The hurricane double-header no one wanted is creating a construction boom. This company is making sure it’s funded

Back-to-back hurricanes have thrown a wrench in the 2024 presidential race. Image via AP.

As Floridians across the state continue recovering from back-to-back hurricanes — both causing historic devastation — the construction industry finds itself again inundated with demand for contractors that exceeds supply.

Losses related to Hurricanes Helene and Milton, which both made landfall in Florida within two weeks of each other, are expected to exceed $50 billion. While some of that estimate comes from western North Carolina — where Helene dumped record rain and caused catastrophic flooding that is still plaguing the region — and other states where the late-September hurricane tore a path through Appalachia, Florida finds itself already facing a shortage of contractors and associated labor to take on the daunting task of rebuilding.

“Anytime we have a major storm come through, there’s going to be an initial shortage and just some delivery problems,” HMP Marine Construction Contractor Paul Printiss told WEAR News in Escambia County.

That was Printiss’ experience after suffering just one major hurricane. Now, the state is grappling with damage from two in as many weeks. There is damage from wind — damaged roofs, tattered structures, downed trees — and flooding. Tornadoes from Hurricane Milton also brought devastation to many places around the state far from the worst impacts related to the storm’s direct landfall.

So how can the state keep up?

“Our focus is on providing liquidity to the local contractors post-disaster so they can complete the recovery work for the city, county or state affected without credit restrictions,” ATLYS Global Managing Partner Frank Robinson said.

ATLYS Global, the owner and operator of the Federal Contractor Financing Program (FCFP), has established itself in Florida with a novel solution to ensure all contractors are able to participate in the disaster recovery business, regardless of the company’s size or credit capacity.

Particularly when federal programs are involved in recovery, getting reimbursed for recovery needs is not a quick task. It often leaves contractors in a position where they do the work and accept payment later. That’s something large companies could be positioned to handle. But smaller companies may not be able to front costs associated with materials and labor.

That’s where the FCFP comes in.

When disaster strikes — whether it is a wildfire in California, a tornado in Kansas or a hurricane in Florida — the federal government allocates resources to ensure adequate recovery in communities affected. Since 2017, Federal Emergency Management Agency (FEMA) Disaster Relief Fund allocations have totaled $223 billion.

Of those funds, only $114 billion had been disbursed, as of February 2024. In Florida, more than $18 billion had been allocated and only $13 billion disbursed, leaving contractors holding a $5 billion bill. That begs the question: Is there $5 billion of contractor credit worthiness here in Florida to foot this bill? What about all of the new allocations that will come from Helene and Milton on top of that $5 billion?

The FCFP specifically targets disaster response and recovery. It provides weekly financing to contractors performing work on projects tied to government contracts.

The financing is not solely based on creditworthiness, but instead, focuses on the obligated repayment as the main source of collateral. The FCFP model also considers the sudden and significant demands for capital, especially given the considerable costs involved in projects such as rebuilding entire communities or replacing complex infrastructure.

The FCFP is the only “non-recourse” financing solution on the market. The program has the capacity to lend billions of dollars annually, providing small businesses the opportunity to compete with much larger companies that maintain lines of traditional borrowing based on credit.

“What most people don’t know is that FEMA and HUD, the two biggest buckets of disaster recovery monies allocated by Congress, are reimbursable programs. That means some entity — maybe the local government or some company, most likely the contractor — has to perform the work and incur the expense of the recovery in order to submit an invoice for reimbursement,” explained ATLYS Global CEO Timothy Touhey.

While ATLYS Global provides an innovative approach to solving the funding problem, it’s a need that has existed for years, and lawmakers are aware of it.

In May 2020, the bipartisan Congressional Research Service (CRS) released an analysis of the 2009 American Recovery and Reinvestment Act. A recurring theme in the report was tied to the inability or latency in releasing federal funds for infrastructure projects.

The report concluded that these disbursement hurdles are directly related to the creation of new programs requiring a novel approach using available liquidity. As an example, CRS found infrastructure programs only received 9% of allocated funding in the first six months. The report noted that after 18 months, only 50% of allocated infrastructure funds had been disbursed.

More simply, contractors and subcontractors must spend out-of-pocket costs and wait an unknown amount of time to be reimbursed. Imagine a contractor doing work on a house only to have a homeowner tell them they will definitely get paid at some point in the future, but they don’t know when. With disaster recovery, contractors face this dilemma every day.

For some prime contractors and subcontractors, capital is not available to front costs. Some may have strong balance sheets but lack the ability to gain capital through traditional lending.

It leaves a shortage of service providers at a time when the state needs all hands on deck. And it has a trickle-down effect. Many large firms will enter “pay when paid” contractual relationships with subcontractors. While that mitigates financial risk among the big firms, it places the cash burden on smaller subcontractors that actually swing the hammer.

“Too often the big contractors, leveraging their balance sheets and abilities to maintain their operations, push the federal delayed payment issue on to the subcontractors. If recovery is going to happen faster, non-credit dependent liquidity solutions to subcontractors needs to be the focus,” Robinson said.

There is also a local economic benefit in bringing smaller, local firms into the recovery marketplace. While larger firms may be headquartered out of state, the smaller operations are more likely to keep their money local, because they too are local.

“Empowering the local contractors in an affected area to participate by providing them non-recourse liquidity is the best solution,” Touhey said. “They are local. They were affected. They are capable and want to help. Let’s remove their biggest hurdle to joining the recovery effort; the operational burden of waiting for federal reimbursement.”

Simply put, when a small business does well, it pays employees, even adds new employees, and that windfall gets recirculated to benefit other local businesses. Think workers grabbing a sandwich on a lunch break, or a beer from a local brewery after leaving the work site.

The FCFP has issued more than $550 million in loans over the past five years.

The program is available nationally. In addition to Florida, the FCFP has made loans in Texas, New Jersey, Arkansas, California, North Dakota, Mississippi, South Carolina, North Carolina, Louisiana, the U.S. Virgin Islands and Puerto Rico.

In Florida, ATLYS Global has hired the Ballard firm and recently brought on Ken Lawson to serve as its Lead Director for the ATLYS Florida Business Center. Lawson, a Marine, previously served as the Executive Director of the Department of Economic Opportunity, where helping Floridians recover from Hurricanes Hermine, Matthew, Irma and Michael was a top priority.

In that role, he gained firsthand experience not just responding to disaster, but with navigating the challenge that comes with finding enough crews to complete the work needed for restoration.

Lawson described the challenge in an op-ed in Florida Politics in 2020.

“States must wait for Congress to appropriate (Community Development Block Grant) funding. Then HUD must tell states how much they will receive for each disaster. Next, HUD must publish a federal register on how the funding will work for that storm,” he wrote at the time.

Lawson went on to describe how each state must develop and submit a state action plan, and then the Department of Housing and Urban Development (HUD) typically has 60 days to review plans before establishing a grant agreement. Only after that agreement has been reached can states begin distributing funds.

As one might imagine, it’s a lengthy process, one Lawson said can take as much as six months.

“I watched firsthand from my role as a state official how demanding the financial burden of participating in disaster recovery can be on a contractor’s operations,” Lawson said. “It is so rewarding to be leading a financial solution to, in my honest opinion, the biggest challenge this state faces in recovering from natural disasters.”

While local, state and federal policies and programs continually work to adapt to new climate needs, including the prevalence of strong hurricanes, no amount of policymaking or funding can make the storms go away. While the FCFP leaders wish their program wasn’t needed, they are a team of pragmatists who know it is, at least for now and the foreseeable future.

“We cannot stop the disasters, but we can help people recover quicker and more effectively,” Robinson said.

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To learn more about ATLYS Global and the FCFP program:

Website: Home | Atlys Global.

Contact Lawson at: [email protected].