Ten-Point Program for Construction Job Recovery in Seattle

Seattle Daily Journal of Commerce
August 19th, 2010 by Jerry VanderWood

What else, in addition to infrastructure investments, can government do to stimulate the economy, particularly the struggling construction sector? Justifiably so, government entities at all levels are asking that question. AGC had the opportunity to share some ideas with the City of Seattle, and what follows is AGC’s suggested 10-point program for construction industry job recovery:

1. Ensure timely implementation of the Bored Tunnel, seawall replacement, Sound Transit 2 programs, the SR 520 and Mercer corridor projects. Plus, seek to accelerate construction of other critical infrastructure projects. City capital projects (from all departments) expected to go to bid the remainder of this year and next year should be re-estimated for potential cost savings. In the current bid environment where projects are coming in 10 to 20 percent under the engineers estimate, the City may be able to identify sufficient savings to advance additional projects.

2. Contract out some of the road maintenance and repair work typically performed in-house. With a reduced City work force and furloughs this may provide a way to maintain adequate levels of service.

3. If not already underway and subject to Federal Funding participation, embark upon energy efficiency upgrades for City-owned buildings.

4. Partner with AGC and other industry groups to work with the state legislature to develop financing mechanisms that support essential City infrastructure investments in both transportation and other public facilities.

5. Promote common sense incentives, tax credits and policy changes designed to stimulate new private- and public-sector demand.

6. Eliminate discriminatory project labor agreements (PLAs) that favor one segment of the labor force over another. We need to ensure that all workers have the opportunity to participate in the recovery.

7. Establish a single point-of-contact among departments within the City for expediting major projects (similar to what was done for the tunnel retrofit project). Improving coordination among Departments for processing permits will reduce permitting time and save on overall project costs. This could include a one-stop permit process for these projects similar to what King County and the State have established for some environmental permits.

8. Eliminate the practice of adding additional costs and fees to permits and other services to augment Department budgets in this down economy. This appears to be happening to private developers, contractors and other public agencies.

9. Timely removal or installation of utilities, particularly those for which Seattle City Light is responsible. This is a major issue for contractors.

10. As part of the City’s initiative to develop a better prepared workforce, partner with the AGC Education Foundation to establish construction math curriculums in various high schools, based on the pilot project completed in Bellingham.

Any other suggestions for the City of Seattle?


Jerry VanderWood is communications director for the Associated General Contractors of Washington, where he gets to learn about construction issues from the best in the business. He's originally from South Carolina, then Washington, D.C., and moved to the Seattle area in 1989. He resides with his wife and kids in the suburbs of Issaquah

www.outdoor-perspectives.com

$1.4T in real estate loans coming due

A new report from the Congressional Oversight Panel says failed commercial real estate loans could mean the closure of smaller banks, empty buildings and another blow for the U.S. economy.

* Commercial property values have fallen more than 40% in the past 3 years.

* Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

By DANIEL WAGNER
AP Business Writer
WASHINGTON — Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.

Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.

The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.

Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.

The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.
Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.

Banks often lent too much for land and buildings whose prices were inflated by a real estate bubble. They also relied on rosy assumptions about the profitability of retail and office projects and did not consider the possibility of a severe recession.

Commercial property values have fallen more than 40 percent in the past three years, the report notes.

Some have been unable to pay the loans. Others have stopped paying because they now owe more than the properties are worth. Losses are mounting for banks, more of which will close. That could spell trouble for the economic recovery, said Warren, a Harvard law professor.
“If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery,” she said.
Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

The report attributes the looming crisis to failures of bank management and supervision. It says banks made loans based on property values inflated by the real estate bubble. They sometimes acted carelessly “in a rush for profit,” the report says. Banks and their regulators failed to consider the possibility of reduced consumer demand from a severe recession, the panel says.

The panel criticizes the Treasury Department and bank supervisors for not putting smaller banks through “stress tests” like those done last year on the nation's 19 largest banks. Warren notes that Treasury Secretary Timothy Geithner resisted calls to conduct public stress tests of smaller banks.

The Treasury Department referred to comments by Geithner that bank regulators routinely conduct such assestments confidentially.

Warren also noted that last year's tests gauged banks' strength only through 2010. The commercial real estate threat looms largest in 2011 and beyond.
The report says loan failures could weaken the financial system because banks that fear major losses will be less likely to lend. Economic recovery depends on the free flow of credit.

The report offers no specific recommendations. But it calls on the Treasury to enact a comprehensive plan to handle the expected crisis.

The bipartisan panel is one of three oversight bodies Congress mandated for the bailout at the height of the financial crisis in October 2008. It makes periodic assessments of how the government is managing the rescue program.

The bailouts also are subject to review by the Special Inspector General for the Troubled Asset Relief Program and the Government Accountability Office.