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Weathering the storm: despite recessions, Arkansas construction will see 3 percent gain this year.


Despite Recession, Arkansas Construction Will See 3 Percent Gain This Year

Take what you can get and be thankful for it, our parents used to tell us. If ever that saying were true it's now, as the national economy continues its spiral downward, a savings and loan fails almost daily, and the nation prepares for the possibility of war.

Even to the surprise of Construction News, Arkansas' economy should weather the storms that surround it, though just barely (if you choose to ignore the 4-6 percent rate of inflation).

In a recent report by the Bureau of Business and Economic Research at the University of Arkansas, it was revealed that Arkansas are expecting times to deteriorate further before improving.

"One may infer that the |consensus forecast' implies there will probably be a recession in 1991 and that the depth of the recession in Arkansas will probably be less than for the national economy," Harry A. French, associate economist, reported in "A Consensus Economic Forecast for Arkansas Through 1991."

In a survey of 248 Arkansans, French determined there exists "a definite prediction of recession [which] has displaced the guarded optimism that prevailed over the past two years." And while there was no reference to commercial or industrial construction in his report, French noted that respondents expected to see a decline in residential construction. In short, even the natives are expecting a stormy year. But Construction News' numbers suggest less losses than the masses apparently are anticipating.

Of the five categories that Construction News uses in forecasting construction activity for the new year, three are showing slowdowns: transportation, environmental and military. Leading the storm front is military work, where the budget was slashed nearly 65 percent. The lost revenue will hover at about $41 million. Showing less damage but losing ground just the same are transportation work (a 1.9 percent slowdown) and environmental activity (just less than a 1 percent loss).

The bright spots in the state's construction forecast are the building and conservation categories, gaining 3.1 percent and 31.4 percent respectively. The building category is gaining because of a higher education act passed by the voters in November; conservation is gaining due to healthy increases in funding. For the building segment it's the new act alone which is supporting any gains; other specialized construction (industrial, commercial, etc.) remains static.

This year several sources were either unavailable for comment or unwilling to release budget figures for fiscal year |91. While this makes forecasting more difficult, Construction News has been able to compile what it considers a fairly accurate estimate of activity for the construction industry. After inserting all the numbers, it appears the state faces a gain of about 3 percent over last year. A more detailed listing of activity by category is provided below:


What little change that's predicted for this category is negative. Continuing the trend of stagnation that started a few years back, transportation construction expenditures will most likely remain at around $300 million, a slight decline from the $305 million projected for 1990. The losses may or may not be realized contingent upon several factors during the coming year, including the Middle East crisis, the savings and loan crisis, and the outcome of the anticipated proposal to the state Legislature by the Arkansas Highway Commission.

The Commission is developing a highway funding proposal for consideration in 1991, but officials and sources were hesitant to predict the outcome, declining identification of the total funds to be sought or how they will propose to generate the revenue. But there are some real numbers available for 1991, however sobering.

Last January the Arkansas Highway and Transportation Department projected $180 million in spending for 1990, but paid out $200 million ($150 million in federal funds; $50 million in state funds) to contractors, according to figures provided by the department. For 1991 AHTD is projecting basically the same budget as it spent last year, with $46 million being generated by the state, $150 million in federal funds and another $4 million in matching local monies (for federal and state programs administered by AHTD).

Of the total budget, $125 million is reserved for highway work: $60 million will be spent to construct 250 miles of highway; $55 million will be spent on reconstruction of 200 miles of roadway; and 300 miles of resurfacing is scheduled at a cost of $10 million.

For bridges, AHTD will spend $5 million on rehabilitation of 10 structures, $40 million for replacement of 50 structures, and $30 million to build 30 bridges.

According to Randy Ort of the AHTD public affairs office, the department's largest project for fiscal year |91 is "grading and structures work on new Highway 71 in Crawford County between Frog Bayou and Mountainburg." He says AHTD anticipates spending $20 million on the project.

In aviation, the Federal Aviation Administration reported a loss in enplanement (air carriers) funds, but announced a gain in state apportionment (general aviation) funds. In 1990 enplanement received $4.3 million. For |91 the division will realize $3.7 million.

In state apportionment funds, the FAA allocated only $1.97 million in |90; for fiscal year |91 there's $2.6 million available. Overall, the FAA reported a miniscule gain in spending this year, from $6.3 million in |90 to $6.32 million in fiscal year |91.

When local projects are factored in, transportation construction will remain static at best for |91, though a slight loss is anticipated.


One of the more difficult categories to pin down for fiscal year |91, building construction should experience a gain, although sources remain hesitant about predicting activity.

In residential construction, the outlook doesn't change much according to Bruce Blackhall, director of the Arkansas Home Builders Association. He suspects little increase over the 1990 predictions of 6,500 single family start-ups and 1,200 multi-family units. However, a national tracking service reported that it expects 7,900 new homes for the year and 1,800 complexes. Blackhall believes that much of the activity will be in northwest Arkansas.

Industrial and commercial construction figures also remain vague. While several sources, including the Arkansas Industrial Development Commission, spoke optimistically about building in the state, few would commit beyond a 1991 budget that parallels 1990.

The one solid gain in this category, though, is institutional construction. After voters passed the "College Savings Bond Act of 1990" in November, higher education institutions began gearing up for expansion and renovation of existing facilities statewide. The new act is generating $133 million in bonds and interest for fiscal year |91 with 61 percent of the money earmarked for construction.

Referring to a "tremendous backlog" of pending projects, the Arkansas Department of Higher Education has approved about $81.5 million for construction and renovation, according to Dr. Ed Crowe of the ADHE. That compares to $10 million allocated annually for the last 10 to 15 years. There is also an additional $26 million available for major maintenance.

Assuming that all other areas of building construction remain constant, and introducing the $71.5 million infusion of institutional funds for higher education, this category could enjoy a $2,321.5 billion budget for the year. Compared to 1990's $2,250 billion, that's an increase of 3.1 percent.


Few categories of construction across the mid-South can claim double-digit gains in activity, but conservation in Arkansas can do just that -- a 31.4 percent increase!

Three Corps of Engineers districts share management of activities within the state: Little Rock, Memphis, Tn., and Vicksburg, Ms. Compiling the three Corps budgets and planned spending by the Soil Conservation Service, about $248.8 million will be spent in the state during fiscal year |91.

Arkansas leads the pack with a budget of $102.3 million, a gain of $12.4 million or 12.2 percent over last year's $89.9 million. Major works for the district include the Arkansas White River Cutoff project, phase four of the Fouche Bayou project, the Wilbur D. Mills Dam two project, and the Beaver Lake Cutoff job, delayed and ultimately discarded by the contractor after complications with drilling.

Corps spokesmen say there are several options remaining for completion of the $16.9 million project and a decision was forthcoming. From Vicksburg's Patty K. Elliott, media services coordinator, comes reports of a $30.8 million budget, up just $800,000 over fiscal year |90.

As figures were not readily available from the Memphis operation and no other districts are reporting reduced budgets, it's assumed that Memphis will be operating at basically the same level as 1990, $45 million. Civil Works construction projects through that office will include building a levee berm at West Memphis (between $1 million and $5 million), set for advertising in April; stone repairs to revetments and dikes between Cairo, Il. and the mouth of the White River in Arkansas (another $1 million to $5 million), set for advertisement in June.

Randy Young of the Soil Conservation Service says that 1990 and 1991 will basically remain the same, with $15 million authorized in water general obligation funds to be sold by June 30 and an additional $30 million total for the next two years. As for water quality and solid waste programs, $50 million is approved in general obligation funds.


Charles Gowder of Southwestern Bell Telephone says 1990 was a better year than he had predicted for Construction News last year, and that there's more to come for fiscal year |91. For fiscal year |90 Gowder had suggested a construction budget of $80 million. At press time, the final tally was still unavailable, but the baby Bell operation expected to see $87 million in expenditures for |90. In |91 the utility is expected to spend $93.4 million, according to Greg Russell, manager for news administration and support. But Gowder added that there was great potential for increased spending through additional customer demands.

The news wasn't so good for Arkansas Louisiana Gas Company. According to a company spokesman, the utility may experience up to a 10 percent reduction in activity over the $170 million budgeted for fiscal year |90, dropping to $153 million.

Elsewhere, other utilities have either not responded to queries or have indicated that there will be little change in budgets from 1990 to 1991. As a result, this category is expected to generate $456.6 million in activity, a 0.8 percent decline over last year's $460.2 million.


Arkansans are taking it on the chin with this category compared to last year because of a moratorium on work and a long-term project that is nearing completion.

Jerry Noggle, chief of programs management for the Little Rock District of the U.S. Corps of Engineers, credits much of the reduction to the QL and DC chemical plants work at the Army's Pine Bluff Arsenal, which is nearing completion. But the national freeze on work must also be considered when comparing fiscal year |90 and |91.

Prior to the Middle East crisis, the U.S. Congress had headed toward massive military reductions, in both personnel and facilities, in an attempt to reduce the national deficit. On top of the reductions, a moratorium was put in place until April of this year. Because of Congress' actions and the arsenal work that is slowing down, Arkansans will see a budget of $34.1 million for this year. That compares to $75.1 million for fiscal year |90, a loss of 64.6 percent.

On the bright side, the $34.1 million will be spent this year despite the moratorium that has a stranglehold on most of the mid-South. That figure represents already awarded projects, P.J. Spaul of the Little Rock office says. The funds affected by the moratorium have already been subtracted.

The two largest jobs on schedule include the personnel processing center at the Little Rock Air Force Base at $5.3 million, and a dormitory at Camp Robinson at a cost of $6.95 million. [Graph Omitted]

PHOTO : FORTIFYING FORECAST: The approval of the College Bond Savings Act Of 1990 has paved the way for a solid increase in institutional construction this year. The Act is generating $133 million in bonds and interest for fiscal year |91, of which 61 percent is earmarked for construction.

PHOTO : SLOWDOWN AHEAD: Facing a decline of $5 million for transportation construction, the state may see fewer new highways built this year.
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Author:Alvey, Robert J.
Publication:Arkansas Business
Date:Jan 14, 1991
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