A long purchasing drought by cash-strapped U.S. state and local governments is easing as tax revenues bounce back from the deep recession.
Among the beneficiaries are Canadian transit equipment makers, such as Winnipeg bus manufacturer New Flyer Industries Inc. and train manufacturer Bombardier Inc., which both report improving U.S. prospects.
Bombardier has a record $5.7-billion train order backlog in North America. The company is expanding its plant in Plattsburgh, N.Y., by 40 per cent to handle work on major new contracts with transit authorities in New York City and San Francisco.
“Things are going our way in the U.S.,” Bombardier spokesman Marc Laforge said. “[U.S. transit authorities] are at the point where they have to reinvest in transportation equipment and they are doing so. Their fleets are aging and the need is growing.”
New Flyer, which sells three-quarters of its buses in the U.S., is working on bids for nearly three times as many buses as it was at this time last year – 7,000 versus 2,500.
“We’ve definitely seen a pickup in the amount of bid activity the marketplace,” said Glenn Asham, New Flyer’s chief financial officer.
The U.S. economy remains weak and unemployment high, but the combination of pent-up demand and improved government finances is showing up in healthy purchasing activity.
After dramatically slashing budgets during the recession, state and local governments are tentatively starting to spend again as their revenues recover. And that’s good news for Canadian exporters, already grappling with the high Canadian dollar.
Tax revenues at the state and local level are still below pre-recession levels, but the pickup is proving to be faster than many governments anticipated, according to Al Gordon, president of National Strategies LLC, a Washington-based government procurement consultant.
Roughly 20 states are now running budget surpluses, up from just a handful a year ago, he pointed out. Most states are required by law to balance their budgets every year, resulting in sometimes volatile swings in spending.
“Once you see those surpluses and you see tax revenues coming in higher than you expect, the next thing that happens is more of a willingness to increase capital budgets, which frees up procurement,” Mr. Gordon explained. “Everything starts flowing, and it changes the mindset and the thinking.”
Mr. Gordon said his clients have been reporting “a lot more” procurement in the past six months.
New Flyers’ Mr. Asham said there is now a “healthy demand” to replace aging bus fleets.
“We monitor state revenues continually and they have been growing,” Mr. Asham said. “That would be an indication that at some point state budgets would be able to fund programs again. The issue is: Are services going to decline, or are they going to replace buses?
In a statement Tuesday, New Flyer said it has adjusted its production schedule to reflect the delay in an order of 90 of its articulated Xcelsior buses to an unnamed U.S. transit authority. The contract is fully funded and approved, but state law requires that all sole-source contracts undergo a review.
The company said it expects to be producing the equivalent of 34 buses a week in October, when the review is complete, rather than the 36 it forecast earlier.
New Flyer, which has one plant in Winnipeg and two in Minnesota, is still feeling the effects of the long recession. Employment, at 2,000, is down roughly 15 per cent from 2009, and annual revenues remain $100-million below pre-recession levels.