November 2002

Ran: San Diego Daily Transcript - Monday, November 11, 2002

Two bond issues, lower interest may spur building boom

By Kevin Christensen

Just when San Diego construction executives thought business couldn't get any better, they hit the trifecta.

Thanks to the combination of passage of a #13.05 billion school improvement bond, a $2.1 billion bond measure for affordable housing and reduction of interest rates by the Federal Reserve, local construction honchos are expecting even more business and the potential expansion of their work forces.

Proposition 47, the $13.05 billion statewide bond issue, will provide funding for necessary education facilities to relieve overcrowding and to repair older schools, targeting areas with the greatest need. Funds will be used to upgrade and build new classrooms in the California Community Colleges, the California State University system and the University of California.

This will complement school improvements funds allocated through Proposition MM, a $1.51 billion measure passed in San Diego in 1998 to fund the most urgent repairs and improvements needed at neighborhood schools. The measure has been as beneficial to Douglas E. Barnhart, Inc. as it has for the students of San Diego.

Barnhart sees the passage of these propositions as more business for the construction industry of San Diego.

"This means that education jobs are going to stack up waiting to be funded and once that hits, each school will be looking for a contractor," said Barnhart, president of the San Diego contractor and construction manager. "We could be looking at another boom in construction."

Barnhart expects business to improve to the point that the company will increase its management staff by 8 percent and hire on 25 to 30 new crew positions.

Also passing at the November ballots were Proposition A and Proposition 46. A local proposition, Proposition A allows San Diego to buy, build or acquire up to 5,000 apartments and townhouses for seniors, low-income families and disabled individuals. It goes hand-in-hand with Proposition 46, a $2.1 billion statewide bond to assist low and middle income home buyers, construct low-income housing, and build shelters for the homeless and victims of domestic violence.

Home-building executives are optimistic about the business these bonds will generate throughout the city because the current budget crunch in Sacramento took most money away from affordable housing projects - both planned and current. These bond measures make funds available again, according to Steve Doyle, president of Brookfield Homes San Diego Inc.

"Thanks to these propositions passing, home builders will now be able to go to Sacramento and get the money to build," Doyle said. "It will be very helpful for those of us building affordable housing and more so for those making their entire living on it."

As if that news wasn't good enough, the Federal Reserve cut the Federal Funds Rate by 1.25 percent and the interest rates by a half-point, making loans to finance construction jobs even cheaper.

"That definitely helps," said Scott Free, president of Lusardi Construction Co. "They've been low and it's been helping our industry for quite some time."

The effect will be even better for homebuilders, according to Doyle.

"This certainly helps because a lot of our construction loans will be cheaper and the lower interest rates will help more home buyers get in," he said.

However, the rate effects over the ensuing weeks can be undercut by U.S. foreign policy decisions, said Bobby Sito, residential lending officer for San Diego National Bank.

"The rates right now aren't the lowest of the low - but they are still great," Sito said. "But, it's still uncertain how long it will last because of the speculation of war."

Perhaps one of the most important elements of the bonds passing and rate cut is the creation of enough work that construction companies can stick to their fields of expertise without having to search for work in other areas, according to Steve Thompson, president of Soltek Pacific.

"When jobs get tight builders will search for work in other areas," he said. "All of these (three factors) combined create a lot of work to be spread around and enough where companies will stay in markets they are familiar."

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