Highway Trust Fund Puzzle – The Third Piece

The third piece of the federal Highway Trust Fund reauthorization puzzle fell into place this morning with the release of the Obama Administration’s 256 page fiscal 2013 budget message. The White House is asking Congress for a six year, $476 billion reauthorization of the Highway Trust Fund, including spending from motor fuel taxes and general federal revenues, all marked as mandatory expenditures.

This amounts to annual expenditures averaging more than $79.3 billion for each of the next six years, an appropriation level over 229% greater than HR 7 and more than 190% greter than SB 1813, the two measures currently pending on the floors of Congress. The Administration’s release of this proposal on the heels of the miserly bills reported out of Congressional committees last week will undoubtedly serve to prolong the battle over reauthorization legislation, and lead to several more interim, month to month appropriation measures.

Each step in this process demonstrates how little the Washington DC politicians care about the devastating impact their behavior has on state and local government planning, and on employment in the construction industry. While they are busy posturing, blaming each other for reckless overspending or terrifying gridlock, tradespeople across the nation remain out of work, and contractors struggle to stay in business. The lack of leadership on both sides of the aisle and both ends of Pennsylvania Avenue is appalling. If you care at all about the future of the construction economy, get out a pen, some company letterhead, three envelopes and three stamps, and let your Representative and both Senators know how you feel.

Highway Trust Fund Battle Lines Reemerge – More Potholes On The Way

Shortly after his first State of the Union message, President Obama proposed a $550 billion six year reauthorization of the federal Highway Trust Fund. It didn’t pass Congress. Many industry experts labeled that proposal as woefully inadequate to meet even present infrastructure construction, repair and maintenance needs. Since then infrastructure construction funding in the federal budget has been accomplished by a series of interim appropriation extensions, a few months at a time.

Earlier this week two bills emerged from Congressional committees which would provide more or less long term appropriations for the Highway Trust Fund, though at levels far beneath the amounts Obama initially proposed, despite the fact American infrastructure continues to fall deeper and deeeper into disrepair as state and local government budgets are strained by declining revenues and burgeoning human sustenance needs.

Chairman John Mica’s (R. Fla) House Transportation and Infrastructure Committee reported out the 847 page HR 7, dubbed the American Energy and Infrastructure Jobs Act of 2012, which includes appropriations of $138.5 billion for the Highway Trust Fund over the next for years or about $34.6 billion each year: a mere 37.8% of the amount President Obama couldn’t get through a Democratic Congress. Chairman Max Baucus’ (D. Mont.) Senate Finance Committee reported out the 632 page SB 1813, entitled the Highway Investment, Job Creation and Economic Growth Act of 2012,  which includes appropriations totalling $83.3 billion over only the next 2 years, or about $41.6 billion each year, a somewhat more ambitious 45.4% of President Obama’s initial annual request.

Both pieces of legislation are peppered with various anti-pork and anti-earmark provisions, which could well steal the spotlight from the awesome decreases in spending levels. Conservative think tanks are already assaulting the meagre provisions of funds for hiking trails, bicycle paths and scenic preservation construction – work often subbed out to minority and woman owned small businesses to meet the 10% small business set aside requirements in both measures. This is less an assault on highway beautification than it is an attack on minority and women construction business set asides. These public opinion campaigns, couched as “living within our means” policy, are in reality ambushes laid against the progress in the construction industry which public funding set asides have enabled women and minority owned businesses to achieve.

Whatever the ultimate conference committee version of Highway Trust Fund reauthorization may look like, I predict it will be a long time coming, and be woefully underfunded. Meanwhile, with the wintertime freeze/thaw cycle in full swing, we will be seeing more and more potholes on our streets and highways while Congress endlessly debates these measures.

How Will Obama's Proposed Agency Consolidations Affect Your Business?

In the short run, these consolidations will mean significant staff cuts across all six agencies. These cuts, whether through attrition, early retirements, or reductions in force, will disrupt relationships within government, and between government and the businesses these agencies are supposed to assist. Agency action will take longer and require more effort from constituent businesses. For many months, everything will seem to grind to a halt while newly reorganized departments draft, publish and issue regulations implementing the proposed changes. Time delays already built into the regulatory process will frustrate business leaders and government bureaucrats alike.

However, if President Obama succeeds in putting together a “single point of contact” relationship between business and the federal government, like the business services hotline Mayor Daley established in Chicago, the final outcome should significantly streamline all interactions between the federal regulatory bureaucracy and the small businesses which drive the American economy forward.  It remains to be seen whether the intentional Republican House blockade of everything President Obama puts in the hopper will kill this initiative aborning.

More Bad News for Construction Industry Employment

Overall American employment added 1.6 million jobs in 2011, compared with only 940,000 jobs added to the economy in 2010. Unemployment has dropped from 9.6% last year to only 8.9% now. Still, some 14 million Americans remain out of work.

In spite of these encouraging overall gains, the employment situation in the construction industry remains bleak. Georgetown University’s Center on Education and the Workforce released a study last week analyzing 2009 and 2010 Census Bureau Community Survey data, and concluding that among all recent college graduates, the highest unemployment of all, at 13.9%, is the group with degrees in architecture, comparing quite unfavorably with overall unemployment of only 8.9% for recent college grads as a whole population.

Bureau of Labor Statistics data for December 2011, showed 200,000 jobs created for the month, but only 17,000 of those were in the construction sector of the economy. Across the United States December 2011, industrial construction starts totaled only $10 billion, including $4.6 billion in power generation and distribution; $1.8 billion in manufacturing; $1.2 billion in the pharmaceutical and biotech sectors; and $1.0 billion in the food and beverage sectors. Geographically, $2.8 billion in industrial construction starts are on the west coast; $2.1 billion in the Great Lakes region; and $1.4 billion in the midwest.

American Jobs Act – What Is In It For Your Construction Business?

Please, ladies and gentlemen, don’t shoot the messenger. I don’t write the legislation, I just report what is in it so your business can take advantage of the appropriations if you so choose. Having said that, here is a breakdown of what is in the 155 page American Jobs Act of 2011, as introduced by the Obama administration, which affects the construction industry, segment by segment.

      If your construction industry group or business would like a more detailed presentation of the provisions of this proposed federal law, I am available to speak to your organization about it. Just send me an e-mail at the address below proposing a time and location.

All Segments of Construction

·        Buy American iron, steel and manufactured goods

·        Employee payroll tax cut from 4.2% to 3.1%

·        Employer payroll tax cut from 6.2% to 3.1%

·        Zero payroll tax on pay increases up to $50 million in increased wages

·        100% first year write off for new equipment in 2011

·        50% first year write off for new equipment in 2012

·        Tax credit for hiring veterans unemployed 6 months or more increased from $4,800 to $9,600

·        Tax credit for new hiring of veterans unemployed 6 months or more of $5,600 and $2,400 for new hiring of veterans unemployed 4 weeks to 6 months

·        Tax credit of $4,000 for new hiring of any person unemployed for 6 months or more

·        $1.5 billion for job training, including registered apprenticeship programs

·        Prohibits hiring discrimination against the unemployed

·        Requires payment of Davis Bacon prevailing wages on any project receiving funding

Residential Construction

·        Project Rebuild appropriates $15 billion for rehabilitation of vacant and foreclosed homes and neighborhood stabilization

·        Includes homeownership assistance and homebuyer rehabilitation funding

·        Prohibits use of funds for demolition of existing public housing

·        Prohibits flipping of rehabilitated properties

·        Includes requirements to hire a certain portion of labor force from the project vicinity

Commercial Construction

·        School Building Modernization: $25 billion for elementary and secondary school buildings, plus another $5 billion for community colleges

·        Up to 30% of $15 billion in Project Rebuild funds may be used for commercial building rehabilitation that will help stabilize neighborhoods

Industrial Construction

·        $6.5 billion for construction of a new nationwide public safety broadband network

Government Construction

·        Increases SBA surety bond guarantees from $2 million up to $5 million

·        $27 billion for highway and railway construction under current formulas

·        $4 billion for intercity and high speed passenger rail corridor construction with 100% federal share

·        $3 billion for public transit construction with 100% federal share

·        $2 billion for Amtrak construction upgrades

·        $6 billion for fixed bus guideway construction

·        $5 billion for competitive surface transportation construction grants

·        $10 billion initial funding for American Infrastructure Financing Authority to provide direct loans or loan guarantees financing infrastructure construction projects which can repay by means of tolls, user fees or other dedicated revenue sources in 35 years or less

Obama’s Jobs Speech

Thursday evening September 8 at 7 p.m. Washington D. C. time President Obama will speak to a joint session of Congress about initiatives he is proposing to put 25.4 million unemployed and underemployed Americans back to work in a growing economy. Outside Obama’s senior staff no one is exactly certain what his proposals will include, but we expect to hear him talk about the following, not necessarily in the order presented here:

Construction Industry

About half of the Obama Administration proposals will be aimed directly at the ultra-high unemployment among skilled construction tradespeople:

FAA Reauthorization

The current temporary reauthorization of funding for the FAA expires September 16. When Congressman John Mica forced a shutdown of FAA runway and tower construction projects, that Congressional action stopped work on $2.5 billion of infrastructure construction until Transportation Secretary LaHood pushed through emergency legislation to put tradespeople back to work on these projects. The money to pay these workers will stop flowing again on September 17 unless a clean FAA reauthorization bill is enacted and signed into law by then, or another temporary extension is passed.

Surface Transportation Reauthorization

There has not been the customary six year Highway Trust Fund reauthorization since Obama took office. Instead, highway, water and rail transportation infrastructure construction across the country has been financed by a series of three and six month temporary extensions. Some of the slack has been taken up by stimulus appropriations, but the stimulus was intended to add to, not substitute for, regular surface transportation initiatives, and as a result, the economy has not been stimulated.

House Republicans on the Transportation and Infrastructure Committee are proposing to slash the level of appropriations from past legislation by more than half. Look for Obama to seek $550 billion in appropriations over the next six years, rather than the $230 billion Republican six year proposal.

Infrastructure Bank

The idea of a federal infrastructure bank to draw private investment into toll highway, rail and port facility construction – projects in which private investors could earn a reasonable return on their investment – has succeeded in facilitating infrastructure construction in Europe and elsewhere. This is a pet project of the Obama administration, plus there are two versions of proposals already put forward by Senator John Kerry (D. Mass.) – who proposes a $10 billion federal start up appropriation – and Representative Rosa DeLauro (D. Conn.) - who proposes $25 billion in federal seed money. Both versions would include investments in highway, rail, waterway, drinking water and sewage treatment, and energy projects. DeLauro’s version would also include broadband communications construction.

Commercial Building Retrofits

Another proposal which has been the subject of Obama administration trial balloons lately is the idea of a tax incentive to promote private investment in retrofitting existing commercial buildings for greater energy efficiency. This would put thousands of skilled tradespeople back to work without any direct federal expenditure, and would bring millions of private dollars now on the sidelines back into our economy. Also, it has the additional factor of appealing to Republicans, who are more likely to support an initiative that looks like a tax cut for business. Apparently Obama’s Jobs and Competitiveness Council is behind this proposal.

School Building Renovations

This proposal will be buried in the middle of the speech somewhere. Obama is always an advocate for improving the education systems of America, but because this particular initiative would involve new direct federal expenditures, it will likely draw strong opposition from across the aisle.

Broadband Tower Construction

While the stimulus early in Obama’s term appropriated a great deal of cash for studying the broadband needs of unserved and underserved areas of the nation, there has not been a lot of actual communication tower construction with those funds. Only about 68% of U. S. land area is currently covered by broadband communication networks – Obama will seek expansion of that coverage to 98%. This is another program which could bring private investment into play with minimal direct federal expenditures, as revenue from broadband users could ultimately repay investors for most of the cost of connecting outlying populations to cable TV and the internet.

Power Grid Modernization

This has been another favorite of Obama’s, as part of his alternative energy initiatives and climate change reduction legislation. Of course, power grid modernization should also attract considerable private investment from utility companies if the right incentives are enacted. And, significant segments of the skilled construction trades would be put back to work should power grid construction expand significantly. The massive outages on the east coast from recent storm damage will highlight the need for this sort of infrastructure investment.

Local Construction Initiatives

You may not hear anything about this one in Obama’s speech, but Representative Judy Biggert (R. Ill. 13^th District) announced a couple weeks ago that Veterans Administration Secretary Eric Shinseki has approved construction to transform the old Silver Cross Hospital building in Joliet, Illinois into a 60,000 s.f. VA outpatient clinic to serve the growing south suburban population of returning veterans. Silver Cross is moving into a new hospital facility in New Lenox.

Other Obama Proposals

Of course the construction industry won’t be the president’s only target for economic improvement. His speech will likely also include initiatives like tax incentives, direct federal expenditures, and cutting red tape to improve the economic competitiveness of American private enterprise. In the tax incentive category, look for proposals to extend the temporary 2% reduction in payroll tax rates; a tax credit for putting new employees on company payrolls; and an additional tax credit for hiring returning armed forces veterans. Proposed direct federal expenditures could include further extension of unemployment benefits for out of work Americans; assistance to local school districts for hiring more teachers; and specialized job training programs aimed at the long term unemployed. Finally, in the competitiveness category, we expect Obama to push ratification of three pending free trade treaties; and improvements in patent law to speed up commercialization of new American inventions.

Get Ready For The Construction Industry Unemployment Devastation Act

House Transportation and Infrastructure Chairman John Mica will call it the six year highway trust fund reauthorization legislation, but that will be a completely inappropriate title for the bill. Today Mica is expected to introduce a six year reauthorization package that will slash funding for roads, bridges and other infrastructure from past levels down to $230 billion over six years. If Mica’s version of the bill passes the House, it will collide with Senator Barbara Boxer’s expected version, which is predicted to call for funding at the level of $550 billion over six years.

Why am I calling this the “Construction Industry Unemployment Devastation Act?” Here is the arithmetic: Last fall, a panel of 80 experts on American infrastructure, headed by former Secretaries of Transportation Norman Mineta and Sam Skinner, concluded that maintaining U. S. infrastructure and meeting the needs of population growth should require investment of $262 billion each year, or a total of $1.57 trillion over six years. Senator Boxer’s bill is expected to propose about $550 billion over six years, or about 35% of the need. Mica’s bill which should come out today, will call for a mere $230 billion over six years, or just over 14.6% of the need. OUCH!!

Even the modest Boxer proposal would need an infusion of $12 billion, or $2 billion each year, from general federal revenues to make up for declining motor fuel consumption and a resulting shortfall in motor fuel tax revenue.

What this means for employment in the construction industry is that tradesmen who once worked for industry behemoths like Walsh, Bechtel or AMEC Morse Diesel will have to move overseas, or find work on crews remodeling houses, and the tradesmen now working in the home remodeling segment will end up at the unemployment office. It’s not a pretty picture, and the artists are those Republicans in the House who will do everything in their power to destroy any chance the Obama administration has of reviving the American economy before the 2012 elections.