Recession Impacting Security Projects

By Severin Sorensen, Published Feb 10, 2009, 04:54pm EST

If you are selling a disruptive technology that greatly reduces cost, then this market is just right for you. However, if you are selling a heavily capital intensive project requiring new installation then you might have to wait a little longer for the NTP. Monthly recurring revenue contracts of monitoring and maintenance have increased value at this time and are a safe as your clients ability to pay; pray that you are not servicing General Growth Properties, Simon Properties, or any other REITs that are poised for restructuring in 2009.

There is a widely held expectation that security-related systems and services demand will increase with rising crime opportunity resulting from increased unemployment and economic slump; however the crime wave is still forming, and this peak demand is not on the radar yet. Criminologists find that there is a one-year time lag from significant negative economic shocks and crime waves, so gear up, it will be coming.

As for the present, I can tell you that work financed by tax-free bonds municipal based funding is in trouble. Many states and localities have stopped or suspended projects not already in construction phase due to uncertainties and poor bond market demand. My own firm, Sikyur, does large scale project management of security installation projects and we have a long-lead time for projects many months out; our 2009 contract pipeline was secured by Q1-08, however 85% of this pipeline froze within weeks of the Lehman Brothers collapse owing to the fact that my book of business was largely municipal bond-financed, and only a trickle flow of these bond-financed municipal projects has leaked out in the past five months. The climate for state and local bond market is improving, but has not returned to pre 9/15/08 levels.

The fact is, state and local governments are largely under funded and running deficits. As late as Jan 27, 2009, CFO Magazine published the following – Titled State and Local Government Deficits Soar; Projected operating deficits of state and local governments have sharply risen; estimated $312 billion over a two-year period, the Government Accountability Office says in a new calculation. The operating deficit will be about $131 billion for 2009 and $181 billion for 2010, the GAO says. The projection is sharply higher than the projected range of $100 billion to $200 billion that the independent, nonpartisan federal agency estimated as recently as November. Since most state and local governments are required to balance their operating budgets, the declining fiscal conditions suggest that, without intervention, these governments would need to make "substantial policy changes" to avoid growing fiscal imbalances, the GAO warned in a letter to Max Baucus, chairman of the Senate Finance Committee. "The recession contributes to declining state and local revenues in the midst of increased demand for state and local services.” 

There remains work out there for those already under contract, but the delays by the CEO/CFO decision makers are starting to take their toll. I personally have a half-dozen projects approved at the departmental level, but awaiting the final notice to proceed decision -- and they are just not forthcoming. Hopefully we will get a honeymoon period with the new Obama administration and companies will feel safe investing and upgrading again. For the time being however, unless you are servicing the education, health care, or funeral home industry, there is reason to be concerned.

Severin Sorensen, CPP, is a leading industry expert and entrepreneur. He is the CEO of Sikyur, providing guidance to CSOs and security executives.

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