Addressing the impact of inflation and labor shortages on infrastructure projects

In light of the inflationary pressures and continuous shortage of skilled workers, how have governments and localities fared when it comes to updating, finishing, and starting new infrastructure projects?  

Transcription:

Tim Sullivan (00:09):

We are with the Now up is addressing the impact of inflation and labor shortages on the infrastructure projects, which is an incredibly timely topic. If you're working on any of these, and I'll turn it over to Peter Keating who's the moderator. Thanks.

Peter Keating (00:22):

Thank you. The first time I ever did this, I said we had a panel so eminent that I myself might apply for CPE credit and just like now one exactly, one person in the room laughed. So it was enough that people realized it was supposed to be a joke but nobody thought it was funny. So I thought I'd try again and we got the exact same result. So we do have an incredibly eminent panel and I thank you all for taking the time to join us. I'm going to ask each of you to just introduce yourselves and then we can get started. Go ahead.

Adam Barsky (00:54):

Sure. Adam Barsky, the Executive Vice President and Chief financial officer of the New York Power Authority. For those of you that are not familiar with the Power Authority, we generate 25% of the state's electrical generation, of which more than 80% of that's renewable and we own 40% of the high voltage transmission grid for the state and looking to do more to help the state achieve its goals for the Climate Leadership Community Reduction Act. So that's our sort of driving force right now to help the state build out its grid in order to meet all those renewable goals that we have. Thank you.

Christopher Jumper (01:39):

Chris Jumper, I work at Assured Guaranty, focus primarily on the utilities water, sewer, electric, gas but also transportation, ports, airports, tall roads. I've been, in addition to doing domestic, I've worked on some international transactions and I've been there about six years.

David Bodek (02:08):

Good afternoon everyone. I'm David Bodek, the Sector Leader of Public Power and Electric Cooperative practice at S&P Global Ratings.

Peter Keating (02:19):

Great, thank you. So in light of inflationary pressures and continuous shortage of skilled laborers skilled workers, we're here to look at how governments and localities have fared when it comes to updating, finishing and starting new infrastructure projects. So we'll start with inflation and when it comes to inflation, let's start with a 20,000 foot few because on the one hand, six or nine months ago when inflation was peaking, there were a lot of media outlets running stories about bridges and tunnels and new projects being downsized or air terminals being delayed in Iowa, Wyoming, and Ohio. And I wonder if those were signs of a trend that is continuing or those were signs of a few factors combining at their worst because some of the factors leading to some of the contributing factors leading to the high inflation of last year have somewhat abated post covid spending supply chain backlogs.

(03:18)

Others like the invasion of Ukraine and volatility in some commodity markets continue. The other thing is the construction industry is no stranger to seasonal problems and dealing with them and government spending should have some counter cyclical effects. So big picture right now from where each of you sit, tell me if the inflation wave has actually made and is still making a material difference in the rollout. Are what the planning, the rollout and the credit rating of big projects across the board. Is this spending wave that's supposed to come going to look like a different shape or be smaller in size because of the inflation we've been through? You want to start?

Adam Barsky (04:04):

Sure. So I would say that it all depends which projects we're talking about but certainly some of the renewable projects that we've seen are under lots of pressure, but also people are trying to figure out how to keep them viable, get them going. So if you were in a project that had, you're locked into a fixed price power purchase agreement with an assumption of what your project costs are going to be and all of a sudden your project costs have gone up by 30%, that project's probably going to be underwater and you're going to have to figure out how to make that one work. But other critical projects where there's either been things done in advance in terms of hedging or what I'll call indexing. So in our area, which is the regulated utility space, especially with the critical transmission projects I think the regulators have been great at being ahead of this even though they have various cost containment provisions.

(05:05)

But we had a project that was a or are doing right now that had some escalated costs based on what was happening with the price of steel and other commodities. But in our fee order and our tariff, we had all those costs indexed as being recoverable to deal with any cost pressures to ensure that they were all recoverable back to us as a utility. So our projects continue to move forward without any issue in terms of getting done or getting us the returns that we were looking for. So I kind of put those into those particular camps, but it is forcing everyone to be more cognizant of not only price pressures but volatility and how best to manage that and being more creative in things like hedging, guaranteed maximum price, use of call put options in terms of again, putting some insurance around costs so that you can contain any unforeseen circumstances.

Christopher Jumper (06:11):

Yeah, I mean just to add on what Adam said after years of basically no inflation or negligible amounts of inflation, you know suddenly got a bit of a shock in 2020, late 2021, early 2022, and I think the Fed was caught a little flatfooted in that they considered it, oh, it's just transition transitory because of supply chain issues and some delays and as we start this giant engine that we call the US economy all those will work themselves out and everything will be fine. And there's always been, or for the past several years at least contractors, large project contractors have always been challenged with labor and getting skilled labor and making sure they get the right people in there that can actually do the work. Building a nuclear power plant for example, is very different. You need a different type of welder than a normal welding.

(07:17)

So they don't necessarily teach it here. They had to retrain a lot of people. The transitory inflation kind of got proved false when you know had the Warren Ukraine breakout and a lot of geopolitical issues surrounding that. Suddenly you saw petroleum prices spiking up, you saw in addition to your materials, your labor costs and then the supply chain issues really didn't go away actually. I mean we all remember seeing the pictures of the port of Los Angeles and the container ships out as far as you, I could see there was also freight issues more recently November and December where the freight train workers threatened to go on strike and that would've shut down if they did, that would've shut down 7,000 freight trains a day, which would've been devastating for the economy. So there's not just inflation, it's the supply chain challenges that we're still facing.

(08:27)

Again, June of 2022 you saw a 9.2% inflation rate which was you have to go back to 1981, which unfortunately I do remember that old, a lot of people here might also we had 10% inflation. So we've been there before it and it's ugly and it's a challenge. We're seeing some benefits from the fed discipline of raising rates and in slowing inflation and just recently the 25 basis point rate increase demonstrates that okay, they're starting to ease their foot off the gas pedal but there's likely going to be further ones and you still have already increased prices. So it's a real issue. I think some of your material costs are working themselves out and stabilizing a little bit, but as Adam said, you have to have those kind of hedging mechanisms in place storing on site, that kind of stuff.

David Bodek (09:41):

To go back to your question Peter I'd like to touch on both the inflation aspect and then the ratings aspect that you had referred to. So in terms of the inflation aspect, we're seeing the rate of inflation slowing, but we know that costs have gone up considerably over the past year. Construction materials are up, I think 35% euro over year for paving roads, the costs of asphalt and oil, we know that those are up a lot. And so this isn't really just something ephemeral and you've cited a number of examples in addition to the examples that you cited just this week in the bony, there was the article about Tennessee and the infrastructure backlog there and the big nut that they have to crack in Tennessee, but that isn't one of the American Society of Civil Engineers gives infrastructure a C minus grade here in the US and many sectors have C or D ratings and there are a lot of challenges there in terms of the inflation.

(10:49)

There are highway projects that have been tabled because the costs are so high, such as in Ohio the I75 expansion project Tucson and Tacoma, Washington are scaling back their water sewer projects where they were planning to re-pipe the systems and they, they've come to the conclusion it's just costing us much more so that even though again the rate of inflation is abating but prices remain high, we haven't dialed back the inflation compared to where we were. And there are other cost aspects to this as well. For instance, because of stock market returns there are other fixed costs that issuers need to address such as those related to pensions, which exacerbates the challenge of addressing the infrastructure from a ratings perspective. S&P recently published its outlooks for the several sectors we're following in public finance and by and large we have stable outlooks but it's not universal.

(12:03)

There are sectors where we see vulnerability and mass transit ridership is down but cost the need to rehabilitate. Mass transit is very much front and center. Again the American Society of Civil Engineers points out and the labor costs are very much there. The healthcare sector is facing inflationary pressures in terms of labor and then the water sewer sector faces a lot of regulatory mandates in terms of contaminants, in terms of re-piping the systems. And so that's not deferrable types of projects. So while we have negative outlooks for mass transit and healthcare, we don't for water sewer, but there is a vulnerability there if they can't proceed with these projects because there's an affordability issue, there's only so much money that you can ask customers to pay, particularly as we are on potentially the cusp of a recession.

Peter Keating (13:06):

So one thing that really underscores is just how widespread the rise prices has been. It's prices have risen among materials that wouldn't necessarily seem like they would have to be correlated but one after another have all gone up. You mentioned Tucson. I pulled an interesting stat when Tucson launched the first part of its main water main replacement project that was in 2020 just a couple of years ago. Iron pipe costs $75 a foot and a gate valve costs $3,000. The most recent bid phase when that ended, by the time that ended, which is just last year, so about two years, pipe costs had risen to about $90 a foot and gate valves to $4,100 a piece. So the city had to prioritize and not just spend all the money he was expecting to on that over the time period he was expecting because the prices were enormous. But at the same time, you also mentioned oil and asphalt. There was a town I found in Massachusetts, Huntington where 37% price increase in liquid asphalt made the cost of paving a mile of road about $140,000. That town gets $159,000 a year from the state for funding all of its roads. So if they do nothing else right now, they can afford to repave one mile of road per year.

(14:35)

This all leads me to ask, is there anywhere where these pressures haven't hit yet is, are people who are building out broadband networks facing these same inflationary pressures? Is it economy-wide because of the multiple overlapping factors? Is there anywhere you'd like to be if you had money to spend more than places where you can do a one mile of road per year with the money that you have?

David Bodek (15:02):

If I could jump in not saying where I'd like to be, but yeah, I think there's an important takeaway in terms of roads, again going to the American Society of Civil Engineers that 40% or nearly close to 50% of the troubled or inferior roads in the US are not toll roads, municipal roads. And you Peter pointed out that right, there's this imbalance between what it costs to pave and the revenues that they're taking in. So there isn't that latitude to raise tolls. Maybe you raise property taxes it it's a difficult time to be doing that again against the backdrop of the recessionary pressures and then to go to Adam's point about fixed costs and there are contracts where there are fixed costs, but we are seeing that first of all, although it's an extreme example, the Vogel nuclear plant, we saw the problems that float from the fixed cost contracts there where it bankrupted Westinghouse and we're seeing with offshore wind projects in New Jersey and Massachusetts that the contractors are saying we need to renegotiate this contract or maybe we walk because when we entered into this fixed price contract, we just didn't think the numbers were going to be what they are.

(16:33)

We just can't make a profit on this or even break even. So not speaking to where one wants to be, but speaking to the fact that the hurdles are really very, very prominent. Yeah,

Adam Barsky (16:48):

I would just say again, goes back to where I say there are problems and how industry and government is responding. So projects that happened and were made prior to when we saw these huge spikes, particularly as was mentioned as a follow on to inflation and the second kick in the stomach was the outbreak of the war in Ukraine. So deals that got entered into before that, extremely stressed, but once it became apparent that we were in the new world of not only rising inflation but just high volatility, people had to react and respond to that. When you say where do you want to be I'll put our business aside for one second, but certainly I like to be there and I think a lot of other people invest in projects today for infrastructure or purchasing bonds want to be in our projects as well. So there's no there's huge demand and no limit to appetite for the infrastructure projects we're doing.

(17:56)

But the other response to it from the governmental standpoint was the inflation reduction act, the infrastructure jobs act, the amount of money coming to the federal government to help assist localities with a number of different type of projects to help fill in that gap. And those in those issues are going to lead to significant projects that have to be done. But to your point as well, for some of these areas that have limited resources it has led to people needing to prioritize to now you can't do everything. You have to now score projects a little bit more intelligently to see which ones are needed most in terms of whether the state of good repair, what's the time to failure, what's the engineering scoring then if it's growth, it's got to be strategically rated, it has to make financial hurdles, it has to make financial sense.

(18:53)

So those get prioritized. And the other thing I would say, going back to our projects, not only is there that regulatory framework to recover, but when you talk about affordability and what the value proposition is to say the rate payer, so on one of our projects that we did have a 30% rise in cost. That was a yes, it was recoverable, but the fact that that project, let's call it 800 million was going to avoid 6 billion of transmission congestion charges that would otherwise happen if we did nothing. Even though you had an increase in the cost, the value proposition to the rate payer at the end of the day was over overwhelmingly still made sense from every aspect you could look at it. So not an issue there. So again, I think that the industry and the government has helped, has been responsive, people have been smarter about how to now address the volatility and the higher cost.

Christopher Jumper (19:50):

And just to add on inflation paints with a broad brush, 30% to 60% of your project costs are related to materials and supplies that you need to construct. Where would I want to be? I'd want to be in a project as Adam described, which was index pricing and adjustments, ability to go back to the owners and be nimble and anticipate it, having good contingency levels, that kind of stuff. It's also challenging. Yes, there is a big pot of money that the federal government has put forth in the infrastructure investment act. With inflation though the purchasing power of that money has reduced. So you also want to be in a project that has the ability to maybe break out into phases as opposed to doing it all at once. Maybe you break it up to smaller, more manageable parts. What we saw, we did see a few projects that were canceled, but more often we saw them get downsized and rationalized and because partly the issuers didn't want to go back to the boards, city councils. So for

Peter Keating (21:04):

The record, I tried, I was just wondering if there's gypsum, copper, potash, anything was not going up 30% a month in prices. The depressing answer seems to be no. So we're moving into the strategies that some of the parties use to try to contain or fight these high costs. A lot of different folks involved with any project. Let's just talk about the issuers for a second. You've all brought up a few strategies. Let's go into detail about a couple of them actually. They mean how they work. You brought up building cost sharing into design as early as possible. Is that something that more issuers are doing or more evaluators are demanding? Is that a key? And you also mentioned pegging costs particularly of commodities to indexes to variable variable rates rather than fixed, fixed costs in these contracts. Talk a little bit about each of those and whether they represent trends that are growing and or should be growing.

Adam Barsky (22:03):

So if you take, and I would say one thing on the commodity prices, yes they are elevated, they're higher, but they've also made a U-turn and have come back down. So I'll use aluminum for an example. Aluminum had gone from a real low during the pandemic all the way up to, I don't know, about 30, 3600 per lme on the lme for the exchange at its height and now it's back down to 2,400. So a significant reduction still at a higher level than maybe pre-pandemic, but certainly off its highs. I could say the same for steel and copper. So we see the prices softening, we see the prices coming down and that's why I say it's not just elevated prices, but it's also volatility because you just don't want to lock in costs that you might get stuck with paying higher if they actually do go down.

(22:59)

And that's where strategies like options and hedging can come in where you can create let's say a cap. But the real important thing is when you have to work with your suppliers, you have to work with your contracts. So you too, when you bid out the contracts, you have to put the right indices into the contracts that they're going to peg their prices. So let's say steel, you want to use the hot rolled coil index because that's the most liquid index that's tradable in the market. If you want to do a hedging transaction to either by call options on it to offset an increase or just enter into a swap for maybe 50% of your exposure again so that you're not, you get the benefit protection taking 50% of the risk off on the increase and you get 50% of the benefit on a reduction because it is vital, it is moving both ways.

(23:54)

So that's a strategy that people are using. The other is that we've been on a number of projects where we are doing a joint with other entities, let's say another utility and we'd each go off on our own direction and do our projects the way we like to do our projects. Well, given all the challenges that we're seeing, we're saying, hey, let's get together, figure out what we each do best. How can we joint bid this? Can we, cause we don't want to be competing with each other for either contractors, suppliers, labor, all the other things that are really scarce right now. Why end up cannibalizing each other on the same project? Let's do it on a joint bid basis. So that's happening more now than it was before. So again, it's evolving and people are responding and very quickly in a lot of creative ways to make sure that we can ensure project completion and success.

Christopher Jumper (24:48):

Again, risk sharing with your stakeholders as Adam described I think is very important. You know, have to have open discussions, you have to be able to go back when something starts going sideways or not as expected or not as budgeted. Have frank discussions and work through a solution together as opposed to competing with each other.

Peter Keating (25:09):

Well let me ask you about that because when private companies go back to their suppliers and they say, well we're just not going to pay this because the prices are too high and they kind of ratchet. How early in the process of planning a project do you now have to build in the capacity to say there's a potential here where we may have to renegotiate certain terms or do you try to build in the flexibility of the terms from the very beginning?

Christopher Jumper (25:32):

The easiest way to do it and it's actually hard up front, is to build it in, is to build it in upfront. If you're doing it when the problem occurs, you're going to have everyone you're heading into a fight and possibly dispute resolution and litigation. So I would say try to go into it with be realistic prices, go up, prices go down, have mechanisms to be able to share any reductions and assume your rata share of a project. Also, it's making sure you have sufficient contingencies and all the sort of best practices of project finance, which are making sure you have good enough contingencies, make sure that you're have the ability to, and some flexibility in completion. Timelines if you know can't get the labor, can't, there's supply chain issues and reassess material needs and how to maintain them commodity swaps are one way. The other way is to maybe go out and stockpile some of it to have an inventory so that when the supply chain issue occurs you're not stopping work.

Adam Barsky (26:56):

Yeah, I would just add to it sure was just said is that which brings up a very good point. So one of the things for example we are doing when we work with our suppliers, we would buy according to how the project schedule would be unfolding. But one of the things that we've found we need to do is create our own staging warehousing areas so that if we see the prices low, we might purchase ahead of the need lock that in, but we would have to take it and store it to where it's needed because they're also stressed in terms of how much they can store at any one time. So that's not only, that's helping us manage price and it's also helping us avoid some supply chain, unforeseen supply chain risks so that we know we have it there. So sometimes we're playing the pricing if you will, and trying to get ahead of it where we see it's attractive

David Bodek (27:49):

When thinking about risk sharing or in reality risk shifting to some extent to your counterparty. We also have to think about how resilient is the counter party when you're shifting risk to them. And again, not to beat the Westinghouse drum again, but they just had misjudged in providing the fixed price EPC contract that the price just got away from them so much so that they ended up in bankruptcy. So that's really instructive in terms of considering with whom are you working, where

Peter Keating (28:26):

Do end users usually wind up in the evaluation of the vulnerabilities and strengths of the people to whom risk is being shifted? I saw a story about a central Arkansas water costs are rising so high on the projects, they're planning 17% last year that the neighborhood residence are going to pay $146 monthly surcharge for their new water system. I mean at a certain point some of these costs are going to be passed down to the people using the infrastructure. It seems like in an environment where the definition of how much of that is too much is sort of shifting away from the consumer or the residents.

David Bodek (29:06):

So when you have a situation like that and many of the utilities, whether it's water, sewer, utilities or power utilities have passed through mechanisms to pass through the cost to consumers and in effect you're turning the consumer into a hedge. They're your hedge counterparty. But then you get into affordability issues and again we'll get where we are in terms of inflation, the pressure on consumers, the potential for recession or look at the action of the Long Island Power Authority just in the last week or so where they said we're forgiving about 40 or 50 million of unpaid customer bills from the pandemic where they realize, and I mean these accounts are probably uncollectible accounts in any event, but there's only so much that you can push onto the consumer before you start to see that not only are delinquent accounts growing but also uncollectible accounts

Peter Keating (30:06):

Are growing well also, especially with utilities, a lot of these price increases are heavily regulated. So I I'm guessing that, so all of this also means you have to hedge with the regulators where possible too and say, given everything we need an 8% rise instead of a 6% or we need to even, I guess in some places these are tied to cost of living indexes but you know need to do regulatory hedge as well. Is that fair to say?

Christopher Jumper (30:31):

Right. So as far as if we're talking municipal, let's say before you start a project, you're going to have to get council approval, you've got to socialize it with the government, with the constituents and make sure, typically you're getting some sort of voter approval with investor on utilities or IUs or regulators. You're filing a rate base to the regulator and arguing, here are our costs, here are our expenses, what's the impact it's going to be to the customer. And all that has to get approved before you really go forward.

Adam Barsky (31:13):

It gets also to the essential services. So it's how essential are the services. What I was saying before about value proposition is it's still there or not in the regulator's eyes. It gets a little bit to elasticity of demand. Take the case we're talking about at lunch about the MTA and ridership being down but think about who is actually riding the subways today are the ones that actually have to, because they don't get to work remote, they have to go onsite and who are they? They're hospital workers, restaurant workers emergency services. How are you going to make, how are they going to make up the difference in the revenue that's been lost and their ability to pay when they have no choice but to ride the subways. That's why Liz Fine was making reference that the governor came out with other revenue sources, socializing it somewhat on the payroll mobility tax. That's somewhat of bringing back the commuter tax that was lost in the nineties and they'll probably have to build on that. Allocating the gambling casino revenues somewhat to the MTA, very similar to other dedicated revenues they've done in the past, the real estate mortgage recording tax and things of that nature. So it have to really pay a lot of attention to affordability and that elasticity of demand for who can bear that the brunt of those costs.

Peter Keating (32:44):

Well I look forward to the day where casino revenues contribute meaningfully to infrastructure anywhere on the face of this planet. Not to argue with anything you're saying, I'm just, I'm from Long Island and the people that are infuriated by the commuter tax but are spending an awful lot of money on casinos that have just been built recently and anyway, that's neither here nor there. Let me ask you about something. You mentioned other federal funding and financing still to come down the pike in December. The Biden administration said that only if anything ever deserved air quotes. It's this only 185 billion have been released so far for projects from the I J A. So there's the remain, there's still unreleased covid funds, there's Infrastructure and Jobs Act investment in jobs act funding, there's the ira, the build back better massive subsidies particularly for renewable renewables projects. And you also mentioned the CHIPS Act and when we talked about 500 million for a micron plant in Syracuse, which is just another way of saying another kind of infrastructure investment. Does all that money and the opportunities available represent a significant counterweight to the erosion that we've been seeing from inflation because at least that's some certainty there and there's a huge amount of money there as well.

Christopher Jumper (34:11):

I'll start. Yeah, so I'd say while inflation definitely took a big chunk out of the purchasing power of that I j funding it's better than not having it at all. It will definitely benefit. I'd say probably one of your biggest challenges are the requirements and the application process for getting that money. The requirements you have to have a big chunk of your material sourced in the United States to buy America. Which again, I grew up in a union family, local three electricians and I'm totally on board with that. That being said, it's going to take years because that's already a lot of our manufacturing capability has gone to other countries. It's going to take years to rebuild that and you're going to have supply chain issues persistent associated with that. You'll also have requirements for different groups. Diversity that is built into it that again is going to create, you're talking billions and billions of dollars of projects that are, are very complex. Subcontractors are going to be a challenge to find 20% that meet the requirements for diversity and have the capabilities for providing that source. So there are some challenges to it. I think it's going to be a net positive. I think it's going to help spur growth and improve. Yeah it's broad brush, it's going to cover a lot of everything. Transportation, power, they ports, airports, utilities you name it. It's pretty much in there, but it has some definite hurdles that they need to address.

Adam Barsky (36:13):

And I would also say too that there's no free lunch. So whenever you're getting into federal funding, whether it be a grant or any other form of federal funding, there always comes these strings attached. So as Chris was mentioning, the local sourcing or domestic sourcing of products the need to have an apprenticeship program in place. And then there's all the compliance issues regarding all of these are subject will probably be subject to the single audit act. So now you're going to have to hire your accountants to do a specific audit on those programs. In the case of the ira, yes, good news, direct pay. So entities that are exempt can now get the equivalent of a tax credit. But now that requires those entities who have never filed tax return before to have to go file tax returns and what's going to be involved in that, who's going to share in the risk in that and indemnify if it's rejected or the office of the oig, federal OIG comes in and audits later on and says, wait a second you didn't follow 5.3 of the requirement of the grant, you now owe us this money back.

(37:26)

If anybody's gone through a FEMA disaster emergency and three years later they come back looking for a rebate on what they gave you it's enough to make you scratch your head and say, do I really want to do this? So the devil's into details and again, there is no free lunch. So people need to understand it's going to require building that internal infrastructure around it so you can meet all those compliance challenges that will come with it.

David Bodek (37:54):

It's definitely a net positive as Chris had mentioned, and also TA to the list the requirement to pay prevailing wages, also cadets to costs. And just to cite the Ohio I 75 expansion project they had reported that the cost escalation that the project has incurred actually is going to SAP or eclipse the benefits of the infrastructure act that they had anticipated receiving. But in the aggregate, again, to use Chris's term of the net positive there still are TFI loans with the loans, there are other monies available and certainly that's a great help. But some of the air has been let out of the balloon of the promise of that these acts might have provided. But for some of the inflationary pressures,

Adam Barsky (38:53):

And I would say for the New York region or the Northeast region when it comes to those prevailing wages, and we didn't speak a lot enough about the labor shortage challenge, I think we're in an advantage to the rest of the country because of how strong the ties are here with labor. I was at the Urban Green Council this year and their honoree of the year was Gary Lab Barbra, who is head of the New York State building trades. Why? Because he saw the opportunity for labor with all of these green jobs and all these green projects and he wanted to get very involved and help lobby and support for all these different provisions. In fact, he was a moving force in getting environmental bond act passed in New York state. And New York has also been very, our authorities, we've, each of us have some representation from labor on our boards.

(39:48)

And again, that's critical having that partnership with labor because then when you get into these complicated projects, you can do a project labor agreement where it works both for in ensuring project success while minimizing the costs of otherwise unforeseen over time and other provisions that would otherwise kick in. So there's some rationalization of what the labor needs are and how they should be addressed. So I think our area has been wave advanced in having that great partnership with the unions and labor in general. But that being said, there is a critical shortage of a real trained electrical workers. So the IEBW is really where we're seeing a lot of problems and potential shortage because that's an area that really needs to be done and perhaps that's where these apprenticeship programs can actually be a benefit because there is a true shortage there for skilled electrical

Peter Keating (40:46):

Workers. Well, let's talk about that labor shortage, especially around the rest of the country. Last year the United States had 440,000 construction jobs openings. That's the most ever recorded. And the infrastructure investment in Jobs act is slated or predicted to generate hundreds of thousands of more jobs in the industry, peaking at something like 300,000 a year in 20 27, 20 28. Now look, there are always reasons why people are leaving the construction industry. There's many more people who've worked construction in their lives than who've made a career of construction. It always has a high quit rate. But there are reasons, not just on the demand side, but on the supply side, I think to be concerned, a sharply lower number of young people say, interested in working construction and something like 30% of construction workers are usually far and born. And if immigrants don't feel welcome or aren't able to join that construction economy, that could really hurt. Now and of course construction worker shortages have two effects. One is bottlenecks because there's not enough workers to do the work, but also higher costs because it means their higher wages are needed to pull people into the field. Now when I look at the ideas that are around to help close that gap, things like retraining and upskilling workers and increasing benefits and the flexibility of work expanding apprenticeships,

David Bodek (42:18):

The

Peter Keating (42:18):

Federal government is trying to give incentives to do these things, but they seem very long term. And the construction industry itself also seems still very tech averse, sometimes very innovation averse. It seems to me that might just be my opinion, but seem very slow to adapt to new technologies in many areas of the country. So let me put it to you guys. How serious is this and is there anything that the country can do on a large scale, quick enough to make a difference in the number of workers that are needed?

David Bodek (42:51):

So I'll lead off. So in terms of the severity of the problem, and one of the earlier panels spoke about the labor participation rate and that there are a lot of people who have removed themselves from the labor force, but it's not just that. I saw some interesting Bureau of Labor statistics statistics that the average age of construction workers is 43, the average age of utility workers is 50 and within the construction trade, fewer than 9% are 25 or younger. So it's definitely a hurdle there in terms of attracting new talent to the sector. And in terms of doing that, again, to relate back to one of the earlier panels, the construction industry should consider reaching out to groups that historically have been underrepresented in the construction industry and provide these apprenticeship programs. Think of creative ways to create perks to make it attractive to participate in the construct construction industry. I'm sure a lot of people are thinking about this. How do we get people into it? Because to effectuate, whether it's the IRA or the i j, you can't effectuate these without the people, the numbers of people that Peter, you cited in your opening remarks for this question. So it's a big challenge just given some of the statistics I've shared.

Christopher Jumper (44:38):

Again, it's going to come down to you've got a large aging group of baby boomers that are slated to retire, maybe providing some sort of incentives for them to stay on longer to run apprenticeships. Apprenticeship programs might be one solution. You know, also had, again, a lot of it was displacement because of the pandemic. You know, had a lot of projects that were halted or delayed because the pandemic hit and work stopped and those people went and found other jobs. I believe the proper incentive going to have to, even though labor is a huge cost of projects, eight ranging 50% in some cases you're going to have to pay for and provide adequate benefits. You're going to have to provide apprenticeships, attract different groups also to meet the diversity requirements in I, I think that's the solution. I think it a lot more projects are going to be needed and a lot more employees are going to be needed and labor is going to be needed in order to fill the slots with the flood of projects that are supposed to come.

Adam Barsky (46:06):

I think those are the shorter term things that can be done. I think people have think longer term and how do you get it, how do you start in the schools? How do you start identifying people who, their career track may not be a professional career, but trying to get them into skilled trades where there's great opportunity. So as a feeder, but when you think about it long term, I mean things are happening quicker than I think we realize in terms of artificial intelligence, robotics and things of that nature. The result of that may be displacement of a lot of workers from traditional jobs like say fast food there's right now that's a hundred percent automated without a human, so where are those people going to go? So we have to think about how do we transition people from one area to the next and try to identify in early in education the benefits of taking a track that might look a little bit different where there might be opportunities. So I think it is a tough problem, but there are things that need to be done creatively.

Christopher Jumper (47:14):

And again just as an aside, because when I was getting ready for this, I was looking at what does it take to become a plumber and where could I do it around my location, my town. And there's not many trade schools. I remember growing up and there were trade schools and you could learn to be an auto mechanic, you could go learn to be an electrician plumber. That's maybe my career path sometime in the future. But right now I think there needs to be that kind of establishment where the community college can have those kind of programs. There's a lot of accountants, there's a lot of lawyers. Nothing too many accountants or lawyers, but maybe we need more mechanics.

Peter Keating (48:01):

Well it's hard not to end on a heavy sigh after talking about inflation labor shortage. So how about another bad infrastructure joke? I think all of the things we've been talking about show how the legislation that was passed and indeed the funds that are being allocated just represent the first steps on a very long road ahead again. And then not even one

Christopher Jumper (48:24):

Leg. I have a joke.

Peter Keating (48:25):

We do have a couple of, if anybody has any questions

Christopher Jumper (48:31):

Anybody want to hear Joe? Yeah. Oh yeah, it, it's, I dunno, you've probably heard this one. The high price lawyer, New York's Wall Street lawyer, he's at home and his sink is clogged, it's kitchen sink is clogged. So he calls a plumber. The plumber comes and looks at it, goes back to his truck, gets a plunger, plunges it, fixes it, right, cleans everything up, comes back and hands the lawyer a bill. And the bill is $900 for half an hour and the lawyer looks at it and he goes, $900 for half an hour, that's $1,800 an hour. I'm a high price lawyer in Wall Street and I can't charge that. And the plumber turns and goes. Yeah, when I was a lawyer, I couldn't charge that either. That's a good one. Thank you Chuck. Good one. You see. Excellent.

Peter Keating (49:29):

Thank you all. Thank you all for that and for coming and for attending. Appreciate it.