WEDA Wire – March 20, 2023

WEDA Board Chair Sheldon Johnson

In my inaugural Board Chair’s Message, I would like to begin by thanking the WEDA membership for trusting me to lead your organization over the next year. I am excited to serve as Board Chair and to represent you and our partners in economic development. Wisconsin’s success relies on a team of professionals dedicated to pursuing economic development opportunities and spurring growth at the community, county, and regional levels. WEDA members are an essential part of that team, and I am honored to be leading you as you Board Chair in 2023.

I would also like to specifically thank the WEDA Board for all their hard work to advance the organization. In addition, I want to give well-deserved recognition to the following members who recently rotated off the Board:

• Jasson Monnett, WBD
• Fern Orie, Wisconsin Native Loan Fund
• Amy Peterson, City of River Falls
• Elizabeth Runge, City of Two Rivers
• Manny Vasquez, Pfefferle Companies

Thank you for your service to WEDA!

Lastly, I would like to congratulate the following members who were elected or reelected to the WEDA Board:

• Liz Brodek, City of Wausau
• Rebecca Deschane, New North
• Jenny Kuderer-Radcliffe (second term), Dairyland Power Cooperative
• Charlie Walker, Chippewa County Economic Development Corporation
• Suzanne Zwaska (second term), US Bank

For those of you who I have not yet had a chance to meet, I am a long-time WEDA Board member who previously served as the association’s treasurer and vice-board chair. As far as my day job, I have been with the Northwest Regional Planning Commission for over 28 years, including the last seven as executive director after serving as deputy director and senior planner.

I’ll finish my first Board Chair’s Message on somewhat of a personal note. I recently had the honor to attend a Communities in Action: Building a Better Wisconsin event at the White House with nearly 50 local elected officials and community leaders from Wisconsin. There is no doubt communities and organizations across the state – including WEDA – are continuing to make impactful results in the lives of Wisconsinites and are forging relationships that improve the economic well-being of all.

I look forward to seeing you all at upcoming WEDA events!

State of the Association – WEDA President and CEO Mary Perry

WEDA President and CEO Mary Perry

Hello WEDA Family! It was wonderful to see so many of you at the Governor’s Conference. We are so pleased to get positive feedback from attendees who really appreciated the diversity of topics, time to spend with others and the opportunity to expand their networks! Don’t take my word for it… Here are a few testimonials:

• “This was one of the very best conferences that I have attended in recent years. My thanks to all. I was able to spend quality time with many colleagues that I have not seen in person since before Covid. Location was great and the hotel layout with conference was great.”
• “Just a great experience and I’m not a newcomer. Good job all! Good diversity of subject matter presented. Thanks for a great conference!”
• “THANKS for putting this conference together. Was great to swap stories, tips and contact info with others throughout the state.”

huge thank you goes out to our conference planning team—Calli Berg; Brad Elmer; Rebecca Gries; Melissa Hunt; David Kircher; Tracy Lube; Natanael Martinez; Seyoum Mengesha; Amber Miller; Erica Steele; Beth Wierick; and Heather Wessling Grosz. They gave time and talent to deliver yet another outstanding series of sessions featuring exceptional subject matter experts and distinguished guests.

We are now in process of convening our 2023 Fall WEDA Best Practices Conference, which will be held in Wausau September 27^th – 29th. Being member-driven, we invite you to contact us if you wish to play a role on the planning committee. We also invite members to respond to our Call for Workshop Presentations RFP. CLICK HERE to respond to the RFP and share your topic ideas for the conference.

Speaking of WEDA conference content, Governor’s Conference attendees learned about key public funding sources for the projects that drive economic growth in our communities. WEDA Vice-Chair and Vierbicher Municipal Services Manager, Melissa Hunt, led a panel called “Show Me The Money!” and revealed so many sources of funding that may benefit your projects—municipal tools like TIF, others spanning Wisconsin agencies like DNR, DOT, DOA, WHEFA, WHEDA and WEDC, and federal resources at USDA and EDA.

If you want to learn more about any of these resources, or other fundamental economic development concepts, you may want to register for the IEDC accredited WI Basic Economic Development Course. It will be held this year on May 1-4 in Green Bay. Along with Economic Development Finance, we will cover Ethics, Workforce Development, Small Business Development, Entrepreneurship, Marketing and Attraction, Business Retention and Expansion, Real Estate and Redevelopment, Managing an EDO, and Strategic Planning. Scholarships are available and members score a deep discount! So please do not hesitate to REGISTER TODAY.

Let’s say you are up to speed on resources and best practices in economic development, but some of your elected officials and citizens could have a better understanding. The ED 101 curriculum is designed as a three-hour training session specifically addressing the issues affecting your city or county. If you would like your public officials, board members and residents to better understand and support economic development efforts, this is a program for you! Contact mperry@weda.com to learn more.

Not a WEDA Member? Join Today!

If you’re not a WEDA member yet, why not? As the “Voice of Economic Development” in Wisconsin, WEDA provides members with valuable benefits that allow you to leverage key resources and training, build an extensive network of industry leaders and economic developers, influence statewide economic development polices, and connect financial resources for your community development projects. Joining is easy! Just CLICK HERE.

WEDC Secretary and CEO Missy Hughes

We’re only partway into March and already there’s been a lot of good economic news for Wisconsin.

First, new year-end export figures show our state continues to expand its presence on the global stage. Manufacturing exports hit a record in 2022, totaling $27.3 billion in sales to 207 countries and territories. This was an increase of 10.3%, or $2.5 billion, over 2021, and 33.6%, or $6.8 billion, over 2020.

The top three product categories point to Wisconsin’s strength as a powerhouse for advanced manufacturing: Industrial machinery, up 23.6%, electrical machinery, up 21.6%, and medical and scientific instruments, up 12.2%. Together, these three categories account for about 44% of the state’s manufacturing exports.

Even with supply chain and workforce challenges affecting our state and the world, Wisconsin exports have continued to show impressive and consistent growth in recent years. And agriculture, another economic driver for Wisconsin, saw similar gains with farms and ag-related businesses exporting a record high $4.2 billion in sales to 142 countries and territories last year.

WEDC is at the forefront of efforts to help Wisconsin businesses extend their worldwide reach through programs like ExportTech, International Market Access Grants, and in-person and virtual trade ventures. We’re also teaming up with the Department of Agriculture, Trade, and Consumer Protection’s International Agribusiness Center to promote ag exports through the Wisconsin Initiative for Agricultural Exports plan.

Deputy Secretary Sam Rikkers and I had the chance recently to see firsthand how these efforts are paying off.

In late February, I spent several days in South Korea strengthening connections we had first forged with local business and government leaders during a WEDC trade venture last fall. While we were there this time, I signed a memorandum of understanding with the Wisconsin Alumni Association of Korea (WAAK), which promises that proud Badger graduates in Korea will work with us to promote trade and investment opportunities in Wisconsin.

Korea is Wisconsin’s ninth-largest export destination, and WAAK is one of the Alumni Association’s most active chapters, and its members include top leaders in business, academia, and government. The current president of the WAAK is Seog-hoon Kang, the head of the Korean Development Bank, who told me how excited he is to build new partnerships between our two regions.

While I was in Korea, Sam was on a trade venture to Mexico, Wisconsin’s second-biggest export partner, joining five state businesses in visiting Monterrey and Mexico City. He met with Mexican companies that either already operate in Wisconsin or are considering opening facilities here, economic development organizations, and business groups representing key industries — all with the goal of expanding opportunities for Wisconsin businesses in Mexico and attracting investment to our state.

What we both found on our travels is that Wisconsin products are recognized worldwide for their quality, durability, and advanced innovation and Wisconsin businesses are known for the excellence of their workers. In short, our state’s global brand remains strong and is getting stronger.

The strength of that global brand depends in part on Wisconsin businesses’ continued innovation and our support for entrepreneurs. And that’s where the last bit of good news comes in.

WEDC was recently informed that the U.S. Treasury Department is awarding Wisconsin $79.1 million in State Small Business Credit Initiative funds. Of that $79.1 million in new federal money, $50 million is earmarked to create the Wisconsin Investment Fund, a new venture capital fund under WEDC’s direction.

This is a critical investment in Wisconsin’s culture of entrepreneurship and innovation. For years, WEDC and start-up advocates have sought such a fund so Wisconsin investors can help emerging businesses scale up with local support – instead of having to head to places like California and Massachusetts, where much of the nation’s venture capital is concentrated.

Additionally, Governor Evers has allocated $75 million in state funding for the venture capital fund as part of his next state budget. Taken together with the federal funds, our state has an opportunity to supercharge its support for innovation at a time when the world is increasingly looking to Wisconsin. I’ll have more details on the Wisconsin Innovation Fund in my next column, but in the meantime, let’s continue to look forward to more good news!

Missy Hughes is Secretary and CEO of the Wisconsin Economic Development Corporation, the state’s leading economic development organization.

Gov. Tony Evers recently unveiled his 2023-25 Capital Budget, which proposes a $3.8 billion investment to help upgrade the state’s infrastructure and to support major state building projects in 28 counties across Wisconsin. Evers’ proposal is one of the largest state government building plans in recent memory, but it also borrows less than in recent years by tapping into the state’s budget surplus to pay for some project costs up-front.

The Governor’s 2023-25 Capital Budget Recommendations can be found HERE. Highlights of Gov. Evers’ Capital Budget recommendations include:

• Significant investment of approximately $1.8 billion for capital improvement projects through the University of Wisconsin (UW) System at campuses across the state;
• Supporting local community projects with a statewide public purpose, such as the Bronzeville Center for the Arts, Versiti Blood Research Institute, Milwaukee Iron District, Woodman’s Sports and Convention Center in Janesville, Green Bay National Railroad Museum, Children’s Wisconsin, Marquette University School of Dentistry, and the Door County Peninsula Players Theatre.
• Protecting our natural resources and improving visitor experiences through investments in state parks and forests and upgrades to Fire Response Ranger Stations;
• Honoring and caring for veterans by funding upgrades to the Wisconsin Veterans Home at King and purchasing the Veterans Museum location for future upgrades;
• Investing nearly $50 million in making restorative and infrastructure improvements to components of the State Capitol Building;
• Supporting reforms to the juvenile justice system through continued investments in correctional facilities to further work towards closing Lincoln Hills and Copper Lake as juvenile facilities, on which more information can be found here, including additional bonding to complete the Milwaukee Type 1 facility, bonding for a new Type 1 facility on Department of Corrections-owned property in Oregon, the expansion of the Grow Academy in Oregon, and bonding to study and plan for a third Type 1 facility in the Northeastern region;
• Providing $225 million to invest in health services facilities, including utility infrastructure, support services, and patient care;
• Leveraging nearly $52 million in federal support for Wisconsin National Guard facilities with a recommendation of $84 million total funds for capital improvement projects;
• Continuing support for a new Wisconsin History Museum with an additional investment of approximately $60 million, including more than $42 million in added state support, to recognize the rising cost of the project in the post-pandemic construction environment;
• Installing renewable energy capabilities in state facilities with a $25 million investment in support of Gov. Evers’ Clean Energy Plan; and
• Addressing the state’s backlog of deferred maintenance by providing the largest investment to date of $616 million for all state agencies, including the UW System, for small to mid-sized capital maintenance and repair projects across the state in the All Agency Program

The State Building Commission will meet Thurs., March 23, 2023, to vote on the governor’s recommendations. Following that vote, the State Building Commission’s Capital Budget Recommendations will be submitted to the Legislature’s Joint Committee on Finance, which will consider and vote of the plan as part of the overall state budget bill.

Earlier this month, WEDA held yet another successful Legislative Day. The 2023 annual event, which was held of March 8, saw WEDA members from every corner of the state come to Madison to advocate for effective economic development policies that promote growth and prosperity in Wisconsin.

The one-day event allowed participants to network with WEDA colleagues, hear from key policymakers and other speakers, and participate in in-depth policy briefings and advocacy training. More importantly. The event provided WEDA members with a unique opportunity to build relationships with their local state lawmakers and educate them on critical issues impacting Wisconsin’s economic development professionals and the communities they serve.

Participating WEDA members were briefed on the following WEDA legislative priorities and had an opportunity to discuss each issue with their state lawmakers:

• Low Income Housing Tax Credit (AB 39 / SB 40)
• Talent Attraction Funding
• Business Childcare Tax Credit

The WEDA Government Affairs team is currently lobbying on each priority – as both stand alone legislation and potentially as part of the state budget bill – along with other key initiatives included in the WEDA 2023-24 Legislative Agenda.

Speaking of the 2023-25 State Budget bill – which lays out the state’s spending plan for the next two years – the Legislative Fiscal Bureau has released its plain-language summary (by state agency) of Gov. Tony Evers’ budget bill proposal, which he introduced last month. The Co-Chairs of the GOP-controlled Joint Finance Committee – the Legislature’s powerful budget-writing committee – have said they will largely scrap Evers’ budget proposal, and the committee will instead develop their own version of the state budget bill.

The next step in the state budget process will begin next week, with the Joint Finance Committee holding budget briefings on the following state agencies:

• March 28 – Secretary Craig Thompson (Dept. of Transportation ) and Secretary Kevin Carr (Dept. of Corrections)
• March 30 – Secretary Blumenfeld (Dept. Administration) and Secretary Dan Hereth (Dept. of Safety and Professional Services)

In addition, the committee will hold a series of four public hearings across the state in April where the public will have the opportunity to testify on budget issues:

• April 5 – Waukesha County Expo Center
• April 11 – UW-Eau Claire, Davies Student Center
• April 12 – Wilderness Resort, Glacier Canyon Conference Center
• April 26 – Lakeland Union High School

Wisconsin residents can also submit budget comments to the Joint Finance Committee via an online portal or by email.

Vice President of Pre-Construction Josh Pearson discusses the challenges, and solutions to successfully push your projects, both present and future, into construction with his insight below.

Over the last year, words like ‘Inflation’ and ‘Supply Chain’ have become common in many conversations across the country – at the gas pumps, the grocery stores, and especially at the construction jobsite.  While these topics may not be pleasant, the good news is that we are having these conversations.  If you are planning or managing a construction project, talking with your trusted construction partner about these topics will help you navigate potential obstacles and will lead to a successful project.

In this article, we will take a deep dive into this topic from the perspective of the owner.  We’ll provide valuable information regarding what has happened in the construction industry over the last year, discuss our projections for the next couple years, and you will learn strategies to mitigate your own project risks.

The U.S. is continuing to see higher-than-average inflation across all sectors of the economy and nowhere is this more evident than in construction. Factors contributing to inflation include constriction of foreign production due to COVID lockdowns, foreign conflicts, congested U.S. ports, and labor shortages.  As cost inflation drives prices higher and labor shortages threaten project timelines, owners look for answers on how to continue investments in construction.

Challenge #1: Inflation

Between 2009 and 2020, the cost of non-residential construction increased an average of 2.5% year-over-year, according to Engineer News Record’s Building (ENR) Cost Index.  In 2021, that number jumped to 12.5%.  As we near the end of 2022, the rate of inflation remains high.  From January 2022 through November 2022, the rate of inflation is 9.35% and could exceed 10% overall once the figures for December are reported.

As we look ahead, we must ask ourselves “what will the recovery look like?”

Using this data, we expect construction inflation to taper off gradually year-over-year in a “plateauing” trend like that shown between 2003 and 2008 in the chart above.  The reason for the prediction of a prolonged recovery is the number of factors affecting inflation in the construction industry and the varying expectations for their correction.

Experts predict that the non-residential construction market will remain strong well into 2024.  Therefore, demand for materials will remain steady.  While investments in the U.S. supply chain could ease supply constraints, this won’t happen overnight.  Additionally, labor shortages across the U.S. will slow advancements in the U.S. supply chain and the movement of both foreign and domestic materials throughout the U.S.

If we extend the chart above, using the trend described, we expect the rates of future inflation through 2027 to be similar to the chart below.

According to ENR’s 3Q 2022 Cost Report, we are seeing a decreasing or flattened rate of inflation in lumber and steel costs, while cement continues to rise at a higher-than-average rate.  This is encouraging for future inflation, but we have not yet seen enough data to determine if this represents a trend.  For comparison, we saw a similar flattening in the second half of 2021, followed by a sharp increase in January 2022.

While we may continue to see encouraging signs of slowing inflation, we must keep in mind that construction cost is a composite of materials and labor, and reduction in a single factor may not result in overall reductions to the total project cost.  For example, labor rates in all markets are seeing a larger than normal increase over the past year as a delayed reaction to economic inflation.  This increase in labor rates will counteract some of the reduction to materials costs that we’re experiencing in the construction industry.

History is a great example of this lesson.  Using ENR’s Building Cost Index dating back to 1939 (chart below), there has never been a reduction in the overall Building Cost Index, even after periods of hyperinflation like we’re seeing today.

It seems like Inflation is inevitable – What are my options?

There are a few things that all owner’s should be doing to protect themselves from rising construction costs.

Adequate Contingencies

We recommend carrying adequate contingencies for inflation.  For projects not starting immediately, we’re recommending the following rates of inflation (Jan to Dec each year):

• 2023: 8.5%
• 2024: 7.6%
• 2025: 6.2%
• 2026: 5.5%
• 2027: 4.3%

Expedite Investments in Construction

We’re recommending that investments in construction be expedited, as feasible.  With inflation driving up costs year-over-year, time really is money.  The sooner an investment can be made, the lower the cost will be.  Even if the entire project cannot be pulled ahead, you should start having conversations with your construction and design team to determine about what can be accelerated to mitigate the risk of cost increases on large expenditures – such as equipment, fixtures, precast, structural steel, elevators, etc.

Find a Trusted Construction Partner

Find yourself a trusted construction partner who can provide you with the data necessary to make educated decisions.  This may include early trade partners such as mechanical, electrical, and plumbing subcontractors who can provide input on design when it matters most – early in the project before costly decisions are made.

Challenge #2: Supply Chain

The second issue currently plaguing the construction industry is supply chain.  As stated throughout this blog, there are several factors to contributing to both inflation and supply chain issues.  While the causes of these two issues may be similar, the prescription for how to treat them may not be the same.

Combatting inflation requires data and decision-making to ensure an adequate budget is available when you need it.  Battling supply chain issues will require a much more hands-on approach.

Let’s start by discussing what we mean by “supply chain issues”.

It’s not uncommon in the construction industry for materials to take a long time to be delivered.  Many of the materials we use are custom-built for your project.  Take structural steel for example.  From the date that a bid is received for structural steel, many things need to happen before it can be delivered to the jobsite:

• Subcontracting the steel fabricator.
• Creating a bill of materials.
• Placing an order with the steel mill.
• Mill rolling of the materials, which is based on a standard schedule by shape.
• Shipping of mill materials.
• Shop drawings and approvals.
• Fabrication of structural steel to the specifications of your project.
• Priming, painting, and/or special coatings.

Each step in the chain presents an opportunity for failure – or success if managed properly.

In the past, those long lead items were known and could be managed using tried-and-true methods.  Today, we must keep our finger on the pulse of the industry to understand what may cause problems from a material availability standpoint.

As foreign shutdowns due to COVID continue, domestic labor shortages loom, and unpredictable events impact our economy (such as weather and foreign conflict), it becomes more difficult to manage the supply chain.  For example, in 2021 due to weather events and domestic shutdowns, insulation products such as roofing, and siding materials were difficult to procure.  Additionally, anything that required computer chips had exceedingly long lead times due to foreign shutdowns.

Today, equipment requiring computer chips are continuing to be an issue.  Other electrical components such as light fixtures have also become difficult to procure.  Cement shortages, labor shortages, and backlog of orders have also caused extended lead times for precast concrete.  Those are just a couple examples or the issue that can cause major concerns for your project timeline.

There are so many moving parts – what can I do to make sure my project succeeds?

Managing supply chain starts when you’re planning the project.  I have a couple of recommendations to help you identify potential problems during planning and how to mitigate them.

Rely on Your Construction and Design Team to Identify Potential Issues

First, as an owner, you must rely on your construction and design team to identify potential supply chain issues and provide solutions to manage them.  For example, when planning the structure, ensure that your construction team has reached out to suppliers (precast, steel, reinforcing, etc.) to determine lead times and validate current costs prior to committing to a structural concept.  Likewise, when choosing interior finishes such as light fixtures, the design team should be consulting with the construction team prior to providing options to the owner.  This ensures that the options provided can be procured in the time required and meet the constraints of the budget, and that you can make choices that will not hinder the success of your project.

Be Flexible in Your Design Decisions

As noted above, you may be asked to explore more options for materials in the interest of being budget conscious and ensuring materials can be delivered on time.  Staying flexible will allow your construction and design partners to help you make educated decisions in the best interest of your project.

Be Open to Accelerating Portions of Design & Procurement

Your construction and design team should be building a project schedule that includes material lead times.  This schedule should be used to help educate you on the specific needs for early procurement.  It will likely require a commitment to procure certain components of the project before design is completed.  Your construction and design partners should help you navigate this process to ensure that decisions made today will fit your vision upon completion of the design and construction.

Takeaways

I know this post had a lot of information and data to digest, so here is a high-level summary. It takes a strong team to navigate the modern-day construction project – from the owner to the construction team, to the design team, and everyone in between.  It all starts with finding partners you can trust to help you make these important investments in your future.

As an owner, you should expect the following things from your team to help lead your project to success:

1. Provide you with real-time market data to help you make educated decisions about inflation contingencies.
2. Identify opportunities to make large expenditures at the right time to minimize cost increases.
3. Make design recommendations that save you money early in the project, including recommendations from other early trade partners.
4. Provide big-picture design recommendations based on current material availability to avoid delays later.
5. Provide you with various options for specific materials that meet the constraints of the project schedule and budget.
6. Build a comprehensive schedule that identifies potential pitfalls associated with material lead times, and help you accelerate the necessary components of your project.

In our 130 years of business, JP Cullen has helped our customers navigate many decades of challenges in the construction industry.  If you would like to talk with one of our construction professionals about designing a strategy that could work for your project, please feel free to reach out.  You can contact me at Josh.Pearson@jpcullen.com.

The WEDA Academy kicked off it’s 2023 programming on February 1 with the comprehensive program, Real Estate Project Analysis: Historic Building Redevelopment to Greenfield Development. The program was held at the Hyatt Regency Milwaukee, just prior to the Governor’s Conference on Economic Development. A big thank you to course instructors – Kristen Fish-Peterson, CEcD, Principal & CEO, Redevelopment Resources; Todd Hutchison, Founder and Owner, Wisconsin Redevelopment, LLC; Stewart M. Wangard, CEO, Chairman and Founder, Wangard Partners, Inc. and Wangard Advisors, LLC; and Ann Pieper Eisenbrown, Founder and CEO, Pieper Properties, Inc. who shared their wealth of knowledge on this topic with course participants.  As a reminder to those who attended, please visit the course materials link for presentation slides, exercise answers and an updated spreadsheet.

On the afternoon of April 12, the Academy will be hosting a webinar: Stretching Your Community Marketing Dollars.  The program will include topics such as marketing plan development and focus, partnering, using social media, webpage optimization, and funding sources.  CLICK HERE for a full program description.

The Academy is planning three additional programs for 2023: two webinars – An Economic Developer’s Guide to Municipal Engineering Terms on August 9 and Industrial & Business Park Development on November 8;  and a comprehensive program – Tax Increment Financing  on September 27 just prior to the WEDA Best Practices Conference in Wausau, WI. I hope that you will be able to join us for one or more of these exciting and affordable educational opportunities. As a reminder, be sure to look for approved credits/points for continuing education/recertification on the course registration information.

Please reach out to me at kheady@weda.org if you have any program ideas, topic suggestions or if you are interested in serving as an instructor.