New highway and bridge projects, thousands of jobs, stimulating the economy, relief of traffic congestion and other priorities hang in the balance as the Bush Administration and Congress wrestle over reauthorizing a new six-year highway and mass transit bill.
The White House has proposed a $256-billion bill. The U.S. Senate on Feb. 12 overwhelmingly rejected this, approving $318 billion by a vote of 76-21. The House of Representatives has been discussing a figure of $375 billion, the amount that the U.S. Department of Transportation in 2002 said was the minimum needed to maintain the nation’s highway/transit system at current levels, and also make some improvements.
The goal of the House bill has been to reach a $60-billion-per-year federal highway and transit program by 2009.
Increasing the drama, while the Senate was still considering its bill, Bush Administration advisors, including Secretary of Transportation Norman Mineta, issued a statement of policy saying the $318 billion was too high and hid true costs. They said they would recommend vetoing a bill of this amount. A shootout at the Bush Corral is therefore possible (though not probable).
The transportation program has been funded under a five-month extension of the previous $217-billion Transportation Equity Act for the 21st Century (TEA-21). This extension expires Feb. 29. The House has now passed a four-month extension and the Senate also is passing one to allow time for the Senate proposal to be considered in conference committee with the upcoming House proposal, leading to a bill that goes to the President’s desk.
“It all comes down to political will,” said Matt Jeanneret, a spokesperson for the American Road & Transportation Builders Association (ARTBA) in Washington, DC. “Will Congress do the right thing or will they continue to kick cans down the street?”
Questions for the White House
Construction industry organizations, in interviews with Construction Equipment Guide (CEG), take issue with the President, saying that more funding, at least at the level proposed by the Senate, is critical.
“The White House has unfortunately failed to recognize that this is a jobs bill, that will provide more economic stimulus,” said Christian Klein, Washington, DC, counsel of the Associated Equipment Distributors (AED). “When contractors have a sense of how much money will flow into the road program over the next few years, then they’ll start making long-term plans, hiring new employees, and buying new equipment to prepare for the increased funding.”
Klein told CEG: “The Senate bill sent a message to the President that the transportation program has a broad base of support and that he should not lightly enter into the idea of vetoing the highway bill. Our perspective is that the $318 billion is the absolute minimum that Congress should spend.
“The funding level is a key market issue for us because about seven cents out of every dollar in highway funding makes its way into the equipment industry. But there’s more to it than just the money highway contractors spend on equipment. Our industry takes a very holistic view. Our members recognize that more funding means better roads, fewer accidents, more community growth, and a stronger economy. That’s good for our industry and the nation as a whole. Our concern is that Bush’s advisors don’t perceive how it all fits together.”
Said David Mendes, communications director for the American Subcontractors Association (ASA), Washington, D.C., which includes a good number of concrete, rebar, paving and other subcontractors in the highway field: “Our goal is to pass a more supportive bill that provides adequate funding. A conflict between Congress and the White House is an obstacle to that. It really has to be a consensus bill. The White House has threatened to veto higher amounts than it proposed, while the Transportation Construction Coalition, to which we belong, supports funding at the $375-billion level. The lower amount passed by the Senate is somewhat of a disappointment.
“More funding not only affects employment but also profit margins, which have been declining for specialty trade contractors. Obviously, the slimmer the margins, the harder it is to stay in business.”
$92-Billion a Year?
The American Association of State Highway and Transportation Officials (AASHTO) sees a huge transportation funding gap.
In its last “Bottom Line Report” in October 2002, based on expected vehicle miles traveled, condition of road surfaces, deterioration and other factors, AASHTO said that an annual investment of $92 billion by all levels of government is needed to maintain U.S. highways and bridges. Improving them would require $125.6 billion at all levels over 20 years.
“We’re talking annual figures over the next 20 years, but specifically over the next reauthorization cycle,” said Jennifer Gavin, a spokesperson for AASHTO, adding that $18.9 billion a year is needed to maintain the U.S. transit system and $43.9 billion a year to improve it.
Examining travel trends based on population growth and other factors, AASHTO projected a 50-percent growth in road and transit travel over the next 20 years.
“Since we issued the report, the financial condition of states has become more dire, and the federal government has prosecuted a war and increased homeland security, so everyone may have to grit his or her teeth,” Gavin commented, “but we still feel that the budget proposed by President Bush is simply inadequate. Right now, we feel that funding levels close to what the Senate is proposing are a baseline minimum to really address infrastructure needs in any kind of real way.”
States in Quandary
As a “battle royal” builds up, the delay in reauthorizing a six-year bill is tough on states.
“Obviously the states want a long-term bill in place because it’s very difficult to plan long-term if you don’t see federal funding for the next several years,” said Frank Moretti, director of policy and research for The Road Information Program (TRIP) in Washington.
“Under the funding that the President has proposed, the states at best can keep roads and bridges in their current condition, which is a pretty high level of deficiency. Certainly it would result in traffic congestion getting a lot worse. The administration’s bill doesn’t put the type of money on the table which would allow the states to move forward with many key new-capacity projects which are at the heart of addressing congestion.”
AASHTO’s Jennifer Gavin told CEG that the Bush Administration’s lower funding level “would cause problems for the states, which have been going through a very serious recession themselves.
“Most of those states have had to slash their own budgets because they are under constitutional restraints not to have unbalanced budgets,” Gavin added. “Some have been forced to raid their own highway trust funds to make that [balance] happen. So we don’t see any zone of absorption in the state budgets to pick up any slack which the Feds don’t meet. The needs are out there. Someone will have to meet them or it will cause system deterioration and further breakdown, heightened congestion and economic impact.”
If the Administration’s proposal became law, how would this affect the states?
“It would vary state by state,” Gavin said, “but, frankly, there is so much to do, and such a backlog, that it has been hard to maintain roads even under the present highway funding. I think what you would probably see is a deterioration of the existing system, more delay, negative economic impact and more frustration for everyday commuters.”
Said Dennis Day, a spokesperson for the Associated General Contractors of America (AGC) in Washington: “Bush’s proposal, while above levels of the previous transportation bill, will still lose money due to inflation over the next six years. That’s not going to help the highway system. We have to pass a six-year bill before anything else because state Departments of Transportation [DOTs] are hampered right now in their long-range planning process.”
ASA’s Mendes commented: “On large projects, if you’re expecting $10 million or $20 million from the federal government and that money doesn’t come through, that can make it very difficult for state budgets. Thirty or so states have enacted tax increases over the last year or two. If they don’t receive the transportation funds that they need, this will keep the squeeze on them.”
Lines of Battle
The battle lines are being drawn, as the veto threat hangs above like a war cloud.
Numerous congressmen, including high-ranking Republicans, support higher funding. Leading GOP proponents include Rep. Don Young, R-AK, chairman of the House Transportation & Infrastructure Committee, and Sen. James Inhofe, R-OK, chairman of the Senate Environment and Public Works Committee.
“I strongly support the president on virtually everything he is doing, but in this case I don’t agree,” Inhofe said. “We have a crisis in this country in terms of our infrastructure and we must meet this crisis.”
Industry sources say the House version, at its original high level, would meet many highway and transit needs (though many expect the bill to be scaled down under Administration election-year pressure).
“The $375-billion funding level being discussed in the House is pretty much in line with the Department of Transportation’s 2002 Condition and Performance Report,” said Moretti. “It would allow significant improvement in road and bridge condition. It also would allow states to keep traffic congestion from getting worse because it would still provide significant money for adding capacity to key corridors that are very busy, plus funds for freight corridors and rural safety.”
Moretti said the Senate version is “someplace in the middle,” adding, “I think it would allow some improvement in road and bridge conditions so there would be continued progress in that area. However, congestion would continue to get worse, although not at the same level as under the Administration’s lower-funding bill. The reality is that the Senate bill wouldn’t provide enough money to make all the capacity improvements that are needed.”
The Bush Administration says in rebuttal that the $256 billion is still 21-percent above the previous six-year funding, adding that authorizing more than that would increase the burgeoning federal deficit, already more than $500 billion.
And Sen. John McCain, R, AR, called the Senate bill “an outrageous manifestation of how badly we have left our moorings.”
If they can’t settle the six-year funding, another “backup” possibility is being discussed among supporters of more funding: a two-year, instead of six-year, bill, whose funding would be “ramped up” after the November election.
Increase in Gas Tax
In its early proposed forms, the House bill included an increase of five cents in the motor fuel tax to help pay for the $375-billion program. Rep. Young strongly supports, and many industry groups have backed, this user fee. Pete Ruane, for instance, ARTBA’s president and chief executive officer, told CEG last September that “the only way we can get to the level that we need is through an increase.”
Many observers, however, say that such an increase is “dead in the water,” at least until after the presidential election in November.
“We’re continuing to make the case on the Hill that the user fee is the fairest and most fiscally-responsible way to pay for the road and transit investment that the nation needs,” said AED’s Klein. “Unfortunately, The White House has been obstinate in its opposition and some Republicans are simply following the President’s lead.”
The Senate’s 76-21 vote for its funding bill is nine votes more than the two-thirds majority that is needed to overturn the threatened veto.
The House is scheduled to mark up its bill on Feb. 25, and then debate it on the floor under the extension.
Speaking off the record, a close observer on the Hill told CEG: “A lot of cards still have to be played but I don’t think the $375-billion funding will happen. It will have to come down to the range of the Senate bill. The reality is that the Senate bill has become the floor.”
Many observers doubt, however, that House Speaker Dennis Hastert, R-IL, and Senate Majority Leader Bill Frist, R-TN, will allow a bill that the president would veto.
“I don’t think the Republican leaders on the Hill want to get into a veto fight with a Republican president in an election year, and I can’t imagine the White House wants that either,” Klein said. “So clearly there’s going to have to be some give-and-take on both sides if they’re going to finish a six-year bill.”
To try to avoid increasing the deficit, the Senate bill includes the ability to establish an entity that could issue bonds to cover the cost of infrastructure improvements, paying back the bonds over a period of time.
AASHTO also proposes bonding, and other steps.
“We recognize that increasing the users fee on fuel may not be in the realm of the possible,” said Gavin. “There’s some fraud, frankly, at the pumps from some folks that, if it were really reined in, would bring in a great deal of money. There have been prosecutions of people who misappropriate things like aircraft fuel and put it into trucks. If they were buying diesel fuel at the pumps and paying the proper taxes, we would be getting more revenue into the system.
“We have also made a bonding proposal that has been embraced by Sen. Jim Talent, R-MO. The White House apparently does not like bonding, either, but many folks in the Senate think it would be a prudent way to go about this because, traditionally, bonding is used to fund major infrastructure, which provides benefits over many years.”
The Senate bill also tightens the collection of excise taxes, like those on ethanol, which go into the Highway Trust Fund.
But Sen. Don Nickles, R-OK, chairman of the Senate Budget Committee, compared some of the accounting approaches to reduce the deficit in the Senate proposal to a “shell game.”
Industry organizations have for many months argued that every billion dollars spent on highways creates more than 42,000 jobs in the U.S. ARTBA’s Pete Ruane told CEG that the Senate proposal would produce 1.3 million new jobs over the six years and perhaps as many as 47,000 jobs, all domestic and non-exportable.
The entire construction industry now employs about 6.7 million people, according to the Bureau of Labor Statistics, which says this will increase by one million jobs by 2012.
(In the following interview, Christian Klein, Washington, DC, counsel for the Associated Equipment Distributors (AED), voices concerns over equipment rental and purchase features of the highway and transit bill proposed by the U.S. Senate.)
How would the Senate bill affect rentals and purchases of construction equipment?
Overall, we think the bill will have a positive market impact, but we’re concerned about the effects of one provision in particular. Section1406 of the bill, which is known as "SAFETEA," would establish a rental preference in federal law for equipment used in federal highway projects. In its original form, the provision would have applied to states and contractors. It would have required that, before a state or contractor involved in a federal highway project could purchase equipment, he would have to provide a written explanation of why it was more cost-effective to buy rather than rent. This would have meant extra paperwork for equipment purchases and would have created a bias for rental.
AED and many others, including contractors and manufacturers, objected, and the language in the Senate bill was scaled back so that it now would only apply to states. While the modification is an improvement, we don’t think the issue is resolved by any means. We’re still very concerned about what the issue means for states.
Why are you so concerned about the rental preference language?
AED members are so keyed up about this issue for two reasons. First, the rental preference provision is a tremendous intrusion into the free market. What Congress is saying here is that it’s okay to rent, even if it costs more, but, if you want to buy, you have to justify your decision. Our members sell, lease, service, and rent equipment. The question of how a state or contractor acquires equipment is a market issue. We don’t feel the federal government should be in the business of picking winners and losers in the economy.
The second reason we’re so concerned is that the provision is just plain bad policy. It assumes that rental is always preferable to purchasing or leasing. That’s just not true. We aren’t against rentals; we’re for a level playing field and against federal intrusion into the
Could you explain how the provision was at least scaled back?
Distributors and contractors called their senators and told them that this was a bad idea. We went to the Hill and made our position known. Until we did, the congressional staff was only hearing one side of the story.
How is the House of Representatives treating this subject?
The good news is that the rental preference language is not currently in the House bill. We’re working to keep it out, but anything can happen. This issue is a long way from being over. Needless to say, it’s crucial that the folks on the Hill hear from employees and owners of the equipment companies that would be affected by Section 1406. It’s up to all of us to make members of Congress understand the impact their decisions would have on distributors and the construction industry in general.