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Spending Money Is Easy. Spending It Wisely Is Hard.


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Spending Money Is Easy. Spending It Wisely Is Hard.

I spend a lot of time speaking with Higher Education clients and potential clients in Florida, since that is where our US head office is located. Through the hard work and dedication of the Florida State University System Board of Governors (BoG), Florida Colleges and Universities are scheduled to receive over $880 M in one-time funding to address Deferred Capital Renewal and Replacement across the State. The money was split fairly evenly between the State-funded Colleges and Universities. It is a huge win for the BoG and the higher education institutions across Florida.

 

However, there are some challenges that Florida Colleges and Universities are going to face over the next couple of years as the money rolls out and the projects are being completed. Many institutions have faced similar problems in the past and many others will in the future when “new” money is injected into a market.

 

As we all know from our personal financial situations, it is very easy to spend money. However, spending money wisely, is another matter altogether. Given the current macroeconomic situation, with inflation not seen in 40 years, supply chain issues left over from the pandemic and unprecedented labor shortages around the world, getting value for money from the government funding is going to pose significant challenges for Florida’s colleges and universities, as well as all other institutions trying to get capital renewal work done in the Southeastern U.S.

 

For example, since the time the institutions submitted the list of projects to the BoG there has been significant inflation, over 20% for some types of projects. As such, the $880 M may only cover $660 M in planned projects just due to the increase in project costs (and that is before the additional funding has had a chance to impact the market). Now this is still a huge win for the sector. However, expectations of the work that can be done with the funding need to be based on the real-world situation at this time.

 

Any market, even one as large and robust as Florida will struggle to consume nearly $1 B in additional funding over a two to three year period. Given that in the Florida case it is also a one-time injection of funding, it represents more of a market shock from the demand side, as opposed to a long-term growth trend. Companies that ramp up hiring or production to meet the demand will likely face the need to downsize once the funding has worked its way through the system. This reduces the incentive for companies to invest to meet the market demand, since it is only likely to be temporary.

 

One other challenge that we have seen, based on previous major increases of funding in specific markets, is that smaller institutions, or those located in smaller centres may also struggle to attract contractors to bid on work. If the market can service larger clients, or those closer to the major centres (often where the contractors are located) then they don’t “have to” venture as far afield to find work as they would in a “normal” market.

 

Despite all of these challenges, this specific funding in Florida, and any increase in funding to address Deferred Capital Renewal and Maintenance backlog is a win. There are always challenges to get value for money when new funding is made available. For now, until inflation and the supply chain and labor issues subside the challenges are just that much greater.

 

In my next post, I will discuss some strategies that we have seen work for our clients to get the most value from a strained market when it comes to capital renewal projects.


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