CAWP News Issue 1-10
AGC Responds to AP Story on Stimulus-Funded Highway Work
Ken Simonson, AGC’s chief economist, issued a statement earlier this week in response to an Associated Press story that looked at the impact of stimulus-funded highway projects on overall construction employment.
Simonson stated that the article’s fundamental assumptions are flawed because it is impossible to measure the impact of $4 billion by looking at overall employment figures for an industry that experienced a $137 billion drop in activity.
A more detailed analysis by Mr. Simonson is as follows:
Conflicting data, media reports and politicians’ assertions have spread a great deal of confusion about the stimulus legislation’s impact, or lack of it, on job creation in construction. The reality is that the American Recovery and Reinvestment Act (ARRA) – the “stimulus bill” – has enabled contractors to hire some workers and keep paying others who would have been laid off. But ARRA’s reporting requirements, which were supposed to add transparency, have actually added to the confusion.
For instance, the Federal Highway Administration (FHWA) reported on January 11 that $22.5 billion, or 85 percent, out of $26.5 billion available for highway projects had been obligated to a total of 10,248 projects in all 50 states, the District of Columbia and five outlying areas. That sounds like enough money to create lots of jobs.
But FHWA also said that only $5.7 billion, or 22 percent of the total, had actually been expended. The gap between obligations and expenditures was even wider in some of the states with the largest amounts of ARRA highway funds. California had obligated 87 percent of its $2.5 billion but had expended only 8 percent. Florida had obligated 92 percent of its $1.4 billion and had spent 7 percent. Pennsylvania had obligated 99 percent of its $1.0 billion and had spent 23 percent.
An “obligation” means that a state has identified an eligible project and received approval from FHWA to advertise for bids. But months may elapse before the state completes its detailed plans, holds a bid-letting day, gives the winning contractor time to marshal its equipment, materials and staff, and issues a notice to proceed. Even after the contractor begins work, it may not need to hire new personnel until the project is well under way.
Apart from stimulus-funded projects, states and local governments have been slashing construction for highways and streets, along with other types of construction, to match spending with reduced levels of receipts. The Census Bureau reported on January 4 that total public spending on highway and street construction rose by $4.7 billion, or 5.7 percent, from November 2008 to November 2009, less than the amount spent on ARRA projects. (Timing and coverage differences make it impossible to directly compare the two figures.)
Although it may seem logical to ask contractors to report jobs created by ARRA, the lags between date of obligation and construction, as well as cutbacks in other work, will inevitably make it appear that the stimulus “isn’t working.”
The real impact is best captured by a model that takes into account not just the direct, onsite workers a contractor uses, but also two other sources of employment. First are the indirect jobs in industries that supply raw materials (such as quarries), finished goods and equipment (manufacturers) and services (such as architecture and engineering, leasing and accounting). But an even larger part of the impact is impossible to track without a model: the “induced” employment that is added throughout the economy as the workers and owners of construction and supplying businesses spend their additional income.
In 2008, AGC contracted with professor Stephen Fuller of George Mason University, a leading regional economist, to estimate the economic impact of $1 billion invested in nonresidential construction at a time of slack resources (such as now). He found each $1 billion supports 28,500 jobs of which approximately one-third are direct, onsite construction jobs; one-sixth are in supplying industries; and one-half are “induced” jobs.
Ultimately, the entire $135 billion of funds for construction included in ARRA should filter through into higher employment in construction and a host of other industries. Unfortunately, the “snapshots” taken by investigative journalists, as well as the reports filed by contractors will inevitably leave a lot of those jobs out of the picture.