There are clouds on the horizon that may make this a dangerous season for contractors, particularly in the area of public work where so many of us earn our daily crust.Those clouds are coming from hurricanes that hit Texas and Florida earlier this year and from the horrendous fires that struck California last month.
Construction “inflation” for materials and labor have been rocking along at 3-to-3.5 percent this year, but, with repairs of the immense damage from disasters, economists who watch our industry are expecting those cost items to skyrocket through the end of this year and into the middle of 2018.
The repair costs will be astronomical. Here’s one estimate that should be sobering.
“These wildfires, especially in Northern California, are particularly devastating,” said Dr. Joel N. Myers, founder, president and chairman of AccuWeather.
“We estimate the California wildfires will profoundly affect the economy of California. The cost to contain and fight the fire and deal with the aftermath will be in the billions,” Myers said. “The loss in tax revenue from businesses no longer around, including the vineyards; the workers who have lost their jobs and can no longer pay taxes as well as other impacts will be quite costly. This will create a hole in the California budget, which may necessitate an increase in taxes. If California has to borrow more this might negatively impact its bond ratings and it will have to pay higher interest rates on all borrowings, which can cost upwards of 10s of billions of dollars.
“At this time, we estimate the economic impact of the fires is already approaching $70 billion dollars. Based on our forecast the total costs from this disaster on the economy would exceed $85 billion and, if the fires are not contained in the next couple of weeks, the total economic impact could even reach $100 billion,” Myers concluded.
Southern California May Suffer Too
If Myers is right, the state will likely redirect project money scheduled to come our way to the north to deal with the devastation, from road work to water projects, not to mention the home-
building industry. Even if the funding stays here, construction material costs for many categories, which were on the rise before the catastrophes struck, will go skyward.
So, if you in the middle of a bid for upcoming work, you’d better factor in materials cost increases, particularly fuel (California’s SB1 raising fuel taxes went into effect November 1).
By Brandon Pensick, ECA President