CT Construction Digest Thursday February 18, 2021
Emily M. Olson TORRINGTON — The city has taken the next step in the creation of a new middle-high school building by hiring a manager for the $159 million project.
Members of the City Council voted to hire Construction Solutions Group LLC of East Hartford during this week’s council meeting.
Residents 9,524 to 6,204 had approved the proposed $159 million school construction project in a referendum Nov. 3, 2020.
CSG will be in charge of the construction of the new school and central office administration at 50 Major Besse Drive. The company also will oversee demolition of the old high school building.
The Torrington High School building committee, a subcommittee of the Board of Education, has been meeting weekly to review bids and is led by district Business Manager Ed Arum.
Arum said the committee received five bids for the project. Other bidders included Collier’s Construction out of New York.
According to the contract, CSG will be paid $273,482 for design work, and $546,963 for the construction and permitting phase of the project. For phase two — demolition of the old building as well as building athletic fields and site work, CSG will be paid $105,639.
The school building committee also had considered renovating the existing high school building, but said the building had too many problems and would cost up to $78 million to repair, with little reimbursement from the state. In contrast, a new high school for $159 million would bring reimbursement of $85 million, leaving the city $74 million to be repaid with property taxes over a 30-year period.
During public information sessions before the vote, some residents opposed to the project said the city couldn’t afford to take on more debt, and that the existing building could be fixed. Resident Glen Royals pointed to residents who had lost their jobs because of the coronavirus pandemic, rising property taxes, the city’s existing debt for sewer upgrades and road repairs, and people living on fixed incomes as reasons why the city should not move forward with the construction plan.
At the same time, a community group called Vote Yes New School Bright Future held forums promoting the plan and ran a grassroots marketing campaign to raise support.
Julia Bergman Connecticut could receive more than $4 billion in federal coronavirus aid if Congress passes President Joe Biden’s American Rescue Plan.
The estimate comes from projections released this week by U.S. Rep. Joe Courtney, D-2nd District, on the amount of money that could be coming to the state and local towns as a result of Biden’s $1.9 trillion COVID-19 relief package.
An estimated $2.7 billion would be allotted to the state and $1.6 billion to cities and towns, Courtney said.
“We’re at a point right now where the mistake would be to go too small and not big enough in terms of the recovery from the recession,” he said.
While it took months for federal lawmakers to ultimately pass the latest round of coronavirus aid in December, Courtney said Biden’s plan is moving quickly through Congress with the House slated to vote on it next Friday.
Courtney said Democrats see mid-March as the deadline for Congress to pass the legislation given that’s when federal unemployment benefits run out.
Local governments in eastern Connecticut could receive at least $167 million to replenish their coffers, which have been depleted by the pandemic, due to loss of tax revenue. The estimate is based on the current version of the bill in the House and could change.
Local municipalities could receive additional money through funding set aside in the bill for counties. Connecticut does not have a county government system, so the estimated $52 million that could be coming to New London County would be divided among multiple cities and towns in the county.
Norwich and New London would each receive $20 million, given their designations as “entitlement communities,” broadly defined as cities with populations of 50,000 or greater, or urban counties of 200,000, through the Community Development Block Grant.
All other towns in the region would share $127 million in “non-entitlement” funds, a news release from Courtney’s office says.
The bill requires funds to be used to respond to or mitigate the public health emergency or its negative economic impacts, cover costs incurred as a result of such emergency, replace revenue that was lost, delayed, or decreased as a result of such emergency; or address the negative economic impacts of such emergency, the news release says.
Local officials have asked for more flexibility in how they spend the money and how long they have to spend it, and the bill, in its current form, addresses those requests, Courtney said.
There’s no deadline for when the funds have to be expended, and the bill directs states to distribute local aid within 30 days of receiving it from the U.S. Treasury Department.
Ken Dixon Gov. Ned Lamont promised Wednesday that increases in gasoline prices will not exceed a nickel a gallon in 2023 or 10 cents a gallon by the end of 2023, under the state’s participation in a regional climate consortium, as part of Connecticut’s multi-prong effort to mitigate the effects of climate change.
During a virtual news conference with reporters, Lamont and Department of Energy and Environmental Protection Commissioner Katie Dykes defended Connecticut’s participation with Washington, D.C., Massachusetts and Rhode Island in the regional Transportation Climate Initiative (TCI) as a way to reduce carbon emissions, slow climate change and encourage non-polluting transportation alternatives.
In December, when the TCI agreement was announced with the goal of selling emission credits to invest a billion dollars in state projects by 2032, state Republicans blasted the plan as a new gasoline tax of 17 cents per gallon or more.
“People make up a lot of numbers,” Lamont said.
Dykes said she wanted to “push back” against critics of the plan. “There are folks who have been cherry picking studies that were done quite a while ago with very skewed assumptions to suggest that the price impacts for consumers would be higher than this,” Dykes said. “I don’t know what else to say except that those are inaccurate projections.”
“We expect that this program will cause an increase in retail gas prices in the participating jurisdictions that will be approximately five cents a gallon in 2023,” she said. “We expect that consumer impact will increase to the range of about 10 cents by 2032, as the program gets more and more-stringent.”
The billion dollars raised through a cap-and-trade system, similar to the Regional Greenhouse Gas Initiative, would be invested in public-health and economic-development benefits, Dykes said. A so-called cost-containment reserve would give the state options to hold the line at a 9-cents increase.
“If that cost-containment mechanism kicks in, we will take action to reopen the program and adjust that, because our goal is to not have a price impact for consumers higher than the five-cent range,” Dykes said. “It’s a very highly cost-beneficial program and I will emphasize that the costs of not acting on climate change will far, far exceed the cost of this program and a modest impact on gas prices.”
“As Katie says, it’s five cents,” Lamont said. “By the way, we control that because we can issue more credits that keeps it at five cents and not more than five cents. “This is at the wholesale level, so whether the wholesaler wants to compete with the guy across the street and cuts his margin a little bit, or whether he passes along half of that at the retail level, it’s up to the wholesaler.”
The governor noted that shifts in state gasoline prices can change a nickel up or down on nearly a weekly basis as pump prices respond to a “quite turbulent” market.
“I think this is a responsible way to go, we can cap any price increase at the wholesale level and it provides real resources to A: deal with the environment and B: to deal with the transportation fund, and I like the fact that I am doing that with my fellow governors in the region here, so I know that we keep our competitive position in tact,” Lamont said.
The state’s Special Transportation Fund is on track to become insolvent over the next couple of years. Regional gas price averages on Wednesday included New Hampshire, $2.45; Massachusetts, $2.49; Connecticut, $2.60; Rhode Island $2.49, New Jersey, $2.68 and New York, $2.62, according to the AAA Northeast. The average driver puts 13,500 miles on their car annually, and if they get 30 miles to the gallon, they would need 450 gallons of gas. The extra nickel a gallon would cost $22.50 a year.
State Senate Minority Leader Kevin Kelly, R-Stratford, said the proposal indicates that Democrats are “out of touch” by what he calls a new tax.
“Their argument is that it’s ‘only’ a five-cent per gallon tax hike? Tell that to a single mother or a senior on fixed income. This regressive tax hike will burden middle-class families’ budgets at the absolute worst possible time without improving our aging transportation infrastructure,” Kelly said. “The governor and majority Democrats continue to barrage Connecticut families with new and higher taxes.”
Sen. Christine Cohen said that the use of the word “tax” is wrong. “Any increase in gas prices would be the result of these petroleum manufacturers passing along a new cost of doing business to consumers,” Cohen said, adding that public hearings on the governor climate bills will likely take place in early to mid-March. “This is their choice of passing along that cost to maintain already high profit margins.”
“GM just announced about two weeks ago that they are going to stop producing internal-combustion engine vehicles in 2035,” Dykes said. “By co-implementing this program with our neighboring states we will have dollars to invest in building-out charging stations, ending range anxiety and positioning Connecticut to have a clean transportation system that’s ready and prepared as this transition to electric vehicles is coming very quickly for our future.”
The news conference was held to underscore the governor’s legislative agenda that stresses adaptation and mitigation, as well as focusing on at-risk communities, as the current rate of climate change is projected to raise the mean sea level of Long Island Sound by 20 inches by the year 2050 and as much as 80 inches by 2100.
Many of the governor’s goals were outlined last month in a report from the Governor’s Council on Climate Change. One proposal would require home sales and rental agreements to include annual energy costs, determined by either an energy audit or a calculation of utility bills.
Another bill would provide funding for local resiliency projects, including storm water runoff, as well as a local option on taxing the conveyance of property by one percent to fund local conservation programs including the acquisition of open space.
Dykes declined to put a price tag on the long-term costs to prepare for the impacts.
“Some of this is public dollars but a lot of this is private dollars,” Lamont said. Insurance figures indicate that statewide, property worth $1.1 trillion is insured. About two thirds of that, worth $750 billion, is located along the coast.
“For me, the wake-up call was Sandy,” said Lamont of the October, 2012 storm that exposed the state’s vulnerable coastline, which in some places is still recovering, even as more extreme weather events are occurring.
“We have a partner not only among regional states, we have a partner in Washington, D.C. right now when it comes to dealing with issues like resilience and mitigation,” Lamont said. “Priority number one for these bills is resilience and adaptation, equipping our municipalities to plan ahead and prevent against the type of flooding that can be so devastating to your immediate community and beyond.”
Keith M Phaneuf he legislature’s Finance Committee raised separate bills Wednesday that would cap municipal property tax hikes and potentially launch a second battle with Gov. Ned Lamont over control of Connecticut’s credit card.
Both measures were introduced only as “concepts,” meaning the actual bill language hasn’t been drafted yet.
But each concept has the backing of at least one of the finance panel’s two co-chairmen, making it likely they at least will be sent to a public hearing, once the details of the respective measures have been fleshed out.
Connecticut’s version of Propositon 2 1/2?
Rep. Sean Scanlon, D-Guilford, the new House chair of finance, is spearheading the property tax cap, which he says was inspired in part by Massachusetts’ Proposition 2 1/2, a statute that has drawn national attention since Bay State voters enacted it by ballot in 1980.
Scanlon hasn’t settled on all of the details — including whether Connecticut municipalities also would face a 2.5% ceiling on annual property tax hikes.
But given longstanding concerns over the regressive nature of this tax — it charges the same rate on low, middle and high income taxpayers alike — Scanlon said he believes some form of cap is essential.
“I think it’s probably the most significant public policy issue facing Connecticut,” Scanlon said, adding that the state’s per capita property tax burden, one of the nation’s highest, is a recipe for economic disaster.
That system both exacerbates already extreme income and wealth inequality while stifling local economic development efforts, particularly in urban centers which generally have the highest property tax rates.
Municipal property taxes generate about double the annual revenue than does Connecticut’s income tax — the single-largest revenue engine of state government.
And a December 2014 tax incidence analysis by the state Department of Revenue Services found found that Connecticut’s state-and-local tax system hammers low and middle income people.
The poorest people in Connecticut in terms of adjusted gross income — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011. By comparison, the middle-class paid about 13%, while the top 10% of earners paid 10% and the top 1% paid about 7.5%.
A tax incidence analysis studies which groups pay taxes and how those burdens are distributed. For example, the analysis found renters effectively pay some or all of their landlords’ property taxes.
[After one alarming tax fairness study, CT is wary of launching a second]
And though many details of the cap measure still are pending, Scanlon said a few principles are fixed in his mind.
First, the goal is not to eliminate or destroy the concept of local control in Connecticut’s 169 cities and towns. Rather, it’s to provide stronger incentives for municipalities to consolidate and regionalize services, and thereby control spending.
“We have to understand the importance of saving Connecticut,” he said. “If we continue down the path of maintaining 169 small kingdoms, we’re going to run out of money.”
Equally important, Scanlon said, is that the legislation cannot put municipalities on a starvation diet. In other words, if the ability of towns to raise taxes is restricted, but the state doesn’t offer them other revenue options to go along with cost-cutting strategies, then the new system also will fail.
Elizabeth Gara, executive director of the Connecticut Council of Small Towns, warned that communities would be wary of this proposal given the state’s fiscal history.
“It’s premature to talk about property tax caps until we have adopted — and adhered — to an appropriate revenue-sharing mechanism for towns,” Gara said. “Unfortunately, the state doesn’t have a good track record of abiding by proposals to diversify local revenue sources.”
One legislative proposal to share sales tax receipts with cities and towns was suspended in 2012, one year after it was enacted — and before any dollars actually were shared.
A more expansive plan was adopted in 2015 and trumpeted by state legislators as they sought re-election in 2016. But the Municipal Revenue Sharing Account, or MRSA, never came close to delivering the $300 million-plus in annual sales tax receipts it was supposed to share by 2018.
Legislators effectively suspended most of the program four years ago after failing to find resources in the state budget to support it.
Most Republicans also backed Scanlon’s property tax cap concept, which passed overwhelmingly Wednesday by voice vote.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance panel, said “I am always willing, as is my caucus, to look at proposals that would relieve tax burdens on our residents.”
But Cheeseman also predicted the concept wouldn’t go far unless state officials find a way to deliver the resources they promise to cities and towns.
Battle resumes over state bonding
Another measured raised Wednesday by the Finance Committee targets how the state manages its annual borrowing.
More specifically, Sen. John Fonfara, D-Hartford, the committee’s other co-chairman, has argued for years that the legislature should play a much larger role in this process.
The state borrows billions of dollars annually, by issuing bonds on Wall Street, to pay for school construction, capital projects at state universities, highway, bridge and rail upgrades, state building maintenance, open space and farmland preservation, and various smaller community projects.
Lawmakers largely control the first step in the borrowing process, adopting a two-year bond package, but after that the Executive Branch is mostly in charge.
The State Bond Commission has sole authority to decide when — and if — the government actually borrows money to finance any of the projects within the bond package.
The governor is chairman of the 10-member bond commission and legislators only get four seats on the panel — two from each party. In addition, the governor’s budget office has sole authority to set the panel’s agenda.
Though the details of Fonfara’s bill still aren’t set, he offered a measure in 2019 that largely put the bond commission under legislative control, and also reassigned some bonding and finance specialists from the governor’s budget office to the legislature’s nonpartisan Office of Fiscal Analysis.
The finance committee overwhelmingly passed the 2019 bill, but Lamont and legislative leaders ultimately decided to kill the measure two years ago.
Since Lamont took office in January 2019, he has pressed lawmakers to accept a “debt diet,” and there is evidence to support the governor’s concern.
[Lawmakers make bipartisan push to wrest control of CT’s credit card from governor ]
Connecticut has one of the largest per capita bonded debt burdens of any state, and its pension debt is in even worse shape. All totaled, Connecticut has more than $90 billion in long-term, unfunded obligations.
But Fonfara says that bonding is an invaluable tool for economic development, particularly in poor cities that can’t afford to invest local dollars to create jobs and foster new growth industries.
And interest rates generally have been extremely low throughout the coronavirus pandemic, making it possible for Connecticut to borrow money cheaply.
But Fonfara said his primary concern is that the entire borrowing conversation is not balanced between the governor and the legislature.
“We are completely out of the loop,” he said. “This is not about saying, unilaterally, that we want to take what he has. This is about ensuring the legislature has a role to play.”
The administration is expected to battle any proposal the committee might offer this year.
“While we do not have specifics, we generally do not support efforts to change the structure and organization of the State Bond Commission at this time,” Melissa McCaw, Lamont’s budget director, said Wednesday.
In its first two years, she said, the Lamont administration has made key investments in affordable housing, school construction, the environment, municipalities, and modernization of state services, all while reducing Connecticut’s overall reliance on its credit card.
This, in turn, has prompted Wall Street credit rating agencies to improve their ranking for the state, further controlling the state’s borrowing costs, McCaw added.
Still, Fonfara received strong bipartisan support for his proposal two years ago and said he’s confident Republicans on the finance committee will join Democrats in supporting it again.
Cheeseman said she’s open to more legislative control over borrowing, provided both parties have an equal voice — and provided it’s not used as an excuse to borrow recklessly.
“I don’t want the bond process to be used as a slush fund for pet projects,” she said. “There are needs and there are wants. … We should not be the unlimited credit card.”
Joe Bousquin Late last year, Mike Taylor was paying around $750 per short ton for the rebar he uses in his concrete pours. Now, that price has spiked closer to $900, a 20% increase in a little over a month.
"That could mean an extra $200,000 on a concrete job,” said Taylor, CEO of Pompano Beach, Florida-based Current Builders, a general contractor that focuses on commercial and multifamily structures. “We’re seeing a lot of upwards pressure.”
At Grand Rapids, Michigan-based Rockford Construction, one of the 400 largest contractors in the country, director of preconstruction Mike Miner has been scrambling to sub in thermoplastic polyolefin roofing panels on projects where he might have used steel in the past.
The reason? His suppliers hit him with two price hikes over the holidays, one right before Christmas, the other a week later when he returned to work after the new year.
“It’s affecting jobs where we thought metal-insulated panels on the outside would be cheaper,” Miner said. “But now, we’re looking at jobs and saying, 'Is that roof really going to be metal?' Because I don’t think it is now."
Taylor and Miner aren’t alone. Across commercial construction, steel price increases in recent weeks have caused contractors to rework the material costs on their jobs. And it’s not just steel, either. Lumber prices, which leaped up toward the beginning of the pandemic before coming back down last summer, have also shot up again recently.
Prices of both lumber and steel — two primary building materials — have surged anywhere from 20% to 25% recently, according to Daniel Pomfrett, national director of forecasting and analytics at construction cost tracking firm Cumming.
Over the past year, softwood lumber spiked 73%, according to the Producer Price Index released this morning for January. Iron and steel scrap has surged 50.8% in the last 12 months, including a 25.8% jump from November to December, followed by another 20.6% jump from December to January.
Steel, lumber prices have risen over the past year
% change, Dec. 2020
% change Jan. 2020
Fabricated structural metal products
Iron and steel
Steel mill products
SOURCE: Associated Builders and Contractors analysis of BLS data
A recent National Association of Home Builders analysis found that spikes in softwood lumber prices in the wake of the COVID-19 pandemic have caused the price of an average, new single-family home to increase by nearly $16,000. One high-end custom home builder in Birmingham, Alabama, reported to the NAHB that the price of a lumber framing package on an identically sized home had more than doubled over the past year, from $35,000 to $71,000.
The price gains are having a ripple effect. Construction observers say costs for drywall, copper, steel studs and even vinyl siding have risen, as well as those for other items that include steel.
“It's affecting appliances. Steel is in hardware. It’s just in a lot of products on the job,” Taylor said. “We’re feeling strong price pressure increases pretty much down the line.”
Supply chain woes
The reasons why range from factories that pulled back production when demand dropped in early 2020 still not running at capacity, lingering supply chain hiccups that have caused ships to stack up outside of ports, tariffs on lumber and even last summer’s wildfires in the West. Mostly, though, all the spikes can be traced back to a central theme.
“The short answer is the pandemic,” said Associated General Contractors of America Chief Economist Ken Simonson, who closely tracks construction costs on a weekly basis in his Data Digest newsletter. “The supply chain is still being affected in a number of ways."
He points to the 37 ships, packed with goods from China and elsewhere that were anchored off Southern California at the beginning of February. Other ships were clogging the wharf as an outbreak of COVID-19 among dockworkers meant there wasn’t enough personnel to unload them. There has also been a shortage of empty shipping containers in China to pack those goods into, as the pandemic has twisted global trade’s back-and-forth cadence.
Simonson said those kinds of lingering supply chain snafus could end up muting the anticipated rebound in construction activity in the latter half of 2021, especially in markets where contractors face high material costs, a lack of supply, or both.
“First off, construction demand will remain spotty, both geographically, and by project type,” Simonson said. “Any owner who is expecting to build new or renovate had better factor in the likelihood that there will be delays, and depending on how the risk is shared with contractors, price increases.”
Hoarders in the wings
Indeed, Miner has seen the impacts of scarcity in his Midwest markets, where contractors last year started hoarding lumber, just so they could keep building.
"It got to the point where there was a lot of our trade contractors that were going and buying just full bunks of wood, anywhere at any price,” Miner said.
That scarcity rippled down the supply chain, where he said lumber supply houses wouldn’t order lumber to keep in inventory, for fear that prices would drop and they’d be squeezed on the other end.
With the cost trend in 2021 only going in one direction so far — up — he worries that it won’t be long before any owners and developers who were considering getting back to work find another reason to stay on the sidelines.
“There's going to be some angst from owners waiting to see what lumber is going to do before they decide if they want to turn their project on,” Miner said. “With everything else going on, and then lumber putting another 30% on top, everybody says, ‘Never mind, I’m not going to build this year.’”
Dealing with it on the job
For jobs in process, though, contractors will need to stay on their toes so they don’t get caught on the wrong side of a cost crunch.
Evidence of that has been seen, as many contractors engaged in survival bidding during the first part of the pandemic, where they bid less than the job would cost them, just to stay in business. Indeed, last month, Simonson noted that since April, average bids have only increased 0.1%, while material costs rose 8.1%.
Contractors across the country are reacting to the shortages and price jumps in a variety of ways:
Lowering costs, shortening schedules. In Miner's markets, contractors that have been working through their backlogs now are trying to offset material cost increases by lowering labor costs, or trying to shorten project length to make up the difference.
"People are getting aggressive to try to build their backlogs up again,” Miner said. “They’re saying they can do it in eight months instead of nine by pushing their people harder, and doing it faster than they’ve ever done it before.”
Trying new materials. Rockford has been working with owners on existing projects to sub in different materials where they make sense, to keep jobs on track.
For example, while OSB is normally more expensive than plywood, that's not necessarily true right now, so when plywood is cheaper, Miner will spec it instead. Also, whereas composite panels with a rubber backing are usually a premium, architectural element, they're now an option for exterior cladding, since the price spread compared to steel isn't that large currently.
“If you price steel and steel is too expensive, we're going to go find a different material” such as the TPO roof panels Miner subbed in on his recent project. “I think a big thing most people underestimate in construction is how nimble we are," Miner said. "Cost volatility can hamstring projects for a while, but it’s only a matter of time before we find a different solution.”
Shorter bid times. For Taylor and Current, that solution has been shorter timeframes on bid offers. For instance, whereas a bid in the past may have been valid for half a year, today that could be shortened to a single month.
“Our quotes and proposals are typically only good for 30 to 45 days now,” Taylor said. “If we know it’s a big project and they’ll take longer for the RFP, we’ll make it 60 days, but we won’t go longer than that.”
Contractual changes. Quinn Murphy, a construction attorney at Sandberg Phoenix in St. Louis, advises clients to try to write in contingencies for material cost increases up front in the form of force majeure clauses.
“We’ll go so far as to include a definition of what a significant price increase would be, in terms of a percentage,” he said, which might start at 50%. “That way, you avoid the argument with the owner who says, ‘Well, I hate that you have to take a bath on this, but you have to take it.’”
Relying on relationships. For a job that’s begun, however, Murphy said contractors may have more relationship leverage than they think, and should first try to go back to owners and explain the situation.
“Relationship capital goes a long way,” he said.
Other legal arguments. If that approach doesn’t work, contractors can make what he refers to as a “lack of collectability” argument.
“Basically, that’s where you say if you were to perform this contract, it would put you out of business,” Murphy said. “So if they sued for breach of contract, they might get a judgment, but you wouldn’t have any money to pay it, so there’s really no benefit for the owner going down that road.”
Negotiations. It’s better for contractors and owners to negotiate a mutually beneficial outcome. That’s particularly true because the pandemic is ongoing, and courts haven’t created wide-ranging case law on whether impacts from the coronavirus are a viable defense for breaking contract. That has incentivized owners to work things out with contractors in the current environment.
“It's kind of resulted in a little bit more cooperation out of owners and contractors because neither one of them really knows who's going to win if they wind up in a lawsuit,” Murphy said.
Upfront planning: For Taylor at Current, working with owners on cost increases has been the best approach so far.
“We haven’t had to hand out a 30% lumber package change order — yet,” Taylor said. “But I think the big thing moving forward is having that conversation now, so they know what to expect. Because some projects will not go if lumber stays at the 30% price increases we have now.”
Observers do see reasons for optimism. Miner, for example, thinks higher steel prices could end up creating a more lucrative supply incentive for producers.
“When steel prices go up, they turn furnaces back on, which is what they're doing now,” Miner said. “The market is changing in the world economy to the point where it's worth us to make more of the steel at home.”
Indeed, Pomfrett at Cumming is projecting steel prices to begin decreasing again and be near prepandemic levels by the end of 2021, even as demand increases.
“There is the potential for a big surge that will put pressure on the supply chains again,” Pomfrett said. “But we expect steel to sort of level out and reduce slightly as we go into the middle of the year.”