By Stephanie Johnston
You may find this difficult to believe, but economists credit infrastructure construction and maintenance with keeping the economy from a second helping of recession. So far.
Stimulus-funded road, water, and sewer projects had offset continuing declines in homebuilding to nudge total construction spending infinitesimally upward by the end of 2010.
But other forces were also at work.
Income and sales tax revenues increased, but states hung on to any additional largesse to meet balanced-budget requirements. Property tax revenues fell for the first time since 2003. Heading into 2011, employers faced the highest health insurance premiums in five years with an average 8.8% increase, according to consultants Hewitt Associates LLC in Lincolnshire, Ill.
In early November, we e-mailed readers our annual budget outlook survey. Their feedback regarding the cumulative impact of all of the above wasn't surprising:
—“We had a 2% decrease to offset employee benefit increases.”
—“Personnel costs will increase, so nonpersonnel costs are being decreased for a net zero.”
Even with a shot in the arm from the stimulus package, which included new financing tools such as the Build America Bond, in mid-2010 a joint National Association of Counties, National League of Cities, and U.S. Conference of Mayors survey reported that 60% of cities and 68% of counties had cut personnel related to transportation infrastructure, construction and maintenance, zoning, solid waste, and water and sewers. Though such cuts aren't unusual during recessions, they're deeper than in the past.
For which of the following is your department responsible? Check all that apply.
Prepared in support of the $75 billion Local Jobs for America Act, “Local Governments Cutting Jobs and Services” noted that 26% of counties were delaying road construction and maintenance compared to 23% in 2001. State highway spending, according to the Portland Cement Association, has dropped from 2.3% to 1.9% compared to 2.5% to 2.2% during the last recession.
Financial officers reported the largest spending cuts and revenue losses in the 25-year history of the National League of Cities' annual “City Fiscal Conditions” survey, with 87% reporting their community was worse off last year than in 2009. They expect sales and income tax revenues to decline 3.2% in inflation-adjusted dollars.
Although expenditures declined by 2.3% between 2009 and 2010, elected officials continued to press government employees for “efficiencies.” All of which added up to another year of difficult decision-making.
—“Cross your fingers that it doesn't all fall apart before we get back in the black. Expectations went up significantly during the boom with no countermeasures for addressing expectations during the bust. Elected officials promise better service and get elected because of the current reduced service, but their only plan is for us to deliver more with less.” (continued)
—“Senior management expects operations to continue at the same level despite budget cuts.”
—“We've been told to no longer touch a fire hydrant without billing the general fund. We've also been told the fund is in its largest deficit ever and there will be no new expenses processed. Catch 22.”
—“Voters rejected a 1 cent sales tax increase intended to fund transportation projects and maintain existing infrastructure. Unless another funding source is found or the economy picks up, we'll be hard pressed to fill potholes after 2012.”
—“Meeting our goals hasn't mattered when other departments aren't meeting theirs. We have to address this as a community of departments. Public works has been shoved to the back too many times.”
—“Unless the economy improves we'll be taking a hit in future years.”
IMPACT OF THE AMERICAN RECOVERY & REINVESTMENT ACT OF 2009
Editors' commentary
Haunted by the prospect of giving money back if they didn't award it all by the Sept. 31, 2010, deadline, states wasted no time spending their infrastructure-related allocations.
Some cities and counties began awarding projects almost immediately upon approval. But activity didn't kick into full gear until the third quarter of 2009, when the U.S. Treasury got into the groove of cutting and mailing checks. Once money began flowing, the construction market began reviving.
From March 2010 to April 2010, according to Associated General Contractors of America Chief Economist Kenneth Simonson, spending on public drinking water facilities increased 7.9%; public sewage treatment, 3.9%; and highways 3.6%. By August, stimulus-funded sewage and waste disposal construction was 19% higher than in August 2009, water supply construction was 5.2% higher, and street/road construction was up 0.9%.
By December, 83% of the $787 billion stimulus authorization was paid out. So while spending will continue this year, the program won't have nearly as profound an impact as last year. In fact, Portland Cement Association Chief Economist Ed Sullivan expects sewer and drinking water construction to decline 0.2% and 4.6% this year, respectively, and highway construction to increase 0.9% to $9 billion in 2011.
The exceptions are new grant and loan programs — such as the Energy Department's Energy Efficiency and Conservation Block Grant (EECBG) — for which a disbursement framework had to be developed. As of December, the agency had paid out 26.46% of its allocation. This makes it one of the stimulus' slowest implementers but not, according to the investigative Web site ProPublica, the slowest: Department of Homeland Security (19.35%), National Science Foundation (19.94%), Commerce Department (21.12%), General Services Administration (22.41%).
Most survey respondents are working on or plan to award stimulus-funded projects that revolve around making buildings, treatment plants, and streetlights more energy-efficient.
Survey respondent commentary
Water, sewer, and streetlight upgrades / SOME (1 TO 4)
Rail projects / A LOT (5 OR MORE)
Two road improvement and reconstruction projects / SOME (1 TO 4)
Road improvements/maintenance/repair / SOME (1 TO 4)
We're evaluating refuse collection routing / SOME (1 TO 4)
We're installing a fuel station so we no longer have to contract with a private company / SOME (1 TO 4)
Possibly for electric vehicle charging stations / SOME (1 TO 4)
Lighting, wind power / SOME (1 TO 4)
Building automation systems, HVAC and boiler upgrades, solar power / A LOT (5 OR MORE)
We're replacing 15 rooftop units on an expo center and adding an absorption chiller at a jail / SOME (1 TO 4)
We're finishing up our energy efficiency grant with boiler replacements / SOME (1 TO 4)
IMPACT OF THE ECONOMY ON CONSTRUCTION
Editors' commentary
God bless the Build America Bonds program. May it rest in peace?
Introduced with the stimulus package so cities and counties could continue borrowing despite the tight credit market, by last November more than $150 billion in the federally subsidized alternative to tax-exempt bonds had been issued. California, Illinois, New York, and Texas represent almost 20% of the activity, according to the Pew Center on the States.
With the program scheduled to end Dec. 31 and its future uncertain, The Bond Buyer reported that November was the most active month with $14.2 billion in sales.
Earlier last year, an extension looked like a shoo-in. But November's midterm elections ushered in influential opponents who could block such a move despite proposed concessions like lowering the federal subsidy from 35% to 28%.
Survey respondent commentary
Talk about missed opportunities. Competition's driven prices down; if funding were level we'd get 25% to 30% more work done for the same investment.
We're the poster child for anti-growth-in-government interests: a bond referendum for stormwater improvements went down 2 – 1, and proposed stormwater work is looked at for reductions despite Total Maximum Daily Loads.
Much of our capital is supplied by developers to mitigate offsite impacts of new construction. Development's down, so available capital's down.
Officials use the capital budget to balance the general budget.
Thanks to enterprise funds, no decrease anticipated.
Monies for vehicles, stormwater, and buildings were cut entirely, but road paving stayed the same and will be paid from the community's reserves.
The budget's roughly the same, but only because we didn't begin some projects last year. By the time the board made spending decisions it was too late in the fiscal year and what had been budgeted was rolled over into the next year. Thus, the “increase.”
We're selling off properties due to a downsizing.
Survey respondent commentary
2011 will be our first year of postponing projects.
Improvements have taken a hit for at least five years.
Nothing for expansion or upgrades, but we'll continue with rehab and replacement.
Outlays have been on hold for two years, but now that revenues are steady we expect to spend what's budgeted.
We've postponed most projects the past three years.
We've postponed a couple projects for two years but plan to do them in 2011.
Indefinitely, and there's no relief in sight.
Six to 12 years may become the norm.
Only the essentials are being funded.
Survey respondent commentary
Two years ago we postponed many projects by one to three years to meet revised budget estimates; current construction plans vs. budget look good.
We've juggled projects for two years. We'll suspend some work but continue with bond-funded items.
We're always reprioritizing as new information is uncovered.
One project was postponed five years until it became a risk and forced the decision to proceed.
Very little new capital work over the last four years.
We're still using bridges built in the 1800s! Instead of repair and/or replacement, we close them.
We plan on a year-by-year basis now.
IMPACT OF THE ECONOMY ON OPERATIONS
Survey respondent commentary
We'll probably be funded at the same level, but stormwater additions have to be absorbed and that equates to a reduction.
The increase won't cover increased materials and equipment costs.
We've prioritized to make maintenance No. 1 as budgets shrink so we don't end up with a huge reconstruction bubble.
The increase is due to inflation in things like labor and energy, not to accomplish more work.
A decrease only because 74% of operations are contracted out and annual cost adjustments came in lower than forecasted.
Survey respondent commentary
Predictive maintenance is being cut, which may reverse any advances we've made from reactionary maintenance.
As a rapidly growing community, we build new assets each year. But because operating costs are seldom fully funded, we have to reduce service levels to existing assets to care for the new ones.
At this time of year, we hear constituents are only interested in reducing, or not raising, taxes. Next spring I expect to hear they're equally interested in having roads patched. The budget simply won't allow for that.
Anything that can be postponed is being postponed due to officials' absolute opposition to raising taxes.
Due to budget restraints, we're unable to fill 20% of maintenance positions. This means we must reduce planned maintenance.
We're skipping a year of sewer pipe cleaning.
Increased maintenance expense is the only thing keeping us afloat.
We're trying to focus on core activities and let the rest — like litter picking and mowing — go.
More of our contracting portfolio is for maintenance than construction.
We've worked hard not to sacrifice short-term maintenance savings for larger long-term expenses.
We've been unable to impress upon the accountants that cutting maintenance doesn't save expenditures, it only postpones them.
We're way beyond doing more with less; we're doing less with less!
Web Extra
Would your community eliminate the public works directorship?
Results of our exclusive reader poll show it can happen.
Communities are looking everywhere for savings, including (so we've heard) eliminating the public works director and spreading out the responsibilities to other positions within the organization. Are your elected officials considering eliminating and/or merging the director of public works position with another? Have you heard talk of other communities doing so? Please feel free to share your thoughts on this strategy (don't worry: we don't publish any comments without contacting the respondent first).
- "Our director of public works, assistance director of public works, traffic operations manager, and engineering manager positions have already been eliminated. The engineering manager was also the county engineer so those duties were transferred to the supervisor of engineering design. The county is now in the process of combining the public works department with the real estate and development review sections to eliminate any duplication of services and further reduce staff."
Every November, we e-mail a questionnaire asking PUBLIC WORKS readers to share their operations and capital budget expectations for the coming year. Our annual "outlook" survey also poses one or two state-of-the-profession questions.
This year the issue was what you've read in the headline above (the full text is provided at the end of this article). A reader who'd heard neighboring communities were eliminating the "public works director" title alerted us to this potential trend.
Infrastructure represents the average community's single largest chunk of taxpayer-funded assets. While tempting from a salary-and-benefits perspective, eliminating this particular directorship endangers the assets and services that enable a community to attract revenue producers like new residents and businesses is dangerous. Because of the potential consequences, we suspected such drastic measures were among the final attempts to plug the gap between declining revenues and the cost of doing business.
But we weren't sure, so we asked you.
More than three-quarters of respondents had something to say about how their operation has been affected by the Great Recession. We divided their comments into four categories.
YES (19 responses). One way we categorize responses to our surveys is by EPA region. While affirmative responses came from all 10, Region 5 (much of the Midwest) and Region 9 (which includes financially strapped California and Las Vegas) were hardest hit.
Mostly, cities and counties get the position off the books by sharing the role with neighboring communities, consolidating public works with another function (usually engineering) to form a single department, or if the community's small enough, contracting it out.
Some respondents have seen strategies backfire.
- "We did this a couple of years ago and changed back to having a separate public works director. I doubt we'll try this again."
- "Such action would be counterproductive. A community needs a well-qualified public works director to help it through the lean times. In fact, because activity is decreasing, the positions that should be eliminated are administrative; i.e., purchasing, HR, and finance."
You're not a politician, but the position of public works director is political.
One or two respondents indicated communities eliminated the position to remove a long-term underperforming employee.
- "99% of the time these are threats to try to get action out of the director who's entrenched in the position, refusing to look at things differently, and officials are tired of "no."
NO (180 responses). "Sounds like a chicken without a head," wrote one respondent, which probably echoes what you're thinking.
Reassuringly, this was by far the most common response. In fact, some communities are hiring directors specifically to identify redundancies and restructure public works or implement expensive initiatives, such as an asset management system, that are expected to pay off over the long term through greater organizational and operational efficiency.
- "Our new city manager is reinstituting the conventional public works department structure and conducting a nationwide search for a director."
- "Our director just left. We're filling that position but not replacing our planning director."
Most communities, though, have already consolidated related functions - mainly engineering and water and sewer - under public works, or are about to do so. This cements the directorship's position by creating the community's single largest department.
Several communities have eliminated middle management and pushed responsibility upward.
- "We had two levels of directors (executive director and director) at the beginning of 2010, now there's only one (director). The executive director was eliminated due to redundancy as the position was basically a figurehead for our elected officials."
- "This jurisdiction combined public works director with city engineer by requiring a PE license for public works director."
While both tactics enhance job security, consolidating too much responsibility within a single position defrays that employee's ability to manage day-to-day operations, much less think strategically. Everyone suffers.
- "Our director's also wearing the hats of city engineer, and building and safety director. This is a huge amount of responsibility for one person and detrimental to other governmental functions."
- "A nearby community eliminated the positions of police chief, road foreman, and planning director, and spread those duties between a single full-time position and one new part-time employee. My leaders are paying a great deal of attention to how that works out, hinting that because I have 17 years of previous experience as a public works director, I could do that in addition to my current responsibilities."
- "We may merge the positions of public works director and city engineer. This won't hurt the department while the economy is slow. But when development picks up again, I'm concerned the staffing level won't allow for in-house review of developer plans with proposed public infrastructure."
Cities are sharing services and personnel (in at least one case, traffic engineer) with other cities and/or the county. (Looking into how well this arrangement works would make a great PUBLIC WORSK story; if you have any thoughts on the subject, e-mail [email protected].)
- "Based on retirement or resignation, the position of superintendent of public works in surrounding localities is now consolidated with a superintendent or director from another municipality, filling the two positions; for example, the city director of public works is also county highway commissioner and the town highway superintendent is also the village superintendent of public works."
NO, BUT ... (57 responses). When elected officials feel that further consolidation or trimming would compromise service levels and public safety, privatization and outsourcing make any government position potentially vulnerable.
- "All you hear now is outsourcing and shared services, so at some point you can only expect positions to be eliminated or consolidated."
- "I completed a privatization study that shows we could save hundreds of thousands of dollars if we let the private sector manage our business."
- "In 2010 all fleet maintenance (sheriff, parks, etc.) was outsourced to save funds. For 2011, talk is that IT departments around the county may also be farmed out or merged into one operation with fewer employees."
DON'T KNOW, DOESN'T APPLY (44 responses).
HOW TO AVOID (FURTHER) CUTS AND CONSOLIDATIONS. What can you do to ensure - as Indiana banker Carolyn McNeill terms it in The APWA Reporter, August issue - you become a municipal savior instead of a municipal scapegoat?
- "Over the years, we've streamlined to meet short- and long-term strategic plans. Because they're meticulously supported by detailed asset management and business plans, elected officials have in-depth knowledge of and have given their support to advance these efforts."
- "Focusing on long-term energy cost reduction, eliminating debt service, and asset management are more beneficial than reducing staff in a 24/7 field."
- "We're careful to fill only those positions that are critical to O&M."
- "There's more resource sharing - sign making, fleet services, loaning construction/heavy equipment - among neighboring cities."
- Stephanie Johnston PUBLIC WORKS Editor in Chief
