This article is part of Construction Dive's 50 States of Construction series, in which we talk with industry leaders about the business conditions in their markets.
Activity in New Jersey's construction industry ranges from new growth in the iconic gambling and entertainment hub of Atlantic City to a Meadowlands mega-mall in Secaucus to an industrial boom along the state's turnpike, and Kyle Hammerschmidt, president and CEO of the Associated Builders and Contractors - New Jersey Chapter, is in a position to watch it all unfold.
Hammerschmidt talked to Construction Dive about the state's exciting happenings as well as its challenges.
CONSTRUCTION DIVE: Many areas of the country are reporting upticks in regional economies. How has New Jersey's economy impacted construction activity?
KYLE HAMMERSCHMIDT: New Jersey has many distinct advantages: a prime location along the Northeast corridor with easy access to metropolitan areas, an educated workforce and an abundance of companies in industries like pharmaceuticals, finance and technology. Despite these inherent advantages, New Jersey's economy has not experienced the rebound one might expect since the recession.
Why do you think that is?
HAMMERSCHMIDT: According to a recent McKinsey & Co. study, this can be attributed to a number of things: few young companies growing into major employers; aging transportation infrastructure with high maintenance costs diverting public funds from other uses; an expanding mismatch between the type of middle-skill workers New Jersey has and middle-skill jobs that employers need to fill; and focusing state business incentives on retaining major employers and therefore creating fewer new jobs than do states that aim more incentives at new businesses.
Which sectors are booming and what are some significant projects?
HAMMERSCHMIDT: The New Jersey Turnpike is not just for driving from Delaware to New York. All along the turnpike, especially in the northern part of the state, there are industrial buildings and warehouses of all shapes and sizes, and many more on the way. Some, like a new distribution hub for Best Buy in Piscataway, are nearing 1 million square feet or more. This is due in large part to proximity to the Port of New York and New Jersey, which is one of the largest and busiest ports in the country.
New Jersey's failing infrastructure, such as Hoboken's aging water mains, will also need to be addressed — the American Society of Civil Engineers' Infrastructure Report Card gave our state a D+. While our state's essential infrastructure upgrades will bring plenty of construction jobs, the questions of when and who will pay for them remain. New Jersey residents already face a steep tax burden and pay the highest property taxes in the country, which is combined with high state income and sales taxes.
What is the state of skilled labor in New Jersey, and have shortages affected the ability of contractors to complete projects on schedule?
HAMMERSCHMIDT: There are an estimated 500,000 construction job openings in the United States right now, and that number would dramatically increase if Congress and President Donald Trump pass an infrastructure bill. That, combined with the fact that approximately 40% of the construction workforce will be of retirement age in the next four years, poses an even larger workforce shortage risk to our industry than we're currently experiencing.
And New Jersey is no different. There are thousands of open jobs, and our members have trouble filling them — 80% of ABC members are having trouble finding appropriately skilled labor. It's likely the second-most-frequent issue we hear from our members after project labor agreements. With high schools pushing students toward college and not toward well-paying jobs in the trades, it's only going to get worse, and projects will continue to get delayed. As of the first quarter of 2018, ABC members [nationwide] reported a nearly nine-month backlog of work under contract but not yet completed.
The Gateway program has had a bumpy road in trying to get a federal funding commitment. Are there any updates to the program's progress that you might be able to share? How important are the Gateway tunnel and Portal Bridge projects to the New Jersey construction industry?
HAMMERSCHMIDT: The Gateway Tunnel is critically important to not just the region, but the entire country. The Gateway corridor was an agreed-upon national priority project and seemed to be moving along until President Trump threatened to withhold federal funding. A significant portion of the country's GDP comes from this region and using it as a political tool is risky. If this isn't resolved soon, Congress will need step in to fund the project.
The tunnels under the Hudson River are aging and near the end of their useful life, which was compounded by recent catastrophic weather events like Superstorm Sandy. A project of this magnitude is estimated to take 10 years or longer to complete, so time is of the essence. We can only hope that New Jersey, New York and the federal government are able to determine how to pay for the estimated $30 billion project — and quickly.
Recently, Triple Five announced that it would double up on labor to meet the completion deadline for the $5 billion American Dream Meadowlands mega-mall. How will that impact labor availability, and how has the project affected the retail construction sector in general?
HAMMERSCHMIDT: A project of the size and scope of American Dream Meadowlands creates labor issues across the region, regardless of who's building it. Combined with the existing labor shortage, these large projects put pressure on the downstream construction sector and create a domino effect on all contractors, which can delay other projects from breaking ground.
What can you share about New Jersey's pursuit of the Amazon HQ2? Any industry buzz? Could the New Jersey construction industry meet the demand that project would create?
HAMMERSCHMIDT: The odds seem to be stacked against Amazon's HQ2 coming to Newark, despite the $2 billion tax incentive from Newark and $5 billion more from the state. This is somewhat surprising given Newark's proximity to three major international airports, as well as ease of access to New York City, Philadelphia, Washington D.C. and Boston. Newark's Amazon proposal includes redeveloping 11.5 riverfront acres near downtown Newark, which will happen whether or not Newark is selected, and is long overdue.
What does the state's recent public-private authorization expansion mean for its construction industry?
HAMMERSCHMIDT: With New Jersey facing an ongoing budget crisis and potential infrastructure crisis if certain areas are not addressed, public-private partnerships are a critical tool that will help get the work done. They have proven instrumental in quickly and cost-effectively completing public works projects across the country. We're hopeful we can bring that same improvement to the New Jersey taxpayers who desperately need a break.
What is the state of union participation in New Jersey's construction industry? Is it still a union stronghold? Are non-union companies making inroads?
HAMMERSCHMIDT: According to Unionstats.com, the percentage of union membership in private construction in New Jersey in 2017 was 29.8%, which is slightly more than twice the national average. That means that more than 70% of construction firms and their employees choose not to be signatories to a bargaining agreement. That's a large chunk of the workforce. The merit shop community continues to thrive and grow in New Jersey.
What are the most exciting things, in your opinion, happening in the construction industry in New Jersey? Are there a few sectors that you believe will play a big role in the state's future?
HAMMERSCHMIDT: I think we are seeing real improvement and growth in Atlantic City. The Ocean Resort Casino (formerly the Revel) and Hard Rock Hotel & Casino both had their much-anticipated openings at the end of June. According to the New Jersey Division of Gaming Enforcement, monthly gaming revenue increased 7.3% in June compared to a year ago. We are all hoping these trends continue.
Additionally, Stockton University just opened its beachfront campus as part of the Atlantic City Gateway Project. This was a $220 million [public-private partnership] that should contribute, in part, to Atlantic City's comeback. Stockton is also considering purchasing the Atlantic Club to extend its footprint in Atlantic City. Adding more education to Atlantic City will assist in diversifying its economy.
What are the biggest challenges facing New Jersey's construction industry right now?
HAMMERSCHMIDT: We hear over and over from our members that they are busy — which is fantastic — but they have difficulty finding and keeping the employees they need to start, continue and complete the work they win. A career in construction has an extremely high potential for both earnings and advancement, all without incurring student loan debt. And as average college graduates start their careers with more than $37,000 in student loans, apprenticeship and earn-while-you-learn models should be especially attractive to young people.
ABC-New Jersey is also in the process of establishing a registered apprenticeship program that we are hoping to get off the ground in 2019. Through this program, we are also looking to partner with New Jersey high schools to both educate students about the many opportunities a career in construction provides and build interest in the construction trades from a young age.