Shoppers across Georgia are spending more — and paying more in sales tax — but the extra money pouring into government coffers has not meant increased buying power for one metro Atlanta school system.
Sales tax proceeds are up across the state. They rose more than 4 percent this year in Cobb County, yet parents and students there won’t see a bounty of new buildings.
That’s because of rising construction prices in Cobb, an unlikely phenomenon that could be a local anomaly — or a harbinger of things to come elsewhere.
“It’s an overstatement to say that the construction market has recovered,” said Doug Shepard, who runs Cobb’s school construction program. “But we’re seeing the first signs of a recovery.”
Last year, Cobb taxpayers got a lot for their money. Building contractors, desperate for work, were offering steep discounts — well below what officials had expected.
The bids they made on seven major school construction projects were, on average, nearly 37 percent below projections made back in 2008 when the projects were planned. An addition to Pine Mountain Middle School, for instance, cost $6.2 million instead of the more than $13 million first budgeted.
It was good news for the school system, which was suffering from a third year of declining sales tax income. It meant projects didn’t have to be cut back so severely.
But this year, despite the lingering malaise in the construction industry, prices skyrocketed. The bids on eight big projects were still nearly 17 percent lower than the 2008 projections, but they were well above last year’s average.
That hurt because school system officials, counting on the continuation of bargain basement prices, had dropped the budgets on their projects, but still expected to get the same amount of building.
“Now, about half of our projects are coming in over budget,” Shepard said. That has led to a scaling back of plans at some schools.
It appears to be an isolated phenomenon. Other school systems have not reported a similar jump in prices, said Lynn Jackson, director of business operations for the Georgia Department of Education.
Jackson talks with school construction managers across the state, and they describe desperation among builders.
“A lot of people are reporting that they may have 20 or 30 contractors showing up for bid meetings,” Jackson said, “so there’s a lot of competition.”
Doug Hunter, a senior vice president at Holder Construction, a major commercial contractor, said he couldn’t understand why costs would rise in Cobb. Pricing in Atlanta may be at an all-time low, he said.
A half decade ago, contractors’ bids had profit margins as high as 20 percent. But they are “extremely aggressive” about getting work these days, he said. “Those numbers are single digit if not zero, just to stay in business.”
But another big contractor wasn’t surprised by rising prices.
Ted Benning, president of Benning Construction Co., said low-ball bids by some contractors in the depths of the recession were an irresponsible desperation play. Contractors set prices so low that they lost money on jobs. Some went out of business, reducing the competition for work.
“People were signing contracts at numbers that were not sustainable — the sort of reverse of people going out and buying a house too big,” he said. “Now, they’re saying, ‘I can’t do that anymore.’”
Prices bottomed out in 2009 and flat-lined last year, Benning said. This year, he saw bids inch up, propelled in part by announcements that costs for some materials, such as asphalt and gypsum, were rising.
Cobb may have seen price increases other school systems have not because it’s had more money to spend. Back in the 1990s, Cobb voters rejected the first Special Purpose Local Option Sales Tax, when those in other big metro counties approved it. A year later, Cobb got the tax, putting it behind the rest of metro Atlanta.
That meant Cobb officials had tens of millions to spend this year when other big school systems were winding down their SPLOST spending programs.
Gwinnett schools spokesman Jorge Quintana said officials there didn’t see any big price increases this year. But, he said, they didn’t do much bidding.
The county’s last big project was a middle school that opened in August, he said.
Cobb, on the other hand, has had 50 major school projects over the past year.
Ken Heaghney, the state fiscal economist, said sales tax revenues are up statewide this year, in part due to the inflation of prices for oil and other commodities, but also because people are opening their purses and wallets. Construction prices may be rising, he said, because there is less competition and growing demand.
“We’ve just seen a general improvement in consumer and business spending,” he said. “We are expecting continued growth.”
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