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Vince Montgomery, president of architectural firm TKDA, has had three large highway projects come to a halt since the state shutdown began last week.

Bruce Bisping, Star Tribune

Businesses feel immediate bite

  • Article by: JENNIFER BJORHUS and MARISSA EVANS
  • Star Tribune staff writers
  • July 4, 2011 - 10:19 AM

It's one thing to lose jobs because of the economy. But Vince Montgomery is perplexed that he might have to furlough employees because of politics.

His planning and architecture firm, TKDA in St. Paul, has a team of nearly three dozen engineers and designers focused on state transportation contracts. On Friday, the projects -- including construction of three major Twin Cities highway interchanges -- came to a halt when state government shut down.

The stoppage idled more than 200 construction workers and has thrown TKDA's team into jeopardy. Montgomery, TKDA's president, said the firm was just hitting its stride after cutting jobs to survive the Great Recession.

"It's very frustrating," he said. "I don't like becoming a victim of the political process."

The blow from the shutdown has been almost immediate for hundreds of companies with state contracts. Across Minnesota, the private sector is bracing to see how dramatically the shutdown will affect the state economy, as lawmakers and the governor continue to argue over how to close a $5 billion deficit.

Matt Kramer, head of the St. Paul Area Chamber of Commerce, described the mood among his members as one of exasperation. "It's an almost resigned -- 'Can you believe this is happening again?'"

The lack of government activity will be felt along numerous fronts in the business community. Companies that rely on state inspections or license renewals could face costly delays -- a gloomy prospect for the state's construction industry, which relies on such inspections through various phases of work. Other businesses -- restaurants, for instance -- will gradually feel the pinch as laid-off state employees and other affected workers reduce their spending.

Brothers Electric Co. already faces several unknowns. Amy Letson, controller at the family-owned company in Minneapolis, said she went to the website of the Minnesota Department of Labor and Industry to try to pull permits, only to find it closed.

"We don't know about our open permits, about jobs in progress, if we're going to lose those fees or how we're even going to charge our customers," she said.

Brothers Electric has about three dozen projects that require state inspections to move forward. Letson worries that all the company's 40 permits might be void, and she will have to pull them again after the shutdown.

"Nobody really forewarned us what was going to happen or what we were supposed to do," she said.

Unknown and uncertain

In Bloomington, where the Mall of America and hotels are a major economic engine, firms worry light rail or bus service will eventually be scaled back, affecting the ability of hospitality workers to get to and from work, said Maureen Scallen Failor, head of the Bloomington Chamber of Commerce.

The Met Council, which oversees buses, light rail operations and transportation for people with disabilities, has said the system will continue as normal -- for now. But the council said it can't maintain full service indefinitely without state funding, estimating it can run for several weeks on reserves and other funding sources.

"There's going to be impacts," said Scallen Failor. "To what degree, we're really not quite sure."

Day One of the shutdown Friday found state economist Tom Stinson in his University of Minnesota office calculating the shutdown's cost on the private sector. He considered lost wages of laid-off state employees, construction workers and social service agencies deemed nonessential, and indirect effects from people spending less on leisure and hospitality.

Altogether, he estimated the state could lose at least $18 million in spending power each week of the shutdown.

A drag on the economy

In the short term, it's not a huge problem for the state economy, Stinson explained. But effects will begin to compound as time goes on. People don't necessarily get their hours cut the first couple of weeks, for instance, he said.

"To the extent this goes on for six weeks or two months, it's going to be a drag on the recovery," Stinson said. "It's not, by itself, enough to plunge the state into a recession. But it is going to create slower growth that we expected."

Stinson noted he was speaking as an employee of the University of Minnesota, not the state, because "there isn't any state economist." The voice mail at his closed state office said he is gone because of the "government service interruption" -- language he said employees were told to use.

Meanwhile, effects of the shutdown on heavy construction work will be significant because Minnesota doesn't enjoy a 12-month construction season, Stinson said. "If you lose a month or two months in construction, that really sets everything back."

Mark Olsen knows the pressure all too well. Olsen is a project manager at Edward Kraemer & Sons Inc., a general contractor on the interchange project at Hwy. 169 and Interstate 494 in the south metro. Olsen watched Friday as workers shut down the job site. The company isn't sure whether it will have to demobilize equipment and move it to a project not funded by the state.

Even a relatively short stoppage is problematic. A delay of two weeks could prevent workers from completing the southbound side of Hwy. 169 this year, Olsen said. Until work resumes, "we've got boatloads of equipment parked out here," he said.

Jennifer Bjorhus • 612-673-4683 Marissa Evans • 612-673-4211

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