Construction firms buckling down in wake of decreased road and bridge work funding

The construction on the I-395 bridge over the Penobscot River is seen in November 2011.
The construction on the I-395 bridge over the Penobscot River is seen in November 2011. Buy Photo
Posted Dec. 14, 2011, at 6:15 p.m.
Last modified Dec. 15, 2011, at 12:03 a.m.

Maine construction firms are bracing for a lean future as overall funding of road and bridge work is set to drop by about a third entering the new year.

According to numbers from the Office of Fiscal and Policy Review, Maine invested $582.9 million in roads and bridges in the 2010-2011 biennium. In the 2012-2013 biennium, the state is planning to spend about $200 million less in state and federal funds.

The change in funding definitely will be felt in the construction industry.

CPM Constructors in Freeport keeps a core work force of 100 over the winter, ramping up to more than 180 when the construction season starts back up in the spring.

In 2012, however, CPM anticipates only bringing on about 20 extra workers, because planners expect less work on Maine’s roads and bridges.

“The DOT in Maine is focused on doing what they can with the money they have, but we’re probably looking at volume down, employment down pretty well across board,” said Ouellette. “We’re not expecting a very busy year next year — you’re talking 60 people less, based on the volume.”

That’s a common story at Maine construction firms, said Ouellette.

In recent years, funds for road and bridge work in Maine have been relatively plentiful, with the state’s highway fund supplemented by general obligation bonds approved by lawmakers and voters, federally backed bonds and a big boost from federal stimulus dollars.

But in the last legislative session, any bond proposals aimed at road and bridge work were unsuccessful in an anti-borrowing political environment, and the state declined to issue any of those federally backed bonds, called GARVEEs. The state also got rid of a fuel-tax index, which linked the tax to inflation and provided an automatic increase every year. The Maine Better Transportation Association estimates that move will cost the highway fund about $5 million in the 2012-2013 biennium.

Funding and transportation construction projects are in a pipeline sort of continuum. The top year ever for funding of transportation construction in Maine was in 2010 due to state bonds and federal funding, said Bruce Van Note, deputy commissioner of the Maine Department of Transportation, with more than $400 million in projects. He called it “a capital year on steroids.”

And while the 2011 construction season still benefited from higher levels of funding than in the past, it was down about 18 percent compared with funding from 2010, Van Note said — not unexpected, given the high levels in 2010.

“We’re using that money very well; we’re stretching that dollar,” said Van Note.

Overall, the public and private construction markets are down, said Ouellette. So more contractors are bidding on the public jobs that are out there and they’re cutting their profit margins in order to keep their core work force employed.

Some construction companies will go out of business, unable to keep going in this market, said Ouellette. And the bust-boom cycle of construction work in the state will drive more and more of the workers away from that sector as they look for stability elsewhere, he added.

“In the long run, that hurts the state. The reality is the state needs to constantly upgrade its roads, fix bridges, build new ones to help grow,” said Ouellette. “If there’s not going to be skilled people around to do that, it’s going to cost more money in the long run.”

Van Note said he sees the same thing. At bid openings where there used to be four or five bids, there are now up to a dozen. The bids are coming in low with the increased competition, and that’s keeping the department’s costs down, said Van Note.

“No questions, the [contractors] are bidding very aggressively,” said Van Note. “It’s good for travelers; it’s probably not sustainable long-term.”

At some point in the next few years, he explained, construction work in the private sector will return. Once construction rebounds, the contractors will have more work and will increase their profit margins on bids on public jobs, Van Note said.

In 2010, Maine put out bids for more than 936 miles of highway projects, about 11 percent of the entire state highway system, and 73 bridge projects. In 2011 that dropped somewhat, with 855 miles of highway projects, a drop of 8 percent, while dollars spent dropped 17 percent, Van Note said. Bridge projects dropped to 42.

The department doesn’t yet have final numbers for 2012, said Van Note.

“But based upon our current expectations, our customers can expect the following production trends: Compared to 2011, the number of miles improved and dollars spent on highway improvements in 2012 will stay level, and may even increase slightly. Bridges will be down to historic levels, with the number of projects down about 25 percent from 2011, and the amount of bridge funding down about 50 percent,” he said.

Van Note expects 2013 to be similar to 2012. But by 2014, capital funding is projected to be substantially less, he said.

“Without new sources of funding, 2014 capital production could be historically low,” he said.

John O’Dea, CEO of Associated General Contractors of Maine, said the state may be keeping up in miles, but the vast majority of the work being done isn’t full reconstruction work to replace aging roads.

“There’s a lot of self-congratulatory back patting over number of miles touched by the program,” said O’Dea. “The reality is we’re doing a whole lot of skinny mix, and not a whole lot of construction. Skinny mix is surface maintenance, the equivalent of a homeowner sealing a driveway.”

Van Note said he understood that argument.

“They’re looking for more dirt jobs, big reconstruction — and I understand that,” said Van Note. “But it’s our job to take the dollars provided and stretch them as far as we can. One of the ways we’re doing it is lighter treatment on more miles.

“If I’m a traveler — and they’re the customer — they’re seeing smooth roads.”

Groups advocating for increased spending on highways and bridges, such as the Maine Better Transportation Association and AGC of Maine, charge that the state is underfunding the work now and will pay for it in the long run.

Federal funding isn’t increasing, said Maria Fuentes, executive director of the MBTA. And on the state level, “we have a majority party that’s not going to support a revenue increase, and some don’t want to pass a bond,” she said.

“I kind of think we’re asking the department to do an impossible job,” said Fuentes. “We’re asking them to hold together our road and bridge system, but not look ahead to some of the big problems.”

If the state won’t increase taxes to support roads and bridges and won’t borrow through bonding for long-term projects, the only option left is to shift priorities, Fuentes said — taking money from one part of the General Fund and moving it to the transportation fund. That’s a monumental challenge in a state budget that’s already squeezed, with proposals on the books to cut funding for state health programs.

In the last session, Gov. Paul LePage’s administration looked for a $20 million one-time transfer that did just that. Lawmakers shot that down, instead putting in a biennial $3 million ongoing transfer into a multimodal account, said Van Note.

Fuentes noted that Maine used to dedicate 26 percent of all state revenues to transportation; today that’s at 10 percent. On average, states use 17 percent of their General Fund for their transportation budgets, Fuentes added.

There is talk again of bond packages to be debated in the upcoming session, said O’Dea.

“There’s been discussion about a package in the $50 [million] to $75 million range. The reality is according to the best numbers, we have underinvestment annually of give or take $200 million,” said O’Dea. “If you’re running that kind of shortfall each year, which compounds itself, it’s difficult to stop the bleeding with a $50 million bond package.”

There are about a half dozen bond proposals in front of the Appropriations Committee dealing with transportation; two deal with roads and bridges, according to Speaker of the House Robert Nutting’s office.

“In the past, I have occasionally supported bonds for long-term improvements like roads and bridges, provided we have the money available in the budget for the payment of debt service,” Nutting said. “When the time comes, I will be happy to consider the current bond proposals and whether we have the financial means to support them.”

Rep. Emily Cain, D-Orono, the House minority leader, said the slowdown in infrastructure investment in 2011 was “moving backward by standing still.” The state should have done more, Cain said, and she wanted that to happen in 2012.

“You can’t drive anywhere without noticing, from the vantage point of your own car, that we have work to do on Maine’s roads,” said Cain.

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