RALEIGH — Road construction will begin to ramp up again early next year, but contractors say they will suffer in the meantime.
After the N.C. Department of Transportation overspent by about $2 billion, it suspended work on 900 projects late this summer. But Transportation Secretary James Trogdon says the NCDOT will take 450 projects off hold by May.
That won’t be soon enough for engineers and construction workers.
“That’s great, but it puts us in a real bind. Many of my firms can’t wait that long, so they’re going to have to lay people off,” said Jim Smith, executive director of the American Council of Engineering Companies N.C. “A good many engineering employees … are going to be losing their jobs between now and the holidays.”
After the DOT suspended the projects, an estimated 500 to 600 consulting employees were laid off, and that number will continue to grow, Smith said.
House Bill 967 would have given the DOT an infusion of $661 million to mitigate the cost of storms and the Map Act. Rep. John Torbett, R-Gaston, introduced the bill in April. But its support flagged when legislators began to question the department’s financial management. Trogdon now says the department will recover without the extra cash.
The slowdown in construction shocked an industry that had primed itself for accelerated spending and building. When the legislature passed the Build N.C. bonds in 2018, it required the DOT to spend down its reserves before it was cleared to borrow as much as $300 million a year in bonds.
Build N.C. kicked in, and business doubled for Smith’s members. But Smith says that the DOT didn’t warn of possible slowdowns until July.
“It’s especially onerous now that we’ve spent two years ramping up and hiring people to meet the accelerated demand,” Smith said. “For the small firms that relied heavily on DOT work, it was a real burden. I know firms that lost practically their whole workload overnight.”
The DOT blames the financial crisis on two unexpected costs: storm damage and litigation from the Map Act, a controversial 1987 law that had allowed the DOT to seize private land without compensating landowners immediately. The DOT says storms cost an average $222 million a year since 2016, more than three times their average cost over the previous decade.
The state Supreme Court in 2016 ruled Map Act seizures takings. A judge in 2018 blocked the DOT from further Map Act takings because it had missed court-ordered deadlines, so the DOT decided to settle as many cases as possible. Before the ruling, the DOT had settled only a handful of cases. Afterward, it paid to settle nearly 400 cases, Trodgon said.
The Map Act was repealed earlier this year.
But a McKinsey and Co. report identifies “governance challenges … followed by weather and preliminary engineering” as the largest source of the department’s overspending. In the report, a “culture of cash” leads overspending at $262 million, placing it $16 million ahead of storm spending.
“‘How did you screw it up?’ [That] becomes the operative question,” said Joe Coletti, John Locke Foundation senior fellow. “We had storms, we had the Map Act, and maybe we rushed things too much.”
The report identified a push to burn through cash to meet the legislature’s goals. It noted that “after recent pressure to reduce cash balances” divisions overspent.
“When you ramp up a program to pay down an excess balance, eventually you’re going to reach the end,” Smith said. “You read in the media and everywhere else that the main reasons for what occurred were those two massive outlays of cash. But you’re adding that to a program that was accelerated to begin with.”
State Treasurer Dale Folwell is harsher. He said that the DOT’s “culture of cash” indicates “they were writing checks that they cannot cash.”
“I can’t imagine what has happened in two weeks where someone can go from asking for a bailout from the taxpayers to saying that cash crisis almost over,” Folwell said.
Trogdon argues the report didn’t accurately depict the situation. He says the report didn’t account for carryover money from the previous year, nor did it factor in the bonds.
“There’s a lot tied together, and one fiscal year snapshot doesn’t give you the complete answer,” Trogdon told Carolina Journal last week. “It’s a snapshot because transportation really impacts multiple years.”
He wants the General Assembly to find a new way of funding storm damage. He argues the current method is anachronistic because it costs more to fix weather damage.
“If [storms] continue in this magnitude and frequency, we have to find a different way of paying for them than we have historically,” Trogdon said.
But by slashing its projects, the department expects to pick up work again by May.
“Dropping those costs has helped us slowly build up our cash balance,” DOT spokesman Steve Abbott said in an email. “We expect that trend to continue, which is why the Secretary … is optimistic we can be in position early in 2020 to start resuming the preliminary engineering work on a number of projects.”