The Angry Economist
No Way To Run A Railroad: California School Building In The Early Twenty-first Century
By William P. McGowan, Ph. D.
Sep 3, 2006 - 10:00:00 PM

CALIFORNIA— As shocking as it may seem, dear reader, I do not support myself by writing commentary on the political economy of our times. No, I have what is usually termed in the writing trades as a "day job." In my other life, I work with contractors who build things for the public sector. 

After years of not doing so well, this type of public sector, "civil" construction is booming, particularly when it comes to school construction.  Fueled by bond measures, education construction in the United States is up fully 24 percent from just two years ago, and California is leading the way.   At every level of education, schools and colleges are building like no time in recent memory.  This creates a whole new set of problems.        

Contractors who are qualified to bid on public works are literally turning away business for lack of an ability to execute it. Of equal concern to construction company owners is what price to quote, since the cost of materials has been rising unpredictably "and very rapidly" for months.   Two months ago, copper jumped 32 percent in price--in one month. 

As someone who makes money when contractors are busy, this school building boom is great.  I literally do not have enough days in the week to get all the work done, and my client construction companies are in the same boat.  Together, we are having the "problem" of needing to find places to hide profits so that the taxman doesn't take them all.  Economically, the school building binge we are going through is going to make a lot of my clients a lot of money.

The negatives stand out, however, when you start viewing this process through the eyes of an economist.  From a society that literally did no school building for decades, we are trying to make up for lost time almost overnight, and we're paying for it. This is driving costs up simply because everyone's trying to do the same thing at the same time.  Institutionally, we haven't built schools in California for decades, so everyone involved in the process is new to the game.  These people have never built a bunch of schools before, so when they tell us how much it's going to cost, their numbers are more of a guess than based on experience. 

Compounding this problem is that many bond measures have spending deadlines: if the money is not contractually committed to a building project by a certain date, it goes away forever.  Since the number of qualified contractors who can bid on schoolwork is already limited, what we've seen in the last year is pricing for schoolwork coming in 20 percent to 30 percent over already high price estimates.

The net effect of this trend is that we will end up building fewer schools than we thought we'd build just two years ago.  Designs for schools that originally had new, permanent "ground up" structures are being hastily redrawn with portables and less costly amenities so as to "make" the budget.   As we get to the end of bond monies, expect to start reading a lot more about districts and their half-completed school construction projects. 

And what makes this so sad is that it was all so predictable. It is no way to run a railroad.

When he's not getting his clients security bonds, you can reach William P. McGowan at AngryEconomist@sbcglobal.net

       

 



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