August 2014

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24 | www.cedmag.com | Construction Equipment Distribution | August 2014 Highway Funding and all revenues have been spent on surface transportation. In the late '90s and early 2000s, those policy changes allowed Congress to gradually bump up annual highway and transit spending levels, but not to a level experts said we needed for infrastructure investment to keep pace with needs and economic growth. As a result – and with encouragement from AED and other groups – lawmakers got creative about how to come up with more money. They drew down the balances that had accumulated in the HTF over the years and even gave allowances for interest that should have been paid on those accumu- lated balances. As a result, by the late 2000s, annual highway spending was well above what the annual user fee revenue stream could support. You might say that we're victims of our own success. Then the crises began. With prior HTF balances and interest expended, lawmakers started having to transfer money directly from the general fund to the HTF to keep annual spending level. But as the economy slowed, budget deficits and debt grew and conservative lawmakers pushed for budget offsets, those transfers became harder to come by. The long-term certainty of six-year highway authorization bills became a thing of the past, and we've been living with a series of short-term patches ever since. Crisis Or Crises? The current highway crisis is actually four separate crises rolled into one. First, the revenues to the HTF are so inad- equate that the fund doesn't even have enough money to get through the current fiscal year. The fund is slated to run out of money by the end of the summer, which has led the Federal Highway Administration to warn states that payments for ongoing projects may be delayed. Second, the Congressional Budget Office has said that because the HTF is out of cash, it will be able to support no new obligation authority in FY 2015. That puts an entire year's worth of highway and transit investment in jeopardy. Third, MAP-21, the most recent two-year highway authorization law (i.e., mandatory multiyear spending blue- print) is set to expire on Sept. 30. After that date, there will be no legal authority for highway spending. And, fourth, the HTF is facing enormous long-term funding problems. A 2013 study by researchers at the College of William & Mary, sponsored by AED, projected a $365 billion shortfall between what user fees will bring into the fund and what will be necessary just to keep spending at current levels (adjusted for inflation) over the next two decades. The problem sounds complicated, but it can be boiled down to the simple fact that the government isn't collecting enough to cover current spending, let alone the substantial investment increases that almost everyone agrees will improve our roads, bridges, and transit networks. Where the Rubber Meets the Road The uncertainty surrounding federal infrastructure policy is having significant consequences for distributors, contractors, and other industry suppliers. "Our customers are increasingly concerned that the state will not pay them for their existing work and they may have serious cash flow issues," says Michael Brennan, executive vice president and CEO of Brandeis Machinery Co., in Louisville. Brennan said there is no talk yet of major projects in his area shutting down if the HTF runs out of money this summer, but he's heard talk that the state "may delay payments until something is resolved." Brennan calls the risk of the highway program collaps- ing "impossible to fathom," citing the employment impact of the infrastructure construction in every state. "Also, the trickle down affect to equipment dealers, rental companies, quarries, etc. would be horrific," Brennan said. Paul Campbell, executive vice president of Wheeler Machinery Co. in Salt Lake City, also expressed concerns about the impact on contractors and their employees. "Generally, between 30 and 40 percent of the work that large, heavy highways contractors in our territory do is associated with federally-funded projects. Without federal funding, we'd expect to see the road construc- tion workforce contract by that same percentage. And the uncertainty surrounding the program would cause contractors to hold off adding additional employees." The preliminary results of AED's 2014 Government Affairs Survey show that distributors throughout the country have similar concerns and are seeing similar effects. More than half the respondents said their states are cutting back on highway lettings because of the problems in Washington. A third said their states had cancelled projects. More than a quarter said their states were planning to slow payments to contrac- tors for current projects. Close to two-thirds of survey respondents said their customers are delaying equipment purchases. More than half of the AED members who responded to the survey said their companies were also taking action to prepare for the crisis, including, in some cases, holding off adding equipment to rental fleets in anticipation of less construction activity and, in other cases, adding equipment to rental fleets in anticipation of contractors buying less. Some AED members have implemented hiring freezes. Fighting For Distributors AED is devoting considerable time and energy to saving the highway program. Here are just some of the things we're doing: Direct lobbying. AED is meeting regularly with lawmakers and congressional staff to discuss ("Funding Conundrum" continued from page 22)

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