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Sharp Turns & Uncertain Destinations

 

The Biden Presidency and the Construction Industry

Whenever a new president takes office, a sort of waiting game begins: when will we find out how closely his actions will match his campaign rhetoric? Where and how might he be willing to compromise? With a near-record number of executive orders signed in his first weeks in office, President Biden has certainly answered at least a few of those questions already. Yet much of the new administration's direction is still a matter of speculation, as is its impact on the construction equipment industry.

The recurring themes in industry conversations right now include the president's stand on environmental issues, his apparent enthusiasm for infrastructure investment, and his support for a potential series of new regulations in support of labor unions. The concerns among business advocates center on President Biden's environmental policies and regulatory philosophies; the greatest reason for optimism right now is the magnitude of potential infrastructure investments. No one is bold enough to predict where all of this will net out for business and jobs. But there at least seems to be a prevailing spirit of cautious optimism that the president, his Cabinet appointees and his administration more generally are the kind of people the industry can work with.

"Biden is surrounding himself with a lot of veterans from the Obama administration," said Jordan Howard, director of federal and heavy construction at the Associated General Contractors of America. "He has one of the most competent teams I've seen. Just the fact that you have people with actual experience in D.C. knowing how to work the bureaucratic machine, knowing how to work the regulatory machine – there's an advantage there."

According to Drew Schneider, director of labor and employment policy at the National Association of Manufacturers, "The Biden administration and Labor Secretary (Marty) Walsh have said that they want to be collaborative, that they want to listen to all stakeholders."With that undercurrent of enduring optimism as context, the balance between optimism and pessimism varies by policy area.

One area of focus for President Biden will be the environment and climate change. His choices of Gina McCarthy and John Kerry as domestic and international climate czars, respectively, indicate his administration will be very proactive on this front and not always to the industry's immediate benefit.
Though it was far from a surprise, no single action taken by the president thus far has created more of a sense of disruption than the shutting down of work on the Keystone XL pipeline. Toby Mack, president & CEO of the Energy Equipment and Infrastructure Alliance, called the impact on the construction sector "devastating." "Not just the six or seven pipeline contractors that had been awarded the spreads on the contract, but all of the folks building the pumping stations and other associated infrastructure, all the equipment and materials and supplies that were set to go into that project, were suddenly left stranded."
The ripple effects include a likely reduction in the output of the Canadian oil sands, further curtailing demand for earthmoving equipment. "Up in northern Alberta, you had more big yellow machines running around these production sites than you could imagine," Mack said. "If you step on the hose, you kill the upstream and the downstream. You've got this value chain that goes all the way from the well or the mine to export terminals somewhere."

President Biden has often suggested that green jobs can offset the loss of jobs from the Keystone pipeline. But to date, his administration has offered no timeline for creating green jobs, nor even a clear definition of what a "green job" entails – and therefore, which sectors are most likely to benefit.[i] In addition, proposals to invest in green infrastructure will likely struggle to gain bipartisan congressional approval. The net result of all this is that, while green jobs may number in the tens of millions as Biden anticipates, in the current time frame they won't replace the jobs lost to the Keystone shutdown.

Prospects for construction of natural gas pipelines are almost as uncertain as for those carrying oil. But there is one small area of optimism on the pipeline construction front: Liquefied natural gas (LNG) appears to have a bright future from both an economic and a political perspective. U.S. exports of LNG are surging, with markets in Asia and Europe providing growing customer bases. During her confirmation hearings, new Department of Energy Secretary Jennifer Granholm expressed strong support for LNG's continued development. "We take that as good news," Mack said.   

In a meeting with Senators from both parties early in February, President Biden said, "I really, honest to God, never have thought of infrastructure as being a partisan issue." [ii]  

Nick Goldstein, Assistant General Counsel for the American Road and Transportation Builders Association, agrees. "I think there's reason to be optimistic [about an infrastructure bill]. President Biden made infrastructure a large part of his campaign. It's always been a bipartisan issue."

Yet while the American Rescue Plan that was enacted in March through reconciliation included some money for different types of infrastructure,  according to Goldstein, "it's not money for building stuff right now. Hopefully, that will come later."

Economists from across the political spectrum support infrastructure spending as a real need, in good economic times but especially in bad.[iii] Glenn Hubbard, former economic advisor to President George W. Bush, recently said, "President Biden will need something like a big infrastructure program that commits to spend money over several years to give people much more confidence that the economy won't slip back." [iv]

Besides the potential for bipartisan support, another factor favoring passage of a substantial infrastructure bill is the interest rate, which is at or near all-time lows and, in real terms, is essentially negative. This may well make paying for infrastructure through borrowing more palatable to those who resist raising taxes to do so. All in all, the current political and economic circumstances may afford the best opportunity to pass a well-funded infrastructure bill in recent memory.         

Changes in the principles by which a new administration creates and implements regulations are always top of mind. Howard told us, "I think a big concern is his administration moving too fast too quickly and not giving everyone time to adapt. A lot of those executive orders require the regulatory process. They're not in effect until we go through the public rulemaking process, and that takes time."

One of the new president's executive orders directed OSHA to determine whether an ETS (emergency temporary standard) is necessary to better support worker health and safety as the COVID-19 pandemic continues. Rigid standards, of course, may make compliance a challenge for some operations with unique or specialized facilities, equipment, operations and/or workforces.

"We believe the most valuable thing for employers to keep workers safe is allowing individual businesses to make the determination on what needs to be done at their unique facilities," Schneider said. He remains optimistic. "Ultimately, it will be up to the new labor secretary and the OSHA administrator on what direction they're going to go. But OSHA has indicated that they're willing to listen to stakeholders and the regulated community."

Other regulatory changes endorsed by the president include extending paid leave benefits to tens of millions more employees; requiring contractors who are even merely accused of violating labor laws to report it, subjecting them to potential blacklisting from government projects without proof of wrongdoing; and reinforcing the Davis-Bacon Act with stronger requirements that government infrastructure projects pay a prevailing wage.    

Any new regulation may significantly impact employment, but Howard thinks they don't have to. "It depends if there's time and adequate input. The impact isn't necessarily negative, but if it's rammed through and done on the back end, that could impact jobs. Businesses need certainty, and the worst thing you can do for certainty is to start throwing out rules and regulations that go into effect in a few weeks. It doesn't give manufacturers, it doesn't give employers, it doesn't even give the government workers tasked with enforcing these rules time to adjust. So if it's all rolled out appropriately, I'm optimistic about it."

That sense of enduring optimism tempered by realism is a recurring theme in discussions with those who work with the government to find mutually beneficial solutions. Yet while there's a belief that the president and his appointees are people who will listen and with whom compromise is possible, there are clearly powerful concerns as well. 

"The new administration combined with Democratic majorities in the House and Senate certainly will pose many challenges for the industry," said Daniel B. Fisher, AED's vice president of government affairs. "However, there are opportunities as razor-thin margins in the House and Senate will necessitate compromise. AED is actively engaging Congress and the administration, and working with the broader business community, including AED member customer groups and manufacturers, to ensure that the equipment industry's policy priorities reach the key decisionmakers in Washington, D.C." 


[i] https://www.cnn.com/2021/02/01/politics/joe-biden-green-energy-jobs/index.html
[ii] https://www.washingtonpost.com/opinions/2021/02/12/bring-infrastructure-week/
[iii] https://www.igmchicago.org/surveys/infrastructure-spending/
[iv] https://www.washingtonpost.com/business/2020/12/21/stimulus-bill-economy/

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