Construction Legislative Week in Review
www.agc.org April 14, 2011
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On the Inside
BUDGET
White House, Congressional Leaders Agree to Budget Deal, Avert Shutdown
TAX
Legislation Affecting All Public Contractors - Repeal 3% Tax Withholding
President Obama Signs 1099 Repeal Into Law
PIPELINE SAFETY
Transportation Secretary Partners with AGC to Promote Pipeline Safety
HIGHWAY
New Advertising Campaign Continues Push for New Federal Transportation Investments
TCC Fly-In: Your Elected Officials Need to Hear from You
FEDERAL
Federal Government Shutdown Averted: What Does New Budget Deal Mean for the Federal Market?
BUDGET
White House, Congressional Leaders Agree to Budget Deal, Avert Shutdown
Over Half of Budget Cuts Derived From Federal Construction Programs
 

After several long weeks of negotiations, the White House and House Republicans announced in the late hours of April 8 that they have agreed on a $1.208 trillion spending package for the remainder of FY 2011.  The package represents nearly $40 billion dollar cut in non-defense discretionary spending for the remainder of FY 2011. 

The House passed the bill Thursday with a vote of 260-167, and the Senate is expected to pass the measure later Thursday as well, in time for the president to sign it by midnight on Friday when the continuing resolution expires. In order to get the deal passed through regular order, Congress passed a short-term budget deal that keeps the federal government funded through the rest of the week.

Similar to the cuts provided in H.R. 1 (the original continuing resolution for FY 2011 that passed the House) this latest package appears to have a severe impact on federal construction accounts.  Based on a list of cuts provided by the House Appropriations Committee, AGC has determined that funding for federal construction accounts will be cut by $21.9 billion. Among the biggest cuts are:

    • Department of Defense Military Construction – $6,237 B
    • Federal Highway Administration Contract Authority – $2,500 B
    • High Speed Rail – $2,900 B
    • Clean and Safe Drinking Water State Revolving Funds – $997 M
    • GSA Construction – $638 M

Not all of these cuts will have the apparent impact on the construction industry.  For example, the Federal Highway Administration funding cut rescinds $2.5 billion in existing contract authority that had been previously apportioned to states but was never funded. The cut to high speed rail funding disrupts President Obama’s plan for a nationwide network that has yet to materialize.  In addition, a major portion of the Department of Defense cuts represent reduced construction activity due to the closeout of BRAC 2005.

Previously, AGC issued guidance to assist contractors engaged in work with the federal government should the government shut down.

AGC continues to communicate to Congress that the planned cuts have the potential to eliminate jobs and will have a real and lasting impact on the entire economy.  Before cutting federal construction dollars a thorough evaluation of the programs needs to occur. AGC sent this letter to Congress today, and will continue to advocate for sound investment in our nation’s infrastructure as consideration of the FY 2012 budget commences.

FY 2012 Budget
After the House completes business on the FY2011 spending bill, it is scheduled to begin debate on the FY2012 budget.

The "Path to Prosperity," released by Paul Ryan (R-Wisc.), is a framework that directs Congress to cut at least $5 trillion dollars of spending over the next decade by: reforming Medicaid to become a block grant program; reconfiguring Medicare to be a voucher program; defunding health care reform; and reducing taxes. For transportation, the budget resolution calls for significant reductions in spending with total budget authority decreasing by 31 percent from current levels.

Ryan's outline suggests that the Highway Trust Fund not receive any additional revenues from either a user fee increase or general fund transfer, and that the surface transportation reauthorization bill will have to reflect these reduced funding levels. The budget proposal suggests that Congress can keep the Highway Trust Fund solvent without additional general fund transfers or increases in the gasoline tax by consolidating dozens of separate highway programs identified by the General Accountability Office as duplicative.

This proposal is the first shot in the budget wars that will be fought later this year in addressing the nation’s difficult deficit situation. While the budget resolution is not legislation, the Senate will also fashion its own version that will have to be reconciled with the House-passed version. Although the budget resolution is non-binding, it does present the blueprint that governs future budgetary decisions by the Congress. House Transportation and Infrastructure Committee Chairman John Mica (R-Fla.) has already indicated that he intends to write a surface transportation reauthorization bill that will be constrained by the revenue currently coming into the Highway Trust Fund.

AGC and its transportation construction stakeholders sent a letter to Chairman Ryan and all Members of the House expressing our opposition to the cuts in transportation. 

The President's Long-Term Budget Plan
President Obama released his own vision for long-term spending Wednesday. His outline proposes $4 trillion in deficit reduction over the next 12 years. He calls it a "balanced" approach as deficit reduction would be attained from a combination of spending cuts and tax increases. The release of the plan was not coordinated with Democrats in the House or Senate.  His call for a 16-member congressional working group on the budget with a goal of finishing work by the end of June was a new wrinkle for an already complex budget negotiation process.

The president's plan calls for cutting non-security discretionary spending by $770 billion, reducing security spending by $400 billion, and repealing Bush-era tax cuts for the "wealthiest Americans." His plan also aims to save $480 billion from Medicare and Medicaid.

NOTE: This story has been updated from an earlier version. After passage of the continuing resolution in the House and Senate on April 14, the House Appropriations Committee updated their FY2011 budget cuts chart. These numbers are different than what was previously published in AGC’s Construction Legislative Week in Review and Federal Contractor Report on April 14.  

For more information, contact Sean O’Neill at oneills@agc.org, or Marco Giamberardino at giamberm@agc.org.

Return to Top
TAX
Legislation Affecting All Public Contractors - Repeal 3% Tax Withholding
By Thomas J. Kelleher, Jr., Smith, Currie & Hancock LLP
 

In 2006 Congress added Section 3402(t) to the IRS Code (26 CFR Part 31).  That section provides that the Government of the United States, every State, every political subdivision thereof, and every instrumentality of the foregoing (including multi-State agencies) making any payment to any person providing any property or services on a public project (including any payment made in connection with a public program) shall withhold 3% from all payments as a guard against possible business tax evasion.  Under the statute, as amended, this section will apply to payments beginning in January 1, 2012.  This tax withholding provision encompasses essentially all public construction projects, not just federal contracts.  Moreover, it applies to the total contract price, not to the net revenue or income generated from the project.

Example:  a small contractor holds a $5 million public contract which is estimated to be completed in one year.  This 3% withholding law requires withholding of $150,000 on that contract.  Meanwhile the contractor expects to net approximately 2.5%, $125,000, after paying for supplies, services, subcontractors and other ordinary business expenses.  The tax on the revenue generated is at most 35% of the net revenue, which means the maximum tax owed on the $5 million project is $43,750.  Ultimately, the government has withheld $150,000 for $43,750 in tax liability.

In addition, the IRS published proposed (draft) regulations to implement this tax provision in 73 Fed. Reg. 74082 (12/05/2008).  While the comment period ended nearly two years ago, the final regulations have not yet been released.  While the draft regulations are fairly extensive, one provision, at 26 CFR § 31.3402(4)-3(c) is expressly noteworthy.  It reads:

(c) No withholding on successive payments.  If a government entity or its payment administrator makes a payment that is subject to the withholding requirements of § 31-3402(t)-1 to a person, no subsequent transfer of cash or property from that payment by such person to another person is treated as a payment subject to withholding for purposes of §§ 31.3402(t)-1 through 31.3402(t)-7.  (Emphasis added)

Example No. 1 to this draft regulation discusses the treatment of a progress payment of $48,000 to the prime contractor which includes $18,000 for work done by subcontractors.  Under the IRS’s example, the entire amount paid to the prime contractor is subject to the 3% withholding.  However, the prime contractor’s payments to its subcontractors are not subject to this withholding.  Whether intended or not by the IRS, some industry representatives interpret this example to mean that the prime contractor may not withhold any part of this 3% withholding from lower tier firms.

There are currently several bills (H.R. 674 & S. 89) containing language to repeal the 3% withholding provision as several Senators and Representatives recognize the negative effect of this provision on a firm’s cash flow.  It could also stimulate needless prime/subcontractor issues related to the implementation of the withholding provision.

If you believe that this provision should be repealed, please consider writing your Senators and Representative as soon as possible.  Click here for a suggested draft letter.

Alternatively, visit AGC’s Legislative Action Center to write your Senators and Representative. Currently H.R. 674 has 73 cosponsors in the House. To see if your Senators and Representative are or have been a cosponsor of legislation to repeal the 3 percent withholding mandate, click here.For more information, contact Karen Lapsevic at (202) 547-4733 or lapsevick@agc.org. Return to Top

President Obama Signs 1099 Repeal Into Law
 
President Obama today signed H.R. 4 into law, a bill supported by AGC that repeals the 1099 reporting requirement that would have required all businesses to submit Form 1099s to the IRS and to any business with which it purchased $600 or more in goods or services in a year, creating a tremendous paperwork and compliance burden for businesses of all sizes. 

Read the statement from the White House here.

For more information, contact Karen Lapsevic at (202) 547-4733 or lapsevick@agc.org. Return to Top

PIPELINE SAFETY
Transportation Secretary Partners with AGC to Promote Pipeline Safety
LaHood Praises AGC as a Valuable Partner
 
Left to right: Secretary Ray LaHood, PHMSA Administrator Cynthia L. Quarterman, and AGC CEO Steve Sandherr.

Secretary of the Department of Transportation Ray LaHood partnered with AGC to hold a press conference on the importance of underground damage prevention. This follows on the heels of an event in March where the Secretary kicked off National Safe Digging Month at CONEXPO-CON/AGG.

This event was held at AGC member company Skanska’s jobsite in the D.C. metro area, where Skanska offered LaHood a tour of the jobsite, and Washington Gas demonstrated utility locating tools. AGC CEO Steve Sandherr opened the event with the contractors’ point of view.

“Every day many of our 33,000 member firms are likely to begin excavations at projects like this,” Sandherr said. “Yet while this field is empty, there is no telling how many lines and the risks they pose lie beneath. Contractors have an obligation to call 811 before excavating a site like this.  Utility firms have an obligation to identify and flag where their lines are.  And all of us have a responsibility to dig safely so construction workers can get home to their families at the end of the day.”

Common Ground Alliance president Bob Kipp also spoke, praising AGC for its support and for the commitment of the professional excavation community to underground damage prevention. He cautioned the casual excavator to remember to call 811 for the safety of everyone. Secretary LaHood opened his remarks by praising AGC for being a top partner in its support for infrastructure, safety, and jobs. He stressed that safety is DOT’s top priority, and pipeline safety was no different. He further urged everyone doing any kind of digging to call 811 first, wait for locators to identify buried facilities, and dig with care.

For more information, contact Scott Berry at (703) 837-5321 or berrys@agc.org. Return to Top

HIGHWAY
New Advertising Campaign Continues Push for New Federal Transportation Investments
 

In collaboration with the Transportation Construction Coalition and Americans for Transportation Mobility, AGC and the Ohio Contractors Association today launched an ad campaign in Ohio to push for new federal transportation investments and legislation. During the event, The Road Information Program, or TRIP, released a new report that finds poor road conditions cost Ohio motorists and businesses billions annually.

The Ohio Chamber of Commerce, Ohio Contractors Association, Transportation Construction Coalition and Americans for Transportation Mobility said during Columbus and Cincinnati-area news conferences that Congress should pass the long-delayed federal highway and transit bill that funds most road, bridge and transit improvements in the U.S.

The report, titled “Future Mobility in Ohio: Meeting the State’s Need for Safe and Efficient Mobility,” finds that deficient roadways cost the average Ohio motorist up $933 a year and rob the state’s highway users of $6.5 billion annually. 

For more information, contact Brian Turmail at (703) 837-5310 or turmailb@agc.org. Return to Top

TCC Fly-In: Your Elected Officials Need to Hear from You
 

Join your industry allies in Washington, D.C. on May 24-25 for the Transportation Construction Coalition’s 2011 Legislative Fly-in as we make the case that “Transportation Moves the Economy.” Your Congressional delegation needs to hear from you about the importance of transportation infrastructure investment to the nation’s economy – creating jobs while building the future.

Federal transportation programs face challenges like never before. SAFETEA-LU expired on September 30, 2009 and funding for the highway and transit programs have been continued through a series of short term extensions. Highway Trust Fund revenue is insufficient to support current funding levels. A multitude of new Representatives and Senators are unfamiliar with how these programs operate and the benefits they bring not only to their states or districts but to the national economy. Congress needs to understand that reduced Federal investment undermines state and local transportation programs and hurts the construction industry: contractors, material suppliers, designers, equipment manufacturers and labor.

The Fly-In schedule is as follows:
Tuesday May 24, 2011
11 am-1:30 am - AGC Issues Briefing Lunch
2 pm-4:30 pm - Legislative Briefing
6 pm - Capitol Hill Reception

Wednesday May 25, 2011
7 am-7:45 am - Continental Breakfast
8 am-5 pm - Congressional Visits

To register for the Fly-In and for hotel information please click here. Return to Top

FEDERAL
Federal Government Shutdown Averted: What Does New Budget Deal Mean for the Federal Market?
Come Hear the New Reality Directly from the Federal Owners
 
The 2011 AGC Federal Contractors Conference will be held May 2-5, 2011, at The Mayflower Hotel in Washington, D.C. This meeting is the only national event where contractors and federal agency personnel can meet in a collaborative forum to review federal construction contracting issues and trends from around the United States. These insightful and highly productive exchanges have solidified the need for both federal construction contractors and the federal construction agencies to share information on a wide variety of issues, foster better communication, and create real solutions.

If you are engaged in any aspect of constructing, designing, or planning a Federal project and you are a general contractor, specialty contractor, service/supplier, attorney or any other important stakeholder already engaged in the Federal market, this conference has a place for you. If you are interested in learning more about Federal contracting opportunities and how to get started, this conference is a great place to begin your learning experience. AGC Chapter leadership and staff are also invited to attend and be a part of the great meeting.

Continuing on the success of separate concurrent tracks that highlight each of the unique federal and federally-assisted markets, AGC has added an additional new track of education sessions to help contractors at all experience levels better understand and be successful in the federal and federally-assisted markets. The Water Infrastructure Track includes meetings with agencies such as the Environmental Protection Agency’s Office of Water, the Natural Resources Conservation Service, and the Army Corps of Engineers – Civil Works Directorate. The Federal Facilities Track includes meetings with the General Services Administration, the International Construction Agencies, and the Military Construction agencies of the Department of Defense. The Highway and Transportation Track features meetings with the Federal Highway Administration, the Federal Aviation Administration and the transit and rail agencies.

To learn more about the conference, download the conference brochure and register, visit the conference website.

For more information contact Marco Giamberardino at (703) 837-5325 or giamberm@agc.org. Return to Top

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