FY2010 $3.5 Trillion Budget Passed on Obama's 100th Day

On a party line votes in the House of 233 to 193, and in the Senate of 53-43 the $3.5 trillion budget resolution passed both houses of Congress yesterday, on President Obama's 100th day in office. I'm not sure what the particular significance of the 100th day might be, but the good news for the construction industry is that every dollar of the $72.1 billion the Senate cut from transportation infrastructure spending was restored in the measure as passed.

Stimulus Infrastructure Spending On Track [We Think]

In testimony before the House Transportation and Infrastructure Committee Wednesday, Transportation Secretary Ray LaHood said nearly $9 billion in stimulus spending by the Transportation Department has been obligated among the 50 states and the territories, putting the Department ahead of schedule for distributing the whole $48 billion within 18 months of the bill's passage. EPA reported at the same hearing that $1.5 billion of its $7.2 billion to be spent on construction by that agency has already been distributed to the states, mostly for clean water and drinking water infrastructure. Meanwhile GAO reports that in many of the 16 states it has checked up on so far, state auditors say local governments and state transportation agencies may not be able to adequately track and report expenditure of these funds.

Gallons Or Miles?

House Transportation and Infrastructure Chairman James Oberstar announced Tuesday he wants to switch from federal per gallon fuel taxes to an automated system of federal mileage taxation based on miles driven over federal highways and other roads. The proposal calls for every vehicle to be equipped with a GPS device which would automatically record how far and over which roads the vehicle is driven, and automatically calculate the tax due.

While this proposal will be a bureaucratic nightmare for both vehicle owners and the government, it might be a good deal for the construction industry. Why? Because fuel taxes on the equipment which operates for weeks or months in the same location, such as cranes, concrete pumps, backhoes, graders and end loaders, will remain constant or be eliminated, while such equipment will pay little or no mileage tax. Of course, the amount of road building tax on your personal car would skyrocket. I doubt whether anyone at all has looked at this part of the equation.

Bingaman Dings Energy Department, Pushes Renewable Power Generation

Senate Energy and Natural Resources Chairman Jeff Bingaman is threatening to introduce legislation establishing a Clean Energy Deployment Administration to oversee loan s and guarantees for development of new energy technologies, because the Department of Energy has not yet approved a single loan application under the program established in 2005. Four years and nary a dollar spent. Whoa!

Meanwhile, construction of power generation facilities using alternative sources of energy is being held up while Bingaman's committee debates the question whether it should mandate 255 renewable energy production by 2025, as Bingaman and the Democrats insist, or only 155, as Republicans propose. House Energy and Commerce Chairman Henry Waxman is putting forth an alternative proposition of 17.5% renewable energy, with 10% improvement in the efficiency of power production overall. Until this Congressional debate is resolved, power production facility designers will remain unable to envision the power plant of the future, and power facility construction will remain at a standstill.

Conference Committee Restores Transportation Funding

The report of the Conference Committee on the Budget Resolution was released by Senate Budget Committee Chairman Kent Conrad late yesterday, and it does contain good news for the construction industry. The proposed joint resolution, which will come to the floor of both houses for voting later this week, restores all the transportation construction funding which the Senate resolution had cut from the House version. Of course, year by year it will be up to Congress to actually appropriate the budgeted funds, but at least the present plan is favorable to a quicker recovery of the construction economy, particularly in the heavy civil construction sector.

Homebuilders: Watch Out For The Arbitration Fairness Act

Tomorrow is "Arbitration Fairness Day" in Washington, D.C., when supporters of the Arbitration Fairness Act now pending in Congress will gather at a press event attempting to press this federal legislation forward. Introduced by Congressman Hank Johnson of Georgia, HR 1020 would amend federal arbitration laws to prohibit entering into arbitration agreements before a dispute arises in certain types of situations, including franchise agreements, civil rights disputes, employment, and consumer transactions. "Consumer transactions" are not defined, but could readily be interpreted to include purchase of a condominium unit or single family home. The unintended effect of this bill, if passed as it is now worded, would be to destroy all arbitration clauses in residential construction contracts. Call your congressman before it is too late.

Transportation Infrastructure Spending Hangs In The Balance

Meetings of the House/Senate Conference Committee on the budget resolution officially began this afternoon at 1:00 p.m. Washington, D. C. time. Staffers from both houses have been working on the details of the bill over the last two weeks, and legislative leaders hope to bring it to the floor of both houses later this week. The Senate version lags way behind the House version in every year 2010 through 2014 with respect to the spending Senators expect to authorize for road, bridge, railway, transit and waterway construction projects. The Senate version of the resolution cuts down the spending authority provided in the House bill by $12.9 billion for 2010, by $13.7 billion for 2011, by $14.1 billion for 2012, by $15.1 billion for 2013 and by $16.1 billion for 2014. These cuts represent a total slashing of over $72.1 billion from surface transport construction over the next five years.

All the media focus so far has been about the political fuss over whether or not the final resolution should include "reconciliation instructions" regarding health care and education funding, which would reduce the number of votes required for passage of health care and education appropriations in the Senate from 60 votes to 51 votes. There is no work out of the staff members or the Congressmen or Senators themselves regarding the fate of the transportation infrastructure numbers. Hopefully the news will be good once the final document is released to the public. Overall, the expectation is that final numbers will be $10 billion less than the administration wants. Hopefully none of that will come out of the construction budget.

No matter which way the debate falls out in the Conference Committee, the budgeted funds will fall far short of the $1.3 trillion in projected transportation infrastructure construction needs over the next six years. According to the American Association of State Highway and Transportation Officials and the American Public Transportation Association, the traveling public should have $166 billion a year in highway construction and $59 billion a year in mass transit construction during the six year period from 2010 to 2016.

Small Business Taxes To Skyrocket

Contractors beware! According to Monday's Washington Post, small businesses with profits in the range of $500,000.00 per year, and whose owners file income taxes as Subchapter S corporations - putting business profits on their individual tax returns - should expect to see a 19% increase in the income taxes they will pay on those earnings under the Obama administration's proposed $1.3 trillion increase in taxes on the "rich" over the next ten years. Ouch!

More For Bureaucrats, Less For Bricks And Mortar

Echoing other officials who have quietly announced the diversion of stimulus cash originally intended to fund construction of public facilities, GAO Acting Comptroller General Gene Dodaro testified Thursday before the Senate Homeland Security and Governmental Affairs Committee that states which will be spending the bulk of the appropriations for infrastructure will not be able to adequately monitor the expenditures. Vice President Biden has written to Chairman Joseph Lieberman and Ranking Member Susan Collins of that committee promising that OMB sill propose new guidance permitting states to shift funding away from bricks and mortar to state auditor offices for the hiring of more bureaucrats to count the beans. House Oversight and Government Reform Committee chairman Edolphus Towns has also announced his intent to put a bill in the hopper redirecting funds from construction to state auditors.

Energy Policy Bottleneck

Disputes over mandating renewable power production and carbon cap and trade credits have once again delayed mark up of major energy legislation in the House. House Energy and Commerce Chairman Henry Waxman and Energy and Environment Subcommittee Chairman Edward Markey jointly announced to other Energy and Commerce panel members that mark up of the climate and energy bill expected this week will be put off a week, to consider proposed changes to the 25% renewable power production mandate now in the bill, and separate efficiency increase requirements of 15% for electric power and 10% for natural gas, all by the year 2025.

Design and construction of new power plants sits on hold while these energy policy debates proceed at a snail's pace. Other energy issues include whether nuclear generation of electricity is or is not a "renewable" resource, and whether hydroelectric power produced from dams in the Southeast region since the early 1990's can be counted as renewable energy production.

Lawsuit May Delay $720 Million Kansas Biodefense Lab Construction

Texas business groups have filed a lawsuit challenging the selection of Kansas State University as the site for construction of the National Bio and Agro-Defense Facility, a high containment lab for researching countermeasures against weaponizable deadly pathogens. The Texas plaintiffs content Kansas Republican Senators Pat Roberts and Sam Brownback exerted undue influence over the site selection process within the Department of Homeland Security. The Texas groups want the $720 million construction project to be built in San Antonio.

Political Wrangling Ties Up Broadband Expansion Grant Funds

House Energy and Commerce Chairman Henry Waxman and Energy and Commerce Subcommittee Chairman Rick Boucher want most of the broadband funds to be divided among both unserved and underserved regions of the country, while Senate Commerce Ranking Member Kay Bailey Hutchison and House Commerce Ranking Member Joe Barton want to concentrate on areas with no broadband service at all. Until their differences are resolved, $7.2 billion sits in the vault unspent. No towers or fiber optic lines are being built to bring broadband service to customers who don't have internet connectivity.

Texas Senate Enacts Solar Energy Incentives

By a vote of 26-4 the Texas senate has passed and sent over to the Texas House a bill providing $500 million in energy rebates to encourage homeowners and business owners to install solar panels. The funds will come from a 20 cent monthly tax on homeowner electric bills, $2 monthly on commercial business owners, and $20 monthly on industrial power users.

House Budget Conferee Appointments Bode Ill For Transportation Infrastructure

The fiscal conservatism of the five House members named to the Budget conference committee today is another downer for construction industry businesses. Democratic conferees including Budget Chairman John Spratt, Rosa DeLauro and blue dog Allen Boyd, and Republican conferees Paul Ryan and Jeb Hensarling, former chair of the conservative Republican Study Committee, all seem unlikely to fully restore the $72.1 billion slashed by the Senate from the transportation infrastructure construction budget passed by the House. Appointment of Senate conferees is expected later today or early tomorrow, but since it was Senators who slashed the House's five year budget in the first place, the construction industry shouldn't hold out much hope in this regard.

Energy Policy Nightmares Will Stall Construction Investment

Congressional confusion and infighting over the details of national energy development policy continue to stall investment in all forms of energy production construction, and will continue to do so until there is a clear policy direction from Congress and the administration. Republican leaders, including Senator John McCain and Senate Energy and Natural Resources ranking member Lisa Murowski are pushing for inclusion of nuclear electric power plants in the definition of "renewable energy" which Congress wants to mandate for more than 20% of electric power production. Senate Energy and Natural Resources Chairman Jeff Bingaman has excluded nuclear power from his version of the "renewable energy" definition. McCain points out that the Obama administration and Senate Majority Leader Harry Reid want to scrap the $11 billion already invested in development of the Yucca Mountain disposal facility for spent reactor fuel rods.

Meanwhile, infighting over the details of carbon cap and trade legislation, and unintended consequences of earlier hastily passed "alternative fuel" legislation are eating up the time and resources of Congressional staffs which should be formulating a forward looking energy policy direction for the country. Tax incentives for "alternative fuel" production passed in 2005 have allowed paper mills to take enormous unintended "alternative fuel" tax credits for mixing a few tablespoonfuls of diesel oil with the black liquor pulp production byproduct they have burning to generate power for paper mills since the 1930's. Recent Congressional efforts to close what many environmentalists see as a tax loophole are strongly opposed by the ailing U.S. paper industry, which says mills will have to be closed and workers laid off if the industry is stripped of this tax benefit. To further complicate matters, Canadian paper mills are complaining to their government that the tax break is an unfair subsidy to American mills over their Canadian competitors.

Until Congress can wake up from these nightmares and work with the administration on formulation of a consistent, well thought out energy policy for America's future, this sort of thing will make investment in construction of new power plants and alternative fuel refineries a very iffy proposition at best, and construction businesses and trades workers who could be building these facilities of the future will continue sitting on the sidelines and collecting extended unemployment benefits.

US Housing Policy Favors Rent Checks Over Construction Investment

In a speech to the annual conference of the National Low Income Housing Coalition in Washington, D.C. on Tuesday, HUD Secretary Shaun Donovan announced that the Obama administration's new focus on housing for lower income Americans will shift away from home ownership and towards rent subsidies for families too poor to afford home ownership. Donovan told the Coalition that the $14 billion in spending appropriated for low income housing assistance in the American Recovery and Reinvestment Act will be divided into a $1 billion investment in the National Affordable Housing Trust Fund, which pays for construction and rehabilitation of low income housing units, with the remainder of $13 billion being devoted to extended housing aid to Katrina victims and additional Section 8 rent subsidy payments for occupants of existing rental housing units. While this allocation of the money by HUD may be good news for low income housing renters, it is certainly bad news for the construction industry.

Get To Know The International Energy Conservation Code

Department of Energy construction projects funded by grants under the American Recovery and Reinvestment Act, and soon, presumably, all federally funded construction under the Obama administration, will require compliance with the 2009 International Energy Conservation Code, published by the International Code Council. Many states have adopted legislation requiring local governments to make the IECC part of their building codes, but adoption and enforcement has often been lax at the local level. Faced with federal government requirements which will cost hundreds of millions in stimulus appropriations if the IECC is not followed, state governments are stepping up enforcement of this requirement, and local building departments are beginning to insist on compliance before issuing building permits, whether or not the project in question involves federal funds.

Designers not familiar with the provisions of this code can obtain a copy of the complete document for $34.00 from the International Code Council, on this web site:

http://www.iccsafe.org/e/prodshow.html?prodid=3800S09&stateInfo=kbEbbbRc

High Speed Rail Routing Discussed

Characterizing high speed rail as President Obama's "transportation legacy," and comparing the $8 billion stimulus appropriation for high speed rail to President Eisenhower's Interstate Highway System, Transportation Secretary Ray LaHood in remarks Sunday described a network of 200 mile per hour trains streaking through Chicago on their way to Milwaukee, St. Louis and Detroit. If your midwest company is interested in the railroad construction business, sharpen your pencils for this one.

Indiana To Mandate Renewable Enegry Production

The only state still without a mandate for production of electric power by renewable methods, Indiana's House of Representatives in Indianapolis passed a bill last week which will require 15 percent of electricity in the state be generated from renewable sources such as wind, solar power and biofuels. An earlier passed Senate version of the bill will have to be reconciled with the House legislation, but it appears renewable power generation construction projects will be coming off the drawing boards and onto the ground in Indiana very soon.

Washington State Revamps Climate Change Bill

The House of Representatives in Olympia approved legislation requiring the Department of Ecology to reduce the only coal fired power plant in the state to cut emissions in half by 2025, and mandating other greenhouse gas reduction targets be met by 2020, including cuts in auto emissions and industrial emissions. Environmental groups criticized the House version of the bill for failing to include a carbon cap and trade system.

Budget Conference Committee Members Not Yet Named

Although Congress reconvened yesterday, facing the task of reconciling the House and Senate budget resolutions for the next five years, it seems the members of a conference committee to work on that task will not be named by House and Senate leaders until next week. The big conflict will not be about the dollars, but rather about whether or not to include reconciliation instructions in the conference legislation, which would mean that Senate approval would only require 51 votes rather than the 60 otherwise needed under Senate rules.

Barney Frank Promises Section 8 Housing Renewal

House Financial Services Chairman Barney Frank announced yesterday, at the annual policy conference of the National Low Income Housing Coalition, that his committee is pushing for legislation to fund continuation of 1 million units of low income housing which would otherwise expire. The Obama administration proposes $1 billion for the housing trust fund created last year, with money coming from Fannie Mae and Freddie Mac. No one knows yet how much of this $1 billion will go towards renovation of the existing units.

Obama Demands $100 Million In Budget Cuts

Using the platform of his first formal Cabinet meeting Monday morning, President Obama insisted that the federal government's department heads come up with $100 million in cuts to the federal budget within the next 90 days. Republican leaders scoffed at the gesture, with House Budget Committee ranking member Paul Ryan pointing out that $100 million represents only 13 minutes of federal spending. President Obama's response to the criticisms after the cabinet meeting was: "What we're going to do is, line by line, page by page, $100 million there, $100 million here, pretty soon even in Washington, it adds up to real money."

Is Now The Time For Infrastructure Budget Cuts?

In a speech today at the Department of Transportation in Washington, D.C., President Obama stood next to Vice President Biden and Transportation Secretary Ray LaHood and spoke about the early successes of infrastructure appropriations in stimulating the economy towards recovery. Highlighting award of the 2,000th infrastructure project awarded with the $48.1 billion in funding provided in the American Recovery and Reinvestment Act, the president noted that "[T]hese projects are getting approved more quickly than we thought ... and because these projects are costing less than we thought, we can utter a sentence rarely heard in recent years: This government effort is coming in ahead of schedule and under budget."

Transportation Department officials say that competition for stimulus projects is driving down costs by 15% to 20% of total cost estimates on major infrastructure projects. So, if this sort of spending is buying taxpayers more bang for the buck, at the same time it is creating and saving jobs and stimulating the economy, why does the U. S. Senate want to cut the House proposed five year budget for infrastructure improvements by one and a half times the amount of money which was appropriated in the stimulus bill?

In the budget resolutions now pending in conference committee, the Senate version lags way behind the House version in every year 2010 through 2014 with respect to the spending Senators expect to authorize for road, bridge, railway, transit and waterway construction projects. The Senate version of the resolution cuts down the infrastructure spending authority provided in the House bill by $12.9 billion for 2010, by $13.7 billion for 2011, by $14.1 billion for 2012, by $15.1 billion for 2013 and by $16.1 billion for 2014. These cuts represent a total slashing of over $72.1 billion from surface transport construction over the next five years.

Hopefully President Obama's speech today was just the beginning of administration efforts to preserve the budget levels of infrastructure spending included in the House resolution once the conference committee sends a final version to the floor of both houses for approval. Call your Senators and ask them what they intend to buy with the $72.1 billion they have slashed from construction spending, and whether whatever it is will do as much to create jobs and stimulate the economy as infrastructure construction will do. When they can't give you any satisfactory answer, mention that restoring spending levels to match the House version of the resolution would be a good way to make sure our country continues the economic gains the stimulus package was designed to initiate.

Earmark Hide And Seek

New House rules require every member to post appropriation earmarks he or she has requested on the representative's website so the information is available to the public. A few Congressional leaders proudly display the link to these details in a prominent position on their home pages, but many Representatives have buried the earmark link two or three pages deep on their sites, and called them things like "other issues" or "local appropriations" to keep the word "earmark" out of the conversation altogether.

However, the earmark list is the best early warning about federally funded construction projects which will be released for bid in the near future in your locality. I recommend that you make the effort to carefully scrutinize the web pages of Congressmen in your locality, and once you locate the links, save them in your browser's "favorites" for future reference. Then you can easily scan the current listings from your area of the country or the localities where you do business whenever you need information about what will be coming out for bid in the next half year or so. This kind of advance planning will give you a competitive edge over the contracting businesses less diligent in seeking out advance notice of bidding opportunities before they come out in the Dodge Reports.

Stimulus Spending On Construction Is Helping Everyone

According to contractors and government highway officials, everyone in the transportation infrastructure community is benefitting from the money appropriated in the federal stimulus legislation. There have been so many bidders on projects let with stimulus funds recently that prices to government bodies are far less than expected, meaning taxpayers are getting more for their money, and contractors are creating more new jobs as a result. John Horsley, executive director of the American Association of State Highway and Transportation Officials says: "The two winners are the public, which gets more improvements, and a net gain in jobs creation. It's a win across the board."

Kenneth Simpson, chief economist for the Associated General Contractors of America, said the favorable trend extends nationwide. Some examples:

BWI Airport improvements estimated at $50 million produced six bids, and will cost $8 million less than estimated.

Carroll County, Maryland, received 21 bids on a $200,000 drainage project.

A Connecticut project on the Merritt Parkway budgeted at $75 million was awarded for $66.6 million.

Many contractors who would not have bid on smaller public projects in the past are now proposing on those jobs to keep their workforce employed and avoid layoffs.

Tax Loss Carry Back To Be Tweaked

In an effort to make tax relief from the economic stimulus legislation available to more American companies, and further stimulate construction and manufacturing industries, Senate Finance Chairman Max Baucus and Senator Olympia Snowe introduced a bill just before the Easter recess began which will tweak the five year net operating loss carry back provisions of the stimulus package. The original legislation limited the five year carry back to businesses with less than $15 million gross receipts annually. The Baucus/Snowe bill will remove that threshold, and permit businesses of any size which have not received TARP bailouts to use the five year carry back to amend past returns and get immediate cash tax refunds to infuse working capital into the business if there have been business losses in the current downturn.

Conflicting Budget Resolutions Go To Conference

Late Thursday afternoon the House passed its version of the five year budget resolution, and just before midnight Thursday the Senate passed its conflicting version. As far as the construction industry is concerned, the major conflict is the difference in approach to transportation infrastructure funding. The Senate version slashes over $72 billion from the amount budgeted by the House for surface transportation infrastructure construction over the next five years, completely negating all the appropriations passed in the economic stimulus package for transport infrastructure construction. The Senate numbers will result in the stimulus appropriations representing mere acceleration of planned spending into the first year of a five year budget, rather than any additional investment in national highway, bridge, waterway, airport, railway and transit construction.

Both bills passed along strict party line votes, without a single Republican vote in favor of the bills in either house of Congress. They will now go to conference committee for reconciliation of the differences, and House Budget Chairman John Spratt said staffers from the House and Senate will begin talks during the upcoming two week recess to speed things along. Let's hope the conferees understand that failure to restore the $72.1 billion investment in transport infrastructure approved in the House budget is essential to avoid completely gutting the economic stimulus of the construction industry.

Is $7.2 Billion For Broadband Construction Going Begging?

In remarks at a convention of the cable TV industry in Washington D.C. yesterday, House Energy and Commerce Communications Subcommittee Chairman Rick Boucher spoke out against open access requirements which could discourage major cable networks from applying for $7.2 billion in grants for construction of broadband towers and other facilities to make internet access available in presently unserved and underserved areas of our nation. The funds, appropriated in the economic stimulus legislation passed earlier this year, have so far been rejected by major cable operators because of the absence of a clear regulatory definition of what "open access" means in terms of availability of facilities to other networks at wholesale rates. Boucher urged the major industry players to apply for the grant money.

Another bottleneck in the way of funding these tower construction contracts is the dispute among Congressional leaders over where the money should be spent. Boucher and House Energy and Commerce Chairman Henry Waxman want the new facilities to be built in both unserved localities, and underserved localities where some service is available. Republicans Joe Barton and Cliff Sterns, ranking members on Waxman's committee and Boucher's subcommittee, want to restrict all the $7.2 billion to construction in completely unserved localities. Until these two regulatory bottlenecks are resolved, the construction contractors waiting for these projects to be released for bidding will continue to go hungry.

OMB To Require Detailed Stimulus Reporting

In testimony today before the Senate Homeland Security and Governmental Affairs Committee, OMB Deputy Director Rob Nabors said guidelines to be issued tomorrow will require federal agencies charged with distributing $630 billion in contracts and grants appropriated in the American Recovery and Reinvestment Act to report who is getting the money, including contractors and subcontractors. Nabors said Recovery.gov will post information, for example, about contractors receiving $40 billion in highway and transit construction projects. In his remarks, Nabors said "The administration believes this level of reporting strikes the appropriate balance between transparency for Recovery Act spending and the burden that reporting imposes on recipients."

Since it seems Nabors has not read my March 16, 2009 E-mail to the White House reminding the administration that construction contractors are already required to submit lien waivers identifying all subcontractors and material suppliers along with their monthly billings on every project in every state. So, I sent him another copy. If only someone from the construction industry were in Washington working on this.

Nabors did predict that $252 billion of the money will be spent before the end of July, 2010.

Broadband Mapping May Delay Network Construction Contracts

Representative Cliff Stearns of Florida, ranking member of the House Energy and Commerce Communications, Technology and The Internet Subcommittee, and Representative Anna Eshoo of California, raised their voices today against expenditure of the $7.2 billion appropriated for extension of broadband networks into unserved and underdserved areas until after completion of a national broadband inventory map now being prepared by the National Telecommunications and Information Administration of the Commerce Department.

Now that Congress is committed to spending this money, it seems government officials just can't resist throwing up bottlenecks to actually sending checks out the door to contractors who need and want to do the work.

Defense Procurement Changes Reflect Obama's Fixed Price Contracting Preference

The Senate Armed Services Committee today unanimously approved Senate Bill 454, which seeks to put a stop to weapons system cost overruns by imposing severe restrictions on the use of cost plus contracting. While weapons research, development and engineering may be thought to be more complex than construction of government buildings, the unanimous committee action sending S. 454 to the Senate floor reflects the new administration's preference for fixed price contracting over more innovative modern forms of procuring government construction projects. Like the fixed price contracting requirements in the American Recovery and Reinvestment Act, this legislation demonstrates the direction the Obama administration is taking towards all government contracting, and should be an omen for those of us in the construction industry who are involved in bidding on these jobs.