Why Highway Contractors Expect a Delayed Slowdown from COVID-19 and How the Government Could Help
The COVID-19 pandemic has changed modern industry and commerce in many surprising ways. More people are working from home than ever before, and public officials are weighing their options when it comes to pursuing projects and maintaining financial flexibility in uncertain times.
The pandemic’s financial toll spans just about every industry. But there’s an exception, at least for now. You’ve probably noticed building and road projects underway this summer as contactors continue their work on projects planned prior to COVID-19. While there may be plenty of work now, heavy highway contractors know that next year will likely be another story. These service providers are typically responsible for building and restoring the nation’s highways, but it’s unclear whether those projects will be funded in 2021.
Three Factors Influencing the Anticipated Heavy Highway Contracting Slowdown
The anticipated lack of work facing members of the heavy highway contracting sector is a multifaceted issue, but it ultimately boils down to spending.
- Tax revenue from motor fuel sales is down for every county in Ohio as people are driving much less than usual overall. This means less funding available for the state’s transportation budget, the first roadblock facing the heavy highway contracting industry.
- Local municipalities are hesitant to give new road projects the green light due to the economic uncertainty the COVID-19 virus has caused. Many cities and towns have delayed ongoing heavy highway construction projects or postponed them indefinitely.
- Yet another hurdle facing the heavy highway construction industry is the intense competition for the limited number of contracts awarded at the state and county level.
These are just three of the reasons why the heavy highway contracting industry faces such potential dire straits in the months ahead.
Heavy highway and other contractors have received some much-needed assistance from the Small Business Administration (SBA) Paycheck Protection Program (PPP), designed to infuse companies with liquidity to help weather the pandemic. In fact, according to SBA figures released in late June, construction is one of the top three industries to receive PPP loans.
SBA PPP Loans:
- Healthcare/Social assistance
- Professional, scientific & technical services
Source: SBA PPP loan report as of June 27, 2020
According to SBA figures, construction companies had received about 12% of PPP loans as of June 27, not far behind the top two categories: healthcare and professional services.
GJM partner Bob Bobek leads the firm’s Construction & Real Estate Specialist Team. He’s counseled many of the firm’s construction clients through the process of applying for a PPP loan and requesting loan forgiveness.
“The Paycheck Protection Program (PPP) pumped some much-needed cash into many construction businesses,” he says. “In fact, almost all of our construction clients participated in the PPP. More support from the government moving forward will definitely help the industry to recover from the pandemic-induced recession.”
Bobek has presented a number of webinars in recent weeks on the PPP Program. You can access recordings of the webinars in the GJM COVID-19 Resource Center. Bob encourages any construction business, or any other business for that matter, to look into the PPP if they haven’t already. The deadline to apply for a PPP loan has been extended to August 8, 2020, with over $134-billion in loan dollars still available (as of June 27, 2020) to businesses that qualify.
Legislative Changes on the Horizon
Policymakers at all levels, from municipal leaders to the federal government, are watching the COVID-19 situation evolve so they may respond accordingly. Many leaders are unwilling to completely lift their respective lockdown orders out of concern for public health and safety. In fact, some are strengthening restrictions as COVID cases are increasing in many parts of the country.
All this uncertainty has led to hundreds of millions of dollars in lost tax revenue. Now, members of the heavy highway construction industry are looking to the federal government for help. The American Association of State Highway and Transportation Officials (AASHTO) submitted a proposal to the United States Congress this spring requesting a $50 billion fiscal backstop. The AASHTO reports that about $17 billion would go toward the 2020 fiscal year while the rest would go toward the 2021 fiscal year.
In addition to the PPP, the recent $3 billion stimulus package that came with the CARES Act offered financial relief to average American households as well as businesses across many sectors, and a second stimulus is appearing more possible with each passing day.
Ultimately, it is impossible to predict the effects the COVID-19 pandemic will have on American business for the foreseeable future. The heavy highway construction industry faces more uncertainty than most as states’ coffers dry up from low tax revenue and officials at all levels put projects on hold. Hopefully, things will change in the months to come and highway projects across the country can resume with confidence. But for now, contractors, and all of us, need to find a way to reach a comfort level with uncertainty as we all wait to see how the COVID pandemic continues to unfold.
Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.