Stimulus Legislation: Construction Spending and Passage Timetable Both Expanding

While most political leaders agree that the wished for legislative package will not be ready for signing by President Obama on inauguration day, Senate Finance Committee Chairman Max Baucus still entertains the possibility of an early January markup, despite the transition team's failure to meet a December deadline for delivery of the Obama team's stimulus package principles to the House and Senate leadership. Nevertheless, while time passes, the total price tag quietly discussed among staffers seems to have topped out at $775 billion, with up to $136 billion for infrastructure construction projects by state and federal government agencies. One price which may be exacted in return for this increased spending is a "buy American" provision covering not only steel, which is already in the school construction provisions of HR 7110, but for all construction materials and equipment in all aspects of the infrastructure program. This will be sought by those Congressmen and Senators most vocal about the export of American manufacturing jobs.

The price of tax relief for middle class families and small businesses is generally thought to be about $300 billion, to be delivered to families by reducing withholding amounts for the first four months after the bill passes, and accelerated depreciation for business investments of up to 50% write off in the first year of capital investment. Small businesses will be permitted to expense capital purchases 100% up to $250,000.00 in the year of purchase. Additional benefits to businesses are expected to permit tax loss carry back for five years instead of the present limit of two years, effectively providing business tax refunds for losses suffered in 2008. And there may be tax incentives for businesses hiring new workers.

An additional $200 billion in increased health care subsidies to states is also contemplated.

Another indirect benefit to the construction industry will likely be included: repeal of the alternative minimum tax on municipal bonds issued for infrastructure construction.

With respected economists like San Francisco Federal Reserve President Janet Yellen and Chicago Federal Reserve President Charles Evans backing the need to "pull out all the stops" and provide "big stimulus," respectively, it seems pretty clear the question is not whether the legislation will pass, but only how soon.

Stimulus Package Delays Seen

Congressional leaders are now backing down from their intention to have the economic stimulus legislation on the Oval Office desk inauguration day. House Majority Leader Steny Hoyer and Senate Majority Leader Harry Reid have both said on the Sunday morning talk shows yesterday that they expect hearings and committee study of the legislation to last until mid February. While the Obama administration could push a final bill faster in the House, there are not enough votes for cloture in the Senate to cut off a Republican filibuster, and Republican senators do not want to be rushed, or denied the chance to hang their pet projects on the Christmas tree.

The net result of this likely delay is that the money will not begin flowing until March, but when it does, there will be even more of it. Estimated costs of the total package now range from $650 billion up to $1 trillion.

Whatever the ultimate date of passage, or the final total of the appropriation, this is no time to slacken your efforts to find out from your Congressman and state legislators which particular projects will benefit from this federal assistance. Put your team together now, get your hands on bid documents as soon as you can, and be ready to sharpen your pencil as soon as the package is finalized and signed into law. The early bird will get all the worms in this situation.

Obama Throws Out The First Pitch

Without even waiting for Congress to reconvene, president elect Obama used his Saturday morning four minute radio address to begin selling the terms of what he and his transition team are now calling the "American Recovery and Reinvestment Plan" to the general public. Without mentioning any specific dollar values, he stated his goal as creating three million new jobs, eighty percent in the private sector, by means of investments in renewable energy production and energy efficiency, infrastructure construction, medical record computerization, school reconstruction, and middle class tax relief.

He emphasized that "... we must engage contractors across the nation to create jobs rebuilding our crumbling roads, bridges and schools."

We can expect to hear a lot more of this in the coming days, since it is now only sixteen days until inauguration day, the target date the president elect and speaker of the house have set for passage and signing of the stimulus legislation. Look for more details about the development of the final version of this legislation to be released each day over the next two weeks. If you have been acting on what we already know about it, you are quite likely to be miles ahead of your competition when the projects in your market are advertised for bids.

Stimulus Package Pegged At $775 Billion

Speaker Pelosi still says she wants the economic stimulus legislation on Obama's desk in the oval office on inauguration day. Senate Majority Leader Harry Reid thinks it may take until mid February to garner sufficient support for the bill in the Senate. Both leaders and the transition team are now talking about a total package costing $775 billion, which would increase the construction industry share from the present level of $40.7 billion up to $63.1 billion.

Team up now with your best business partners to be in a position to take advantage of this unprecedented opportunity. In spite of Senator Reid's reservations, I'm still looking for a bill signing on inauguration day.

Stimulus Package Is Growing

Congress reconvenes January 6. High up on the Senate agenda is HR 7110, the infrastructure stimulus appropriation bill which passed the House last September. As presently written the legislation calls for spending nearly $63.5 billion dollars on state and federal construction projects, electric car battery development projects, job training programs, temporarily extended unemployment benefits, temporarily increased Medicaid assistance to states, and temporarily increased food stamp benefits. Of the $63.5 billion total appropriation, $40.7 billion is for construction projects.

Negotiations are underway to significantly increase both the total appropriation and the construction portion, up to a total appropriation of as much as $114.9 billion, with a construction portion of as much as $92.3 billion. When the bill leaves the conference committee, the total appropriation will likely be less than $100 billion, but a lot closer to that number than it is now. The proportion now allocated for construction projects is 64.2%. Environmentalists and other lobbies claim this represents overemphasis on construction, and will make every argument they can in efforts to reduce the share of the final appropriation allocated to construction. They want the difference to be devoted to their projects, at the expense of the construction industry and the skilled tradespeople who would otherwise be put back to work in the jobs created by the stimulus package.

Once the bill leaves the conference committee, it will be too late to preserve these lost jobs. Call your Representative and both Senators from your state as soon as Congress reconvenes, and let them know how important these skilled trade jobs are to the economy of your industry, your locality, and your state, or special interests will do everything they can to take federal dollars away from this important revitalization of the construction economy.

Stimulus Package Blueprint

The blueprint for the Obama administration's economic stimulus package was drawn up quite a while ago. Though the dimensions may change, the basic structure is already determined, and the final result, although perhaps larger, will look just like the rendering we have in our hands now. The basic structure of the legislation is set out in HR 7110, which passed the House September 26, and has already had its first reading in the Senate.

Once the transition team and the leadership of both houses can agree on the numbers, the Senate will pass an enlarged version, and the bill will go quickly to a conference committee, which will hammer out the last differences and send the appropriations back to both houses of Congress for quick passage. Unless the members of the conference committee are not up to the task at hand, expect the enrolled bill to be on President Obama's Oval Office desk within minutes after he is sworn in on the steps of the Capitol, and look for him to sign it before leading Michelle onto the dance floor at the inaugural ball. What a dramatic gesture to start a new presidency!

Here are the details already in HR 7110:

General terms:

Federal money pays 100% of program costs - no state or local matching funds required

Priority goes to projects which can be let for bid and awarded within 120 days after the bill is signed into law

State and local governments which don't start spending within 180 days of receiving the money will have to give it back and the cash will be reallocated to other states and localities

Spending breakdown:

$600 million for airport construction
$12.8 billion for highway and bridge construction
$500 million for Amtrak capital construction
$3.6 billion for local transit capital construction

$1 billion for transit energy assistance, but only for:

fare reduction
expanded routes
avoiding fare hikes and service cuts
clean fuel or alternative fuel busses
increased commuter subsidies

$7.5 billion for clean water construction
$6.5 billion for pollution control construction
$ 1 billion for safe drinking water construction
$2.5 billion for flood control
$500 million for the Mississippi River basin
$2 billion for Corps of Engineers operation and maintenance
$125 million for water reclamation construction

$3 billion for school modernization

cannot be spent on maintenance or stadium building
cannot reduce or replace state aid to schools
construction must use U. S. produced steel
25% must be spent on green construction

$1 billion for public housing construction
$500 million for renewable energy demonstration projects
$100 million for electric grid upgrade construction
$1 billion in loan guarantees for advanced battery development
$400 million for job training programs

The legislation also extends an additional 13 weeks of unemployment benefits temporarily through August 27, 2009; increases Medicaid matching to the states by 1%; increases food stamp benefits by 5% through September 30, 2009; and prohibits payments of any money under these programs to illegal immigrants.

If you would like a copy of a spreadsheet detailing the state by state breakdown of distribution for these funds, send me an e-mail request and I will get it out to you right away.

Economic Stimulus Package Debate

As the job creation goal of the Obama team's stimulus package escalates from 2.5 million to 3 million new jobs, and the price tag escalates from $600 billion towards $850 billion or even $1.3 trillion, the first unofficial outline of a breakdown of all that spending, had the daggers and derringers coming out among various interest groups lobbying for a bigger slice of the pie. The informal breakdown released last week gives $200 million for middle class tax cuts, another $200 billion for Medicaid relief and public education costs, and a tentative $350 billion for infrastructure improvements, energy tax credits, food stamps, and Obama's pet project, computerized medical records nationwide. Congressional leaders and the Obama transition team hope to have draft legislation ready when Congress convenes January 6, 2009, with plans to pass legislation for Obama's signature a day or two after his inauguration January 20.

Minnesota Representative James Oberstar breaks out the $350 billion pie slice as including only about $85 billion in hard construction dollars. This piece of the puzzle has produced heated debate over whether "shovel ready" projects, or "clean, green" projects should get funding priority. Oberstar's proposal includes $30.2 billion for highway and bridge construction, $12 billion for local mass transit projects, and $14.3 billion for "environmental infrastructure," which is largely to be devoted to clean water projects. This allocation of the money has the smart power grid lobby fuming, as it leaves nothing for them to use in building transmission facilities to bring wind and solar power from the rural areas where it is generated to urban areas where it will be used.

So it looks like the great depression all over again - funding the TVA or funding the Interstate Highway System. If your company works on power transmission projects, highway and bridge construction, water purification facilities, or local light rail, push out your rain barrel and catch the deluge of falling dollars. If not, send your lobbyist to Washington and see how much cash you can shift over to projects more suited for your area of expertise. Watch this space for more interpretation of the smoke signals as the debate heats up in Washington after the Christmas break.

Green With A Capital G

The rising influence of California politicians in the incoming Obama cabinet and powerful committee chairs in the Senate will increase the emphasis on green construction and LEED certification for new public buildings built with stimulus package funding. California has long been a leader in legislating environmental concerns, from the labels on felt tipped marking pens to auto emissions to green construction. You can count on more and more reflection of the same concerns in federal funding of new construction across the country. For example, consider the already announced emphasis in the stimulus proposals of relamping all federal office buildings for increased energy efficiency.

If you haven't already got a LEED certified designer on your team, and the capability to keep all the additional paperwork required for LEED certification on your projects, team up now with an experienced LEED team member so you are better prepared to take advantage of environmental requirements than your competition. These folks on the transition team mean what they say, and will put their plans into action with the force of $850 billion federal dollars behind them. Don't be left in the dust of the old ways when you should be adopting best practices for the twenty first century

What Will Your City Get

American cities are already lining up for the projected $850 billion in infrastructure stimulus cash, contending that mayors will spend the money faster and stimulate the economy more forcefully than governors or federal contracting officials. The top ten stimulus cities already have projects on the drawing boards totaling $62.2 billion, and projected to create more than 185,000 new jobs.

This informaton is from an 800 page report by the national conference of mayors. Check out what your city expects, and find out which projects might be right for your company to bid on before Congress appropriates this money during the last ten days of January, and you will have a big head start on the competition when the projects are ultimately released for bids.

Get Ready To Bid

While news of president elect Obama's new cabinet selections, Caroline Kennedy's potential New York Senate run and the corruption woes of Illinois Governor Rod Blagojevich grab the headlines, economic advisers to Obama's transition team are busy quietly telling the president elect that $600 billion in infrastructure stimulus may not produce the 25 million new jobs he wants. Speaker Pelosi is busy drafting legislation for a $600 billion stimulus package, while Obama's transition team is talking about $850 billion, and some of his economic advisers are telling him $1 trillion should be the number.

This would mean $20 billion on average for each of the 50 states to modernize, upgrade and build new highways, bridges, schools and other facilities in the next two years.

Those contractors positioned to bid on these projects, with working capital frinancing, and performance bond sureties in place, and the ability to provide fast track project delivery methods on projects, will be the ones getting this early money. Talk with your professional advisers and team partners now. We expect this legislation to be enacted in the first half of 2009, perhaps even during the first quarter. If you wait to see what it looks like after President Obama signs it into law, you will be chasing the caboose of this train as it speeds into the distance.

Infrastructure Stimulus Package

Talk of an infrastructure stimulus package has been pushed into the background recently because of all the news coverage surrounding Illinois Governor Rod Blagojevich, and possible connections to the Obama staff over an appointment to fill Obama's vacated Senate seat. Nevertheless, the contractors, suppliers and service providers who want to be best positioned to participate in stimulus construction funding must not lose sight of the fact that staff is still working on the issue, and come January 21, those organizations who are in a position to move ahead promptly will get the most out of their preparedness.

What this means is that your company or firm needs to start prepating now to team up with partners who are also equipped to implement design/build and other fast track construction delivery methods. Whatever stimulus program is ultimately enacted will of course be designed to get the most dollars into the hands of construction industry employees in the quickest possible manner. Dust off those design/build front end documents and the cost plus contracts you haven't been able to use on public projects in the past and make sure you understand how they work. Talk to your lenders and surety company and figure out what the impact of this economic crisis has been on the availability of working capital and bonding capacity, and make sure you ask the same questions of your prospective parthers in building your team. The last thing you want to have happen is to be awarded a contract you can't complete because of financial limitations.

This is no time for sitting back and waiting to see what happens in Washington. Sit down now with your professional advosirs and plan what sort of team you will need to be in a position to be first out of the starting gate next month. Identify the partners you would like to work with, and initiate those contacts now to put yourself into position to be more prapared than your competitors. Put yourself in contact with a legal advisor who is prepared to track developing stimulus legislation and help your organization and your team stay abreast of everything you will need to launch your bids in these projects as soon as they are released into the market. Let us know how we can help.