Financial Services
A Public Spending Spree
By By Niki Stojnic and Leslie D. Helm April 15, 2009
When the housing boom of the 1920s ended with the Great Depression, Washington state, dependent as it was on the timber industry, suffered far worse than the rest of the country. As part of the New Deal, the United States government invested huge sums to erect dams and to build an expansive transmission grid. The…
When the housing boom of the 1920s ended with the Great Depression, Washington state, dependent as it was on the timber industry, suffered far worse than the rest of the country. As part of the New Deal, the United States government invested huge sums to erect dams and to build an expansive transmission grid. The enterprise created thousands of jobs and laid the foundation for the regions current success, including an aerospace industry dependent on the energy-hungry process of smelting aluminum.
Todays housing collapse hasnt led to the massive unemployment of that era, but with credit tight and companies and individuals holding back on spending, public investment has once again emerged as a crucial component of the economy.
Under the American Recovery and Reinvestment Act, Washington state will receive from $7 billion to $10 billion in federal money this yearthe exact amount will depend on the states success in competing for grantsto spend on everything from roads and transmission lines to social programs, research and new energy. The money, combined with state funds already budgeted for public works projects, will create new jobs and help reduce the damage to the state from the worst downturn in the global economy since the Great Depression.
Although the stimulus wont be able to stop Washingtons economy from shrinking this year, says Arun Raha, the chief economist for the state, it can reduce the severity of that decline. The federal fiscal stimulus will create or save 75,000 jobs in the state of Washington, he says. Without the stimulus, the job losses would have been more severe.
Skeptics say the stimulus will not have as dramatic an impact as might be expected because much of the money will be used to backfill a state budget deficit estimated to be as high as $9 billion through 2011, the result of a sharp decline in revenues collected through sales and business taxes.
But at times like these, when new private investment has all but ground to a halt, public spending can play a critical role in keeping the economy humming. The most immediate impact will come from the more than $2 billion in federal money Washington will receive to fund Medicaid, education and other social programs where shortfalls might have otherwise led to significant job cuts. Saving a job is just as good as creating a new job, says Seattle economist Dick Conway.
But infrastructure projects could have a more powerful impact on the economy long-term by both creating new jobs and boosting economic productivity. Take road building, for example. It creates lots of construction jobs and boosts demand for machinery, steel, asphalt and concrete. At the same time, it improves the long-term efficiency of our economy by cutting maintenance costs and reducing time wasted in traffic congestion.
After years of neglect, state spending on highway construction will reach a peak just when the economy needs it most. The state will spend close to $4 billion on hundreds of road and bridge projects during the next two years, starting July 1, several times what it spent just a decade ago. Among the many multibillion-dollar projects in the works are the State Route 520 floating bridge, the Alaskan Way viaduct replacement, a north Spokane corridor road and a new bridge across the Columbia River.
Although much of the money will come from gas taxes, new bridge tolls and previously allocated federal funds, the state is also receiving as much as $500 million in stimulus money for highways and bridges, and will be able to apply for an additional $1.5 billion in competitive grants that will be allocated by the end of May.
Those projects will provide important direct stimulus to the economy. But they could also have an indirect effect. The State Department of Transportation will identify its projects with Washington JOBS NOW signs at work sites, which are intended to provide the additional ripple effect on the economy by starting to rebuild confidence in people who drive by and see things happening, says Paula Hammond, the states Secretary of Transportation.
Public transit construction will also get a big boost. The federal government will finance $813 million of the $1.9 billion cost of extending Sound Transit light rail service from downtown Seattle to the University of Washington; construction of that project began earlier this year.
A QUICK START
To have the maximum impact on the economy, the Obama administration is requiring that many of the projects receiving stimulus money be launched by July. Public organizations are not accustomed to moving so fast, and it is unclear whether the speed could lead to waste.
Hammond is confident the state will spend the money efficiently. This is a dress rehearsal for the re-authorization of the [federal] Highway Act this fall, says Hammond. We have to show that transportation dollars can be spent wisely. We have to show it can be important for the nations economy.
Fortunately, in todays weak economy, public spending can pay for a lot more. We need new schools and we need new roads. Its inexpensive to borrow, and the construction environment is great, says Richard Schober, managing director of Seattle-Northwest Securities (SNW), which has financed many public works projects in the region during the last 38 years. You can build for half the money you would have paid three years ago.
When the Puget Sound Regional Council first put a call out for city and county wish lists for projects that could be funded under the stimulus plan, there was a flood of proposals ranging from transitbus replacement, maintenance and acquisition and ferry terminal upgradesto roads projects, including Seattles South Spokane Street exit from State Route 99 and Redmonds Northeast 36th Street Bridge.
The council regularly manages the distribution of federal funds for infrastructure projects. Rick Olson, director of government relations and communications for the council, says he had a $4 billion list of local projects for which he could allocate only about $78 million for highways and another $136 million for transit.
One key to economic recovery is to improve the efficiency of metropolitan areas that are engines of growth for the state. As one of the countrys 15 gateway communities, Seattle, with its emphasis on energy conservation, transportation and building a dense urban core, can help urge the Washington economy back to health, says Maureen McAvey, executive vice president of the Urban Land Institute. Seattle is well positioned, if you take advantage of the opportunity. An Environmental Protection Agency study of urban market share noted that Seattles urban core residential construction increased to an average of 18 percent between 20022006 from 11 percent for the period 19901995. In 2007, that share was 26 percent, a dramatic reshaping of the citys transportation and energy needs.
To that end, the Puget Sound Regional Council will focus stimulus money on transportation projects that link urban and manufacturing/industrial zones. We have this goal of matching stimulus funds with projects that can provide a foundation for future prosperity, says the councils Olson. In Seattle, the Spokane Street project is key to the Duwamish manufacturing and industrial center, connecting that to downtown Seattle and the ports. In Redmond, the highest-ranked project is the Northeast 36th Street Bridge, connecting Microsoft commuters to the transit center and East Lake Sammamish Parkway. The Port of Tacomas Lincoln Avenue grade separation project is a priority, says Olson, because the Port is really a jobs engine for the City of Tacoma and Pierce County.
BUILDINGS AND ENERGY
Roads and transportation are just one part of the overall public works investment. Buildings are another. MacDonald-Miller Facility Solutions has 11 public projects currently in the works totaling about $10.4 million; these projects include contracts with the King County Library System, county administration buildings and Bonneville Power. The biggest is an $8.5 million contract for the Bachelor Enlistment Quarters at the U.S. Navy base in Bremerton.
Another local firm, McKinstry, led by CEO Dean Allen, was cited by President Barack Obama during his campaign as a leader in sustainable building practices, is well-positioned to take advantage of efforts by the federal government to boost the energy efficiency in federal buildings across the country.
Research is another beneficiary of the governments largesse. With the National Institutes of Health (NIH) receiving a big boost in its budget, Washington should get an increase in research money, which may help to offset pressure for cutbacks at the states research institutions, changing what Susan Adler, executive director for the Northwest Association for Biomedical Research says has been a challenging situation in recent years.
Like many of the infrastructure funds requests around the state, NIH will spend stimulus funds on scientific research grants that were previously peer reviewed and just below the cutoff for acceptance. Researchers will also have to demonstrate their impact to the local economy, local job preservation and creation, and ability to make reasonable progress in two years, when the funds expire.
Another major investment will be nonprofit utility Bonneville Power Administrations (BPA) effort to upgrade its power grid. Wind is already generating about 2,000 megawatts of electricity along the Columbia River Gorge and east of the Cascade Mountains in Washington and Oregon, where gleaming white windmills have become ubiquitous. An additional 4,700 megawatts of capacity are expected to come online in the next several years. But wind power is scarce west of the Cascades because the BPA doesnt have enough capacity on its existing transmission lines.
The federal government has given BPA the authorization to borrow $3.25 billion for its projects, of which about 40 percent is likely to be spent in Washington state. The company plans to allocate $246 million to build the McNary-John Day 500-kilovolt transmission line, which the utility says will create about 700 jobs and come online in 2012.
Washington will receive another $574 million to boost energy efficiency and could have access to as much as $2 billion more in competitive grants for things like green jobs training, clean vehicles and energy research.
This is a big opportunity for Washington, but we can only seize it if we mobilize, says Ross MacFarlane, senior adviser at the nonprofit Climate Solutions. MacFarlane says government and business in Oregon have done a much better job of focusing on clean and efficient energy.
For all the money that will be poured into public works this year, state chief economist Raha still expects the economy will continue to shed jobs into the first quarter of 2010.
From an economic recovery point of view, the best scenario is one where the money is spent quickly and goes to those who are likely to respend most of it. That will give the biggest bang for the buck.
A Few of the Key Players
Here are some of the companies who that benefit from increased public works spending.
Graham Construction: A Spokane-based company with a $67.3-million contract for lowering the grade of U.S. 2, one part of the North Spokane Corridor construction project.
Pacific Northwest National Laboratory: A leading laboratory in energy and climate research as well as smart grid technology (which makes power transmission more flexible and efficient), PNNL is poised to generate jobs and benefit from new funding for energy research.
PCL Construction Services: Having completed parts of the Sound Transit Sounder commuter rail line, including the Lakewood station and the Tukwila track and station, the company will be working on the widening of SR 520.
Barrientos: This real estate and project development company has a reputation for developing public works projects such as Union Station.
McKinstry and MacDonald-Miller Facility Solutions: These two Seattle companies are likely to benefit from President Obamas plan to boost the energy efficiency of buildings across the country.
Top 10 Projects
State Route 520 bridge replacement and HOV program. Final design not determined, but construction of concrete pontoons began in 2009. Final bridge to be completed 2016. $4.56 billion$6.67 billion.
SR 99-Alaskan Way viaduct and sea wall replacement. Preliminary work begins in 2009. Construction on the tunnel to begin in 2011. $4.24 billion.
Sound Transit Link light rail from downtown to University District and Husky Stadium. Beginning 2009. $1.95 billion ($4.6 million*).
U.S. 395-North Spokane corridor freeway. A limited-access freeway improving traffic flow along the I-90 to U.S. 395 corridor; unknown completion date. $1.6 billion.
SR 104 Hood Canal bridge project, currently under construction. Completion by end of 2010. $470.9 million.
King County Department of Transportation. Replacement of 40-foot hybrid buses, to be delivered in 2010. $396.9 million ($45.9 million*).
City of Seattle. SR99 viaduct widening at South Spokane Street. $156.5 million ($15.4 million*).
Sound Transit. Diesel, compressed natural gas and hybrid buses for Snohomish, King and Pierce Counties. $258.3 million ($4.6 million*).
Bonneville Power Administration. McNary-John Day 500-kilovolt transmission line to be completed 2012. $246 million.
Sound Transit commuter rail service between Tacoma and Lakewood, to be completed by 2012. $215.9 million ($4.6 million*).
ESTIMATED TOTAL: 14.1 billion to $16.2 billion.
* Funding available for projects under the American Recovery and Reinvestment Act.