Capitol Update 4/21/2023
President Biden Dismisses GOP Spending-Cut Proposal As “Wacko”
The Washington Post reports that on Wednesday, President Biden “rejected a Republican plan to slash government spending and raise the debt limit, assailing the proposals as ‘wacko’ notions that would cause a catastrophic government default.” The Post says, “Moments after Speaker Kevin McCarthy (R-Calif.) discussed the GOP plan on the House floor, the president stood in a Maryland union hall, insisting that Congress pass a stand-alone bill to raise the debt limit. … ‘We’ve never ever defaulted on the debt. It would destroy this economy. And who do you think will hurt the most? You hard-working people, the middle class, the neighborhoods I got raised in – not the super wealthy and the powerful, but working folks,’ Biden said.” The Post says McCarthy has “unveiled a plan to raise the debt ceiling into next year, slash federal spending by potentially $130 billion, and unwind some of Biden’s priorities and recent legislative accomplishments, including his program to cancel college student debt.” The AP reports, “At the union hall, focused on everyday voters, the president said that strictly limiting government spending programs could hurt a middle class that’s already struggling to afford basic needs. And demanding budget-cutting concessions in exchange for paying the nation’s debts is irresponsible, Biden said, declaring that ‘America is not a deadbeat nation.’” The AP adds that Biden “pointedly noted that the GOP congressional leader had kicked off the week by heading to Wall Street to outline his conditions for raising the country’s borrowing limit.”
CNBC reports that Biden, “speaking at the International Union of Operating Engineers Local 77 in Accokeek, Maryland,” compared “McCarthy’s plan to the words of other conservative leaders who opposed the move.” Biden said, “The speaker likes to quote his hero Ronald Reagan, who I knew when I was a senator, but he doesn’t quote everything Reagan said. Reagan said debt ceiling brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans’ benefits. The United States has a special responsibility to itself and the world to meet its obligation.” CNBC says Biden “went on to quote his predecessor, Trump, who expressed disbelief that anyone would use the debt ceiling in political negotiations. ‘I guess he didn’t know the new MAGA Republicans he bred,’ Biden quipped.”
Politico quotes Biden as saying, “That’s the MAGA economic agenda: spending cuts for working and middle class folks. It’s not about fiscal discipline, it’s about cutting benefits for folks that they don’t seem to care much about.” According to Politico, “The House GOP proposal would raise the debt limit by $1.5 trillion, or through March of next year – whichever comes first – ensuring Biden has to relitigate the issue with House Republicans before voters pick the next president.” But Politico says “actually passing the bill is likely to prove complicated,” and “rank-and-file Republicans aired internal frustration about the path forward during a closed-door conference meeting this week.” Politico notes that Biden and McCarthy “haven’t communicated on the looming debt crisis since February.”
Major Stock Indices Flat As Investors Mull Earnings Data
CNBC reports that the S&P 500 “finished little changed Wednesday as earnings season kicked into full swing and investors parsed the latest results from companies including Netflix and Morgan Stanley. The benchmark index inched 0.01% lower to settle at 4,154.52, while the Nasdaq Composite eked out a 0.03% gain to close at 12,157.23. The Dow Jones Industrial Average lost 79.62 points, or 0.23%, to finish at 33,897.01.” The AP and CNBC also report.
Banking turmoil stirs up new headwinds for construction
Signs point to decreased construction activity in coming months as financing costs for many developers have become prohibitively high, sources told Construction Dive. For example, increased interest rates are making construction projects more risky and less profitable, said Nicolas McNamara, director of project management at CBRE, a Dallas-based commercial real estate services firm.“ Increased financing costs remain a concern around construction.” said McNamara. “Developers are challenged with projects that simply are not penciling due to increased rates.” Recent uncertainty in the banking industry is compounding that issue for construction firms, he said. The impacts of those headwinds are already visible. Construction backlog decreased to 8.7 months in March, its lowest level since August 2022, according to Associated Builders and Contractors. Meanwhile, the Dodge Momentum Index, a benchmark that measures nonresidential building planning, tumbled 8.6% in March, a fall that Sarah Martin, Dodge’s associate director of forecasting, tied to banking insecurity. “Lending standards for small banks in particular have substantially tightened as banking insecurity intensifies,” said Martin. “As a result, owners and developers are more likely to pull back in the short term.”
Total crane count rises but commercial work dips
The overall number of construction cranes at work in major North American cities grew 7% in the first three months of 2023 compared to the third quarter of 2022, although cranes on commercial projects were down 20% for that same period, according to the most recent crane index from Rider Levett Bucknall. Of the 14 cities surveyed, eight experienced an increase in the number of cranes, two saw a decrease and four held steady. Despite labor concerns and economic uncertainties, “we are continuing to see new projects break ground within our 14 key markets,” the report reads. “We anticipate the number of cranes to remain high into 2023. Despite uncertain market conditions, construction projects will continue to break ground, albeit at a cost.”
Construction of single-family homes increased 2.7% in March compared with February, but that wasn’t enough to offset a decrease in the apartment sector, as construction of new homes declined 0.8% overall, according to federal data. Meanwhile, building permits declined 8.8%. Full Story: MarketWatch (tiered subscription model) (4/18)
With 14,184 units started last year, Summit Contracting Group in Jacksonville, Fla., leads the National Multifamily Housing Council’s list of the top 25 apartment builders. Alliance Residential in Scottsdale, Ariz., is second with 13,480 units, while Wood Partners in Atlanta is third with 10,650. Most builders on the list registered substantial increases compared with 2021.Full Story: Multifamily Dive (4/17)
Contractor gets 6 years in jail, nearly $1M fine in Caltrans bribery scheme
A California construction company owner has been ordered to pay nearly $985,000 and serve 78 months in prison for his role in a bid-rigging and bribery scheme aimed at California Department of Transportation officials to steer contracts his way, according to a Department of Justice release. Bill R. Miller, owner of Sanger, California-based BRM Construction, previously pleaded guilty to bribing a Caltrans official with more than $800,000 in cash, wine, furniture and remodeling services on his home to game the agency’s bidding process from 2015 to 2019, according to court documents in the case. Miller schemed with his former business partner, William D. Opp, and bribed former Caltrans contract manager Choon Foo “Keith” Yong to stack bids in their favor. Both Opp and Yong previously pleaded guilty to their involvement in the ruse, but Miller is the first defendant to be sentenced in the case.
Material prices are finally lower than a year ago
Construction input prices, or how much it costs to build a given project, fell for the first time in more than 18 months on a year-over-year basis, but were still 39% higher than February 2020, before the COVID-19 pandemic sent supply chains reeling. Both overall construction prices and nonresidential costs were down 0.9% and 0.6%, respectively, compared to March 2022, according to an Associated Builders and Contractors analysis. That’s the first time they’ve dropped annually since August 2020, said Anirban Basu, ABC chief economist. Still, costs inched up over the last 30 days. Overall construction and nonresidential input prices rose 0.2% and 0.4% in March, respectively, compared to the previous month. “The good news is that the latest producer price index data, which show broad-based declines in both goods and services prices, suggest that the expected 25 basis point interest rate hike at the Federal Reserve’s May meeting will be the last of the cycle,” said Basu. “The bad news is that this data indicates greatly diminished pricing power among wholesalers and others.”
Deconstruction, which entails reusing materials from old buildings, is taking the place of demolition in many locations as cities divert wreckage from landfills and as consumers seek bargains. Nonprofit Community Forklift has driven expansion of the deconstruction sector, which has tripled in revenue since 2008 and has grown to employ 14,500 people, says Brad Guy, an architect with sustainable architecture consultancy Material Reuse. Full Story: Reuters (4/18)
Industry groups have banded together to press the Senate as it prepares for hearings on ways to accelerate federal reviews and permitting in construction. The hope is that bipartisan legislation is produced and passed by the end of summer, with possible modifications to the National Environmental Policy Act. Full Story: Engineering News-Record (tiered subscription model) (4/18)
The National Work Zone Safety Information Clearinghouse says that more than 850 people died in work zone crashes in 2020 and that 40% of crashes from 2018 to 2020 occurred on interstates. The Biden administration aims to combat the issue by inviting local governments to apply for a slice of more than $1 billion from the Safe Streets and Roads for All program to make high-crash areas safer for construction workers.
$158B needed to fix risky dams
It would cost $157.5 billion to rehabilitate the nation’s 88,616 deficient non-federal dams, per a report released by the Association of State Dam Safety Officials this month — a sum that dwarfs the amount of federal assistance available to do so. The price tag to remediate just the most critical dams is estimated at $34.1 billion. Rehabilitation becomes necessary as dams age, technical standards and techniques evolve and downstream populations and land use change. However, many dam owners, especially private dam owners, find it difficult to finance costly rehabilitation projects. Deferring that upkeep can lead to disastrous failures. The federal Infrastructure Investment and Jobs Act includes funding for dam rehabilitation. However, the study indicates that the IIJA’s $4 billion investment over five years is not nearly enough to address even the most dangerous of dams.
Construction’s labor gap could bring a hiring evolution
This year’s spring construction season could see a change in how firms hire new workers. Despite January data implying the demand for construction jobs was slowing, the number of open positions for which contractors were hiring grew again in February, according to a report from Associated Builders and Contractors. So, contrary to how things looked earlier this year, construction’s labor shortage remains elevated. These renewed hiring numbers are an optimistic sign as the industry faces high interest rates, recession fears and “slow implementation of America’s infrastructure rebuilding program,” said Anirban Basu, ABC’s chief economist. Nevertheless, there simply aren’t enough people available to fill those jobs. In fact, a large number of firms opt to not bid on some projects, as they do not have the staffing to deliver the work, according to the Associated General Contractors of America. Contractors on the ground are seeing the same thing, and say that the industry has a healthy amount of projects, but little staff to deliver them. “In North Texas we are extremely busy,” said Keyan Zandy, CEO of the Skiles Group, a Richardson, Texas-based contractor primarily specializing in healthcare projects.