Stimulus-funded highway work set
Highway construction companies are submitting bids on bridge and highway repair projects in MDOT's eight-county Grand Region, work that will be paid for with $90 million from the American Recovery and Reinvestment Act. An additional $13 million in federal stimulus funds will be spent on transportation infrastructure by local governments within the Grand Valley Metro Council.
At the same time, the Michigan Department of Transportation revealed in early June that the shortfall in state funding has forced the indefinite postponement of 137 highway projects statewide, which had been targeted for completion from 2009 through 2013. The shelved projects have a total estimated cost of $749 million, of which $576 million would have been federal matching funds.
MDOT Director Kirk Steudle said the state gasoline tax isn't generating sufficient road repair revenue because of the decline in gas consumption.
Representatives of the highway construction industry say the ARRA-funded projects are very welcome, but are not a long-term solution to a very weak industry in a very weak economy.
"This (stimulus) package is really just helping to sustain jobs that may have otherwise been lost," said Michael A. Nystrom, vice president of government and public relations at the Michigan Infrastructure & Transportation Association.
"The thought that it's creating new jobs really isn't the case. It's helping companies to limp along until times get better," he said.
Two of the largest ARRA-funded MDOT projects in West Michigan are reconstruction of I-94 at Kalamazoo and I-196 in Grand Rapids, both of which will begin in the summer or fall. The Kalamazoo project has been contracted and will cost a total of $43 million, according to Nystrom. A contract for the Grand Rapids project has not yet been awarded but is expected to come in around $40 million, according to Dennis Kent of the MDOT regional office in Grand Rapids.
The ARRA infrastructure projects, which do not require any state funding, "will fill a void right now, because there's not a lot of other work out there," said Kurt Poll, president of Kamminga & Roodvoets, one of the largest excavating companies in West Michigan focused on heavy construction/highway construction.
Poll said the weakness in other critical areas of the U.S. economy, such as new home construction and commercial development, is hurting the infrastructure construction industry.
"What's impacting us are the guys that used to build residential plats" and prepare sites for commercial construction projects, said Poll, adding that there is "virtually none (of that work) out there. So what they're doing, they're jumping to this municipal (roads) and MDOT market."
"We used to bid against maybe an average of six bidders on a DOT job," added Poll. "I'd say the average now is more like 14. So, obviously, that's a squeeze on prices and profit margins."
Kamminga & Roodvoets, which was founded in 1956, is based in Michigan but also does work in Florida. Both locations are bringing in substantially less revenue than in the recent past; Poll said they used to bring in about $25 million a year in Florida and about $50 million in Michigan.
"We've laid off probably 25 to 30 percent of the people that we had last year," said Poll, noting that his company now employs about 120. "And I think we're on the fortunate side: We've got more work than our competition does."
Keith Rose, president of paving company Reith-Riley, said he appreciates the projects funded by the federal stimulus package, but noted "they really are not creating new jobs per se," but rather are preserving jobs that already exist.
Rose said the federal stimulus "was portrayed as a huge infrastructure vehicle." In reality, he said, only about 5 to 10 percent of the stimulus package is really going to infrastructure throughout the U.S.
"It's a short-term Band-Aid, particularly for the state of Michigan, with our funding situation," added Rose, mentioning the shelving of the 137 highway and bridge projects MDOT had targeted in its current five-year construction and resurfacing plan.
Rose said Reith-Riley employment has dropped more than 20 percent compared to last year.
Rose said Michigan needs "some kind of funding mechanism" for infrastructure, noting that in today's economy, tax increases will be "a tough sell."
"Folks need to be educated," he said. "The need is definitely there. … If the state does not come up with a federal match for these next several years, the (bridge and highway) program dips so low that there won't be a highway program."
"It would have been a very lean, very bad year for road construction in general, had not the federal stimulus gone into effect. It would have been very dire, indeed," said Steve Waalkes, director of engineering for the western Michigan region of the Michigan Concrete Paving Association.
Waalkes said the ARRA funds are "a shot in the arm," but said he fears that, with the state budget crisis, "in the next couple of years, it's going to drop way back again unless there's some changes at the state and federal level."
"It's been on a downslide the last couple of years, due to the fact that the gas tax is a flat per gallon rate," compounded by lower gas consumption and "not much growth in Michigan," said Waalkes.
The first federally stimulated highway reconstruction job to start in the MDOT Grand Region is resurfacing of M66 in Ionia County, according to Kent, an MDOT planner. The Grand Region includes Kent, Ottawa, Oceana, Muskegon, Newaygo, Mecosta, Montcalm and Ionia counties. M11 in Grand Rapids from Division to Kalamazoo Avenue will be rebuilt, at a cost of around $3.6 million. M45 in western Ottawa County will be resurfaced, at a cost of about $2.5 million. Improvements on M46 in northeast Muskegon County will cost about $2.8 million in federal funds; that project will convert the dangerous intersection of M46 and M37 into a roundabout.
"The big work" in the Grand Region, said Kent, will be reconstruction of I-196 through the middle of Grand Rapids, from the Grand River east to Fuller Avenue. That project, which will probably start this fall, will be a complete reconstruction, with the addition of a third lane in each direction.
Poll said peak years for Kamminga & Roodvoets were back around 2004, when it had about 250 field employees and was a contractor on the then-new M6 expressway.
"When that work finished, we've kind of been on a decline ever since," said Poll.
Nystrom of MITA noted that the reconstruction of I-94 at Kalamazoo was estimated by MDOT to cost around $48 million but "the bid came in at $43 million." The prime contractor is a bridge construction firm from the Detroit area.
Poll said several factors were probably keeping the bids low.
"Obviously, prices are down because a lot of (contractors) are working for zero profit margin, just to keep people employed, trying to keeps things going. We've also seen some raw materials go down drastically" in price, he said, citing PVC — which is made from petroleum — and other materials such as steel and concrete.
"All things get passed along to the final price," he said. "So it's not just contractors working cheap; it's guys selling you materials cheap, as well."
With oil prices beginning to rise again, that "will start putting pressure" on commodity prices, he said.
World oil prices, in particular, "make it tricky with some of these jobs," said Poll.
Recently, he said, his company bid on an infrastructure job on Leonard Street in Grand Rapids that won't start until April 2010 — not knowing what they will have to pay then for diesel fuel for their heavy equipment.
"It's all our problem," said Poll. "If it's six bucks a gallon or two, it's all our problem. So you have got to have a little courage when you're bidding those jobs."
"If we don't get an economy that kicks in and produces some of the work these (contractors) were doing before — commercial sites, home development — what happens when this money runs out?" said Poll. "It's great to have (the stimulus funding) now, but I'm worried about what two years from now brings."