February 16, 2009
Financial Downturn Hits Business Members
Public transportation agencies and suppliers run on cash and available credit—two resources currently in short supply because of ongoing fiscal downturn. Just as transit officials are facing their distinct set of problems and issues, so are the businesses that design and build their facilities, make their vehicles, and provide management services.
The increased difficulty of obtaining access to credit is one outcome reported by several APTA business members, as is trouble securing operations funding.
Sandy Lautenberg, vice president-operations, North America, for Trueform LLC in Edison, NJ, explained: “In this situation, maintaining a proper minimum level of funding for operating expenses becomes very important.” Specifically, she described the differing requirements for performance and warranty bonds, such as how much collateral a transit agency must post, and the need for alternative forms of security.
“If agencies are not educated as to alternative forms of security that are legal to use, some companies that are eligible to bid won’t be able to do so because of the lack of bonding capacity, because the surety doesn’t want to let go of the money,” she noted.
Lautenberg also emphasized that, regardless of what happens to the economy in coming months, lags in funding will have a lasting impact.
Another side of the tightening financial market is increased competition for funding among municipalities and transit agencies.
“I’m cautiously optimistic about where we’re going in a three-to-six-month time frame, maybe even a longer-term time frame,” said Angela Iannuzziello, president of ENTRA Consultants in Markham, ON, and APTA vice chair-Canadian members.
Consultant Jeffrey Parker of Jeffrey Parker & Associates in Chilmark, MA, pointed to the uncertainty his clients face. “They are in a wait-and-see mode on a lot of projects because their own resources are down,” he said.
Because of the economic shortfall, Parker said, these clients “can’t make commitments on projects; they want to do the prudent thing, not incur interest costs on bonds, and not issue money on projects at a time when they might need those monies for operating expenses.”
Looking for New Strategies
The need to develop new ways of doing business is another outcome of the current tough financial climate. Jerome Premo, executive vice president with AECOM in Orange, CA, and co-chair of the APTA Business Member Programs Committee, said his firm is “tied closely to the health of our customers and clients. When transit agencies face tough times, we’ve got to be creative, just as the agencies need to be creative. I really can’t overstate this: the situation is not us vs. them, it’s all of us together. This is a real test of whether we can work together to get the right stuff done right now.”
This need to work together will be aided by stimulus monies, which would provide the equivalent of an extra year’s funding in the middle of the current fiscal year.
“The focus on quick delivery [of federal stimulus funds] is something that is music to our ears,” he said, “because it isn’t just contractors who are affected. Those of us who partner with public agencies need to do lots of different things to position agencies to let contracts…bus makers, rail car makers, and the myriad of sub-suppliers to makers of vehicles are all looking forward to passage of the bill. Many people have projects at the point where they have to move forward.” He added that “the working capital situation is tough right now, regarding transit agencies getting the cash flow to react to the current situation.”