What The Transportation Bill Means to Construction Suppliers

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As House members convened Monday for their final days of work before the annual August recess, Majority Leader Kevin McCarthy (R.-Calif.) ruled out taking up the Senate’s $130 billion highway bill, which cleared a procedural hurdle Monday.

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“We’re not taking up the Senate bill,” he told reporters at the Capitol, adding that the Senate should instead take up the bill passed last week by the House. “My best advice to the Senate is to get our highway bill moved forward,” he said.

Short-Term vs. Long-Term

The House wants the Senate to pass its transportation bill, a much more modest six-month extension that would fund transportation projects through December 15.

Senators overruled conservative opposition and added a measure to revive the federal Export-Import Bank, a federally funded lender that makes loans to businesses with overseas customers. Conservatives such as Ted Cruz (R.-Texas) and liberals such as Elizabeth Warren (D.-Mass.) say it’s corporate welfare and a coalition of moderate democrats and republicans in the Senate say the bank is a necessary lender for small businesses and large exporters, such as Boeing, alike.

We’ll leave it to the reader to decide who’s right on that account, but the greater area of concern is how US construction purchasing will move forward with, apparently, no cost certainty for projects that will last beyond six months. This is the peak season for US construction as those ubiquitous orange cones and barrels show up on our interstate highways, bridges and local roads. States receive reimbursements from the Federal Highway Trust Fund to purchase steel, rebar and other construction materials used to fix up our deteriorating infrastructure. There are actually two accounts, one for highways and one for federally funded transit-0riented projects that fund state projects for federal infrastructure.

What is The Highway Trust Fund?

The Department of Transportation uses six different formulas to decide how much funding states receive, but all of them are very dependent on money being in the actual funds. The states will begin to get reimbursed less for their spending on federal roads and, if the fund runs dry, eventually receive nothing. That sounds like a doomsday scenario, but it’s really not that unlikely. In fiscal year 2008 the Department of Transportation, which manages both funds, announced that it didn’t have enough cash in the highway account to cover states’ outstanding bills and started sending twice-weekly payments to the states instead of daily ones.

Every time we have come close to a deadline, Congress has acted and extended funding. The next deadline is the end of business on Friday, July 31. So, if the Senate decides not to pass the House’s six-month extension, what happens? Reimbursements would be slowed, and eventually stop, and construction on federal projects would cease until Congress comes back from its break and passes a funding bill.

States could continue funding the projects using money from their general funds and wait for reimbursements longer, but some states are more strapped than the federal government. Senators Barbara Mikulski and Ben Cardin (both D.-Md.) wrote that the Maryland Department of Transportation (MDOT) would stop receiving $80 million a month in reimbursements from the highway fund.

The situation has been less than ideal for some time for construction executives and estimators working on federal projects— the procurement professionals in charge of buying steel, aluminum, copper and other materials for these projects. Most highway and bridge projects last longer than one year and road work has a short window, itself, in states were the construction season is over by September or early October thanks to colder weather.

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The six-year bill would allow estimators to get “ahead” of their projects and plan for future purchase more than six months out. They may even be able to avoid price spikes by buying materials they know will be needed later.

The six-month extension would not give states the reimbursement certainty they desire, but would still allow them to plan spending for at least the rest of the year. New projects will have to wait longer to start under the shorter, House, extension and some existing ones may even have to endure longer breaks while the Congress decides on how to fund projects that are already on the drawing board for 2016 and beyond.

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