the affects of periodic downturns in the national economy. Just like the rest of the country, we feel them all to one extent or another. Historically however, we have been fortunate to have a "last one in, first one out" experience when it comes to these kinds of slowdowns.

This time, however, many local observers contend that the crisis has a bit of a different feel. This is due largely to the fact that during most recent downturns, construction activity remained strong statewide. During this crisis, however, it seems the construction industry is being challenged disproportionately.

Most instinctively understand that the Las Vegas economy is largely driven by our tourist activity. However, few outside of Nevada realize that construction is our second largest employer and an absolutely vital cylinder in our economic engine. The gaming industry ups and downs tend to be consistent with most national trends and, during those times, Nevada has leaned on construction to weather what usually turn out to be relatively short negative events.

Unfortunately, the most recent downturn has created a bit of a "perfect storm" for Nevada. The gaming industry has been hit hard because today's economic challenges have hit Americans where they tend to tolerate it least — on the home front. Nothing makes a family close their pocketbooks for vacations and entertainment like the prospect of losing their home.

The residential construction industry has obviously been hit hard by the same uncertainty in the housing sector. However, the non-residential industry has also been hit hard by the unprecedented financial crisis and downturn in consumer confidence in which we now find ourselves. All this has combined to create a circumstance Nevada is not too familiar with — an across-the-board construction industry slowdown.

Still, Nevada economic forecasters tend to be a fairly optimistic group and many believe that as soon as housing markets stabilize across the country and consumer confidence begins to return, Americans will put their vacation plans back on track. When that occurs, Southern Nevada's gaming industry will begin to recover, and along with it the local construction markets. We may not be the last one in this time, but we are still hoping to be among the first ones out.

Utah was still going strong when 2008 opened, but not now. The run-up in non-residential construction that followed Utah's housing boom has peaked, and now the state is looking at severe job losses and a big drop in state revenue.

Mark Knold, chief economist for the state Department of Workforce Services, said in a recent audio podcast that Utah lost 2,200 jobs in October compared with the same month last year. He forecasted that Utah will lose up to 19,000 jobs next year and reach an unemployment rate of up to 5.5 percent in what would be one of its worst economic downturns in more than half a century.

Utah's employment downturn has been concentrated mainly in the construction industry, which lost 13,400 jobs from October 2007 to October 2008, Knold said.

"It is time for round two in the economic downturn that's affecting Utah," he said. "Round one was largely the housing market. ... Round two is the phase where now industries other than construction are starting to slump and will drive Utah's employment count into contraction."

Knold's report followed closely an announcement by the Utah Tax Commission that state revenues were down significantly, creating the possibility that budget cuts might be necessary when the Legislature meets in January. The Legislature met in a special session in September to trim $272 million from the 2008 state budget after state economists revised their economic forecast for the year, but the revenue report shows the state is on pace to take in even less money than the economists' altered forecast.

As a result, Utah Department of Transportation officials announced in November that no road construction that isn't currently under contract will go forward. The state is indefinitely shelving $3.9 billion in projects — led by the $2.6 billion that lawmakers previously steered toward I-15 in Utah County — but is continuing work on $2 billion in current projects.

So the prospects for a quick improvement in Utah contractors' fortunes look highly unlikely in 2009.

If there is a bright spot in the Mountain West this year, it's Wyoming. The state avoided deficits in 2008, and though officials are looking cautiously at projected revenues for this year, they have not made any cuts.

Wenlin Liu, senior economist with Wyoming's economic analysis division, told the Associated Press in October that his state is especially strong, thanks to a government that derives two-thirds of its revenues from the energy industry. Wyoming's general fund has grown threefold this decade, Liu said, and home price appreciation there is second only to Oklahoma's. Even the construction sector is growing, thanks to state spending on public works.

First Interstate Bank's chief consulting economist, Lee McPheters, predicts the state will continue to outperform the nation with stronger job growth and lower unemployment rates.

"In spite of all the hype about how weak the U.S. economy is, so far the current downturn is milder than the recessions of 1991 and 2001," McPheters said in October. "We should be concerned that the national economy has lost jobs in the first half of the year," he said, "but average monthly job losses so far are well below what we saw in the past two recessions."

Wyoming will not completely escape the housing problems affecting the rest of the nation, McPheters added, predicting new housing permits this year will be down by as much as 20 percent from levels of last year. However, the construction sector is still adding jobs in Wyoming, while construction employment is down by more than half a million jobs nationally.

McPheters projects growth of 8,000 new jobs in Wyoming during 2009.

"This is solid performance when the rest of the country is likely to be in recession," he said.