Issue link: http://read.dmtmag.com/i/114548
President's Message Here We Go Again Although the flow of funds will likely shrink to match declining gas-tax revenue, highways do have some hope – and so do the businesses that support them. By Toby Mack But away from the spotlight, some encouraging activity is developing that may bode well for highways. To review the bidding, the current highway bill funds the program at about $42 billion per year through September 2014. With gas tax revenue, which theoretically pays for the program, running $10-$15 billion a year short of the necessary $42 billion, the current law filled the gap with one-time offsets and transfers from other parts of the federal budget and by further drawing down the shrinking positive balance in the Highway Trust Fund (HTF) so that it goes broke about when the current law expires. Then what? If nothing is done to increase the money flowing into the HTF, federal spending on highways will shrink to match declining gas tax revenues. This would mean a program in the $25-$30 billion range annually – a rough number but in the ballpark. What will this mean for equipment dealers? Based on recent research, we know that each dollar of highway spending generates about 6.4 cents of revenue at the dealer level. We also know that each $1 of federal spending results in about $2 of actual spending on highway projects. So if the federal share shrinks from $42 billion to, say, $27 billion annually, the $15 billion reduction produces a market that will have about $30 billion per year less worth of projects. This results in a loss of $2 billion per year in dealer business in the U.S. Thus if the total dealer market is roughly $40 billion annually, the average dealer can expect to lose about 5 percent of its revenue base; presumably more if you specialize in the highway market. And if this happens, the smaller contractors will be hurt the worst; so if your business relies on these customers, the picture is even darker. But now to the brighter side. The House Transportation and Infrastructure Committee, which traditionally leads the highway bill process, has a new Chairman, Bill Shuster (R-Pa.). We recently had the pleasure of joining Chairman Shuster on a visit to AED-member Cleveland Brothers Equipment Co., which operates in Rep. Bill Shuster, fourth from right, heard firsthand Shuster's district. In a nearly one-hour conversation with from Cleveland Bros. CEO Jay Cleveland, fourth from myself, our Vice President of Government Affairs Christian Klein and Cleveland's CEO Jay Cleveland, Shuster left, how important sound infrastructure funding is exhibited a clear passion for infrastructure investment, to the equipment industry. It seems like those of us who advocate for federal highway investment have just caught our breaths after the grueling, grinding battle for the last program renewal was finally won, almost three years late, in June 2012. Then came the 2012 elections, which brought all legislating to a halt through mid-November, followed by the fur fight over the fiscal cliff that was partially resolved, sort of, just before the end of 2012. Now the new Congress has settled in, and an emboldened President Obama is leading his troops back to the fight for still higher taxes on the "rich" and on those tax-dodging corporations, while showing no inclination to tackle the real sources of our fiscal pain: (1.) excessive regulation which is retarding growth, and (2.) out-of-control entitlement spending. With a few more trip-wires still ahead in the form of the debt limit and sequester, we are sure to see more brinksmanship on taxes and spending in the coming months. 20 | www.cedmag.com | Construction Equipment Distribution | March 2013 20_Toby_Mack_feature_KP.indd 20 2/27/13 2:17 PM