As a state government shutdown deadline nears, contractors ponder immediate layoffs.
As a possible state shutdown creeps closer, hundreds of companies that rely on government contracts are preparing pink slips, shifting workloads, delaying projects and rescheduling less critical work.
Highways, bridges and other construction projects are in jeopardy, as are the jobs of workers hired for them.
SRF Consulting, a Plymouth highway engineering firm that has a 30-year history with the Minnesota Department of Transportation, said it will furlough 120 of its 200 employees if the state government shuts down July 1 and cuts off its contracts.
Gov. Mark Dayton and Republicans who control the Legislature remain locked in disagreement over how to solve the state's $5 billion budget shortfall. On Wednesday, Dayton announced a shutdown plan that would affect a wide array of government services and spending. A judge will review which services should continue during a shutdown.
Minnesota pays about $2.5 billion a year to contractors who design roads and bridges, keep computer systems running and supply a wide array of services from health care to tourism promotion. About 1,600 businesses and nearly 3,900 small and individual contractors work for the state, but their services may not make the cut as essential.
Another $900 million is slated this year for road projects -- many now threatened by a shutdown.
That worries companies like SRF, which has three- and five-year state contracts worth $11 million. SRF currently is working on an interchange project at Dresbach, Minn., on Interstate 90 along the Mississippi River.
"MnDot usually is our biggest client. And in this economy we don't have [extra] work just sitting around," said SRF Chief Executive Randall Geerdes. "State employees are going to be in a lot of trouble but no one talks about what will happen to the private sector. ... I am not optimistic."
A question of survival
Small companies may have the toughest time if they rely heavily on government work.
"Larger companies with deep enough pockets will get through this," said Mel Gray, a professor of business economics at the University of St. Thomas. "It's the small businesses, minority-owned and women-owned that will be seeing some distress. When things go sour, they can go sour big-time."
Minnesota's 10-day government shutdown in 2005 was so brief that many contractors, agencies and even some state departments just kept working, in some cases getting paid retroactively. This time around, amid a tough economy and worries that a shutdown could drag on longer, such steps carry greater risk.
Geerdes said SRF avoided layoffs in 2005 by shifting employees to other projects, "but we lost a lot of money in that 10-day span."
Eagan-based Intertech Inc. is developing software to link prisoner computer records to police squad cars, jails and courts. That contract employs 10 of Intertech's 55 workers.
While none will be let go if there's a shutdown, that doesn't mean "we would just sit on our thumbs and wait for the government," said Intertech principal Ryan McCabe. The company would draw on lines of credit and focus on nongovernment work to "weather the storm," he said.
If a shutdown were to be lengthy, he'd permanently reassign workers to other contracts, leaving the state without a key developer.
"That's a downside for the state. But at some point you have to say, 'How long are we willing to wait?' ... A four-week shutdown could cost us maybe tens of thousands of dollars. Maybe even closer to six figures," McCabe said. "That could sink a company if [the state] is their only client."
Mayo Medical Laboratories in Rochester has a five-year, $8.2 million state contract to screen newborns for illnesses. Spokesman Karl Oestreich said he's unsure how the shutdown will affect Mayo but said that in the past the state deemed the tests essential and they never stopped. Dayton has recommended that such services continue.
At Minneapolis advertising agency Colle+McVoy, a shutdown would halt a three-week radio campaign for Explore Minnesota, the state's tourism agency. Work on a fall tourism campaign also would stop.
"They play an extremely important role for state tourism," said Explore Minnesota's Joan Hummel. "If there is no budget, we will no longer be able to pay our vendors."
Minnesota Secretary of State Mark Ritchie warned Thursday that a shutdown would force his office to close, and no new business entities could be created as long as the impasse lasts. Farmers needing crop and livestock loans would have no access to the state's central notification system, he said.
A shutdown probably wouldn't cripple Minnesota's economy, but it would hit one sector -- the construction industry -- particularly hard.
Government services represent less than 10 percent of the state's gross domestic product, said Toby Madden, a regional economist for the Federal Reserve Bank of Minneapolis.
"So if the shutdown is only for a little while, it will not be a huge impact on the state's economy, but it is still an adverse impact," Madden said. "In fact, it's already had an impact because of the uncertainty and distraction."
Construction firms say a shutdown would hit them at the worst time because of Minnesota's notoriously short construction season.
"The work of construction projects slated to be completed before winter might flip into the next construction season," said Patrick Lee-O'Halloran, past president of the Minnesota Construction Association.
Ravi Norman, CEO of Thor Construction in Columbia Heights, is worried about $7.5 million worth of light rail work slated to begin next week. Thor is installing tracks and working at intersections.
It has up to 50 workers depending on the light rail work. If a shutdown stalls the project, there isn't another construction job waiting, Norman said. "This would impact them," he said.
"There's a huge cost to this," said Dave Semerad, chief executive of Associated General Contractors of Minnesota. "You have the cost of demobilizing a project if there is a shutdown, and you have to secure the equipment. Then there is a cost to remobilize. ... It's a shame."
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