Rising construction constructions costs, especially as it related to costs relating to sub-contracting work, legal requirements and other ancillary expenses has some local leaders concerned.
The topic was broached at the Kenton County mayors group July 20 when Erlanger Mayor Jessica Fette discussed a sidewalk extension project in her city.
Starting at Brightleaf Boulevard and running along Narrows Road onto Nelson Road, the project dates back to 2017. According to the city, the original cost of the project was about $220,000, and they had sought out a grant from the Ohio-Kentucky-Indiana Regional Council of Governments, to offset some of the expense related to the project. OKI advises many local governments on transportation projects.
The grant was a 80/20 split, meaning that OKI would provide 80% of the project’s total cost if the city provided the first 20%. This would have put the city’s responsibility at about $44,000.
Fast forward to 2024, and the project is still in its design phase with a new estimated total cost of $522,000.
Some of this difference can be chalked up to increases in the cost of essential materials for construction, which have risen anywhere from 33% to 77% since February 2020, according to the U.S. Bureau of Labor Statistics’ Producer Price Index.
“With direct material cost making up a significant portion of overall expenses, even a moderate increase can significantly inflate project budgets,” according to a July report from the National Association of Home Builders. “This can lead to delays in the production process, cost overruns and increased financial risk for contractors and developers.”
What’s more, Fette said ancillary costs related to the requirements set out in the city’s agreement with OKI drove up costs even more.
“You have to have the inspector on their project every single day; that’s about 1,200 bucks a day,” Fette said. “You have to have this state-approved contractor go out and secure all of the land necessary and easements. So, it just makes everything a little more expensive.”
“We’re not even in [the] construction process,” Erlanger’s Director of Economic Development Mark Collier told LINK nky. “We’re still in design phase, which means that by the time we get to construction–which could potentially be in a year to 18 months–presumably those costs will still continue to go up.”
OKI told LINK nky that the scope of the project had actually been reduced in late 2022 in the face of ballooning costs. Still, all-in-all the city would be on the hook for about $328,000 if it chose to accept the grant from OKI, Collier said.
As a result, the city will likely relinquish the grant and replan the project with a smaller scope, Collier said, one that doesn’t require as much land acquisition. This will bring the city’s total cost down to about $320,000.
“We just recently decided that we’re giving them back grant money because the cost of doing the grant with them exceeds what the cost would be if we just did it without them,” Fette said last week.
OKI’s Deputy Executive Director Bob Koehler admitted that there were constraints with federal monies, and said that most of the requirements the mayors discussed at the meeting proceeded from federal policies, rather than OKI’s in-house policies. Cost increases were sometimes unavoidable as a result.
“Financially, it definitely can be a burden, especially [for] the smaller communities,” Koehler told LINK nky in a phone call. “The upside to federal projects is they get 80% on the dollar, 80 cents on the dollar, let’s say, and you almost always end up with a really good project. The downside is it can take longer and cost more.”
Koehler added that in the face of inflationary pressures, OKI has revised some its policies to account for cost increases, and agreed that sometimes it is more cost effective for cities to pay for everything in-house.
Other mayors at the meeting said that the specifics of the situation Fette described tended to be more of a problem with smaller projects than larger ones, but many agreed that construction for public projects was often slow going.
“We have the same problem,” said Covington Mayor Joe Meyer, although he was speaking about projects not with OKI but with the Kentucky Transportation Cabinet. Specifically, he referenced the work along Madison Avenue in Covington to move the utilities underground and the increased costs associated with that project.
Taylor Mill Mayor Daniel Bell discussed a project in his city that drew upon federal funds and, thus, required a historical review.
“We had to pay $30,000,” Bell said, because the houses along the street were older than 50 years old and thus subject to mandatory historical review.
“We just want to put a sidewalk along the road,” Bell said. “It’s not like we were having some major construction and development.”