Maine Trails, April - May '12
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Staying alive
For many Maine businesses, surviving the ‘Long Recovery’ has been nearly as challenging as living through the ‘Great Recession.’ Here’s how six Maine businesses are coping in lean economic times.

By Kathryn Buxton

“This economy has pretty well ruined our business,” said Ron Farrin, an owner of Farrin Bros. & Smith, an earthwork contractor based in Brighton, Maine. But that hasn’t stopped him. Farrin let us know that he and his two partners have taken major steps to carry the business through the recession and seemingly never-ending recovery, including cutting their workforce by half, sharpening their pencils on all the bids they put out, and looking in new markets for work.

Maine’s construction industry and the service businesses that support it continue to suffer disproportionately compared to the rest of the state’s economy. According to the Maine Department of Labor, the state has lost 6,000 jobs since January 2008 when the job count stood at 31,600. (The 10-year industry employment high was April 2006, when 31,900 were employed in construction jobs.) In March 2012, construction employment figures were stagnant at 24,600 – up just 700 jobs since the recession low of 23,900 in July 2010. Farrin’s frustration is echoed by almost all of the businesses interviewed for this story. Many have been through multiple rounds of job cuts and have undergone other cost-cutting measures to stay afloat.

Letting employees go has been difficult, Farrin said, particularly because he can see the impact those laid off workers without a paycheck have on local families and on the local economy. He knows the belt tightening measures his business has taken also have reverberated through other areas of the state and other industries– such as equipment suppliers.

 “We haven’t bought any new equipment in the past four years, and we used to spend $150,000 to $250,000 a year on new equipment,” said Farrin.

What’s more, Farrin said, the belt tightening that MaineDOT has had to do has placed rural based businesses like his own in a precarious position.

“MaineDOT does a good job stretching a dollar,” said Farrin. He is concerned, though, that means fewer lower priority roads in his region – Somerset County – are getting fixed while higher priority roads in areas like southern Maine and the Bangor region are getting the bulk of state transportation funds. That, he believes, is one of the many reasons unemployment in the region has been running about three points higher than the state average and local posted roads have reached an epidemic level. MaineDOT trying to get by with less also is at the heart of the persistent problem of aging, substandard transportation infrastructure that plagues so many of Maine’s businesses and has become a major impediment to rural economic development.

“Posted roads are absolutely up this spring,” said Farrin. “We can’t even get out of town to some job sites, because the state roads are so busted up. And I have a feeling they’re never going to get fixed.”

Momentum vs. gridlock

While Farrin remains pessimistic about the 2012 construction season, some in the industry are more positive.

“I’m very optimistic that we’ve hit the bottom and things are getting better,” said Rodney Lane, district manager for The Lane Construction Corporation based in Bangor. “We’ve seen an uptick in building permits for the commercial and private construction markets across the nation.” Still, Lane admitted that his company has been hit hard by the recession and has made some difficult decisions since the recession began more than four years ago.

 Even for businesses that have begun to see an upturn, there is a persistent pessimism in discussions of the economy and construction. Ask Tim Folster how business is going, and he almost sounds surprised by his answer.

“We actually had a pretty good year last year,” said Folster with a detectable note of caution. Folster is vice president of operations at Sargent Corporation in Stillwater, and while he said business last year was better than it has been, it is uncertain that momentum will continue to build.

“Our volume has been up and we’re being aggressive in the jobs we’re bidding, but we’re looking at 2012 and thinking this could be the toughest year yet,” said Folster, who also is a former MBTA president and current board member.

Folster cited the gridlock in Washington, a series of short-term federal funding extensions that have created less certainty, as well as the Maine Legislature’s decision last year to hold off bonding. A $51.5 million bond with $41 million for roads and bridges will go out to voters this fall. If passed, it will fund some badly needed projects for roads, rail, aviation and ports.

Like Folster, Farrin expressed frustration at how transportation funding, once a source for bipartisan agreement, has fallen prey to partisan bickering on the state and national level.

“The last time there was much money for fixing roads in Maine was the federal stimulus,” said Farrin, who said the lack of political support for transportation – whether it is bonding or identifying new funding sources for roads and bridges – has been particularly frustrating. “The governor doesn’t appear to support transportation improvements, and no one wants to talk about raising the gas tax, and that is killing our industry.”

For his part, Lane said he believes that Governor LePage’s emphasis on austerity and reducing the state’s debt load has been a good thing and will serve Maine well in the long-term. Still, he said, our roads and bridges need to be cared for, and everyone in the state will benefit from money spent on transportation – from construction workers to local businesses that can ship their products more efficiently.

“I think the governor is right. His job is to balance the budget and find solutions to the shortfall,” said Lane. “On the other hand, it is not an option to let things go.”

Other markets

Typically, when road construction slows, firms look to other markets for work. In this recession, that strategy has not been possible. Inventories in the traditional complementary markets – commercial, retail and residential construction – remain high, so there has been limited demand for construction in the private sector.

That has left many companies to look inward to see if they can apply their skills to other projects within transportation construction. Lane and Farrin both said their companies have branched out from traditional road-building niches and bid on selected bridge projects. But it is not a comfortable or completely viable solution.

Farrin said his company has picked up some small bridge projects, and that has helped keep crews busy. Competition for those bridge jobs is fierce and margins on the jobs are tight.

Other firms have looked to new markets. Energy construction is one of those markets, particularly wind power, which has seen a boom in recent years as developers have rushed to take advantage of tax incentives. There is increasing opposition to government funding of projects in the renewable energy sector, and those tax incentives, unfortunately, have come to an end.

Folster said that for companies like Sargent, that have been able to keep crews working on wind projects, the reversal of government policy supporting the new technologies represents a lost opportunity and is another worrisome factor for the construction industry.

Still, by diversifying – both geographically and by adding new services and specialties – many businesses are making it through the recovery.

Randy Mace of Anderson Equipment, which has locations in Cumberland and Bangor, as well as in Vermont and New Hampshire, said that his company has focused on building its equipment rental business to serve the market.

“A lot of businesses just can’t afford to invest $250,000 in a new piece of equipment,” said Mace, immediate past president of the MBTA. “Renting it helps them get the equipment they need without the long-term investment.”

Hopeful glimmers

For Macdonald Page & Co LLC, a South Portland and Augusta-based accounting and business consulting firm with a specialty serving the construction industry, the recession has been a mixed bag. The firm’s strategy throughout the recession has been to fill an emerging market for IT security services, as well as provide on-call outsourced financial reporting and management services for non-attest clients who may no longer have a full-time CFO on staff.

“That has kept us very busy,” said Lauren Corey, a former MBTA president. She said that by staying nimble, expanding its services to accommodate emerging client needs and looking for new opportunities, her firm was able to avoid layoffs and is emerging from the recession in a strong position.

“Two thousand and nine was the worst of it,” said Mace. “We did all the obvious things. We reduced personnel and cut back on inventory. Then we waited for things to come back. Well, then we realized that the problem was things were just not coming back.”

Sebago Technics, a Westbrook-based engineering firm, had to lay off nearly half of its workforce during the height of the recession. Those were dark days, according to Steve Sawyer, the firm’s vice president of transportation services. Sawyer is a former MBTA president and current board member.

“In 2008 we had a horrible year and for the three years after that,” said Sawyer. He noted that the firm began to feel its own recovery kick in just last year, a full year and a half after economists had declared the recession over. “In mid-2011, we began to achieve a kind of equilibrium, but we’re still waiting to see what the 2012 construction season will bring.”

He said thanks to the mild winter and dry spring, the firm’s survey crews have been able to get out into the field earlier than usual and that has helped fuel a feeling that things are turning around. The firm, which typically has about 50 percent municipal and state and 50 percent commercial work, has seen some movement in the private markets. “For a long time, there was no private market at all,” said Sawyer, who characterizes the current outlook as stronger, but still “tenuous.” Sawyer said: “It used to be we could look out and see work for six months, right now, it’s just two."

 

Survival strategies

 

Economists have predicted that it could be late 2015 or 2016 before Maine’s economy returns to pre-2008 levels. In the meantime, many MBTA members are continuing to watch what they spend and trying to find new opportunities in old and new markets. Here are some of the survival strategies the businesses we spoke with are using to beat the recovery blues:

1. Get good input

Several businesses have a committee made up of employees from different departments that meet regularly and give input on ways to save and to suggest or create new business opportunities. Meeting regularly helps keep everyone on track and thinking strategically.

2. Cast a wider net

Many companies are traveling further to keep their crews busy and their job docket full. In some cases that has meant looking across state lines for work. Lane Construction and Sargent Corporation have operations out of state and have shifted employees to where there is more work. That strategy has helped Sargent, which also has an office in Ashland, Virginia, limit its layoffs. However, it can be taxing on employees and their families. “Being geographically diverse can help, but all that travel puts a lot of pressure on employees,” said Sargent’s Tim Folster.

Sebago Technics’ Steve Sawyer said his firm has been able to market its services in New Hampshire. He also noted that in some ways that can be a double-sided coin, because his firm is having to compete for Maine projects with more out-of-state firms.

3. Consider your strengths

Some businesses have expanded their roster of core services. Farrin Bros. & Smith has looked to where its crews’ experience in highway and road construction could be an asset. Ron Farrin said his company has added small bridge/culvert replacements and airport construction projects to its rèsumé.

4. Fill new needs

Lauren Corey of Macdonald Page & Co LLC in South Portland, an accounting firm with an extensive client base in the construction and transportation industries, said her firm has looked at services they could offer clients on an ad hoc basis including “CFO for rent,” auditing and IT security services.

“There has been a lot of downsizing, and some firms can’t afford to have a CFO or bookkeeper on staff. So we have been providing that on an on-call, consulting basis,” said Corey. She said that tighter scrutiny from banks and more stringent reporting requirements on government contracts also have created opportunities for audits and financial reviews performed by an outside auditor.

5. Build strategic alliances

Sebago Technics has identified certain new areas where the company’s expertise would be applicable – including energy – and has formed alliances with companies already working in those fields to bid on projects.

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