July 13, 2010Cheryl Soon, SSFM International

“Economic and Workforce Impact”

Three Important DimensionsWhat is the impact of the construction

industry on Hawaii’s economy?What would a $14 Billion investment over six

years mean to the current economy?What would it mean for workforce

development?

1. WHAT IS THE IMPACT OF THE CONSTRUCTION INDUSTRY IN HAWAII’S ECONOMY?

Hawaii’s Input-Output (I-O) Model, developed by the State Department of Business, Economic Development and Tourism, measures the inter-relationships among industries, the impact on final users and factors of production in the economy.

Input-Output Model DefinitionsDirect impacts– on the construction industry

itself; includes jobs in heavy civil engineering and construction

Indirect impacts – on other industriesMultiplier effects on output, earnings,

employment (jobs)Induced effects – Effects due to overall

expansion of the economy. For example, you can look at earnings and consumption expenditures to see the effect on changes in household spending

State Tax multipliers

Construction Job ImpactsFor every $ 1 million spent, there are 12.9

direct and indirect jobs createdFor every $ 1 million spent, there are 3 direct

jobs created in construction

HIPA ReportHIPA conservatively

forecasts over six years: $14 billion in construction spending for public infrastructure

• Of this, $ 7.5 B (53%) is for new facilities

• $3.8 B (27%) is for upgrades• $2.9 B (20%) is for repair

and maintenance

HIPA $ 14 Billion Projection55% is for transportation, much

of this comes from Federal funds, which is new money in the economy

18% is for various water projects

26% is for public facilities and buildings

1% is for energy and disaster preparedness

Applying the I-0 model to this $14 Billion Expenditure on Public Infrastructure

14 B X 12.9 = 180,060 jobs (direct and indirect)

Of these….

14 B X 3 = 42,000 direct construction jobs

Bottom Line - Impact on the Economy is GoodAdding 42,000 direct jobs over six years,

averages out to 7,000 jobs per yearThe actual impact depends on

- Timing of projects- Category of spending (e.g. wages versus equipment and materials purchased)- Sources of funding- Is offset by some negative effects such as traffic

disruption- Is offset by reduced personal consumption when the source of funding is locally generated taxes

2. What would this investment mean to Hawaii’s economy now?According to the US Bureau of Labor Statistics,

the number of construction jobs in Hawaii has dropped 25% in three years

- 2007 40,000- 2008 38,500- 2009 32,000- 2010 30,700

What are our current metrics?Real per capita personal income in Hawaii in

2010 is $38,443, which is down from 20084.8% of all mortgages are in foreclosureHousing starts are down 55%Median Household income is $64,000, yet8.7% are living below the poverty line and

7.7% have no health insurance, which is typically provided through employers.

Hawaii UnemploymentIn May 2010, the US Department of Labor reported

the Hawaii unemployment rate is 6.6%This is higher than December 2007 when it was 3%But it’s lower than the September 2009 high of 7%41,700 residents in Hawaii are counted as

unemployed out of a total labor force of 636,800Hawaii’s unemployment rate of 6.6% is better than

the national rate of 9.7%

7,000 direct construction jobs and 9,000 other jobs would certainly help!!

STATE CIP IN 2009-10Last month, Russ Saito, State Comptroller

reported that over an 18 month period, State agencies has awarded 827 projects amounting to $ 1.8 Billion in CIP

This translated into:23,884 direct and indirect jobs5,554 direct construction jobs

STATE CIP IN 2009-10: Geographic Distribution (Source: DAGS)LOCATION NUMBER DOLLAR VALUE

Oahu 491 $ 978,295,682

Hawaii 149 $ 431,665,970

Maui 100 $ 283,318,510

Kauai 53 $ 108,063,444

Molokai 21 $ 17, 166, 085

Lanai 9 $ 16,398,233

Statewide 4 $ 16,606,410

TOTAL 827 $ 1,851,513,340

STATE CIP IN 2009-10: Distribution By Agency (Source: DAGS)AGENCY NUMBER DOLLAR VALUE

DAGS 161 $ 225,923,212

Agriculture 8 $16,888,465

DBEDT 5 $ 11,980,223

Defense 6 $ 4,036,800

Education 375 $ 269,181,928

DHHL 26 $ 164,944,751

DHS 31 $ 53,066,441

DLNR 47 $ 67,357,085

Transportation 82 $ 789,471,682

UH 86 $ 248,642,743

HONOLULU RAIL PROJECTConstruction value is $ 5.5 BillionAccording to the Final EIS published

recently, number of direct and indirect jobs created is:YEAR JOBS YEAR JOBS

2010 3183 2015 10,902

2011 8,209 2016 6,229

2012 11,680 2017 3,872

2013 17,290 2018 3,091

2014 15,020 2019 1,719

Source: FEIS, pg 1-202

Table 4-35

“...if work started on the rail line that would probably have the effect of reducing unemployment by one to two percent because we’re a small labor market.”

Lawrence Boyd, Jr.Center for Labor Education &

ResearchUH West Oahu

PBN, June 25, 2010

3. Impact to Workforce DevelopmentIf Hawaii is to add upwards of 6,000 jobs per

year in construction, workforce development has to start now

Construction work requires a skilled, well-managed and efficient construction industry

The industry utilized 21st century technologies and equipment which is constantly evolving

Construction wages and benefits is substantially higher than other sectors by as much as 150% when construction is in a peak period

Types of Workforce Development Needed

All the skilled trades in constructionHeavy Equipment operatorsFinance and accountingProject Management – to keep up with

advances in scheduling, risk management and mandatory reporting of compliances

Equipment Maintenance has acute shortages

Developing the WorkforceCompanies need to have methods for

recruitment, training and retentionOutreach is needed to include minorities,

women, the currently unemployed and disconnected

Workplace changes may be in order regarding child care, schedules, and methods to reduce absenteeism

Fortunately, Hawaii has several organizations and resource agencies in place to draw upon

Other Parts of the Economy will Benefit

$ 1 Billion in construction generates:- $1.3 Billion in total output in the economy- 12,400 other jobs- $ 583,000 in household income and spending

Other SectorsThus, in addition to generating activity in

construction, activity is generated in- Real estate- Engineering- Banking- Medical care- Eating and drinking- Retail- Transportation

Impact of the Completed Public Infrastructure ProjectsHelps other business be more productive and

efficient, for example, when transportation facilities and improved and congestion is reduced

Construction ForecastsAccording to EconPost March 18, 2010,

Moody’s states:“Hawaii’s construction growth is set to grow 2.8%

in 2010 and continue robust well into 2013” • According to Pearl Imada Iboshi, State

Economist: “ Private construction declined in 2009, but State

government construction increased 15%”• UHERO predicts construction will rise 4% in

2011• An increased emphasis on infrastructure can

bring an economic boost