Comment: Our silver lining? Jan 2009
- They say it’s an ill wind that blows nobody any good, so in this period of economic doom and gloom, can the silver lining be ours?
- The economic crisis that continues to crash through every suggested bottom and has the world suffering is wreaking havoc and generating vast unemployment. No sector is immune and there are serious indications that the construction industry is also being bashed. In the US, private equity financier Babcock & Brown of Australia, pulled out of the 35-year concession with Bouygues to design, finance, build, own, and operate the Port of Miami highway tunnel in Florida (after rescuing the project when the previous private finance company ABN AMRO pulled out due to financial troubles). In India - one of the powerhouses supporting the previous global boom - while there are many projects approved by the government, reports explain that start of construction is being held up by government’s inability to secure the necessary capital in the shell-shocked financing markets. Worryingly for its knock-on affect, giant construction and mining equipment manufacturer Atlas Copco announced last week that it would not participate at the Intermat trade show in Paris in April – the first time the company has cancelled a major show commitment – stating that: “Because of the turmoil and uncertainty in the construction market, fewer visitors, particularly international, are expected to come to Intermat. With this in mind, Atlas Copco estimates it can bring more benefits to customers by reallocating the effort spent on Intermat and focusing on more targeted activities.” It is known that others have also backed out of exhibiting at the show.
- There can be no doubt we are into a deep global recession. Even the red-hot raw resources and mining industries are seeing major slowdowns with the biggest consumers, including India and China, canceling orders and reducing demand. It would seem that we are in need of another ‘New Deal’, as so famously proposed and orchestrated by US President Roosevelt in the 1930s to climb out of the soul-destroying Great Depression.
- In their desperation, governments of all political persuasions have decided to throw big money at the problem. Well, at least print the money first and then - let’s say more kindly - invest in a solution.
- Over recent weeks, national leaders have been announcing big government bail-outs, tax cuts and borrowing guarantees and just this week, there is the promise of more. President-elect Obama proposed to Congress a spending package of up to $1 trillion on rebuilding roads, bridges and railways, rebuilding the national electricity grid, expanding IT networks, and upgrading schools and hospitals. In the Euro zone, European Union leaders have agreed to a €200 billion stimulus package, about 1.5% of the combined national incomes. In their home countries, Chancellor Angela Merkel in Germany has pledged the biggest stimulus programme in Europe, at €100 billion, or about 1.6% of GDP, for loan guarantees, recapitalization of banks and government spending programs. In the UK, the commitment by Prime Minister Gordon Brown is similar billions of pounds. Across the other side of the world, China announced a $US586 billion spending package that is being called ‘China’s New Deal’. The billions and trillions that are spoken of daily are just mind boggling. Trying to get to the substance is the trick.
- In China, much of the announced spending package is said to be committed already. To take just one sector of national infrastructure, the ministry of railways announced in 2007, a 5 trillion yuan (about $US730 billion) program to
Fig 1. China’s rail investment plan
- grow the national rail network by 41,000km to a total 120,000km by 2020. This is up from the original plan for the period of 16,000km of new track. As a boost to the domestic economy, the program is expected to create, by itself, 6 million jobs, consume 20 million ton of steel, and use 120 million ton of concrete. Equally large amounts of investment are needed in the other infrastructure sectors in China, since, as one Chinese commentator in Hong Kong said, “if you want to stimulate consumption, and persuade [the massive Chinese population] to buy TVs, washers, and fridges, you must provide electricity, running water and TV signals” particularly into the rural areas. In the United States - the tremendous economic powerhouse of the past - Obama’s pledge to national infrastructure is said to be the biggest infrastructure investment since President Eisenhower’s investment in the nation’s interstate highway system in the 1950s. The US is not starting infrastructure networks from scratch, but most are in dire need of expansion, upgrading and replacement. All of these infrastructure plans include calls for tunnels, and that’s perhaps our silver lining.
In criticizing the public spending packages (other than the real risk of hyper-inflation and creating unbearable debt burdens for future generations), many say that major infrastructure projects take too long to mobilize. There are examples of projects taking up to 15 years in the planning and design stages before construction begins.
- The counter to this is that for years we have been hearing of projects that are ready to build but are stalled due to lack of funding, usually from the central governments. Famous examples with underground and tunnel elements include London’s Crossrail project, now an approved project and capable of being taken into construction within the year if so willed; California’s high speed railway project, yet to pass through the environmental impact procedures; northern California’s BART extension to San Jose, long on the back burner and approved by taxpayers for public state funding in the November 2008 ballot; and the list could go on and on to mention high speed rail lines in Europe, hydro power plants in Asia, water supply and irrigation projects in India, Australia, China, Africa; underground oil and gas pipelines through Russia, Eastern Europe and the Middle East; metro systems in every city of the world with populations of more than one million etc etc etc.
- In the United States, the American Public Transportation Association (APTA) says that its members have at least 736 projects, worth a total $12.2 billion and able to generate more than 900,000 jobs over a two-year period, that could be initiated within 90 days of federal funding approval. Also in the United States, recent announcement of moving ahead with replacement of the Alaskan Way elevated highway underground in Seattle is proposed as a project to boost the local economy, creating jobs and supporting local businesses and suppliers.
- Yes it will take time to mobilize construction of planned and designed projects, but that should be weeks to months, not years. In further efforts to expedite the process Governor Schwarzenegger in California for example, is suggesting a easing of lengthy environmental impact studies and processes in order to get large projects such as the 4th bore at the Caldecott, into construction as soon as possible.
- There is still the dilemma of persuading the financial market to lend to these major investment projects and in an ironic dilemma, project clients might be thinking like most consumers: Why buy now when prices are bound to come down further? Building public works in times of economic boom is almost a nonstarter. Everything is too expensive from labour, materials and machinery to land acquisition, energy, insurance, and interest rates. They all become more affordable in times of economic slow down. Interest rates, for example, are now at historic lows and going lower and oil prices are down to below where they were a year ago when they started to head for their record highs of more than double today’s price six months ago. Under these conditions, the United States Congress ought to be advised that now is the time to impose a federal gas tax, when consumers would barely notice the measure in the rollercoaster of gas prices over recent months. From this pool of government revenue, the country could fund so much of the stimulus spending without taking the country deeper into national debt, a debt that is measured at present in the trillions. Taking advantage of just this opportunity, the proposal in Washington State is to partly fund Seattle’s Alaskan Way highway tunnel project with a state gas tax increase.
- Another criticism of funding large infrastructure projects as a way of spending out of an economic recession is that the employment and investment stimulus is over in three, five, seven years when the projects are completed and the contracts are closed out.
- The comeback on that is: How long is the recession expected to last? Will not the ‘green shoots of recovery’ be pushing through the mire by then? For decades the tunnelling industry has been patiently sowing the seeds of an industry upturn toward the heady days of the 1800s when sewers, water supply networks, railways and metros were being built at a furious pace across the globe. No matter how thin, there is a silver lining for the tunnelling industry in the current situation if we are up for taking advantage of the opportunity, ready to take it on, and willing to put in the hard work to make it happen.
- Shani Wallis, Editor
- As well as vast sums of money for tax cuts, government give-aways, and bad bank bail-outs, stimulus packages around the world are at last beginning to spend money on real assets.
- President Obama’s $787 billion ‘American Recovery and Reinvestment Act’, which Congress passed last Friday (14 February 2009) and the President signed into law on Tuesday (17 February), targets some $120 billion to be spent on infrastructure. From sewers to highways, mass transit systems to water supply networks, funding that has not been afforded these vital items of nationhood and prosperity in the good times, are at last being injected with serious money and attention.
- Within that £120 billion infrastructure allocation, about $19 billion is provided for investment in public transportation. $8.4 billion will be applied to transit projects with $6.9 billion distributed to projects already in the development through the Federal Transit Administration’s (FTA) grants scheme, and the remaining $1.5 billion available as grants for new projects. Another $9.3 billion is channeled to intercity passenger rail needs with $8 billion for high-speed rail corridors and a $1.3 billion transfusion for Amtrak. Under a separate allocation, $150 million is made available for rail and transit security grants.
- Billions more are allocated to rebuilding dams, bridges, highways, sewers and water supply systems. The scale of the investment is tremendous. All that steady investment that should have been maintaining systems and structures over the past decades is arriving in one big lump sum.
As can be imagined, lobbyists are out in full force along the corridors of the Capital. Priority, it is said, will go to ‘ready-to-go’ projects that can award contracts in 90 to 120 days and projects ready to take advantage of the pot of promise include so many tunneling projects that have sat wanting for so long, waiting for funding. These include: BART’s extension to San Jose in California; the Alaskan Way elevated highway rebuild in Seattle; the LBJ highway project in Dallas; Miami’s Port Tunnel project; the Indianapolis CSO program; the CSO program for the Anacostia River in Washington DC; San Francisco’s MUNI extension; new metro lines for Los Angeles, Caldecott’s fourth highway tunnel bore in California; California’s high-speed railway project. Projects already partaking of the benefits include the $813 million FFGA (full funding grant agreement) confirmed for Seattle Sound Transit’s University Link light rail extension start, and a Federal funding ROD (record of decision) extended in support of the multi-billion Access to the Region’s Core Trans-Hudson railway project between New Jersey and Manhattan.
Nod to infrastructure in Obama’s billions in bail out
- These in themselves add up to billions in federal funding - and the really good thing? All include, or are wholly based, on underground and tunneled routes and structures. That silver lining for the tunneling industry to benefit by this economic crisis is looking shinier by the day. Obama's administration officials however have said be ware - 'pork' will not be tolerated. "We're not building 'Bridges to Nowhere.'"
- It could be said however that this $120 billion infrastructure reinvestment is a trifle puny compared to the $2.2 trillion (yes, with a ‘t’) that the American Society of Civil Engineers (ASCE) say is needed over the next five years to bring US infrastructure up from their poor D+ or D- ratings to a mediocre C or a good B grade.
- In its ASCE 2009 Report Card for America’s Infrastructure, drinking water systems get a D- with an estimated $11 billion shortfall for replacing aging pipelines that lose an estimated 7 billion gallons of clean drinking water a day. Wastewater networks, with another D-, are said to discharge billions of gallons of untreated wastewater into US waterways each year. An estimated $390 billion is needed over the next 20 years to take care of existing systems and build new ones to meet increasing demand.
- Stimulus package allocations to public transportation also barely make a dent toward raising the C- and D ratings given by the ASCE’s report to rail and transit infrastructure.
- An estimated $15.8 billion a year is needed to maintain public transit systems as they are, with up to $21.6 billion to reach a ‘good’ B condition. The report states that transit use in the US increased 25% between 1995 and 2005, faster than any other mode of transportation for the period, but nearly half of American households do not have access to bus or rail transit. In 2008, federal capital outlay for transit projects was only $9.8 billion.
- Rail with its C- rating is needing more than $200 billion through 2035 to accommodate anticipated growth and reap the environmental and social rewards of a freight train being three times as fuel efficient as a truck, and a rail passenger using 20% less energy per mile than traveling by car.
- But we are not looking the gift horse in the mouth. As William W. Millar, President of The American Public Transportation Association (APTA) said in a statement: “Investing in public transportation and intercity and high speed rail is part of the solution to helping build a stronger economy. Passage of [Obama’s economic stimulus package] is a win-win for American workers who need jobs and for the millions of people who use public transportation and passenger rail.”
- Twists along the way to approving Obama’s rescue bill saw the House try to include a ‘Buy America’ clause to forbid the use of foreign steel and other products on infrastructure projects funded by the package, but this was amended to say that the US would abide by its international trade commitments. Wall Street registered an initial up-tick for shares in some big US manufacturing companies, in anticipation of a reversal in fortune, before taking another dive on the day of Obama’s signing of the bill into law. Critics question the wisdom of saving the current economic situation by increasing the national debt so massively. There was bad news also from other countries around the world that the downward spiral still has some way to go.
- Despite continuing gloom, we can rejoice in the money to be spent on infrastructure. At least it will leave tangible evidence of the billions spent to save an economy that gorged itself on unreal money, spent on unreal or short-term glorifications. We will have to pay for it, but we will have the new dams, sewers, transit systems, and railways to show for it. Hoover Dam still stands as a lasting monument to the last great economic bailout of a financial and confidence crash.
Discussion Forum Comment: Our silver lining? - TunnelTalk, Jan 2009
Alaskan Way highway tunnel replacement - TunnelTalk, Jan 2009
Miami Port Tunnel on life support – TunnelTalk, Jan 2009
Caldecott 4th Bore funding frozen – TunnelTalk, Jan 2009
California High Speed Rail bond passes (video) - TunnelCast
Strong start for Sound Transit’s University Link – TunnelTalk, Dec 2008
Access to the Region’s Core (video) – TunnelTalk, Jan 2009
- ASCE 2009 Report Card for America’s Infrastructure