Worst Nightmare: The August 2007 collapse of the I-35W Mississippi River bridge in Minneapolis, Minn., left many wondering whether the nation’s aging infrastructure is a catastrophe waiting to happen.
TROUBLING OUTLOOK Just how many capital projects will ulti46
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mately be affected by the cuts is difficult to predict because conditions vary greatly nationwide. What’s more, the crisis is just beginning. So far, only the leading edge of the storm has started to hit municipalities’ budgets. Projects such as road improvements, water and sewer infrastructure, and new public buildings funded by bond money borrowed during housing’s heyday are moving forward. And, in an effort to stimulate faltering local construction markets and take advantage of bids that are lower because of the slowdown, a number of governments are fast-tracking already funded projects and even borrowing more money—by issuing bonds that are sold on the open market—to push other projects forward. Several governments, including Miami and Sarasota County, Fla., are actually issuing additional bonds to advance government infrastructure such as road improvements and other construction projects to stimulate the economy and take advantage of lower bid prices from contractors desperate for work. But cuts are inevitable for capital
DEVELOPER SEPTEMBER/OCTOBER 2008
STIMULUS PACKAGES There are, however, governments moving to counter the cycle—pushing projects forward and taking advantage of bids that are more plentiful and lower now that contractors aren’t as busy. Miami-Dade County, Fla., for instance, WWW.DEVELOPERONLINE.COM
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ects so we could get down to not increasing [property tax] millage and get to where our new revenue collections should be,” says James Lavender, Lee County’s public works director. To date, at least 29 states, including several of the nation’s largest and the District of Columbia, are already experiencing a combined revenue shortfall of $48 billion for fiscal year 2009, which began July 1 for most states. Plus, another three states— Missouri, Texas, and Washington—are expecting budget problems in fiscal 2010, according to the Center on Budget and Policy Priorities. [See “Growing Gaps” on page 48.] And those budget gaps could grow larger as the housing market continues to struggle. It’s an issue developers must watch closely, as cities can ill afford to pay top dollar to developers to improve existing roads and systems, let alone invest in new infrastructure that can help spur and support future growth.
projects slated to be paid for from the general revenue of governments more financially crippled by the downturn, officials across the country say. When revenues fall, governments hold tight to basic service budgets for police and fire departments, for instance, and postpone infrastructure improvements, according to Michael A. Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. “I do see a slowdown starting and intensifying in public nonresidential construction,” says Ken Simonson, chief economist of Arlington, Va.-based Associated General Contractors of America. “I think that two things are different in this [real estate] cycle. You have this really extreme increase in construction materials costs, and second you have the turmoil in the credit market that has continued really for a year now, so that has probably pushed up the costs of borrowing by municipalities beyond what you would expect in this cycle.” Unfortunately, public works spending cuts could be more prolonged than a typical real estate cycle. “The full weight of housing and pricing is just now becoming evident in most places and is going to play itself out for the next two to three years,” says Chris Hoene, director of the Center for Policy and Research at the National League of Cities, a Washington, D.C.based resource and advocacy organization for the more than 19,000 cities, villages, and towns it represents. “Until 2007 fiscal year, city finances were doing really great mostly because home prices were doing really well. But we are moving into an area where declines in home prices and declines in consumption are now hitting, and 2009 and 2010 are going to have the biggest impact on all public works. We always see a one- to two-year lag.”