PA Budget Passes: Not So Great for Construction

As expected, the Commonwealth’s legislature passed a 2018-2019 budget yesterday, sending to the governor a spending bill that creates a surplus for the Rainy Day Fund without raising taxes. The budget also increases funding for education and, specifically, props up the ailing PASSHE system schools. In a gubernatorial election year such cooperation was expected, but the healthy bump in revenues through five months (that is expected to continue into 2019) made the budgeting process smoother.

For the construction industry, however, the budget is a continuation of the under-investment that has marked the Corbett and Wolf administrations, which saw Republican majorities in the state houses. The new budget does nothing to fix PlanCon, contrary to promises made by members of the advisory committee for the reform of the K-12 reimbursement mechanism. There is also less funding for capital projects statewide. And nothing was done to address the looting of the funds generated by the gas tax increase in Act 89 of 2013. That highway bill was designed to add $3.5 billion to annual bridge and highway funding by 2019 but more than $700 million has been “appropriated” to make up a gap in state police funding. The gap is due to PA State Police patrols of communities that cannot afford local police forces.

The PlanCon situation is particularly troublesome for the industry, because the system has been under a moratorium since mid-2015. Projects not already well along with the design process at that point have been stuck in PlanCon purgatory since. Some districts have found ways to deliver projects without the additional funding that PA would provide by reimbursement, but some unknown number of capital programs will remain stuck through at least mid-2019.

New Castle School 005Funding for projects already in the process has been allocated, which is some good news. Firms involved in public construction hoping for improvement in the coming year got little other good news yesterday.

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The Work Keeps Coming

Breaking news of project awards in the past 24 hours highlights the breadth and depth of the Pittsburgh market in 2018.

Imperial Land Corp. closed on a land sale June 14 that was a big win for Western PA. Niagara Bottling LLC purchased 42.6 acres in Findlay Inustrial Park to build a 454,000 square foot bottling plant. Choate Construction from Charlotte, NC will build the plant.

In higher education, Carlow University selected Franjo Construction to build its $8 million St. Joseph Hall project. Thomas Construction from Grove City was awarded the $2 million second phase of the Hoyt Science Resource Center at Westminster College.

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The Arrott Building will become an Autograph hotel.

Continental Building Co. will start work soon on the conversion of the Arrott Building at 401 Woods Street into a 120-room Autograph boutique hotel. The $19 million project invloves a complete gut and rebuild of the 78,000 square foot historic Frederic Osterling building.

Some Project Follow-up

The busy construction season is upon us. The activity is really showing up in the number of $5-20 million projects getting underway around the region. There are also a few projects above $50 million being locked up.

RB VetCo is the general contractor for the $8 million ambulatory care and security improvements at the Louis Johnson VAMC in Clarksburg. Fox Chapel Area Schools awarded contracts for the $17.8 million Kerr Elementary School that bid last week. Hudson Construction is the general trades contractor. Turner Construction was selected as CM for the $72 million Henning Building replacement at Penn State and the $220 million UPMC Immune Transplant and Therapy Center in Shadyside. Turner is also the construction manager for an $8 million tenant improvement for McKesson in Moon Township and the $7 million Allegheny General Hospital ED Expansion. General Services Administration awarded Mascaro Construction a contract for CM services on the $80 million federal courthouse addition and renovation in Toledo, OH. Rycon Construction has started work on the $4.3 million Miller Library renovation at Washington & Jefferson College. A. Martini & Co. held a groundbreaking for the $32 million Bay Village Assisted Living & Memory Care facility for IntegraCare in Annapolis, MD. The University of Pittsburgh interviewed PJ Dick and Turner for CM services on the $80 million Scaife Hall expansion.
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Groundbreaking was held June 6 for the Bay Village community in Annapolis being built by A. Martini & Co.

Construction Employment Tops 2008

Digging into the weeds of the April employment reports, AGC reported on the metropolitan-level construction employment levels compared to the previous April peak and trough. Pittsburgh had 57,100 workers employed in construction in April 2018, 400 more than the peak in April 2008. Pittsburgh was one of only two PA metros (Altoona was the other) that had exceeded its previous peak employment level.

There was an interesting comparison of data that illustrated just how much better Pittsburgh fared in the last recession than other PA cities. In April, the new Pittsburgh level was 16% above the trough, the low point of 49,700 in April 2011. Compare that to Philadelphia’s suburban metro, which saw construction employment plunge to 38,900 in April 2011. Today, suburban Philadelphia employment still lags its 2008 peak and has but 1,000 more workers employed than Pittsburgh.

In construction news, Burns & Scalo Real Estate is excavating the site for its $35 million, 160,000 square foot Riviera office building (see below). The Riviera is being built 100% spec, although rumors of an anchor tenant swirl. Burns & Scalo is banking on the burgeoning tech industries and the proximity of Pittsburgh Technology Center to attract tenants as construction proceeds.

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The University of Pittsburgh is seeking Predetermination of Responsibility responses on June 20 for its Salk Hall Phase 2 renovation. This is the prequalification for contractors interested in bidding the four prime contracts for the $40 million project. The bidding will go through DGS but will be limited to the contractors Pitt approves through the PDR process. Read more about the PDR here.

Now, To Build It

With Memorial Day passed, the construction industry is moving into its busiest season. Colleges have graduated and schools are about to let out for summer. Construction in Western PA is ramping up and the pool of labor has already “ramped” up. Hiring in the Pittsburgh MSA was reported last week as up 14,000 jobs April-over-April, an indication that the 1.5% employment growth is sustainable; and construction hiring helped lead the way.

Peters Township School District meets tonight to vote on contracts for the $89 million new high school. Low bidders for the electrical and HVAC withdrew their bids, making for more alternate decisions than expected. The Builders Exchange reported that Franjo Construction was awarded the $6 million expansion at Rose Plastics in California. UPMC is taking proposals from PJ Dick/Rycon, Mascaro/Barton Malow, Turner Construction and Massaro/AECOM Tishman on it $280 million expansion of Hillman Cancer/Shadyside Hospital. The Allegheny County Airport Authority has short-listed teams for A/E services and program management on its $1.1 billion Terminal Modernization Program. Finalists for A/E services are AECOM, Corgan/Michael Baker, Gensler/HDR and luis vidal + architects/CannonDesign. The program management finalists are AECOM, Jacobs and Parsons Transportation. Walnut Capital is bringing its final plans to the city for approval this week for Bakery Square 3.0, the rumored future site of Phillips. PJ Dick and Strada Architecture are the team working on the 328,000 square foot office building and 794-car garage.

Combined-Cycle Disruption

Even as construction on Tenaska Westmoreland winds down and work is underway on three other combined-cycle plants in Southwestern PA, market forces are disrupting the power generation industry again. Headlines suggest that coal-fired generation is dead but a number of coal-fired plants that had invested in becoming EPA-compliant still operate. Moreover, the cost basis of most of these plants have been amortized, which means they can be cheap bidders on the energy grid supply auctions. With costs rising for construction of new gas-fired plants, this cheap supply dynamic is beginning to stress the pro forma for future combined-cycle plants. Projects like the $350 million, 550MW Invenergy plant in Elizabeth or Ray Bologna’s $420 million, 651MW project near Burgettstown will be harder to pencil out. The results of the 2021/2022 PJM capacity market auction, which closes May 16, will be an indicator of how tight the market will be, and how feasible the additional plant capacity is.

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Tenaska Westmoreland plant in South Huntingdon Township.

Another of Downtown Pittsburgh’s large adaptive re-use projects is out to bid. Arbor Construction – the construction management arm of Stark Enterprises – is taking bids on renovations to the former 441 Smithfield Street office building, now branded as Icon on Smithfield. The 220,000 square foot building was originally a department store that Stark Enterprises is proposing to adapt to apartments on the upper floors with about 60,000 square feet of retail/dining on the first two floors.

Mascaro Construction was selected as CM for the Health and Fitness Center at Carnegie Mellon, a $45 million renovation of Skibo Hall. RIDC awarded the second phase of Mill 19 to Jendoco Construction. The $12.4 million, 90,000 square foot building should start later this year. Carlow University has its $7 million St. Joseph Hall project out to bid to FSS, Franjo, Massaro, Mosites, Rycon and Volpatt. St. Clair Hospital has short-listed Mascaro, Massaro and Volpatt on its $15 million central plant project.

Good News About GDP

On Friday, the Commerce Dept. released its first estimate on gross domestic product for the first quarter on 2018. The 2.3% increase was a pleasant surprise, coming on the heels of an upward final revision about the US for the 4th quarter to 2.9%. Recent history has shown weaker first quarters, especially following strong year-end finishes. The first quarter GDP gains came from consumer and business spending growth, although inflation had more of an influence in the growth than in many years. The more troubling data from the estimate was the fact that both consumer and business spending was beginning to trend lower. It remains to be seen whether the additional data gathered for the 2nd and final estimates reinforces that slowing trend in the next two months.

The General Contractors Association of Pennsylvania (GCAP) has published a transcript of its interviews with Gov. Wolf and all three leading GOP candidates for governor. GCAP asked each of the four about their proposed policies that will affect construction. Some of them sort of answered. Read the transcript here.

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University of Pittsburgh’s Medical School is planning a $100 million investment in the expansion and renovation of Scaife Hall. Rendering by Payette.

Project news is light. Pitt is seeking proposals for construction management at risk services for its $100 million expansion of Scaife Hall from PJ Dick, Gilbane, Mascaro, Skanska, Rycon, Massaro, Turner and Whiting-Turner. PJ Dick was selected as general contractor for Providence Point’s $40 million expansion in Scott Township. Cavcon Construction is about to break ground on $3.5 million new Youth & Family Center and Admissions buildings at the Adelphoi Village in Latrobe. NRP Group will be building the Pittsburgh Flats apartments at 23rd and Wharton Streets that was originally proposed by the Edwards Communities. NRP will build 330 units later this year.