Building Costs Deal Blow to Local Budgets

SEATTLE — State and local governments in many parts of the country are struggling to pay for roads, bridges and other building projects because of rising construction costs, adding another burden to budgets already stressed by the troubled housing market.

Stacy White at the Newcastle work site. The low bid for a mile’s worth of road and bridge improvements was million.

The problems have come as many governments pursue ambitious projects to improve roads and airports, build schools and upgrade long-neglected water and sewer systems. Many of the projects were conceived when money from property, sales and income taxes was steady and interest rates low, but officials say the ground has shifted beneath their feet.

“Everybody’s scared,” said Uche Udemezue, director of engineering and transportation for San Leandro, Calif., which will soon put out a request for construction bids on a retiree center and a parking garage. “You don’t know what you’re going to find when you go out to bid.”

Costs have jumped for projects as varied as levee construction in New Orleans, Everglades restoration in Florida and huge sewer system upgrades in Atlanta. The reconstruction of the Interstate 35W bridge in Minneapolis, a 4 million project, has been fast-tracked for completion by December, and state officials say it is too soon to know whether it will come in on budget.

The impact has been felt in different regions at different times, and not every project has been high-profile. In Oregon, high costs have forced the State Department of Transportation to slow the rate at which it upgrades roads and bridges. In Seattle, school building projects were put on a fast track this fall because of fears of cost overruns.

“We escalated our project schedule to get ahead,” said Fred Stephens, director of facilities and construction for Seattle Public Schools.

Nationwide, increasing costs first became a problem for some projects more than two years ago, and in some regions the rate of increase has dropped in the past year. But some regions are tighter than ever, and the pressure from the high costs can be more acute in the context of general revenue declines.

The list of culprits for the increases often depends on the rate of growth and construction in a particular region, with labor costs playing a role along with the rising prices of materials like steel and concrete, and asphalt, fuel and other petroleum-based products.

Experts say high costs are linked to competition from a global development boom, particularly in China and India; the housing boom in the United States; and the rush to rebuild after Hurricane Katrina in 2005 and other recent hurricanes that struck Florida and the Southeast. In the Northwest, public projects have competed with downtown construction surges in Seattle and Portland. Just across the Canadian border, hotels and highways are being built to prepare for the 2010 Winter Olympics in Vancouver.

The costs have added to what has become an increasingly bleak economic forecast for many states and local governments. At least 25 states expect to have budget deficits in 2009, according to the Center on Budget and Policy Priorities, which estimates the combined budget shortfall for 17 of the states at billion or more. Many cities, too, see difficult times ahead as revenues wane and costs increase for wages, pensions and health care.

“We’re talking about all levels of government being in some revenue constraints at a time when the service costs aren’t going down,” said Chris Hoene, the director of policy and research for the National League of Cities.

In some places, the news is not all bad. Recent declines in residential construction are beginning to force contractors to be more competitive when they bid for government work. Yet some government officials see that as a dubious silver lining.

In Oregon, low bids for recent bridge projects came in at million, about 10 percent below what the state had projected. That was unimaginable a year ago, but the relief is relative, said Tom Lauer, the major projects manager for the Transportation Department.

“We’ve been getting hit so hard that we’ve been pumping them up the last couple of years,” Mr. Lauer said of the state’s internal cost projections.

“I didn’t get a price break,” he said of the recent bid. “I may just have more predictable pricing. I still can’t afford to do other stuff.”