When President Barack Obama was talking about "shovel ready" government construction projects, what did he actually mean?
The idea is simple - have the feds advance money for already engineered jobs at the state and local level so some folks can go to work immediately. While it sounds like a good idea, the following is an explanation of why it didn't have the desired effect of putting construction workers back on the payroll.
The answer has to do with budgeting, engineering and bidding. Take for example the City of Alpena, whose officials are agonizing over the annual budget. They usually start the budget process about six months ahead of time at the staff level to prioritize projects for the next fiscal year. Supervisors and city management try to fit what everyone would like to be done within the reality of how much cash can be spent without running a deficit.
City employees look at the projects and assign a projected dollar cost to each item on the wish list. Always, there is more expense in the items than there are dollars. This is where the rubber meets the road. Hard choices have to be made as to which construction projects will be done in the 12 months under consideration.
The choices are made in consultation with the city council, and then the staff hires engineers for the projects. The initial cost estimates by the staff are enlightened guesses based on their collective past experience. The term "guesses" isn't meant to be critical, but rather to explain the estimates are not dollars and cents perfect at that stage. Nor are the estimates perfect after an engineering firm designs and draws the project. The estimates are much closer after the bids are opened. Again, the costs are closer but often a contractor might find an unforeseen problem which costs more.
The city and other governmental and private entities don't go out and have a firm engineer a bunch of projects and then put them "on the shelf" because the projects would have to be re-engineered at the time of building to allow for any changes in laws, regulations, or materials at the later time. In addition, this extra engineering would rob money that could be used in the present and assign it to a future.
The costs of a project is finalized only after the bidding process is completed.
What this has to do with the concept of "shovel ready jobs" is this: There aren't any shovel-ready projects except those already budgeted. This is for good reason. It's just too expensive to have designs on the shelf waiting for money to be allocated by someone.
Now, on the other hand, there are plans and dreams in the heads of staff and elected officials, but until there looks like there will be money in the budget for those items, they don't get engineered and aren't "shovel ready."
So how did the White House come up with this idea? Well, it sure sounds good until you really think about it.
Aren't we lucky our city doesn't fretter away our tax dollars engineering projects that may never come to fruition?
Stephen Fletcher was graduated decades ago from Cornell University with an A.B. in Economics and from Michigan State University with an M.B.A. He has lived and worked in the decades from graduation until now in the Alpena area. He thinks economics is fun and interesting.