Stimulus is Step in the Right Direction CED Magazine, April 2009
Article Date: 04-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
AED's stimulus teleconference helped break down the billions allocated for the construction industry.
Based on research conducted in 2008, AED calculates that more than $2.5 billion will be injected into the construction equipment industry as a result of the highway, sewer and drinking water portions of the Economic Recovery and Investment Act signed into law Feb. 17 by President Obama; and potentially twice that amount or more will make its way to equipment distributors when all other infrastructure money in the stimulus bill is factored in.
Highlights of the stimulus bill, including details of infrastructure allocations and important dimensions of the bill were outlined during a 30-minute teleconference for AED dealer members on Friday, Feb. 27. Approximately 140 distributor executives dialed into the free call, which was underwritten by the AED Washington Education Fund.
“We know this bill isn’t perfect, [but] the bill is without a doubt going to expand infrastructure-related equipment markets and will give the housing market another push toward recovery,” said AED President and CEO Toby Mack. “And it’s going to encourage business capital investment, so we think it’s an important step in the right direction.”
The breadth of spending as well as the speed with which stimulus money is expected to make its way to states and then projects was underscored by AGC Chief Economist Ken Simonson, who presented during the first half of the teleconference.
“AGC is very excited about this,” he said. “While we didn’t get everything we wanted, it’s like getting the entire interstate program plus building, underground, communication, and electricity towers all in one big appropriations bill. We’re also pleased the bill calls for really pushing that money out quickly, with a number of stiff use-it-or-lose-it provisions; it does not earmark funds, it does not tie them down with excessive strings, and it also has a good accountability and visibility for tracking where that money actually gets spent.”
Simonson says the bill contains between $130 billion and $140 billion that will be turned over from federal agencies to the states or turned into contracts directly from federal agencies over less than a two-year period. Numerous categories of construction are comprised in the total stimulus bill. AED Vice President of Government Affairs Christian Klein reported that the Department of Transportation is “chomping at the bit to get this money out as soon as possible, officially apportioning money beginning this first week of March – the DOT is setting up same-day or next-day turnaround on highway project applications they received from states.” Half of the bill’s money must be obligated within 120 days, and all must be obligated within the calendar year.
“The goal is to get the money out quickly and get the projects out and running as quickly as possible,” said Klein.
He added that the Buy American provision of the legislation, which AED and partnering associations fought, was in the end included in the stimulus act, but, interpreted strictly at its face, appears to pose minimal threat to the construction equipment industry; it will instead impact materials that are used “in” stimulus construction projects, not equipment and resources used on them. Klein, who said a senior DOT official agreed with this interpretation, noted that AED will be tuned in to any misinterpretations and will take appropriate action with the DOT as necessary.
Key breakdowns of the infrastructure allocations of the stimulus legislation are as follows:
Click here for the House Transportation & Infrastructure Committee's state-by-state breakdown of the highway, transit, and sewer spending. Simonson believes that while the stimulus bill will significantly boost several construction categories, he lays that promise against a generally declining market for both private and state and locally funded construction.
- $27.5 billion for highways and bridges (half of which has to be obligated within 120 days)
- $8.4 billion for transit
- $4 billion for sewer construction
- $2 billion for drinking water construction
- $7.2 billion to install new broadband infrastructure, particularly in rural areas
- $11 billion to upgrade and modernize the nation's electricity grid
- $1.5 billion for competitive grants for transportation improvements of regional or national significance (which can be used for highways, airports, etc.)
- $4.6 billion for Army Corps of Engineers projects
- $1.3 billion for airport construction
- $3.1 billion for infrastructure improvements on public and tribal lands
- $2.33 billion for "quality of life" construction projects on military bases
- $1 billion for the Bureau of Reclamation drinking water projects in the western United States
- $9.3 billion for rail projects and Amtrak
“My guess is total nonresidential construction in 2009 is still going to decline,” said Simonson. “I have been saying the decline could be as much as 9 percent; maybe even double digits, compared to a 12 percent increase last year. If the stimulus money comes through fast enough, the decline might be more like 3 percent. That’s a result not just of this direct appropriation, but of the general economic benefit from stimulus.”
He added his belief that Q4 of 2008 will be the last quarter of declining GDP in the U.S., and he expects that Q1 of ’09 will start to see a small upturn, with increased consumer and public spending in the following quarter as well.
Transitioning into some of the tax-related issues of the bill, Klein told participants the bill includes an expansion of the home purchase tax credit, a innovative concept created by AED member Jim Stephenson of Yancey Bros. in Atlanta, and which AED brought to Congress last year. Improvements now include a tax credit raise from $7,500 to $8,000 and elimination of the requirement for homebuyers to pay the money back.
Klein said another AED victory was scored in the deferral of the 3 percent government contractor withholding tax – indeed the House had voted to ditch the provision entirely, which Klein called “an important moral victory” for AED. Nevertheless, as it stands now, in 2011 all companies that do business with federal, state or local governments (including selling equipment to them) will have a 3 percent tax withheld from the sale or service, which the federal government will then issue back as a tax credit against the company’s tax liability.
The latter portion of Friday’s teleconference featured AED Staff Vice President of Finance Garry Bartecki and Steve Pierson, shareholder with the accounting firm Selden Fox, who reviewed important business tax highlights of the new bill. Those included:
For more information, call Garry Bartecki at 630-574-0650.
- The new law extended the 50 percent Bonus Depreciation through 2009, which means owners of any new equipment ordered and placed in the dirt in ’09 can use the bonus depreciation; this is on top of the normal MACRS 20 percent depreciation, said Bartecki. “So in the first year, the acquirer could get 60 percent of the equipment depreciation deduction,” he said.
- When electing to use the 50 percent Bonus Depreciation, said Pierson, there is no AMT preference on any of those assets. Conversely, if a dealer elects out of the Bonus Depreciation, there will be a preference item with regards to the depreciation of those assets, he said.
- The bill also expands Section 179 expensing allowance from $125,000 to $250,000, which applies to both new and used equipment.
- AED offers a free template for computing the best use of the Bonus Depreciation and Section 179 at www.depreciationbonus.org.
- The Net Operating Loss (NOL) carryback provision of the new law allows taxpayers to elect to carryback three, four or five years – the choice of which year is yours. The caveat, said Pierson, is that Congress limited the provision to taxpayers with no more than $15 million in gross receipts.
- For business debts, said Pierson, dealers can elect to recognize debt cancellation income for five years – now with an additional five more years: 2014 through 2018. It is important to examine this closely, however, because other provisions that may exclude that income will not apply anymore.
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