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Posted By Brooke Wisdom On April 1, 2010 @ 6:00 am In Financial District,In the Magazine | No Comments
Back to business for now
The so-called “jobs bill” may disguise some reauthorization dilemmas
By John Latta
It was almost audible.
The sigh of relief that followed the passage of the so-called “jobs bill”, actually the Hiring Incentives to Restore Employment (HIRE) Act, was a release of months of pent-up tension. Prior to HIRE the venerable SAFETEA-LU had stumbled through four short extensions and both contractors and government agencies were holding their breath worrying that replacement six-year surface transportation funding legislation would never arrive.
HIRE basically gave us SAFETEA-LU TWO, an extension through the end of the year, essentially keeping the old act’s machinery, and money, in place. The construction season was saved. And so we exhaled.
But does HIRE’S nine-month extension provide an automatic and well-oiled segue into a recognizable highway bill?
A common reaction to HIRE’s passing was that transportation funding was on solid ground until the end of the year and states could begin the construction season by creating jobs and doing much needed highway and bridge work because the Highway Trust Fund had enough money, guaranteed, through the end of the year. An allied reaction was that this created a period of relative calm after the tumultuous fights for the four extensions, a period that would allow Congress to finally come together on a multi-year highway and transit reauthorization bill, a new SAFETEA-LU.
But if Congress could not do it before – after all when you pass a six-year bill you know when it will expire – what changes in nine months might make members able to do it this time?
With the air coming out of the balloon with the passage of HIRE, the urgency that has pushed action ever since SAFETEA-LU expired last fall has all but disappeared. Without it there is the possibility that not enough will be done in the time at hand. What’s more, some of the terms of HIRE, in relation to highway funding, run through into the first quarter of 2001, muddying the renewal process just enough to worry those still demanding decisive action.
One thing that will not change is the inability of the current fuel tax to provide adequate funding to the Highway Trust Fund (HTF). That won’t change by Christmas, so the question of where the money to make up the difference between fuel tax intake and the needed funding numbers will come from will be very much like it is today. The President has said no fuel tax increase, pre-election Congress members don’t want to touch it and it’s hard to see that tax-averse situation changing after the November mid-term elections.
The extent to with the elections will change things is guesswork, but veteran industry analyst Ken Orski says in his latest newsletter that the once remote possibility of a Republican takeover of one or even both Houses of Congress now appears a distinct possibility among serious political observers. “Would a Republican Congress make major reforms in the current transportation program more or less likely? Will the 111Th Congress be less or more tax averse?” asks Orski. And, he asks, “What would be the impact of a possible change in the leadership of the House Transportation and Infrastructure Committee?”
Many industry stakeholders pushing for SAFETEA-LU’S renewal last fall did not see the health care bill looming and did not predict that it would take center stage, in fact take almost all of the stage. After November, what other issues may force their way into line ahead of reauthorization?
During the short term SAFETEA-LU extensions, and again in HIRE, money from the General Fund has bailed out the HTF. With no increase in the fuel tax being considered, is this duality entrenched enough to become standard in future? Could a future six-year bill accept that the HTF has limits, define where its funds are to be spent and rely on the General Fund for other transport and construction programs once paid for by the HTF? According to Orski, as much as 25 percent of the HTF revenue is spent on non-highway programs such as walkways, trails and bike paths. One way to partially restore solvency to the HTF, he points out, would be to limit its use to highway expenditure and transfer all of its non-highway obligation to the General Fund. Here an Infrastructure Bank, something the President has supported, could assist the General Fund
Orski also raises the elephant-in-the-room question: “How important will deficit reduction figure in future budgetary cycles?”
In a New York Times piece David E. Sanger notes that the projected deficit for the coming year is nearly 11 percent of the country’s economic output. We’ve run huge deficits before, for example during WWI and WWII, and they have risen with the expectation that they would fall back into line once peace was declared. But, says Sanger, what is scary is that “by President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next ten years.” In fact, he writes, in 2019 and 2020 deficits start rising again to more than five percent of the GDP.
As Sanger put it: “For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors.”
If there is no sacrosanct highway fund in place, or if highway funds came in any degree from the general fund, who in Washington facing these deficit pressures would be willing to guarantee funds into the future for highways and bridges? Might we shortly face a situation where a limited – but guaranteed – HTF begins to look like a pretty good option?v
Jobs Bill 101
H.R. 2847, the Hiring Incentives to Restore Employment (HIRE) Act is the first significant piece of job-creation legislation to pass since President Obama and the Democratic Congress earlier this year declared that they would focus on reversing widespread unemployment. The National Asphalt Paving Association produced this summary of specific proposals in the legislation.
• Jobs Payroll Tax Exemption: Offers an exemption from the 6.2% Social Security payroll taxes for every worker hired in 2010 that has been unemployed for at least 60 days. There would also be an additional $1,000 income tax credit for every new employee retained for 52 weeks to be taken on the employer’s 2011 income tax return.
• Section 179 Expensing: Increases the amount of small business expensing allowed under section 179(b) of the Internal Revenue Code for 2010 in an attempt to encourage new purchases of equipment. Under the legislation, a small business can expense up to $250,000 against their tax liability through December 31, 2010, instead of depreciating the costs over time.
• Build America Bonds Expansion: Allows state and local government to borrow at lower costs to finance more infrastructure projects. Under H.R. 2847, issuers of government-supported tax credit bonds may elect to take the higher federal subsidies offered to issuers of Build America Bonds. The bill would allow four bonds to offer the higher federal subsidy: 1) new clean renewable energy bonds, 2) qualified energy conservation bonds, 3) qualified zone academy bonds, and 4) qualified school construction bonds.
• Highway Trust Fund Extension: Extends existing highway programs which provide states and localities with the certainty they need to make decisions on projects. The bill extends the authorization of surface transportation programs under SAFETEA-LU through December 31, 2010. In addition, the bill increases authorization levels and transfers $19.5 billion from the general fund to the Highway Trust Fund. Under the bill, $14.7 billion of the transfer would be dedicated to the Highway Account.
Major Highway and Bridges Projects Get Preliminary P3 Go-Ahead
Indiana looking to private funds to keep infrastructure investment expanding
By John Latta
As states continue to struggle with funding droughts threatening major infrastructure development, Indiana is set to look into the use of public-private partnerships in two billion-dollar cross-border projects, an expressway and two Ohio River bridges
Indiana Governor Mitch Daniels said that, “The Illiana Expressway in northwest Indiana and the Ohio River bridges in southeast Indiana are long-sought major infrastructure projects with the potential for significant economic impact. This bipartisan legislation enables the use of public-private partnership financing options, which are the only practical means of making them happen.
Shattering not Shuttering
“While other states are shuttering their highway programs, Indiana is shattering all records for infrastructure investment, and this could extend that record with enormous benefit to Hoosiers at opposite corners of our state,” said Daniels
The enabling legislation comes at a time our deep economic malaise is threatening to derail or cancel vitally needed infrastructure projects, forcing states to look for alternative funding strategies. The American Road and Transportation Builders Association has said that, ”The economic recession has challenged lawmakers from Sacramento to Austin and Tallahassee to Albany—and in city and county halls around the country—to find innovative ways to fund vital transportation infrastructure projects.”
Governor Daniels said of the legislation that, “No action of this General Assembly has greater potential for job creation [than SEA 382.]”
According to The Bond Buyer newspaper, the Indiana legislation allows the state to privatize two of the state’s largest proposed infrastructure projects under a bill passed by the Democratic-controlled House and Republican-controlled Senate. The bill allows the state to enter into public-private partnerships to finance construction and operation of a proposed $1 billion toll road between Indiana and Illinois and a $4.1 billion joint project with Kentucky to build a pair of bridges over the Ohio River.
Daniels can now negotiate with private investors without having to go back to the legislature for approval according to The Bond Buyer. But the measure requires the state to prepare an economic impact study and environmental analysis before it issue a request for proposals and to hold a public hearing, says the newspaper.
Calling on Creativity
The Governor is on record as saying that neither of the two projects could have been undertaken without private involvement. Using a P3 approach, he said, was a “creative” way to let work begin on them. But the legislation is no guarantee that the projects will be undertaken.
The toll road in question is the Illiana Expressway, an East-West stretch of 25-30 miles linking I-94 in Indiana to I-57 in Illinois, with about ten miles of the highway in Indiana, designed to alleviate traffic congestion in northwest Indiana. The state will retain ownership of the land, but with P3 proposal discussions will let private companies build and manage the road’s operations in return for toll revenue.
Daniels has been a long-time supporters of public-private partnerships, arguing that they have the twin values of producing money for projects that might otherwise not be forthcoming and that they do so without creating new debt for the state. In 2006 he leased the Indiana Toll Road for $3.8 billion. He has also said that he is talking with neighboring Kentucky and Illinois about their growing interest in expanding the role of P3 projects in state infrastructure.
The Bond Buyer also reports that New Jersey Governor Chris Christie has formed a privatization task force to evaluate just which government operations could benefit from being managed by private companies. The goal is to lower the state’s payroll and at the same time to slash state operating costs.
Christie said he was looking for places where the state could deliver programs and services where “in a more efficient cost effective way by having the private sector do it.” v
Editor’s Note: Bond Buyer is a SourceMedia publication. SourceMedia is owned by Investcorp, which also owns Randall-Reilly, the parent company of Better Roads.
Mike Anderson’s American Iron
A “New” Way To Look At Things
When you’re talking about construction equipment, “new” is a simple enough tag to designate. Or is it?
Sure enough, that piece of shiny equipment just shipped from the factory, now sitting pretty on the lush front lawn of a dealership, is new. And, better yet for those of us who try to follow what’s truly new in the market, there’s no doubt about the “new” tag if the manufacturer happened to have introduced that model in the past, what, six months. Or should that be 12 months? Or 24? Or 36?
And therein lies the dilemma for marketers of construction equipment.
One of the industry’s true stalwart brands, Bobcat – a brand so historic and renowned that it is often used to describe a universal equipment type and not simply a make – is understandably putting a lot of effort into drawing attention to its “new M-Series loaders.” Indeed, it was only last June that, dodging snowflakes (it was North Dakota after all), Better Roads editorial director Marcia Gruver was observed hopping into a S630 skid steer loader at the M-Series launch. That was the better part of year ago now, but Marcia’s cool ride then is still undoubtedly a new machine now, especially considering that the M-Series product family is still easing into the market. But will the S630 be “new” a year from now? How about the brother S650 that followed a few months later?
These questions really come to the fore during the show season. A “new” product may be exactly that, for that particular show, but it’s also quite possible the same piece was “new” at another industry event, be it last month or even last year. Since not all shows are annual, there is a prime opportunity to maneuver for crafty OEM marketers and their likewise shrewd hired guns at the PR agencies: “Get the art department, pronto! We need nice, big, bright, ‘New’ signage for this display. Yes, the same display we had in Phoenix eight months ago . . . and in Paris two years ago.”
Like most people who have attended equipment trade shows over the past couple of years, we here at Better Roads have been seduced by the John Deere 764 HSD, the quad-tracked high-speed dozer that, two years after the last CONEXPO-CON/AGG, still attracts a flock at any show it’s at. Methinks one of the most intriguing earthmovers ever unveiled will be “new” until it is actually in full production and showing up on jobsites. Only when we see it working here, and there, and over there, may the “new” tag start to slip off. That may yet be years away.
It reminds me of the excited radio deejay I heard recently, who breathlessly explained to his not-so-spry listenership that a new Jimi Hendrix track had just crossed his desk. “A new what?” I asked my car dashboard. Apparently, I had not mistaken what I had heard, because the sound that answered me back was, indeed, new . . . well sort of. v
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