January 26, 2018

CT Construction Digest Friday January 26, 2018

United Rentals’ profits balloon with new tax law

STAMFORD — United Rentals, the world’s largest equipment rentals company, significantly increased revenues in the fourth quarter of last year and saw a huge boost to its bottom line from the new federal tax law, according to its latest earnings report released this week. Fourth-quarter profits rocketed to $897 million — nearly six times the comparable 2016 total — as a result of the tax reform passed last month by Congress. The company is receiving a one-time, non-cash tax benefit estimated at $746 million, which reflects the revaluation of United’s net deferred tax liability with the new corporate tax rate of 21 percent. “Like most companies, we’re working through the estimated impacts of the U.S. tax reform,” United CEO and President Michael Kneeland said Thursday in an earnings call. “We anticipate a meaningful benefit to free cash flow. Our board is considering the potential uses of the extra cash, but no decisions have been made yet.”
The company will also pay during the next eight years a one-time “transition” tax estimated at $57 million on unremitted foreign earnings and profits.
Revenues for the past three months hit $1.92 billion, a 26 percent jump from the same period in 2016. For the year, revenues reached $6.64 billion, a 15 percent gain over 2016.
Equipment rentals rose about 16 percent in 2017, amounting to about $5.7 billion. Those returns accounted for 86 percent of 2017 revenues. The balance of last year’s revenues came from sales of rental and new equipment and contractor supplies and services.
The past year marked one of the most eventful for a firm that perennially makes major deals. In October, the company completed the $1.3 billion acquisition of Miami-based Neff, one of the largest U.S. equipment-rental firms, with some 1,200 employees and a presence in 14 states.
In April, United closed on the acquisition of Chicago-based NES Rentals for about $965 million. United officials positioned that deal as one that would increase the company’s presence in regions including the East Coast, Midwest and along the Gulf of Mexico.
For the NES transaction, the company borrowed $500 million as add-ons to existing long-term bonds. The balance came from a “working capital asset-based revolver,” which is low-cost debt that functions like a proxy for reserves. Long-term bonding is fully funding the Neff deal.
Planning for more growth
United officials expect to see rising earnings again in 2018. The company predicts revenues between $7.3 billion and $7.6 billion during the next year.
“We delivered in 2017,” Kneeland said. “But, more to the point, we’re poised to build on that in 2018.”
Fueling the growth, construction spending in North America has been predicted to increase an average of 3 percent to 6 percent annually between 2017 and 2021, according to market-research firm IHS Markit.
United officials also said they plan to keep exploring more acquisitions, while growing existing operations.
“We’re guiding to $1.3 (billion) to $1.4 billion in free cash flow as the range for 2018,” Chief Financial Officer William Plummer said on the call. “M&A is always part of our thinking about uses for cash flow, and we certainly will be ready to do acquisitions that make sense. But they need to make sense.”
The prospect of Congress passing a bill to support new infrastructure investments represents another potential boost to business. Kneeland indicated the company would support such legislation but was already generating significant business from infrastructure projects. “Our infrastructure contracts run the gamut from airport renovations in New York and New Jersey, to roads and bridges in Texas, and pipeline work in the central region,” Kneeland said. “States and municipalities are finding the money to make critical infrastructure repairs. If Washington comes up with funding for public works, that money will benefit future years.”
United shares closed Thursday at $181.91, down 1.95 percent from their Wednesday closing total.

Bids now open for Route 17 recreation center in Portland, 11-year project

PORTLAND — The committee overseeing development of the Route 17 recreation complex has been given the go ahead to solicit bids for the $6 million project.
Members of the committee met Wednesday with the Board of Selectmen to give officials an update on the status of the project. The committee has held back some aspects of the project over concerns about the entrance to the complex (and an attendant flood management plan) that could cost upwards of $300,000.
For now at least, the Rec Barn, a playing field, basketball court, some portions of the underground drainage system, and plantings, benches and tables are being held in reserve, committee Chairman Brian McCarthy told the selectmen. They will be included in a list of “add alts,” or additional items of work, he said. “We’re analyzing lots of options and trade-offs.”
“We’re considering capital and life-cycle costs in addition to contingency and soft costs (engineering, permits and financing)” as part of an effort “to stay with the $6 million” residents approved in a 2016 bond issue, he added.
To help clarify the cost of the project, McCarthy pressed for allowing the committee to put it out to bid.
“Let us bid the project and get some certain costs,” he said. “That would allow us to make a more informed decision.”
The timing is crucial, Selectman Ralph Zampano said. The project has been under study or in development for going on 11 years, he said, and in that time, it has been exhaustively evaluated three times.
“If you miss this window (of opportunity), you may be looking at a third window of (cost) inflation,” Zampano cautioned.
 “It’s not a huge contract,” McCarthy said.
 Given the recent freeze on billions of dollars in state transportation projects announced by Gov. Dannel P. Malloy, contractors will be looking for other projects to take the place of the frozen state projects, McCarthy suggested.
The selectmen needed little convicing and gave their unanimous agreement minus one to put the project out to bid. Selectman Michael A. Pelton was absent.
After the meeting adjourned, McCarthy said the committee could solicit bids in as little as “three to four weeks” and could award the bid in late March or early April During the meeting, McCarthy said he anticipated most of the park will be ready for use by summer 2019. However, the use of some of the fields may be delayed until 2020 to enable them to establish deeper roots.
The committee has still not decided upon the entrance to the complex. That, in turn, has involved the state Department of Energy and Environmental Protection. The agency is demanding the town prepare a flood management plan for the proposed entrance off Strickland Street. Project engineers Weston & Sampson estimate the study could cost more than $300,000 to prepare, so the firm is looking at less expensive options, McCarthy said. CLICK TITLE TO CONTINUE

PHOTOS: The construction of Interstate 91 and 691 in Meriden

Throughout the late 20th century, interstate highways were constructed across the country. Two highways, Interstate 91 and Interstate 691, were constructed in Meriden.
Take a look back at photos from the construction of both highways in the city.

Ohio mayor says Killingly can trust NTE and its power plant plans

The mayor of an Ohio city is giving his full-throated support of a soon-to-be active power plant facility under construction in his city by the same developer hoping to build a similar plant in Killingly.
Middletown, Ohio, Mayor Larry Mulligan earlier this month sent a letter to The Bulletin expressing his support of Florida-based NTE Energy’s plan to build a 500-megawatt power plant at the intersection of Cincinnati-Dayton and Oxford State roads.
In his letter, Mulligan said he was initially skeptical about the plan.
“When I was first approached by NTE Energy about their proposal to build a large natural gas power plant in our city over five years ago, my initial response was to be cautious and reserved,” he wrote. “It sounded too good to be true.”
But Mulligan said the company kept its word to hire 350 construction workers and funnel “millions of dollars” in payroll and tax revenue into the city’s coffers.
“I’ve seen them hire their local operating staff, which will bring an annual payroll of over $2 million to our city,” he wrote. “I watched closely as NTE honored their word to hire locally - with more than 60 percent of their new hires coming from our area.”
NTE is proposing to build a 550-megawatt plant off Lake Road in the Dayville section of Killingly. The Connecticut Siting Council, which has the final say on whether such projects get approved in the state, last year rejected permit applications for the project, though company officials said they plan to resubmit.
The Killingly Town Council this month approved a pair of agreements with NTE that would net the town more than $90 million in tax revenue over 20 years if the plant gets built. Mulligan had no information on whether any similar agreements were hammered out in his city.
According to news reports from the Middletown, Ohio area, the $645 million project there, which is expected to be finished this year, faced no significant opposition from residents or grassroots groups – a marked contrast from how residents from Killingly and surrounding towns reacted to the possibility of a new power plant being built here.
For months last year, Killingly Town Council meetings included comments from dozens of individuals calling for the rejection of the project. Local and state lawmakers attended rallies opposing the plan and many spoke out during public hearings on the issue.
The only groups to actively stump for the Killingly project came from unions expecting to gain construction jobs.
As part of his work in exploring the possible effects of a new power plant in town, Killingly Town Manager Sean Hendricks spent several days in 2016 in Middletown, Ohio.
“It’s a bigger city than Killingly, though still rural, and the plant’s on the edge of an industrial park, with homes a little further out from the facility than are planned for Killingly,” he said.
“I also cold-called on several businesses to get their take on the project,” he said. “And the response I got was that NTE had lived up to the promises they made.”
Hendricks surmised the vehemently different reactions expressed by Killingly and Middletown residents about the prospect of a power plant can be partially attributed to economic history. He said a coke-processing plant that supplies materials to a steel plant had been built in Middletown a few years back. CLICK TITLE TO CONTINUE

Caterpillar's sales grew for the first time in more than four years

A growing global economy is boosting demand for Caterpillar's heavy-duty equipment.
Caterpillar's sales grew last year for the first time since 2012. A construction slowdown in China and the collapse of oil prices several years ago had weighed on the company.
"After four challenging years, many key markets improved in 2017," CEO Jim Umpleby said in a statement Thursday.
Construction equipment sales in North America grew 46% last quarter thanks to selling and leasing more expensive machinery for home building, infrastructure and oil and gas industries.
Increased building and infrastructure spending in China also helped sales, the company said.
Oil's recent rebound helped Caterpillar's mining and oil and gas businesses. Oil prices have bounced back to $70 a barrel after record-low prices two years ago. Commodity prices and raw materials also have risen.
The company added 3,000 employees to its workforce to meet demand last year. 98,000 people worked for Caterpillar last year.
Overall, sales grew 18% from last year to $45.5 billion. Revenue rose in all three of the company's divisions: construction, mining resources and energy and transportation equipment.
Caterpillar took a $2.4 billion charge last quarter from the new tax law, which included a writedown of deferred tax benefits and a one-time repatration tax on profit stashed overseas.
Next year, however, Caterpillar expects to pay a 24% rate. It paid a tax rate of 28% last quarter. Caterpillar has not said how it plans to spend the savings windfall.
Caterpillar is the world's largest machinery company and is a bellwether of the economy's strength.
Caterpillar hinted its construction unit could benefit even more if President Trump and Congress pursue an infrastructure bill. The president pledged a $1 trillion infrastructure bill during the 2016 campaign.
In 2015, Caterpillar slashed 10,000 jobs as growth in China slowed down and commodity prices fell.
The global picture looks much different today. Caterpillar expects its strong close to 2017 to continue this year as economic trends point upward. Its "preparing its factories and suppliers to be ready for continued growth," Caterpillar said.
Caterpillar shares fell 2% after initially rising by as much as 4%. Caterpillar boomed 70% last year, making it the second-best performer on the Dow.

Glastonbury Town Manager Proposes $6.9 Million Capital Improvement Plan

Town Manager Richard J. Johnson has proposed $6.9 million in capital improvement projects, including funding for a second traffic roundabout, a new bridge and replacement roofs for historic tobacco sheds.
The budget is lower than last year when there were several “big ticket” items including the $1.7 million roundabout on at the intersection of Hebron Avenue and New London Turnpike and $1.25 million for Hebron Avenue resurfacing. This year’s net cost is $5.5 million with a second $550,000 roundabout at Hebron Avenue and House Street being paid for by a grant. The list also puts $350,000 toward the $1.8 million replacement of the Fisher Hill Road bridge over Roaring Brook. But $280,000 of that funding is covered by a grant.
Some of the infrastructure improvements on the list include $1.4 million for the town's road maintenance program and $200,000 to repave access drives and parking areas at town facilities. Also included is first-year funding of $365,000 to resurface parking and access drives at Glastonbury High School. The list includes $70,000 in funding for a new paving box that will help lay the asphalt.
School upgrades include $1 million for air conditioning in classrooms at five elementary school buildings and $850,000 for heating and cooling system upgrades at Gideon Welles School, the town’s sixth-grade building. There is also $250,000 to fund upgrades to the high school’s kitchen and $80,000 for improvements to the school’s field house. CIP improvements at town facilities include $40,000 for police department restrooms and lockers; $150,000 for continuing funding for renovations and improvements at the parks maintenance garage; $90,000 for exterior maintenance and $200,000 for space reconfiguration at the Welles-Turner Memorial Library.
Johnson is setting aside $200,000 for the town’s four fire stations and training facility which he said are aging and need maintenance, code compliance and general upgrades and repairs. Other projects include $80,000 for a new scale at the bulky waste facility; $150,000 to replace tobacco shed roofs along Old Maids Lane, $125,000 for a multiuse trail between Western Boulevard and House Street; and $40,000 for sidewalk construction. CLICK TITLE TO CONTINUE

Need Better Answer Than Tolls

If you tax people, you will raise money. That’s the gist of The Hartford Courant’s Jan. 12 editorial: “How To Pay For Roads? Tolls, Obviously” [courant.com]. The editorial doesn’t address the consequences of tolls: the double taxation of drivers who pay fuel taxes, the impact on Connecticut businesses and the economy, the amount of funds collected that never go to road repair or construction, and the likelihood of traffic diversion around the tolls and perhaps around Connecticut.
The question is not whether tolls will raise revenue, but whether tolls are the best option for raising needed transportation funds. The answer is a resounding “No!”
The Courant failed to mention: Tolls take money from commuters and truckers and use that money to prop up government bureaucracies. Traffic diversion hurts businesses like restaurants, gas stations and truck stops. Finally, tolls force hardworking commuters to decide if it’s worth adding several minutes to their commute rather than pay tolls — essentially creating a two-tiered transportation system between the rich and poor.
Tolls are not untapped dollars waiting to be found. Tolls are taxes forced upon commuters, businesses and families.
The Courant says tolls are an option because Connecticut is one of the only states on the Eastern Seaboard without them. We learn in grade school not to do a bad thing just because other kids are doing it.
Connecticut should reject tolling and come up with a sustainable transportation funding plan.
Axel Carrión, Hartford
The writer is director of state public affairs for United Parcel Service.

Request for school construction dollars is a record low

The administration of Gov. Dannel P. Malloy is seeking a record low amount of state funding to help cities and towns build or renovate public schools.
The $281 million the administration has requested from the legislature for the upcoming fiscal year is the result of fewer applications from towns seeking aid, said a spokesman for the governor’s budget and policy office.
Over the past decade, the average annual amount recommended by the executive branch has been about $500 million. Additional projects are typically added to the state budget based on legislative priorities.
There could be several reasons for the smaller list this year, including local unwillingness to pay for a community’s share of a project during a sluggish economy, declining enrollment, or a stricter application process the state’s Department of Administrative Services (DAS) has begun using.
Whatever the reason, the smaller project list comes at a time when Connecticut is close to its credit card limit to fund the renovation or building new schools, public colleges and state building and various other projects in legislators’ districts.
The two-year state budget that legislators approved last fall left a placeholder for $450 million for unspecified school construction projects in the 2018-19 fiscal year.
The amount of borrowing included in the adopted fiscal 2018-19 budget equates to 89.23 percent, according to the state treasurer’s most recent calculation in October. Since then, however, it remains unclear whether state revenue will continue to shrink, as it did over the previous fiscal year, which would probably draw the state closer to its debt ceiling.
Melody Currey, the commissioner of DAS, which oversees school construction projects, told state legislators this week she expects much smaller requests going forward.
“I would say it would be a trend and will continue because of the uncertainty of budgets throughout the state of Connecticut,” Currey told the legislature’s School Construction Project Priority List Review Committee before they unanimously approved and forwarded the list to the General Assembly for consideration. “Towns are unsure that they would be able to bond the amount they would want to do. So they are putting some of it off until they absolutely have to in many cases.”
But, she added, “I think some of it is the control that we have put in place helps them make that decision, an informed decision.” Those controls include an overhaul in the standards and guidelines applicants must follow when seeking state support.
Bob Rader, the executive director of the Connecticut Association of Boards of Education, said during an interview he thinks the economy and the shrinking school-aged population are probably driving the decline.
Also, Rader said, “There is this feeling in the state that the economy has gone down, and so it is much harder to ask taxpayers for new or renovated buildings that they may need,” said Rader.
The state reimburses districts between 10 and 80 percent of the cost of school projects, depending on the wealth of a community. The state funding being proposed will cover about half of project costs, indicating much of the aid is going to middle- and higher-income communities. (See the full list of projects here.)
It’s unclear what exactly this slowdown means for the condition of schools in Connecticut. The legislature changed state law two years ago so that a new survey on the condition of each school will not be released until 2021.
The most recent survey, from 2013, found that one of every 40 elementary schools needed asbestos remediation and there were no immediate plans to address the problem. One out of every 25 elementary or high schools and one out of every 29 middle schools had a roof problem and repairs had not been scheduled to fix the underlying issue. One in 13 schools had poor air conditioning and one in 70 had a poor heating system.
In the state’s most impoverished districts – Bridgeport, Hartford, New Haven, New London, New Britain, Waterbury, Windham – a lower percentage of schools had areas of their buildings rated as being in fair or excellent condition, according to the survey. CLICK TITLE TO CONTINUE