Construction woes

Permits, valuations and fees indicate significant downturn is looming

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— The value of new construction in Routt County this year is 14 percent behind last year, but that may be the good news professionals in the building trades say they expect construction activity to drop off even more dramatically in 2002.

"Although many construction contractors and subcontractors are still very busy finishing up existing projects, it is clear there is not much in the pipeline for next year," Steve Cavanagh said. "Unless something changes dramatically, next year will likely bring a substantial construction downturn and significant hardship to those employed in the industry and their suppliers."

Cavanagh is a principle in a local contracting firm, TCD, which concentrates on multi-family residential and commercial building projects. He is also a spokesman for the Yampa Valley Construction Trades Association.

Scott Ford of the Small Business Development Center at Colorado Mountain College agrees with Cavanagh that construction activity here in 2002 won't be as robust as it was this year.

"Are things slowing down? "I think absolutely," Ford said.

Cavanagh said contractors understand their business will go through ups and downs. "One thing we all know about construction is that it's a non-sustainable industry," he said.

Ford said while it's natural for the construction industry to go through cycles, he's concerned about the effect a convergence of trends in different industries a downturn in construction when a crisis in consumer confidence is eroding tourism will have on the community.

Figures recently released by the Routt County Regional Building Department show that in 200l, the local construction industry has been strong. Construction valuation here through October totaled $110 million compared to $128.5 million for the same period in 2000.

The regional building department serves both the city of Steamboat Springs and Routt County.

In Steamboat Springs this year, the department has issued 120 building permits valued at $53.88 million. That compares to $67.04 million through the end of October 2000.

Construction valuation in Routt County (outside the city of Steamboat) this year is also behind last year's pace, but Routt County is several million dollars ahead of Steamboat. Construction valuation in Routt County through the end of October was valued at $56.13 million compared to $61.47 million at the same time last year.

There were just three permits issued for single family homes in Steamboat during October. The department also permitted a single duplex building (technically two permits). The duplex, valued for permit purposes at $997,800, represented the bulk of the valuation; the three single family homes accounted for $638,000.

In contrast, Routt County saw 21 single family homes (and no duplexes) permitted last month. They have a combined valuation of almost $7 million.The city made up some of the gap with six multi-family residential units and six commercial buildings.

Routt County had four multi-family units permitted, but no commercial buildings. There wasn't an industrial building permitted in the county last monthly.

Cavanagh pointed out that Steamboat's and Routt County's construction industries boomed throughout much of the last four years in part because of large commercial and industrial projects that aren't likely to be repeated soon. They included the retrofit of the Hayden Power Plant with pollution control devices, the Steamboat Grand Hotel, the remodel and additions to Steamboat Springs High School, and the Yampa Valley Medical Center. The latter included a new hospital as well as a new extended care center and large medical office building.

"Those are the big ones and they attributed to our bottom line," Cavanagh said. However, while those major projects were under way, many multi-family housing projects were also breaking ground.

Ford estimates between 7 and 11 percent of the local workforce is employed directly in the construction trades. If that number sounds relatively small, Ford says there's a kicker behind the numbers.

"The income they earn represents a much larger share of our total," Ford explained.

Based on an average hourly wage in the construction trades of $18 to $20 per hour, he believes construction jobs account for 15 to 20 percent of Routt County's wage-earned income. The real number may be even greater Ford said, because wages in the construction industry are underreported.

That's not to suggest that people are being paid under the table. Instead, he said, it has to do with the nature of the industry here. Many independent contractors will hire themselves out to other contractors when they aren't working on a project of their own, Ford said. Consequently, the "wages" they might have earned are paid on a contract basis.

Routt County's total payroll was in the neighborhood of $250 million in 1999, Ford said. Twenty percent of that number would be $50 million attributable to construction payrolls.

Ford doesn't expect Routt County to lose the entirety of its construction payroll in 2002. But when you add a fudge factor for two years of growth and inflation since 1999, plus an undetermined amount for construction income that doesn't show up as wages, and he doesn't think $50 million is an unreasonable number for the potential impact to the local economy.

Ford predicts that some construction workers will almost certainly migrate out of the area. He foresees that other construction workers who have established themselves as permanent residents will take jobs in related sectors of the economy, displacing other workers. One example might be condominium maintenance or snow removal, he said.

November is a time of year when developers are seeking bids for projects coming out of the ground the following summer. Cavanagh said commercial building projects in Steamboat can sometimes be two years in the formative process and right now, he doesn't see anything significant "in the pipeline" for next year.

The city's most recent sales tax report for August shows that year-over-year building use taxes are actually up more than 24 percent. Through August 2001 the city had collected $1.06 million in building use taxes, the equivalent of sales taxes on building materials. That compares to $852,751 in 2000.

Building use taxes reflect activity that is already under way. Cavanagh and the Construction Trades Association are more focused on the future, and turned to the city's new impact fees as a measurement of what will happen in the short-term future. Citing city records, Cavanagh said from June 29 through Oct. 23, the city collected $42,391 in impact fees.

Extrapolating to 12 months, that number would equate to about $134,000, Cavanagh said. The city has projected revenues from impact fees of about $1.5 million annually.

Another key to understanding the impact of construction on the local economy is understanding how construction workers spend their wages. Ford said local business leaders lack completely reliable data on how much construction payrolls turn over in the local economy.

First, Ford said, as a small resort town, Steamboat "imports" all the goods that are sold here. That fact speaks to the "stickiness factor,' how much of local payrolls remains in the local economy. Because a portion of the money spent on goods sold here (services are another matter) goes back to the original manufacturer or wholesaler, Ford estimates 56 cents of each wage dollar sticks in Routt County the first time that money turns over. On the second turnover, the amount drops to about 16 cents.

Just the same, construction payrolls mean a lot to everyone from car dealers to restaurants. Ford doesn't want to be the one to predict economic gloom it's still not clear how big a hit Steamboat's economic engines of tourism and construction will take next year.

"Could it get worse?" he asked. "My sense is it might. It might."

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