Cities cashing in on lower project costs

The same torpid economy that has bedeviled city budgets over the past year is now giving residents and officials a consolation prize of sorts.

As summer public works projects wrap up, actual costs often are coming in under budget, by anywhere from a couple of percentage points to 50 percent less than officials projected a year ago. Increased competition among contractors also stung by the economy is the driving force, officials say.

The savings, ranging from hundreds to tens of thousands of dollars, are a rare bright spot in metro-area city budgets that have been slashed over the past year to account for reductions in state aid and lagging residential and commercial development.

Although some cities have postponed projects this year because of the cost, others that have forged ahead are seeing significant savings. They are using that money to beef up special funds, hold down utility rate increases and in some cases, bring down residents' special assessment rates.

In Blaine, for example, the bid for a water main project came in at $321,665, compared with an original estimate of more than $500,000. In Edina, a pond dredging project came in at $25,250, or 57 percent less than the budgeted amount. In Shoreview, a storm-water quality improvement project drew a winning bid of $67,500, 15.6 percent less than what was budgeted. In Maple Grove, a city-led project on Hwy. 30 came in under budget, although right of way issues bumped up the final cost.

"Whenever you can save a million in one spot, even if you have an extra million in expenses, you say, this is working," said Gerry Butcher, Maple Grove's public works director.

More bids coming in

"What I suspect is that these contractors used to work on private development," Hutton said. "About half of the contracting industry had been working on private projects." Much of that has gone away, he said.

Hutton said that several cities had seen a dozen or more bids on projects where previously they might have received half that number -- an observation echoed by metro city officials. In St. Francis, for example, a water main project this summer attracted 15 bids; in an average year, it would have brought in three, said City Administrator Matt Hylen.

Public works funding doesn't operate by any single formula. Many cities maintain specially designated funds that are tapped to fund specific projects. Part of utility fees, for example, might go into a fund to pay for sewer work or street lights. And many cities still have developer-funded pots from past residential and commercial development.

The positive bid environment might mean that cities have to use less money from those funds. That in turn, could result in postponing or holding down utility rate increases, for example, or decrease the need to tap into general funds to pay for work. It could also allow cities to add amenities that otherwise would have been out of reach.

The trick is to weigh the worth of a project and its cost with the potential savings, said Lee Munnich, director of the state and local policy program at the University of Minnesota's Humphrey Institute.

Not every project came in under budget. In Blaine, among other cities, Public Works director Robert Therres noted that a couple came in at or just a little bit above budget, although the trend went the other way.

"None of these projects are something we just thought of right away," he said. "They were planned years in advance, but it's nice to get the good bid process and take advantage of that competitive bidding environment, which saves us money for future projects."