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City says its keeping pace with increased building costs

Wednesday, April 23, 2008 by Mark Richardson

As double-digit inflation drives the cost of construction upward, city, county and school district officials around Texas are being forced to postpone or reconsider major projects as costs exceed the funds authorized. However, City of Austin officials say with careful planning, they have been able to keep up with rising costs as they bid out projects.

 

With discussions on next year’s city budget beginning, city officials will be keeping a sharp eye on the upward spiral of gasoline, diesel, concrete, steel and other commodities necessary to keep its infrastructure projects on track.  According to the Associated General Contractors of America, over the past five years the cost of construction materials has gone up 30.2 percent compared to 14.5 percent for overall inflation. The cost of key construction materials has shot up even higher: diesel fuels, 280 percent; copper and brass, 240 percent; steel mill products, 165 percent; and concrete, 125 percent.

 

Keri Juarez with the Austin Public Works Department says they are working to keep pace with rising costs.

 

“We try to stay very current on our pricing,” she said. “We make it a priority for our consultants to have current information on what these projects are going to cost so we can adjust, if need be. Obviously we can’t control the market, but what we can do is adjust to it as quickly as possible.”

 

She said inflation in construction costs has not caused the city to cancel any major projects at this point, but that each one is getting close scrutiny.

 

“With our 2006 bond projects, we make an effort to understand just how the costs are fluctuating, and just what we can actually get for our money,” Juarez said. “Typically, from the planning stages of a project to the time we actually bid it, the budget gets adjusted to make sure we’re staying current with prices. Our hope is that when we actually bid the project, we’re not going to get any surprises.”

 

Michael Chatron, executive director of the Associated General Contractors of Texas said many local governments and school districts are having trouble keeping up with construction costs, which have been rising 1.8 percent per month recently.

 

“In today’s global economy, the higher price of a barrel of oil and the emerging markets such as China, Malaysia, and India are causing far stiffer competition for those materials,” Chatron said. “Many people are thinking that prices should level off because we’re in an economic slowdown, but they are failing to take into account what’s going on globally.”

An example is the Keller School District near Fort Worth. In 2006, Keller ISD voters approved a $132.5 million bond issue to build a high school, two elementary schools and additions to a middle school, and to renovate the district’s stadium. The budget included a 5 percent cushion to cover rising construction costs, but when they were ready to go out for bids this spring, costs had risen by more than 12 percent.

Officials with the City of Houston’s Capital Improvements Program report that they have delayed dozens of projects in recent weeks to deal with rising costs. James Tillman IV, director of Houston’s Capital Improvement Program, said his projects have been hard hit by the cost of steel and cement. He said that in previous years, his department could build a “pretty nice fire station” for $3 million, but that cost has jumped to $5 million. In the past year, he said, the cost of rebar has jumped from $700 a ton to $1000 a ton.

And closer to home, the cost for a new dormitory on the University of Texas campus jumped some 40 percent between the time it was proposed and approved. The six-story Almetris Duren Residence Hall will hold approximately 402 beds for freshmen and 172 for upperclassmen. The UT Board of Regents approved the construction last week at a cost of $50 million, up from the projected cost of $30 million.

Juarez said the city monitors costs closely to be aware of any price increases that could affect new roadways or other projects.

 

“We do account for that as the project progresses, and if we need to allocate extra funding to a project in order to build it, then we do that,” she said. “And if we decide that a project wasn’t quite as important as we first thought, then we can allocate those funds elsewhere.”

 

Juarez said much of the work takes place during the budgeting process.

 

“We are in the midst of making some of those decisions right now on some of our road projects, some of what we call our Great Streets projects,” she said. “Some of those projects are projected to cost more than we were planning a couple of years ago. We’re looking at the money we have and the projects we have planned and trying to decide what’s going to get built when and what’s the best way to use our money.”

 

Council Members will meet at 9am today to begin a series of work sessions on the 2009 City Budget. Economist Jon Hockenyos is scheduled to kick off the series with a forecast for the Austin economy.

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