The cumulative impact of market activity slowing and the new demands on construction industry firms is a general sense of uncertainty and unease, Rogér says.
“Everybody is holding their breath,” he adds. “No one knows when the market is going to come back, but the current level of profit and cost is not sustainable for the long term.”
Districts Leave State School Aid Untapped
The New York region’s tightening K-12 schools market traces to many factors, such as heated competition, bidding wars, and debt-leery local taxpayers. But one giant pillar of the market – the availability of large sums of aid from state-issued school construction bonds – is still mostly intact.
The catch, of course, is that New York, New Jersey, and Connecticut’s school construction aid programs largely require most local districts to pony up their share, usually dependent on the community’s wealth level and ability to pay, before tapping into the state’s pot. And when local districts can’t win voter approval for bond issues – evidenced recently in two failed referenda in Connecticut – the state money never materializes.
Of course, with local districts unable to tip the first domino, state programs are off the hook from tough decisions to cut back on aid. It’s not so clear the region’s deficit-wracked states would fund at historical levels if demand for the aid was present.
“That aid hasn’t been cut back in most states – yet,” says Tom Rogér, v.p. for Gilbane Building and its program director for a school rebuilding program in Rochester, N.Y. “But they’re starting to look at it.”
For now, local governments simply can’t supply their shares, with the exception of several cities, such as Rochester, that have gotten special enabling legislation for badly needed rehabilitation programs. “A lot of these governments have no capacity, and school construction is on hold,” Rogér adds.
While New York’s state aid program usually totals in the billions of dollars, it doesn’t have a cap of money available each year because it depends on what local districts can partially fund themselves, says Tom Robert, associate architect at the state’s education department. The state also funds part of New York City’s new $11 billion school capital program that got underway last year.
Connecticut’s state aid program similarly requires local districts to come up with voter-approved bond funding for their share before applying to the state department of education’s Bureau of School Facilities, which in turn determines the projects eligible to request funding from the state legislature. David Wedge, who was retiring this summer from the role of bureau chief, says even though the state has an intricate priority list, particularly to ensure funded projects are large enough and necessary, the legislators typically fund the entire slate his agency vets and submits.
But while the state is now funding 600 active projects, there has been a big drop-off in applications, with last year’s cycle ending up with only 29 projects valued at $615 million overall, with $420 million funded by the state – far shy of past year totals as high as $1.9 billion. And Wedge says while it’s too early to tally funding requests for the next cycle, he says “a preliminary review indicates there is a significant reduction in the total cost of proposed new projects compared to the list of projects recently approved by the Legislature.”
That may be just as well. Rogér says he has heard rumblings that Connecticut state might cap school aid at a certain level. And John Butts, executive director of the Associated General Contractors of Connecticut, says it’s not yet clear whether a recent downgrading of the state’s bond rating might lighten the appetite of state officials to supply uncapped aid.
The state with the least certain state school construction funding outlook right now is New Jersey, largely because the election of Gov. Chris Christie last year has led to a freeze on funding any new projects while his new head of the state’s School Development Authority reviews the current $12.6 billion capital program. That plan only has $4 billion left to borrow, and Mark Larkins, the new CEO, plans to report back later this year on how the state will revamp the program.
Opportunity Expands in Big City Rehab Programs
The conundrum for architects and contractors in the region’s school construction market is that competition is rising just as work volume is starting to slow. Where should firms seek opportunities?
One place may be in district-wide rehabilitation programs that have popped up in recent years in the region’s smaller cities that are in dire need of restoring their aging school stock. Cities in New York and Connecticut have launched several such projects in recent years that give construction industry firms the chance to play a broad coordinating role on behalf of a school district’s multi-year plan to modernize facilities. Programs of this ilk have been active or are soon starting in Buffalo, Rochester, Albany, and Syracuse in New York and in New Haven, Conn.
The assignments typically go to construction management firms, but they take on more of a program manager role. The skill set for such an assignment is broader and entails different tasks than a typical single-project effort. It often entails hiring general contractors, designers, commissioning agents, and other firms for the various projects, as well as coordinating with state agencies and offices within the municipality. Sometimes, the role goes further to helping the district manage its facilities spacing needs, financial planning, preparation for voter referenda, and even drawing of enrollment zone and space use within the school system.
The assignments are often multi-year efforts than easily stretch into the hundreds of millions or billions of dollars in volume.
A current example is the new effort starting now in Rochester, with Gilbane Building as the program manager and V.P. Tom Rogér as program director. He says the program is one of several that benefited from special state legislation that exempts the rehabilitation program from the municipality’s bond limit, in this case enabling Rochester to spend up to $325 million. Gilbane is also working with Syracuse for that city’s program, which could reach $150 million in volume.
Gilbane also oversaw the $1.4 billion New Haven rehabilitation program, says Thomas Smith, who is now the project manager. That 12-year, 34-school effort has completed more than $1 billion in work to date, but still has about another $200 million on track for six projects and probably another $200 million for five projects beyond that, says Rogér, who previously oversaw the initiative. “That was a very successful program,” Rogér says.
The most expansive effort may be Buffalo’s decade-long, 60-school, $1.4 billion effort, partly because its “program packaging and development services provider” – hometown construction manager LPCiminelli – has a purview that includes the firm having to manage the entire state aid process and actually cover the local share of funding through its contract, says Gene Partridge, executive v.p. for the firm. “The stipulation was that there was to be no cost to the city for the program,” he says. “The role for LPCiminelli looks much different than a typical school construction project.”