Priority No. 1: Reviving Equipment Markets - Washington Insider
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Priority No. 1: Reviving Equipment Markets

By Christian Klein

Article Date: 01-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Our message is penetrating the Hill, and we continue to advance solid strategies.

The construction industry looks worse than it has for a long time. Housing starts (generally one of the best barometers of the health the equipment industry) are at the lowest point since 1959. States facing budget shortfalls are hacking away at construction programs. Tightening credit is making it more difficult to finance equipment purchases. And unemployment in the construction industry is at 10.8 percent (the highest in any sector of the economy).

Equipment distributors in all regions of the country are hurting. That’s why AED is making an economic stimulus to resuscitate equipment markets the top priority when Congress reconvenes in January. The good news is that there’s actually a lot Congress can do to help.

First, there’s infrastructure investment. Thanks to two AED studies conducted this past summer, we now have a better idea than ever before about exactly how public spending on roads, bridges, sewers, etc. affects your company. Dr. Stephen Fuller, a well-known construction and housing economist at George Mason University, estimated that 6.4 cents of each dollar spent on roads are used by contractors to buy equipment and related services. A survey of utility contractors conducted by AED and the National Utility Contractors Association found that 12 percent of the average underground water utility bid is attributable to equipment costs.

That’s why AED is working so hard to ensure that infrastructure investment is at the core of any stimulus package. Our message to Congress is that there are thousands of projects worth tens of billions of dollars on the shelf waiting for funding. An infrastructure stimulus would have an immediate impact on equipment purchasing and job creation. And investing extra money now to improve roads, bridges, sewers, etc., would help provide a solid foundation for America’s future economic vitality.

The good news is that Democratic leaders on Capitol Hill apparently agree. In September, the House passed a stimulus bill that included, among other things, $12.8 billion in extra funding for roads, $7.5 billion for sewers, and $5 billion for water resources (flood control, navigation, etc.). Combined, that level of additional investment would create more than $2 billion in new market opportunity for equipment distributors in 2009. That’s just the start. Congressional leaders are now talking about investing even more money in infrastructure through the stimulus bill.

But that’s just part of the solution to the equipment market downturn. Since August, AED has been working to build support for a one-year extension of the Economic Stimulus Act’s depreciation bonus and increased Sec. 179 expensing levels. We know that ESA extension alone won’t turn the equipment industry around, but paired with infrastructure investment it would be powerful medicine. Then contractors would have both an incentive and a reason to buy new equipment in 2009. More good news: After hearing from AED members in Montana and Iowa, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) have made an ESA extension part of their stimulus package.

The final piece of the economic puzzle is getting the residential real estate market back on track. AED was the first major organization to propose a home purchase tax credit back in January 2008. Allied industry groups, including the realtors and homebuilders, quickly saw the merits of the proposal and started pushing it themselves.

This summer, Congress responded by creating a $7,500 tax credit for first time homebuyers. Unfortunately, it didn’t go far enough. In addition to limiting the benefit to first-time homebuyers, Congress made families with incomes above $150,000 ineligible and anyone who claims the tax credit has to pay it back over 15 years.

We’re telling Congress to expand the home purchase tax credit by extending it for another year, making it applicable to any purchase of a primary residence, allowing anyone to take advantage of it (no matter what income level), and eliminating the pay-back requirement. We’re confident that these changes would help increase demand for homes and get excess inventory off the market, thereby helping to stop the slide in real estate prices and eventually turning the market around.

There are no two ways about it: Times are tough for our industry. But AED is doing what it can to help by advocating for targeted stimulus to revive demand for equipment. If you have other ideas about things we can do turn the market around, let me know.

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