…The legislative session on Capitol Hill is well and truly underway, with particular momentum being put behind the reauthorization of the federal transportation bill, aka the Surface Transportation Bill.
It’s always a reminder of the legislative process to recognize that both chambers of Congress will be presenting their own version of the bill out of the appropriate committees and before each of the entire bodies of the House and Senate for a vote.
The House version from the House Transportation Committee most ordinarily gets the ball rolling, which is exactly what we saw yesterday when Representative Mica released yesterday (http://republicans.transportation.house.gov/singlepages.aspx/911), in all of its 800+ page glory.
Let’s admit right here that I haven’t committed the 800+ pages to memory just yet, and am dipping in and out where I think I’ll find the most salient stuff. An imperfect method but do-able for the time being.
Many of the components of the House bill were well-telegraphed in advance, and many of them line up pretty smoothly with what the Senate is likely to propose. Some of them will be controversial.
Many other items don’t line up smoothly at all with the other chamber, but that is what the conference committee is for, to negotiate the differences between the two bills to everyone’s satisfaction, considering that it all gets that far.
The bill is on its seventh extension, much to the dismay of transportation professionals, as the bill sets the blueprint for priorities, policy, funding, emphasis, etc. for the entire public, and more and more, private transportation economies, and that most recent extension runs out on March 31st. To achieve completion of the bill by that time will take an enormous amount of elbow grease and compromise, but it has always been the point of view around here that the good people in Washington will find a way in an election year to actively pass a big, well-funded, traditional (non-stimulus, in other words) bill that has a strong jobs creation component to it (each billion dollars of highway construction spending is estimated to support 30,000 jobs), unemployment being the main topic on most voter’s minds. Such a successful passage could be pointed to with pride by all participants and serve as evidence of their working for the little man.
Perhaps it’s just best to list bullet-fashion the elements of the House bill as they now appear:
- The bill’s duration, a matter of some disconnect between the House and Senate (which at least to date has been proposing a two-year bill), looks to be five years, as opposed to the traditional six years.
- The funding, true to the name of the bill, the American Energy & Infrastructure Jobs Bill, is set at about $260 billion over the course of the bill, which is not bad, essentially keeping the funding at the levels that have been current through these extension periods. It seeks to call upon the sale of oil leases to make up for current shortfalls in the Highway Trust Fund, which is likely to be controversial in nature.
- Allowable truck weights, of keen interest to the trucking industry, its labor force, and its competitors in freight rail, are set to rise from the current 80,000 pounds to 97,000 pounds, and in some cases to as high as 126,000 pounds.
- There’s a current of thought expressed that environmental reviews take too long; the bill puts language in that sets a total cap of 270 days for completion of the environmental review process for any projects and reduces the deadline under which project opponents can file a lawsuit against a project from the current 180 days to 90 days.
- Increased funding for TIFIA and for state infrastructure banks, both of which through grants, loan guarantees and the like, seek to leverage federal funds and draw private money participation into transportation, are on tap, as they are known to be in the Senate bill as well.
- The elimination of current requirements that states use 10% of their funds for ‘transportation enhancement’ activities, these being of the nature of projects that support alternative transportation and environmental initiatives. Watch for this one to be quite controversial.
- Over in freight rail, the rails would get five more years past the original due date to install Positive Train Control technology, bowing to the reality of the great expense of the system, as well as the insufficiency of the technology in its current state.
- There is a strong roll up of scores of departments within the Federal DOT, consolidating the many agencies and missions into a much smaller and more manageable bunch.
- States will be allowed to contract with private-sector engineering firms – rather than hiring new state employees – to plan and development major transportation porects.
- The bill seemingly pushes more power out to the states – devolution – and away from the Federal government.
A close study of the bill I believe would reveal many items and approaches that reflect the conservative nature of the party that runs the House. And it’s a far from perfect bill right now (for instance, a quick read at least shows that high speed rail is given short shrift.) But…it’s a start and show serious intent. It is funded at a decent – far from juicy, but decent – level, and honestly seeks to find efficiencies where it can.
Now that the media blitz has begun, there will be much back and forthing between the two chambers, the two parties, the many participants in the transportation economy, much posturing as well I imagine.
Nonetheless, as mentioned, it’s a start.
….If you dig into the GDP report of a few days back you might notice, as we did, just how much of that 2.8% growth depended on inventory rebuilds, nearly 2% of that 2.8%.
Inventory is a net add to GDP, and companies along the entire value chain – commodities, manufacturers large and small of final and intermediate goods, and along the supply chain – made a fairly large bet last quarter that it was worth their while to stock up while first, commodity prices hadn’t yet risen in the face of global growth, and in anticipation of greater consumer demand.
The big question is whether that consumer demand will materialize, which seems a little iffy now that we know that though incomes increased 0.5% in December, but most of that went towards savings, which rose from 3.5% to 4%. Retail sales grew only 0.8%. The consumer looks by this accounting to be deleveraging like mad, which doesn’t bode well for retail sales going forward. The assumption is that consumers are back in the game and that they will buy steadily enough to work that new inventory down. If the consumer is not ready to spend, the inventory build-up will soon become a liability as it just sits there in warehouses. It all comes down to the willingness of the consumer to maintain the pace that started to develop during the holiday season.
There is simple human impatience at work too, and animal spirits. A few months ago it seemed that many in the business community had started to lose patience with all the squabbling over the economy in political circles and many just decided that they needed to get on with running their business. This is part of what has led to the decisions on inventory. On the other hand the consumer may be too overwhelmed by the high rates of joblessness and the continued collapse of the housing market to break free. If the frugality continues and last holiday season is seen as an aberration the inventory decision will be disastrous and will saddle business with liabilities.
…On the face of it there’s nothing wrong with the record of trucking right now though, which presents a more positive note. We live and die around here by the proposition that transportation activity is a good little leading economic indicator for the big old economy, since bfore the manufacturers can produce product they need the material with which they work and that generally comes via rail. The lumber and the resins are added to the coal shipments that fuel the utilities. At some point the manufacturers have to get their product to the wholesalers and distributors and they have to get that product to the retailers. This is the job of the trucking companies. Therefore, activity at the start of an economic surge is displayed in the transportation sector.
The data that came from the ATA suggests that there is a surge underway in the overall economy as there was a very significant gain from December to January. It was the single largest one-month surge in 13 years. That is outstanding news but it has to be tempered with the fact that the trucking industry has been stumbling along with very low volumes for months and it doesn’t take a lot to come off this floor in a hurry. The point is that there was a surge and one of significance. The question on most minds is whether it can be sustained.
You may have noted I said ‘on the face of it.’ As we covered in the GDP discussion, it is all going to come down to inventory, which a lot of this transportation activity has been activated to build up. If the bet doesn’t pay off, these inventory levels will be excessive and there will be a subsequent slump in transportation demand. If the consumer we all know and love makes an appearance there may be enough demand to force some growth in ocean cargo and eventually even in air cargo.
We’ll be tracking all of this and keeping you informed. – Larry McGurn