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LEGAL ISSUES

California Companies Await Building Boom

Small construction firms are eager to get a piece of the state’s proposed $222.6 billion public-works project.
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Feb. 14, 2006--While the state legislature weighs Gov. Arnold Schwarzenegger's proposed $222.6 billion Strategic Growth Plan, business owners in California's construction industry are eagerly awaiting what could be the biggest building boom in 40 years.

Schwarzenegger's massive 20-year public-works plan, which he unveiled in early January, includes $107 billion for transportation and infrastructure projects. The money will go towards building roads -- including 1,200 miles of new highway HOV lanes -- bridges, schools, jails, ports, and levees. The governor has proposed a $68 billion bond package to fund the plan, the first round of which could appear on the state's general ballot as early as June.

The plan marks the state's biggest infrastructural investment since the 1960s, when former Gov. Pat Brown widely expanded the state's highway and water systems. Although bigger building firms will likely receive the lion's share of large-scale state contracts for roads and bridges, Schwarzenegger's plan casts the entire construction industry as the linchpin of economic growth -- and many small firms are optimistic.

"For every $1 billion in transportation investment, California generates $750 million in labor income and takes in additional $64 million in tax revenues," Schwarzenegger said on Feb. 7 during an appearance at the University of Southern California. "For every $1 billion in invested in road building we add nearly 19,000 jobs for working families."

Construction companies of all sizes are gearing up for what they think will be a contracting gold rush of sorts. Tom Holsman, CEO of the Associated General Contractors of California, a 12,000-firm organization representing construction companies of all sizes, said that smaller construction firms, especially specialty contractors and subcontractors, will play a crucial role in rebuilding California.

"The construction industry is really a barometer for how the economy is going," Holsman said. "If construction is showing signs of improvement, then you really have a good indicator of an economic uptick."

Schwarzenegger's plan, Holsman predicted, will likely have a ripple effect on small businesses across the state, and will create new opportunities for underwriters and financing companies.

"The biggest challenge for small businesses is going to be finding insurance and banking communities to help underwrite these projects," Holsman said.

Like many owners of small California construction companies, Steve Blois is poised for an increased workload. "There's going to be a true trickle-down effect as the large firms get busier and quit bidding, particularly in the private market and reconstruction areas," Blois said.

Blois Construction, his 100-employee general-contracting firm based in Oxnard, is expecting to hire 20 to 30 new people, mostly operating engineers and skilled pipelayers, many of whom Blois predicts he'll have to lure from other states because of a shortage of skilled workers.

While the basic concepts of Schwarzenegger's plan are receiving bipartisan support, the Republic governor is facing stiff opposition from his own party over ways to fund the project.

Assemblyman Chuck DeVore (R-Irvine) is among the Republicans advocating a "pay as you go" approach to funding the project partially from the state's general fund. Without controlling debt and tightening existing environmental and labor regulations, such as prevailing wage laws, DeVore said, small businesses could face higher taxes or be pushed out of the burgeoning construction market.

"It's like borrowing one dollar to get less than a quarter's worth of construction," DeVore said. "Without a spending plan to limit the state's debt, the next shoe to drop will be higher taxes."

Nevertheless, Schwarzenegger's plan is receiving high praise from builders of all stripes, who see the plan as an investment in the state's economy, not a potential burden. Mark Lindquist, owner of the Oakland-based M.A. Lindquist, said that despite concerns over state debt levels and taxes, his small general-contracting firm is certain to share in what he expects to be an industry-wide and statewide economic upswing.

"This is going to be good for highway road builders, infrastructure builders, the contractors and subcontractors, and wide range of companies," said Lindquist. "It's a no-brainer."

Last updated: Feb 14, 2006




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