In the wasteland of the New York region’s slumping construction market, K-12 public schools were the oasis sustaining contractors, designers, and others as work dried up elsewhere.

“Thank God for the schools,” says Tom Rogér, vice president for Gilbane Building. “It maintained some level of consistent activity through the recession.”

The plodding finance process for school construction had set up several years’ worth of projects as the recession deepened. “Last year, there was still a significant amount of new construction going on, because those were projects approved three years ago,” Rogér adds.

But the downturn’s ripples have begun lapping against the schools market. A combination of less available funding and rabid contractor competition are putting pressure on the sector, and leaving contractors and designers feeling much less confident about what’s next.

“There wasn’t a backlog sufficient to keep anyone to a great degree busy, especially as you have projects that are winding down and not a substantial amount of new work,” says Darlene Regina, executive director of the Building Contractors of New Jersey. Now, a sweeping review of state school funding and a lack of appetite by local districts to finance projects have stalled the sector’s momentum, she says.

In Connecticut, local bond referenda that voters rejected in two school districts in June reflect a gloomy outlook, says John Butts, executive director of the state’s Associated General Contractors. “There’s a reluctance to borrow,” he adds.

In New York, too, school boards have little leeway to get capital funding approved, says Jeff Zogg, CEO of the Associated General Contractors of New York State. “This is not the hot market it has previously been,” he adds.

The bright spot may be in cities that are still funding big capital programs either to keep up with growth, as in New York City, or to restore decayed districts as in Buffalo, Rochester, and Syracuse, N.Y., or New Haven, Conn. “Fortunately, you have those exceptions,” Zogg says.

Basic Math

The strains in the school construction market are hardly surprising. As one of few active sectors, contractors came in droves.

“There has been a tremendous amount of new contactors into the public sector that before had focused on the private and commercial [sector],” says Steve Tartaro, vice president of construction for Leon D. DeMatteis Construction of Elmont, N.Y., one of a handful of longtime regional school contractors. Despite its average of several New York City school project wins each year, Tartaro says the firm won none of the last five bids – each one going to a different bidder.

BUTTS

LARKINS

“That’s just the result of a lot of these new contractors coming in,” he adds.

More bidders translate into aggressive pricing, says Gilbane’s Rogér. “It drove the fees down significantly,” he adds. “Bids at the trade contractor level have been 20% below what the estimated budgets were. For the owner, it’s a bonanza.”

Indeed, the competition is “the one silver lining that we have in this economy,” says Ross Holden, vice president and general counsel for the N.Y.C. School Construction Authority (SCA). “We’re hoping that some of the firms that never worked here before will stay with us.”

But that scrum of bidders also has come as work volume has lightened, Tartaro says. The main culprit is a lack of funding at the local level.

Smaller districts have hit the brakes hard, Connecticut’s Butts says. “There are a few new schools here and there,” he says. “But a lot of school districts are renovating and just maintaining their current facilities until they can get through this rough spot in the economy.”

Even some districts hoping to cobble together enough local funding to tap into Connecticut state school aid are faltering. In early June, voters in the Berlin district voted down a bond referendum to launch an $83 million high school renovation, and their counterparts in Rocky Hill rejected bonds for a $91.9 million plan to renovate and build new elementary schools.

Fewer local districts have applied for state aid in recent years, says David Wedge, who this summer was retiring from his post as chief of the state Department of Education’s Bureau of School Facilities. He says that in last year’s application cycle, districts submitted only 29 projects worth $615 million overall – $420 million of it funded by the state – for a level below past years where the total tab was as high as $1.9 billion.

In New York, the state education department in recent years had doled out an extra pool of school construction aid to local districts, but activity from that initiative is waning and local school boards are pulling back, says Tom Robert, associate architect at the agency. “Most districts have used their allotment,” he says. “We’re seeing a bit of a slowdown.”

And in New Jersey, state funding for future projects is on hold as Marc Larkins, the new CEO of the New Jersey Schools Development Authority (SDA), initiates a review of the agency’s current $12.6 billion capital plan, which has 12 active projects valued at $511 million.