Normally I’m a strong supporter of Gov. Bill Walker. I think he has done a good job of trying to get the state’s finances under control.
I strongly disagree with his plan to outsource 100 percent of DOT’s design engineering services because this plan hurts the state’s economy and will result in a good percentage of transportation funds leaving the state.
Why do transportation funds leave the state? Almost all large consultants in Alaska are branch offices of much larger firms based outside of Alaska. Although some of the design work will be performed in-state, a larger portion will likely be performed by specialists in the Lower 48. Federal law prohibits the states from discriminating on the basis of residency.
A good example of this is the program I am most familiar with — the DOT’s Bridge Program. From 1990 to 2016 there were approximately 342 new public bridges built in Alaska (state, federal and local). The total number of these new bridges designed by consultants was 144. Of the 144 new bridges designed by consultants, 77 of those bridges were designed by out-of-state consultants. That’s 53 percent!
How much does this outsourcing represent in dollars flowing out of our state’s economy? On average, each bridge might cost say $250,000 to design. Multiply this by those 77 bridges and you get a whopping $19,250,000! That is a significant sum leaving the state and bridge design is just a small portion of the total work that the governor is proposing to outsource.
The DOT annually produces about $500 million in construction contracts. A large portion of that is currently being done by consultants — 55 percent according to DOT. How much of that is currently going out-of-state? A reasonable cost of the design engineering is 10 percent of construction cost, so that amounts to about $50 million annually. If 55 percent of this is going to consultants, then that is $27.5 million. If these same consultants are using their Lower 48 staff to do say 50 percent of the work (similar to the current bridge design outsourcing value), then we are already seeing almost $14 million going south every year. This is money taken directly out of the state’s economy every year.
Now, if the governor is successful in raising the outsource rate from 55 percent to 100 percent, we can expect the outflow to the Lower 48 to increase from $14 million/year to about $25 million every year. This is a significant drop in current cash flowing throughout our state, especially when the recirculation of this money in the local economy is considered.
To make matters worse, those state DOT engineers will be leaving Alaska. This further damages local economies due to loss of taxes paid, impacts on the real estate markets, drop in school enrollment, etc.
Is it less expensive to outsource? DOT engineer salaries are roughly equivalent to those in the private sector, although some would argue DOT lags the private sector. At DOT, the salary multiplier is about 1.85. This means that it cost the state 85 percent more than the employee’s base pay for various taxes and benefits. The consultant sector has to make a profit, plus they have to pay for liability insurance, marketing, etc. The consultant salary multiplier is typically around 3.0.
This means the state is not only going to lose about $25 million/year to the Lower 48, but that we are going to be paying more to lose this money. (If a DOT engineer earns $100,000 per year, the cost to the state is $185,000/year with benefits. If a consultant engineer earns $100,000/year, the cost to the state will be about $300,000 including benefits and profit). This leaves less money available for construction projects.
The governor’s hiring freeze over the last two years has forced the DOT to outsource more of their work. Is this in the best interest of the state’s economy? Clearly not. We should be adding employees and keeping the earnings in our local economies.
I sincerely hope the governor reconsiders his plan to outsource 100 percent of DOT’s design engineering work. His plan is not good for Alaska’s economy.
• Steve Bradford is a retired Alaska DOT&PF chief bridge engineer and a Juneau resident since 1975.
