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Quarter of a Billion Dollars in Construction Savings

October 06, 2010 By Conrad deFiebre, Transportation Fellow

Not every Minnesota taxpayer shops at Menard's, but we're all saving big money on road and bridge projects these days - more than a quarter of a billion dollars in the past two years.

The Minnesota Department of Transportation says its highway construction bids came in $263.2 million under engineers' estimates in fiscal 2009 and 2010. You've probably heard of government cost overruns. Now we're in an era of state cost underruns. The result is more economically vital infrastructure improvements at bargain prices undreamed of only a few years ago.

A few local government projects are reaping the same benefits from lower materials costs and a hyper-competitive bidding environment for contractors, but extreme fiscal pressures on property tax-collecting jurisdictions are keeping cities and counties from taking full advantage.

And that's one of the reasons state government is booking huge discounts on its stimulus-boosted road and bridge programs. Latest case in point: Construction of the new Hastings bridge, one of about 120 crossings authorized when the Legislature overrode Gov. Tim Pawlenty's 2008 veto, got a low bid of $120 million - about $85 million less than two independent MnDOT-commissioned estimates.

The team of Lunda Construction and Ames Construction begins work this month to replace the structurally deficient existing two-lane Hwy. 61 span over the Mississippi River. The new four-lane bridge is scheduled to open in 2013.

Overall MnDOT construction jobs in 2010 have come in more than 20 percent below expectations. Next up is a Nov. 15 bid letting to replace the rickety Hwy. 52 Lafayette bridge in St. Paul, which has a construction cost estimate of $185.7 million. MnDOT says additional projects may be undertaken with savings from that job.

Already about 20 road and bridge projects have been tacked onto Minnesota's federal stimulus construction program because of lower-than-expected bids. Projects financed by state bonds have been advanced as well, including $50 million in savings applied to the Interstate Hwy. 494-Hwy. 169 interchange expansion in Eden Prairie.

"It's a combination of a tough market, skilled labor looking for work and materials like asphalt and oil coming down in price," said Tim Worke of Associated General Contractors of Minnesota. "There's not a lot of margin in public work anyway. Now some contractors are willing to take a job at cost just to have some work. You can only do that for so long."

One cost that hasn't declined is highway construction labor. Unionized road and bridge builders are still enjoying raises negotiated in three-year contracts that expire next spring. Worke said, however, that they may be facing wage freezes similar to those taken by residential and commercial building trades unions this year.

 That kind of private-sector work - known in the business as "vertical" construction as opposed to "horizontal" public roads, bridges, rails, port facilities and airport runways - has fallen off a cliff in the Great Recession following the bubble-fed building boom of the mid-2000s. Overall construction unemployment remains terribly high.

But Worke said few vertical building contractors and workers can switch to the different skills and machinery needed for public infrastructure projects. Those that do only add to the glut of bidders.

Despite fiscal woes, some local government projects have gone forward with the happy confluence of rock-bottom prices on both contractor bids and bond interest rates. (At the state level, Minnesota just saved $13 million by refinancing trunk highway bonds at lower rates.) Anoka County has saved a total of $4.3 million on two County Rd. 14 projects this year, lopping 17 percent off their combined estimates.

"We've heard of savings of 40 percent on a project," said Ryan O'Connor, transportation policy analyst at the Association of Minnesota Counties. "We still hear 20 percent. That's significant dollars. Contractors are so hungry for work that they're taking margins they wouldn't have considered a couple of years ago."

Meanwhile, though, many cities and counties are backing away from infrastructure work as their budgets face deep hits in revenue from property taxes and state aid. Minneapolis has already announced plans to shelve a $5 million street paving program if expected cuts in its local government aid from the state materialize.

That kind of uncertainty leaves more contractors scrambling to undercut the competition in bids for MnDOT projects, which are financed by dedicated state and federal highway user fees, stimulus funding and bond proceeds. This is great for the state-government side of Minnesota taxpayers' ledger sheets. It's too bad more local governments financed by the same taxpayers can't get in on these once-in-a-lifetime deals to modernize crumbling public infrastructure.

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