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What The Stimulus Plan Means For Construction

By Jeff Kimball, President and CEO, L. Robert Kimball Associates. The new federal Recovery and Reinvestment Act is designed to help halt and reverse the nation's current economic downturn, and its focus on infrastructure spending could mean a boost for the construction industry, although it will be far from a complete solution.

March 16, 2009

By Jeff Kimball, President and CEO, L. Robert Kimball Associates.

The new federal Recovery and Reinvestment Act is designed to help halt and reverse the nation's current economic downturn, and its focus on infrastructure spending could mean a boost for the construction industry, although it will be far from a complete solution. The stimulus plan extends broadly across a range of infrastructure, including highways, bridges, mass transit, federal buildings, public facilities, water projects, rail systems, a smart electricity grid, science research structures, broadband Internet access for rural areas, superfund waste site cleanup, and school buildings.

In looking at the $900-billion program considered by the Senate in February, actual construction projects could be earmarked for up to $160 billion according to some estimates — but that's still a significant number. Add to that the construction loan guarantees built into other sections of the act, and the stimulus for construction may be considerable.

One of the largest proportion of funds is designated for highways ($30 billion in the initial proposal), and significant amounts are available for school construction and improvements as well ($17 billion). The loan guarantees are provided under a section allocating $430 million in new loan funds to the Small Business Administration, dollars that could lead to capital projects.

Much of the plan's emphasis is on improving energy efficiency. Grant money for this purpose approximates $2 billion for federal buildings and another $1 billion for institutions. Furthermore, some $15 billion allocated for schools carries a provision encouraging its use for energy savings.

Of greatest importance, however, may be the tax breaks. The legislation offers nearly $300 billion in tax cuts, credits and incentives, any and all of which may help the construction industry, especially in the arena of alternative energy facilities. Moreover, construction firms are expected to benefit greatly from the change in tax-loss carryback, allowing them to gain tax credits for past losses over more years.

The act purposely excludes some types of construction projects, however. Communities won't find much in the plan for their local public buildings unless they are tied to public safety and public safety communication or meet the requirements of the government services aspect of the stabilization component of the bill. Water and sewer projects are included in a separate section of the act. It will be up to the states to decide what they will fund under the legislation's provision for "public safety and other government services."

Also by intent, the program incorporates only projects anticipated to be substantially contributing to the economy over the next year and a half. It requires that 78 percent of the money be committed by October 2010. For public infrastructure, 50 percent of all funds must be committed within 120 days of the act's signing — a use-it-or-lose-it provision. If funds are not committed within one year, agencies must turn back the unused portion of the first 50 percent.

The funding is designed to be pushed out rapidly — within 30 days to the states and, from there, within another 30 days to local government units. In many instances, such funds for transportation, transit and education will be sent directly from the federal coffers to the states and then to school districts, water districts and other local bodies. In other cases, existing federal organizations will administer new programs. For example, the rural extension of broadband will be handled by the National Telecommunications Improvement Agency (NTIA). In every instance where formulas currently exist for allocation of federal funds, the stimulus dollars will be allocated in compliance with those formulas.

A complicating factor is that all formula grants must be awarded within 30 days after enactment of the legislation, and competitive grants within 90 days after enactment. This timeline favors shovel-ready projects, and committing the necessary 50 percent of funds within the 120-day limit will be a hectic process.

Construction companies will need to bid at the local level for contracts and be prepared to engage in a more intensive design/build procurement effort. Those with open-end contracts with government agencies will have a big advantage, since such arrangements will help get shovels in the ground faster.

Ultimately, all this stimulus should prime the pump for jobs, job stability and consumer spending and have a long-lasting impact on the construction industry. This is a once-in-a-lifetime opportunity, so construction firms should get to work now on coordinating with their clients and ensuring they have all their resources in place for a fast start toward a better future.

Editor's note: All information in the above article was current at deadline. Jeff Kimball is spearheading industry awareness of the federal stimulus plan at www.reengineer-america.com.

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