And How to Increase Revenue to Minimize Costs On Communities

The word ‘unprecedented’ has popped up in every type of conversation over the past two years to annunciate the dramatic changes to our daily lives and world. Yet, as 2023 steps up to the plate, it is hard to account for every essential line item and plan for every possibility while outcomes from past actions have not been fully realized.  

Yet, this is precisely what households, businesses, charities, communities, small governments, and entities must do.  Embracing uncertainty and bracing for impact simultaneously is challenging; however, hoping for the best and preparing for the worst is not a new concept and is fiscally responsible.  Being receptive to new ideas should be in the leadership’s skillset and philosophy.  Ideas lead to innovations.  The question is: ‘Will the budget include wiggle room to entertain progress?’

Budgeting Challenges: The Essentials

The University of Pittsburgh’s Institute for Politics engages a Fiscal Policy and Governance Committee committed to assisting communities and governments in finding resources to navigate economic challenges.  The Committee recognizes the large-scale, long-term impact of personal hardships and the downturn in revenue it creates for governments and national prosperity.  To bring this struggle to light, they created a booklet showcasing the key challenges of creating a diverse, inclusive budget.  One of the passages is a shining example of the sense of urgency of this crisis by stating:

In 2020, the University of Pittsburgh Center for Metropolitan Studies estimated that Southwestern Pennsylvania municipal revenue losses for 2020 are expected to range from approximately $123 million to $485 million. Many local governments in response to these losses furloughed and laid off employees. For our region’s local governments, these revenue losses will have a profound effect on their financial health and ability to deliver effective municipal services.

The American Rescue Plan Act has served as a cushion and welcome delay from feeling the full impact of revenue loss. The delay has provided time for governments across the nation to perform careful analysis and reviews in tightening budgets and exploring alternate avenues of income and savings.  Many localities have skillfully prioritized and balanced needs with innovation, adjustment, and community relationships that will promote growth, such as investing in infrastructure.  

Infrastructure maintenance and improvements are essential line items in the 2023 budget to foster community growth, public safety, and economic opportunity.   HOAs, counties, and municipalities play an important role in navigating the challenges of developing and maintaining infrastructure.  On that note, the Committee highlights five distinct challenges facing these entities in budgetary requirements (in their words):

1) Managing the budgetary demands of decreased revenues, increased service demands, and the costs of unfunded state and federal mandates, 

2) Meeting the demands of infrastructure and its associated costs, 

3) Understanding and addressing barriers for shared service agreements or voluntary mergers,

4) The ongoing fiscal problems related to pensions; and

5) Balancing economic opportunities with environmental risks.

This is a lot to cover in a short amount of time and beyond the scope of this article; however, if you are curious about what Delaware’s 2023 budget looks like – you can find it [here].  It is important to be aware of these organizations’ challenges and how the decisions to combat challenges affect the communities, especially where inflation is concerned.

Inflation Is Large and In Charge

Americans feel the rising costs of food, gas, UberEats – everything.  Construction, including pipe rehabilitation, has not escaped inflated prices.  According to CBRE’s Construction Cost Index, we will see continued cost increases on labor and material to 14.1%. Rising costs and labor and material shortages put additional strains on meeting demand and affordability.  The large-scale effects can be seen in infrastructure and homebuilding delays.  

The construction industry must increase prices on projects to stay ahead of rising material and labor costs which means the bi-partisan infrastructure bill may cover less ground than initially anticipated.  This realization will be seen in budgeting and felt in communities.  This also means locales will prioritize easier, smaller projects that may delay but not remedy essential repairs to infrastructure.  Preventative maintenance is key to less expensive projects; for example, when pipes burst or leaks spread a host of problems to be dealt with.  A quote from Jim Tymon, American Association of State Highway and Transportation Official, highlighted this reality in response to steel mill products going up 113% in the last year:

“As the cost of materials for these projects goes up, there are going to be fewer projects that you’re able to do. All of those factors are going to have an impact on just how far this influx of new federal funding is going to go in addressing our infrastructure problems.”

The most obvious place we see price increases is gas as we move around the globe.  When gas is up 50%, the reach of the construction industry to make meaningful contributions is reduced by half.  When you marry that fact with the fact that 91% of construction companies are having trouble finding a skilled workforce without significant increases to wages, the need to raise costs on projects is crucial to survival.  ABC’s analysis showed construction costs are up by 20%, with iron and steel soaring at 16% higher.

Arizona has reported prices of a foot of water pipe up 19%, and Des Moines added that it is 69% more expensive to build an airport, not including the price of delay.  In today’s market, it costs $30,000 more to build a home now than it was last year.  What does this mean?  It means project delay and federal dollars not stretching as far.  For localities, this means working with vendors like Standard Pipe Services that form collaborative relationships to stretch dollars further by:

1. Having the experience and knowledge to minimize costs
2. Having access to resources and materials to prevent delays
3. Being receptive to new technologies, procedures, and alternate ideas that reduce cost
4. Work within a timetable that fits into clients’ budgets
5. Assists clients in obtaining funds and resources to reach their goals

Collaborative relationships may eliminate the need to pass higher costs onto communities such as in Little Rock, Arkansas residents who pay a $146 monthly surcharge (17% higher than planned due to heightened construction costs) to their water company so new water lines can be installed.  Understanding why projects cost more and where the dollars are going is essential because it affects us all. For example, the Associated General Contractors of America indicated:

Unprecedented increases in materials costs, supply-chain disruptions, and an increasingly tight labor market have made life difficult for contractors and project owners alike…The price index for plastic rose 35 percent and architectural coatings rose 24.3 percent. Lumber and plywood rose 21.1 percent.

This article provides a minimal glimpse of inflation concerning budgeting and infrastructure.  The scope of this article is to bring to light the specific challenges and countermeasures that can assist in mediating high costs.  We are in this together. This video speaks to heightened construction costs:

How Can Infrastructure Costs Be Met?

Two driving forces keep costs manageable:

1) Timely Inspections to guide Infrastructure Plans; and

2) Preventative Maintenance and inclusion of infrastructure elements in Reserve Studies

Knowing what you are dealing with is essential in determining action.  Hundreds of miles of infrastructure beneath our feet may feel overwhelming; however, there is a way to tackle it.  Time budgeting.  That is what a maintenance plan is.  Creating a punch list that splits the inspection into areas distributed over a year is an excellent start to a solid maintenance and inspection regiment.  This process allows problems to be identified, diagnosed and remedied before they erupt into costly oversights.  

Prioritizing areas that need work can be distributed across the timetable as well.  Gantt charts are beneficial in distributing actionable items, accounting for deliverables, and effectively budgeting time and resources.  Many reputable vendors will give discounts on laborious items if they are included in the preventative maintenance planning.  Being creative in vendor relationships and creating revenue streams before you need them can take the pressure off a strained budget.

Creative Revenue Streams

The largest source of income for the government is taxes: property, income, and sales taxes, to be specific.  The downturn means the government will take in less revenue from those sources.  As a community, we must participate in government challenges because it directly affects us.  According to NASRA,

Since 1996 state and local governments derived approximately 45 percent of revenues from taxes, 18 percent of revenues from the federal government, and approximately 25 percent from service and utility charges.

Local governments and municipalities must think outside the box to draw income from other sources and help boost project funding, and communities should participate.  In today’s gig economy, there is no shortage of creative ways to create income and raise revenue, that includes municipalities and HOAs.  There are several no-upfront fee raffles, bake sales, run-a-thons, and other customizable and convenient events.  Youth sports teams utilize services such as www.abcfundraising.com.  

With several people working from home, there is also the possibility of leasing unused space as storage or work-buddy offices.  The importance of locating and applying for grants cannot be understated.  The moral of the story is to be an active participant in budget strategy and revenue.  Intentful participation makes the difference between a successful, prosperous year or rotating in a spinning wheel that doesn’t move forward.  

Standard Pipe Services can help you with inspections, prioritizing and planning preventative maintenance, and attending meetings to answer the unique challenges that your community is facing.  Follow us on LinkedIn and FaceBook to stay current.

If you want a deeper dive into understanding the why and what of inflation on an entire economy, consider this resource [here]. For global and investor outlook on infrastructure, a good resource can be found [here].