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Cherry, Bekaert & Holland has released a completed audit of the Virginia Department of Transportation that detailed almost $1 billion of unspent money. "McDonnell's Millions" will run this holiday season as Gov. Bob McDonnell announced that VDOT would award $800 million to $900 million in maintenance and construction contracts by Dec. 31.

Not surprisingly, my good friend at ENR, Bruce Buckley pointed to poor management of available resources. The Washington Post opined that the found money was nice, but that accurately, "this money is a drop in the bucket and will hardly make a dent in Virginia's long-term transportation needs."

We have already written about Virginia's regional delays in spending stimulus transportation funding, and also in more detail at the here. Having a sense of urgency to create jobs seems self evident. The VDOT audit points to federal data that for each $100 million spent on highway construction and maintenance projects, 3,000 jobs are created or supported, $250 million in economic activity is generated and $7.2 million in state revenues is created.

I had an initial impulse to condemn VDOT. On reflection, I think the Northern Virginia Transportation Alliance has it right in its quote of the audits "final thoughts" in a recent NVTA e-mail blast:

In order to put the challenges facing the (Virginia) Department (of Transportation) over the last couple years in perspective, both external and internal events need to be considered. First, the Department had to deal with (an) unprecedented drop in revenues, requiring a number of mid-term adjustments that cut billions out of the six-year capital budget, and a painful downsizing and reorganization. Second, in the middle of the downsizing effort, the Department received $650 million in new federal funding with a short turnaround time (to invest). Finally, there have been seven changes in leadership at the Commissioner level over the past 12 years, each with its own set of strategic priorities.

Maybe asking VDOT to dump tons of people and revenues only to follow that demand by insisting they spend piles of money instantly was just a little too much. Still, $900 million unspent dollars amounts to 27,000 very badly needed construction sector jobs, so let's get it done!

This article is copyrighted 2010 by the Washington Business Journal, used by permission and originally posted here.

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A recent blog post at ENR reviewed recent reports on the spending of transportation related stimulus funding.  The post analyzed a report by the House Transporation and Infrastructure Committee detailing where all the states stand on stimulus spending.  Readers may recall that back in March we discussed Virginia's lagging in spending its stimulus dollars.

Simply stated, the lagging definitely continues. While I generally avoid editorializing and engaging in much opining here as opposed to reporting and analyzing, this topic truly deserves a rant.

Virginia has huge transportation problems, centrally focusing on lack of funding.  These problems are most clear in Northern Virginia and the Tidewater areas.  The Commonwealth has failed to pass comprehensive transportation funding since the mid-1980's.  Several years ago, the General Assembly passed a highly complex and very ugly budgetting compromise that allowed pre-existing, non-elected regional transportation authorities the power to require transportation related taxes.  This structure was thrown out by the Supreme Court of Virginia as unconstitutional under the state constitution and that was pretty much the end of meangingful dialogue and action on transportation funding.

Against this backdrop, we have the ARRA making hundreds of millions of dollars available to spend on pressing transportation needs.  Virginia had oodles of specific projects already identified, prioritized and many with complete designs already available simply waiting funding.  We have had a complete vacuum of construction projects due to the economy making this a once in a generation bidding opportunity on pricing and also removing scheduling issues for many contractors and subcontractors who would jump to have this work and stay alive.  Against this backdrop, we can report as follows:

1. Virginia has 100% of the stimulus funding out to bid
2. Virginia has only 64.4% under contract
3. Only 44.6% of the funding is associated with projects which are "underway"

The Committee ranked Virginia 50 out of 51 jurisdictions, but in the "underway" category we were actually dead last (by more than 5% by the way).  We know that more than half of the stimulus fund projects have not even started, and it is a good bet that of those "underway", there is still a significant pile of unspent money on projects that have started but are not completed.

With such a huge transportation problem previously document and identified in Virginia, how was it that the District of Columbia was able to contract 98.6% of their funds and have 80.1% of the funding of projects underway compared to Virginia?  Let alone Maryland who sits at 97.8% of the funds under contract and 90.9% underway?  Looking on the bright side, I guess we can still take heart that the stimulus funding will continue to flow steadily (and apparently slowly) over the next year or two on these transportation jobs.

Image by technicool

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The Commonwealth of Virginia has been slow to apply for, award and perform contracts funded by the federal American Recovery and Reinvestment Act (ARRA, better known as the Stimulus bill).  As the construction industry has suffered through plummeting bidding numbers and 25% national unemployment, Virginia has lagged in even qualifying its projects for funding, let alone getting the money to work.  The bad news is this has slowed down much needed funding.  The good news is it looks like there is a lot more money coming down the pike into the economy in Virginia.

A recent report by Peter Bacque of the Richmond Times Dispatch indicated that federal legislation provided $694.5 million in federal transportation stimulus funding and that less than half that has even been awarded in contracts.  Mr. Bacque indicates the money spent to date has produced 454.4 full time jobs.  This contrasts with the reported job creation in Virginia for US Department of Transportation which sets jobs created or saved at 1,335.54.  Thus, the confusion over job creation and funding that we have previously discussed continues.  Based on the funding numbers, the USDOT funding is clearly not the only agency source of transportation funding for Virginia as there is a minimum of another $100 million in funding.

The more important story is that while half the projects may be under contract, most of the projects have not even begun yet.   The Virginia website reporting on stimulus projects indicates that the total figure for both direct and indirect transportation funding administered through VDOT is $812 million.  VDOT has its own separate site with an ARRA project tracking sheet updated on February 24, 2010.  Call me a glutton for punishment, but I translated that project tracking sheet into a Microsoft Excel document available here.  The tracking sheet describes the percentage complete and I did a calculation of spending of ARRA funds by percentage of project completion.  If that percentage tracks with dollars actually spent, the VDOT site documents only roughly $66 million spent. 

There is an additional $175 million in projects that are either managed by other agencies or do not include a percentage allocation from VDOT.  The roughly $57 million allocated to the Fairfax County Parkway appears allocated and contracted, but the construction appears in its early phases.  Another $52 million is associated with projects in Washington and Roanoke County which are described as having anticipated contracts in May and June 2010.  Finally, it appears that VDOT got a late certification for ARRA funds totalling $70 million for I-66 Pavement Rehabilitation and Reconstruction which clearly has not started yet.  Thus, it appears that little of the $175 million that was not classified by project completion percentage has been spent yet either.  For those in Fairfax, $120 million in future funding is obviously a boon to our transportation woes as well.

It may be that my rough estimate of funds spent based on project completion is not accurate; however, I think we can still draw some reasonable conclusions regarding stimulus transportation funding in Virginia:

• While Virginia was late to the table in applying and certifying its projects, it appears that it got its work done on deadline to qualify for the ARRA funding;
• Many projects have not started yet;
• The bulk of funding has not streamed into many projects yet, meaning the bulk of the stimulus funding impact may be felt over the next twelve months;
• Based on timing of payment applications, payment flow contractors, subcontractors, suppliers and manufacturers will lag even further behind;
• Based on the foregoing, we should view estimates of jobs created or saved by stimulus funding as pure estimates until the funds actually hit the street.

Image by Sarah Rifaat

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There are a number of important construction law and economic developments that I want to pass along to our readers.  Given timing and the plethora of topics to address, I wanted to share these developments in a more rapid fire format so these updates remained timely.

You should be on the lookout for more information on these topics in the future.  We may expand on some of these threads in the future here as well:

• The Supreme Court of Virginia will hear the appeal in AMEC Civil LLC v. VDOT.  This case is a very important case involving what is required for notice of claims on construction projects; any person or entity involved in Virginia construction needs to keep an eye on this case as it could have a major impact on future Virginia construction litigation
• As reported by our friend Chris Cheatham, the District of Columbia has attempted to fix their green building ordinance by no longer requiring a "performance bond" guaranteeing verification of green construction ... they will instead just require a "bond" guaranteeing verification of green construction.  Count me as a skeptic that this editorial change is meaningful or will fix the problem of lack of available bonds in the markets to cover this risk.
• The economy is sending some mixed messages.  Overall unemployment dropped from 10.0% to 9.7% in January according to the latest Bureau of Labor Statistics report
• Unfortunately, that improvement did not translate to the construction industry.  ENR reports a significant continued rise in construction unemployment, jumping from 22.7% in December to 24.7% in January.  The Bureau of Labor Statistics indicates that the construction sector lost 75,000 jobs in January bringing the total to 1.9 million since December 2007
• Associated Builders and Contractors released their latest Construction Economic Update.  The skinny: private non-residential construction spending rose 0.2% in December, but was down almost 18% year over year.

The continuing sluggish economy continues to place significant bidding pressure on the construction industry.  I still stand by my post last October that this bidding pressure will translate to serious claims issues over the next couple years.  Put on your seat belts, it will be a rocky ride here for a while.

Image by Ian Britton courtesy of Freefoto.com

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The Virginia Department of Transportation and the Virginia Soil and Water Conservation Board are each respectively in the process of examining and issuing regulations impacting the development and construction industry.  The proposed VDOT regulations cover access management and relate to minor arterials, collectors, and local streets.  The public comment period began September 15, 2009 and is set to end on October 14, 2009.

The Soil and Water Board's stormwater regulations include significant amendments to stormwater management and were designed to address water quality and quantity and local stormwater management criteria.  Public comment ended on August 21, 2009 resulting in 408 comments.   The very significant level of commentary reflects a high degree of citizen and business interest and involvement.  The comments range from general but impassioned calls to defend the environment to quite a bit of substantive critical comments from design professionals, builders, and ordinary citizens regarding the regulations and their potential resulting economic impact.    

In a conversation with me today, Barrett Hardiman, Vice President/Director of Regulatory Affairs for the Home Builders Association of Virginia, encapsulates much of the flavor of the home building industry's reaction to the proposed new stormwater regulations:

"We want a regulation that is best for both the environment and the economy.  What they are proposing does not do much for the environment and does serious damage to an already fragile economy and home building industry.  It does not benefit the [Chesapeake] Bay and will likely cost Virginia billions to squeeze the last bit of phosphorus out of new development."

While the public comment period has officially ended, the Soil and Water Conservation Board has scheduled a special public hearing for further discussion of the suggested changes.  That meeting will be held on Thursday, September 17 at 9:30 am. The meeting will be held at the MCV Campus Molecular Medicine Research Center, 1220 E. Broad Street, 1st Floor Multipurpose Room, Richmond, VA 23219. 

Given the uncertain current status of the proposed regulations and their potential dramatic impact on the development process, proponents and opponents would both be well advised to represent their positions at these continuing meetings.

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