As the construction season moves through summer into fall, the industry's fortunes seem to be following the frequent Vermont pattern of diverging from much-publicized national trends.

Though the slump in manufacturing that has been the central problem for the US economy has had some effect here, the effect has not been extreme. A fallback from previous high levels may put a blip in the graph either this year or next, as may also be the case for state-funded school construction aid and highway spending, but it appears to represent an inevitable change of pace from a very high level of activity rather than a true downturn.

A number of work sectors are showing strength, such as hospital expansions, which have become so numerous that questions have arisen about the state's ability to pay the price in terms of increased health care costs. Mountain resortrelated construction continues to boom, perhaps in part because disillusioned stock market investors are now more likely to be looking for safe places to park their money, such as real estate. A number of individual sources of contracts continue to spend at high levels, notably IBM and Middlebury College.

The biggest heat wave this summer has come in the housing market, where all contractors large and small have been kept busy doing both new construction and remodeling. With a major housing shortage predicted for the six northwestern counties, and pressure on inventory increasing in areas distant from the centers of economic growth, the residential sector looks like it may be in for an extended period of strong activity.

With the national economic picture showing signs of rebound, such as a levelingoff in the increase in unemployment, it seems as though Vermont may escape another brutal round of construction cutbacks like those in the real-estate-led recession of the early 1990s.

Indeed, the biggest cloud on the horizon recently has come from the state's own regulatory processes, not from the cascading effects of headline-grabbing layoffs and capital spending reductions by major national corporations.

ANECDOTAL VERSUS STATISTICAL

Going by the employment numbers alone, Vermont's construction industry might be assumed to be in recession. The regularity with which small constructionrelated businesses continue to appear on the US Bankruptcy Court list of filings, at their Vermont branch in Rutland, could be cited in support of that view.

The Department of Employment and Training estimates for contract construction show 16,150 people employed in July, down 2.7 percent from 16,600 at the same time last year. For June, the number went from 16,250 to 15,850, a 2.4 percent drop.

But some in the business say they would gladly take on more qualified workers if any were available. A labor shortage continues to be a limiting factor for the industry especially with so many opportunities open for not doing hard physical labor in the summer heat, one construction executive observed.

Checking with construction company officials around the state found no one preaching doom and gloom. The good times seem to have rolled well beyond the borders of Chittenden County, which in recent years has seen activity of another order of magnitude than many outlying areas.

"It's going well," said Otto Engelberth, head of Engelberth Construction in Colchester "We're already up to about 320 (employees)," he said.

"Some departments are slowing down," such as manufacturing, Engelberth observed. In Chittenden County, IBM's budget for building has a strong influence, and that source of work appears to be diminishing somewhat, as he and John Skadberg, the director of business development for Pizzagalli Construction in South Burlington, both said.

Jeffrey Couture, IBM's manager of communication, said there may be a tailingoff in the near future, but that relates to the very high level of activity now.

"We had a very busy construction season this year," he said, adding up to about $100 million in projects.

Looking to the future, IBM has allocated to Vermont about $1 billion of their $5 billion in spending on their Microelectronics Division, he said. GameCube work, has been moved here, an indication of the company's commitment to its 200-acre site in Essex Junction and Williston (with a company-owned bridge linking the two towns), where about 8,000 people find full-time work (hours have been cut for workers at the plant, thus decreasing payroll, but no one has been laid off).

Otto Engelberth said his company is also heavily involved with the $50 million Maple Tree Place project in Williston, the 40-duplex Solstice project at Stratton, and McAuley Square in Burlington.

At Pizzagalli, "We're very busy," Skadberg said, adding that the company now works all along the East Coast and in other parts of the country. Some of their recent Vermont projects are the Fletcher Allen Health Care addition, work helping Champlain College plan for two more dormitories.

As for the general economic slowdown, "we haven't really seen it here yet," Skadberg said. That doesn't mean it won't come, he said, because "generally the construction industry lags about a year behind the rest of the economy."

"It's been very, very good," said Joseph Bordas, president of EF Wall in Montpelier, which since its start in 1970 has grown to about 140 employees. "We haven't seen a reduction in activity," he said, and their company works almost entirely in Vermont, except for a few jobs in nearby northern New Hampshire.

A $13 million renovation-addition project at local U-32 High School is one of their largest jobs, along with a 76,000-square-foot, $8.3 million armory in Northfield. Dubbed the 'Armory of the Future,' the facility will be the home for the Vermont National Guard's information operations battalion and other military units; a place for Norwich ROTC cadets; a distance learning center for community leaders; and a Regional

Technology Center connected with Norwich University.

While the military personnel train on $5.5 million worth of high-tech battle simulators, the area's economy will be boosted, since "education and training are the key collaborative components to staying current on technology," Norwich president Richard Schneider said.

The first-of-its-kind, multiple-use armory is considered a prototype for similar projects around the country, according to armed forces leaders.

"So far it's been a good year," said Grant Spates, now running Spates Construction of Newport with his brothers Dana and Lee Spates. While many will think of the northern Vermont in terms of Ethan Allen Furniture closing its Island Pond plant, Spates said, "We've done quite a few projects for companies that are expanding."

Alpine Snowguards in Morristown has been one client (snowguards are the things on roofs that keep the whole snowload from sliding down onto someone going in or out of a door). In Hardwick, The Sugarman, a maple products business, hired them to expand, and they've picked up some work across the Connecticut River as well.

One way or another, Spates Construction keeps about a dozen employees working. As a guide to the area economy, "there's no sense buying the Wall Street Journal," Grant Spates said. "We basically don't get caught up in the boom and bust cycles."

At the other end of the state, in Shaftsbury, Art Carlucci said Art Carlucci & Son has been "very busy," with nine regular employees plus subcontracted workers picked up for particular jobs.

He isn't sure about the future "Vermont's generally a year behind" but the supposed decrease in the "wealth effect" of stock market gains hasn't stopped projects like a half-million-dollar home they've been creating in Dorset.

"We're mostly residential," Carlucci said, and residential has been a strong market. "We do about 60 percent remodeling and 40 percent new construction," he said.

Likewise busy with mainly residential work has been the McKernon Group in Brandon. Asked if there had been an economic slowdown affecting the high-end work they mainly do, sales manager Larry Rowe said, "There really hasn't."

The company tries to do top quality work on projects that range from big, expensive second homes to small repair jobs for long-time residents, Rowe said. A year ago they were at 50 employees, and now are up to 75, and, "We're busy for many months ahead."

The Rutland area has lagged Chittenden County in its growth, to the dismay of area economic development officials struggling with issues like how to upgrade Route 7 and maintain passenger service at Rutland State Airport. Drywall specialist Rick Wade, a 20-year veteran of the business, has found "things are a little slower," according to his fiancee and assistant Patty Bush.

But "things are starting to pick up," Bush said, with the improvement all across the spectrum of small residential to large commercial projects.

Another Rutland area veteran is Joseph P Carrara & Son, which supplies redimixed concrete in the region and pre-cast concrete parts to large projects in about a 250-mile radius around the Northeast. It also does concrete finishing work. "It's been steady," said Phil Varney, the company's human resources manager.

In the concrete finishing business, the number one thing holding companies back is "they can't get help," Varney said. "They're all busy through the end of the year. It's all relative to being able to hire help."

The concrete companies aren't the only ones frustrated by the labor shortage. At the Associated General Contractors, executive director Tom Serrani said, "We're short of help," though in general "it still seems to be going pretty well."

In southeastern Vermont, at Daniels Construction in Ascutney, general manager Mark Thompson said that despite the national slump, "We didn't see any effect on building activity."

Doing heavy construction, Daniels has been able to average around 30 employees, doing work mostly in central and south-central Vermont, he said.

In the course of doing the heavy lifting for projects, the company hears from other construction businesses, Varney said. "They are expressing to me that they are very busy," he said.

SUBCYCLES

In Vermont, which in total has a population that almost rivals that of one medium-sized city, factors other than general economic conditions can cause various types of construction activity to soar or slump. These mini-cycles often relate to changes in public sector funding, and sometimes to the good fortune of a particular business or institutional enterprise.

For instance, according to the Department of Education, a moratorium on school construction aid several years ago resulted in a backlog of addition and renovation projects, which in turn led to a spate of construction in the past two years. Now the activity is leveling off.

According to Serrani, transportation spending is helping the Associated General Contractors members now, but may be in doubt for the future - and not just because slower times may reduce or eliminate state tax surpluses. "The State of Vermont is using next year to pay this year," he said, and that will eventually bring a counter-reaction.

There is no doubt that the spending for fiscal year 2002 is significant for the construction industry. Counting federal dollars funneled through the Agency of Transportation, the total is $348,966,096, of which $161,507.909 is accounted for by state spending; $173,535,808 is from federal sources; $2,398,174 is local; and $11,524,205 is "internal service" funding (all related to the operation of the central garage).

The Legislature tacked more money onto the $342 million transportation budget than Governor Howard Dean had recommended, which he had characterized as "the largest in Vermont's history."

Notable was the amount earmarked for Interstate 89, whose state of maintenance Serrani had criticized in past years. Those projects include: two paving projects and a reconstruction north of Burlington, a bridge expansion in South Burlington; bridge work in Bolton and Middlesex; and safety work between Hartford, Sharon and Royalton.

State airports will see about a dozen projects. Rail enhancement will be taking place south of Manchester (looking to re-routing Amtrak service through Bennington), between Charlotte and Middlebury (expanding commuter service), and rehabilitation on the Connecticut River line between Wells River and White River Junction (where a transportation museum is in the works).

"We've got about 400 projects around the state," said Agency of Transportation spokesperson James Bressor.

Vermont ski areas saw a 14.7 percent increase in business in the winter of 2000-2001, according to the Vermont Ski Areas Association. Consistent weather and record snowfall at some resorts played an important role, the Association's newsletter reported this summer, but so did snowmaking and other amenities.

Stratton, owned by Intrawest, plans to add two new high-speed, six-passenger lifts. Sugarbush plans to open two mountain lifts. Okemo is starting limited development related to its Jackson Gore project, which had been appealed. Ascutney, coming off a successful expansion of trails and lift capacity, will upgrade its children's learning facilities, do work on condos in the Resort Village, work on trails, and more.

Smuggler's North will add a 20-million-gallon reservoir to boost its snowmaking capability, and is adding a Learn-to-Ski Development Center. Mad River Glen has a large number of small projects, but its main claim to fame is that it's country's only skier-owned mountain. It is now debt-free, after predictions six years ago that it didn't have much of a chance of succeeding. Near Killington, Bernard Rome continues construction of his alpine arts center and a branch campus of Green Mountain College.

But nothing this year is in the same class as the housing market, especially anywhere near Burlington.

Kevin Dorn, executive director of the Homebuilders and Remodelers Association of Northern Vermont, said there might be a bit of a slowdown, but only at the high end, by which he meant properties over $400,000.

The signal event in the growing housing shortage may have been the 1997 publication of a study by Economic and Policy Resources, led by economist Jeffrey Carr. It estimated that in the six northwestern counties - Chittenden, Franklin, Grand Isle, Addison, Lamoille and Washington - there would be a need for 23,000 more housing units in the next 10 years.

"People are being forced to move farther and farther away from their jobs," Dorn said, "which is contributing to the sprawl we keep hearing about."

The member builders in the Association are all extremely busy, Dorn said. No need to build houses "on spec," because everything is being done under contract. And indications are that other areas of the state will follow and have their own serious housing needs, he said.

One area of the housing market has not been thriving, however. In the past year, the board of directors for the Vermont Housing Finance Agency - a group that includes many state agency representatives - decided to give family housing a priority over senior housing when awarding tax credits.

The federal tax credits are re-sold to businesses that need more tax write-offs, and the money from those sales helps keep the cost of developing the housing down. In return, builders target moderate income markets, which benefit from the increased affordability even without a direct housing subsidy.

It's an approach that since the VHFA's founding in 1974 has helped finance home ownership for about 23,000 households, and has helped create about 4,900 apartments. Conversely, the absence of the tax credits for senior housing is pushing developers in other directions.

Peter Holmberg of South Burlington, who in the past had been associated with the creation of the Wake Robin assisted living community in Shelburne, decided to try doing something similar at the former

Brandon Training School, which in 1993 was closed as the state facility for the mentally handicapped. It would not be as upscale as Wake Robin, but with tax credits, he felt he could create a critical mass for providing a variety of elderly services, possibly even re-using former Brandon Training School medical facilities.

Holmberg got as far as turning three former BTS dormitories into 29 units of senior housing and 10 apartments for families with children. There was strong local suspicion of the idea of putting what some termed "low-income housing" into the buildings, but Holmberg stressed that the real goal was the assisted living community.

Recently, he said he had been forced to change this strategy because of the VHFA shift. He does plan to seek tax credits for another round of housing - the existing units are all full and there is a waiting list for every kind of housing but this time the proportions of senior and family housing are likely to be reversed, with three-quarters being for families.

"There's a tremendous demand for it," Holmberg said of housing for families. Also, Federal Home Loan Bank HOME money, which is allocated to banks and helps reduce interest rates, may also be available.

"In business, either you're quick on your feet or you're out of business," Holmberg said. "I'm used to the economic environment changing."

Charlie Brush's Green Mountain Development Corporation has been a major creator of senior housing over the past two decades, such as The Pines in South Burlington, with 185 units, and The Maples in Rutland, with 51 units completed, it has another 100 to go.

But these days, Brush's focus is out of state, for instance on a 116-unit development in the Hanover-West Lebanon area of New Hampshire, a 200-unit complex in Bow, NH, and a 180-unit development - in Quincy, MA.

Speaking of the VHFA tax credit policy, Brush said, "I think it's not fair. I have a definite opinion," he said, and he will make it known as many ways as possible.

Brush wants to do on a more affordable scale the sort of thing that Wake Robin provides prepaid: giving seniors access to services that will let them live independently. He believes the demographics, with the aging Baby Boomers soon to reach retirement age, favor the creation of more CCRC's: Continuing Care Retirement Communities.

But, "We feel we can't get any more projects done in the state of Vermont because of this rule (on tax credits)," Brush said. Also, there are Vermont's permit processes, which are far more difficult and expensive and unpredictable than those in New Hampshire and New York, in his opinion.

"It's so frustrating," Brush said. "There's only so far you can go before you throw up your hands and quit."

In Middlebury, area residents are wondering when Middlebury College will ever quit bringing forward new construction projects. With 2000 the college's bicentennial year, a capital campaign was launched to raise $200 million for the endowment - a figure they exceeded, bringing the total endowment over the half-billion mark.

The enthusiasm has to do with ambitious plans to make Middlebury a college of choice among top institutions, so that someone accepted at Harvard or Williams might reasonably elect to attend Middlebury instead. The list of recent and projected work includes:

* An arts center with an acoustically designed concert hall and state-of-the-art climate control and security for the five-gallery art museum, costing around $20 million.

* Purchase and preservation/adaptation of the former Addison County Courthouse, as a center for foreign language instructional research and development.

* Bicentennial Hall, a $47 million science center that now dominates the view of Middlebury from west of town, completed in 1999.

* La Force Hall and Ross Commons, an ongoing three-part project that includes a 300-seat dining hall, a 68-bed dormitory, and renovations in an existing dormitory. The $18 million complex is slated to be done by the fall of 2002.

* A new, 140,000-square-foot library, which will require demolition of the old science building, reconfiguring of a street, and relocation of three historic houses that were along that street. Depending on permits, the demolition could begin at any time, and work might start on the library in the spring of 2002. Total cost, $40 million.

* A recycling center, now under design, which might open in the summer of 2002. Cost, $1.5 million.

* Work on athletic facilities: roof replacement for a field house, once permits are obtained ($1.75 million); work on a linked hockey rink and gym, now under way ($3.4 million), and adding 200 more parking spaces nearby, which could be done by this fall ($400,000).

* Atwater Commons, another project to create a semi-independent dormitory-dining-recreational complex, now in the design process with a targeted starting date of early spring 2002. Cost, $25 million.

"The town's college," was the phrase summing up 200 years of history during the Bicentennial celebration, which emphasized the close intertwining of the community and its largest employer. There are moments when area residents, unaccustomed to the high-rise scale of some college projects, wonder if it might be the college's town.

DO NOT PASS GO

This summer, one of the most-discussed developments in the construction field has been a ruling by the Water Resources Board, regarding an attempt to put Lowes building supplies superstore into an existing South Burlington shopping center. Their position on the issuance of a stormwater runoff permit is seen by some as possibly choking off development anywhere in the state where runoff from impervious circumstances would have to go into waters already declared to be impaired because of some form of pollution.

The matter is complex enough to be the subject of a separate article. But regardless of whether the Water Resources Board decision is altered by reconsideration (as the Agency of Natural Resources has urged) or by an appeal (assuming there is a denial this fall once the evidentiary portion of their review is completed), the case illustrates something fundamental to the state of development in Vermont.

At a time when many are seeking an end to sprawl, the complexity of locating projects in built-up areas is increasing.

Maintaining a high level of economic development in Vermont is no longer simply a case of doing good marketing or providing good incentives or even making sure there is a pool of skilled workers; it also requires a high degree of coordination, collaboration and/or negotiation.

Enterprises that reach large size either improve their internal communications and networking, or they lose their focus, possibly their mission, or even their existence. Vermont's construction environment and its construction industry also need such high-level coordination, as never before in the state's history.

Copyright Boutin-McQuiston, Inc. Sep 01, 2001
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