Construction Legislative Week in Review
www.agc.org May 12, 2011
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On the Inside
HIGHLIGHTS IN THIS ISSUE
TAX
IRS Delays 3% Withholding Rule Until 2013, AGC Still Demands Full Repeal
ENVIRONMENT
AGC Calls for Federal Funding For Diesel Retrofit During Congressional Testimony
FEDERAL
AGC Says Proposed Executive Order on Federal Contractor Disclosure Undermines Federal Procurement Process
House Holds Hearing on Civilian BRAC Proposals
WATER
AGC-supported Private Activity Bond Legislation Introduced
BUDGET
FY 2012 Appropriations Cycle Begins in the House, Committee Proposes Large Construction Funding Cuts
AGC Joins Coalition Urging Action on Debt Limit to Promote Economic Growth
LABOR
National Labor Relations Board Creating Controversy with Boeing Suit
HIGHLIGHTS IN THIS ISSUE
 

This week, AGC member Bob Lanham, Williams Brothers Construction Company, testified on clean diesel legislation; AGC submitted testimony on how proposed Executive Order on political contributions would negatively impact industry, and sent a coalition letter and AGC letter on the issue; the IRS issued final regulations on the implementation of the 3% withholding law; AGC joined coalition members in sending a letter to Congress in support of raising debt limit; and AGC is asking members to provide input on the proposed new federal stormwater permits. Next week the House is in recess.

For more information, contact Jim Young at (202) 547-0133 or youngj@agc.org.
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TAX
IRS Delays 3% Withholding Rule Until 2013, AGC Still Demands Full Repeal
 

The IRS published final regulations May 9 on the implementation of 3% withholding, or section 3402(t) of the IRS Code. The regulations considered many of the points AGC made in its comments to the draft regulations two years ago but the final regulations gave no ground. 

In short, the good news is confined to a delayed imposition of the rule because government entities will have to “adopt the systems and process necessary to comply with section 3402(t)”…and will also need to “formulate acquisition rules that are consistent with the final regulations, as well as the infrastructure needed to apply those rules, some commenters stated that government entities would need at least 18 months from the final regulations … to comply.” AGC has learned that “government entities” mentioned above include the Department of Defense. 

The final regulations provide no relief from concerns AGC has expressed about the 3% withholding. AGC’s comments to the IRS in 2009 laid out a number of concerns and urged reforms to reduce the burden.  The IRS rejected AGC recommendations that would have reduced the impact on the construction industry.  For instance, AGC recommended that: the withholding amount be modified to a closer match tax owed; the withholding law exclude construction as it does real estate purchases; 3% be withheld from the final payment rather than every payment;  overwithholding be refundable on a quarterly rather than an annual basis; the construction industry use payment bonds to ensure taxes are covered; subchapter S corps, ESOPs, JVs and other pass through entities be exempted as they owe no tax at the entity level;  and construction managers be exempted like “agents (payment administrators)” under the regulations.  In each case the IRS rejected the request for a modification, saying that they lacked the statutory authority to create specific exemptions or that the modifications could create opportunities for bypassing the withholding requirement.

Major Change Included for Existing Contracts

In addition to beginning the withholding on 1/1/2013, the regulations also modify the law’s impact on existing contracts.  The draft regulation included an exemption from 3 percent withholding for “existing contracts.”  In the final rule, existing contracts are exempted only for one year beyond 1/1/2013.  All payments under all contracts will be subject to withholding beginning 1/1/2014.  Also, existing contracts that are “substantially modified” after 1/1/2013 may become subject to the withholding requirement.

Regulation Costs at $20 Billion, Only Collects $12 Billion

AGC is a member of the Government Withholding Relief Coalition.  Earlier this year the coalition produced a detailed estimate of the cost of compliance and enforcement of the section 3402(t) 3% withholding requirement.  The coalition estimates that the combined costs of software upgrades, compliance, enforcement and administrative and interest expenses exceeds $20 billion over the first five years.  About $10 billion of those costs will be one-time costs. Recurring annual costs include about $597 million in interest expenses, $662 million in costs to administer withholding by government entities, and $622 million for government contractors to comply, report and recover the massive overwithholding contemplated by the legislation. 

It is important to note that the government estimates of new “income” generated by the provision will be about $12 billion, so about 60 percent of the costs inflicted by the rule.  Also, on an annual basis the rule is expected to bring in far less than 50 percent of the annual cost to comply with the rule.  Because of the negative short and long-term impacts of the rule, the number of cosponsors for both the House and Senate repeal bills continues to grow.

House Cosponsors for 3 Percent Repeal Exceed 100

AGC has made repeal of 3 percent withholding a priority since it was originally enacted.  The three repeal bills introduced this Congress continue to add cosponsors.  H.R. 674 had only 42 cosponsors during the AGC convention in Las Vegas in March. During and after the convention, AGC members made a push to get cosponsors for the legislation, sending thousands of letters to Congress. In addition, there have been hundreds of personal meetings with Congress, including many during Federal Contractors Conference last week in Washington, D.C. As a result there are now 107 cosponsors of the House bill and we are having similar results in the Senate.   There are still 129 members of the House and six members of the Senate who have cosponsored the bill in previous years but have yet to do so this Congress.

To see if your Member of Congress has cosponsored, click here.

To send a letter to your member of Congress and Senators, click here.

For more information, contact Jeff Shoaf at shoafj@agc.org. Return to Top

ENVIRONMENT
AGC Calls for Federal Funding For Diesel Retrofit During Congressional Testimony
 

AGC presented testimony at a hearing today before a Senate Environment and Public Works Subcommittee, which is looking into initiatives to reduce diesel emissions in clean air non-attainment areas.

AGC member Bob Lanham, Williams Brothers Construction Company, addressed various incentives that can be used to speed up the development of technologies to help reduce emissions from diesel powered construction equipment. AGC’s testimony pointed out that initiatives aimed at diesel retrofit and repowering of existing equipment must be proven to be effective and not adversely impact the operation of the equipment or the safety of the workers.

AGC supports legislation introduced by Senator Tom Carper (D-Del.), Chairman of the Clean Air and Nuclear Subcommittee, that will use a portion of congestion mitigation and air quality improvement funds that are intended to be used for clean air initiatives to provide incentives to contractors to upgrade their equipment. Senator Carper intends to include this language as part of the surface transportation reauthorization bill. AGC is working with his staff to ensure the provision does not have a negative impact on the construction industry.

For more information, contact Brian Deery at (703) 837-5319 or deeryb@agc.org. Return to Top

FEDERAL
AGC Says Proposed Executive Order on Federal Contractor Disclosure Undermines Federal Procurement Process
 

On May 12, 2011, AGC submitted testimony for a hearing held jointly between the House Committee on Oversight and Government Reform and the House Committee on Small Business entitled, “Politicizing Procurement: Would President Obama’s Proposal Curb Free Speech and Hurt Small Business?” 

The hearing examined the proposed Obama Executive Order that mandates the disclosure of political donations by government contractors as a prerequisite to receiving a government contract, and evaluated its impact and consequences upon the federal acquisition system. Specifically, the Committees are concerned that this proposed EO will inject politics into the procurement process, violated political free speech rights, and usurp the legislative power of Congress. 

AGC's statement provided details on how the EO would negatively affect the construction industry, saying that forcing government contractors to disclose all political contributions would make it too easy for political appointees to punish contracts for their political views or to coerce contributions from firms. While the alleged purpose of the EO is to ensure contracting decisions are based on merit and best value, AGC cautioned that it would actually create the mechanism for enforcing a political litmus test on government contractors rather than prohibiting the consideration of political contributions.  AGC also warned that the rule, once finalized, would actually undermine the credibility of the current federal procurement process.

AGC also raised similar concerns in a letter sent by CEO Stephen Sandherr directly to President Obama. That letter stated that the proposed EO, titled “Disclosure of Political Spending by Government Contractors,” is unnecessary, noting that there is no evidence to indicate that political contributions are influencing the award of federal contractors.  AGC also pointed on in the testimony and the letter to the White House that contractors are already required to disclose the vast majority of political spending and that there is already a publicly available web-based searchable database showing all political contributions.    
 
AGC is concerned about the political motives of the EO, noting it does not apply to many special interest groups that currently seek federal funding, grants or favorable regulatory and administrative rulings, but exempts federal employee unions that negotiate contracts for their members worth many times the value of most government contracts would not be required to disclose their political spending. AGC also questioned how the proposed EO will limited free speech protections offered by the First Amendment.

Read AGC’s press release here. AGC also signed on to a broad business coalition letter to President Obama opposing the proposed executive order.

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

House Holds Hearing on Civilian BRAC Proposals
 

On May 12, the Economic Development, Public Buildings and Emergency Management Subcommittee of the House Committee on Transportation and Infrastructure held a hearing on several proposals to employ a BRAC-like process to civilian properties, reduce the federal footprint and ostensibly save taxpayers billions of dollars in annual operating costs of such facilities.

The hearing, chaired by Jeff Denham (R-Calif.), included testimony from the Office of Management and Budget, the Department of State and the private sector. This legislative hearing marked the next step in advancing Chairman Denham’s Civilian Property Realignment Act.

At a Subcommittee hearing held February 10, 2011, Denham proposed exploring the use of a civilian BRAC process to address management issues as it relates to federal real property. President Obama’s budget then proposed a civilian BRAC process, and on May 4, 2011, both the administration and Denham released bills entitled the Civilian Property Realignment Act. The Denham bill is H.R. 1734.

AGC is closely monitoring and working with Congressional leaders and administration officials to ensure that there will be ample opportunity for AGC members have a voice in this process.

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

WATER
AGC-supported Private Activity Bond Legislation Introduced
 

This week legislation was introduced in the House and Senate that would remove water and wastewater from under the private activity bond volume cap, making it easier for up to $5 billion to be invested in water infrastructure annually.

Private activity bonds (PABs) or exempt facility bonds are a form of tax-exempt financing that encourages state and municipal governments to collaborate with sources of private capital to meet a public need. Congress provides states an annual allocation of the federal tax-exempt bonds, based upon population.  In 2011, the state allocation or volume cap shall be the greater of $95 per resident or $277.82 million. 

Historically, most of the tax-exempt bonds have been issued to politically attractive, short-term projects in the more than 20 other categories eligible for these bonds, such as housing and education loans.  The annual volume cap hinders the use of PABs for water and wastewater infrastructure, which are generally multi-year projects and out of sight.  In 2007, only 1.3 percent of all exempt facility bonds were issued to water and wastewater projects. Exceptions from the volume cap are currently provided for other governmentally owned facilities such as airports, ports, housing, high-speed intercity rail and solid waste disposal sites. The legislation could make it easier for between $2 and $5 billion a year in private capital to be invested in water infrastructure, at a cost of just $35.4 million a year.

The legislation, the Sustainable Water Infrastructure Investment Act of 2011, was introduced on a bipartisan basis in both the House and the Senate. On the House side, Reps. Pascrell (D-N.J.) and Davis (R-Ky.) introduced the bill with their Senate partners, Sens. Robert Menendez (D-N.J.) and Mike Crapo (R-Idaho).

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

BUDGET
FY 2012 Appropriations Cycle Begins in the House, Committee Proposes Large Construction Funding Cuts
 

With fiscal year 2011 funding in place, the House of Representatives has started the FY 2012 in earnest by announcing a schedule for marking up the annual appropriations bills, as well as plans for how House Budget Resolution spending totals will be divided between the twelve Appropriations Subcommittees.

House Appropriations Chairman Hal Roger (R-Ky.) plans to move nine of the 12 bills through the House by the August recess and take up the remaining bills in September.  Under the schedule, the Military Construction-VA bill will be marked-up in subcommittee on May 13 and full committee on May 24; the Defense bill marked-up in subcommittee on June 1 and full committee on June 14; the Transportation-HUD bill will be marked up in subcommittee on July 14 and in the full committee on July 26; and the Energy and Water bill funding the Corps of Engineers will be marked up in subcommittee on June 2 and in full committee on June 15.

Along with the schedule, Chairman Rogers also announced the funding levels for each subcommittee.  All of the appropriations bills, except for the defense bill, will see a reduction from FY 2011 levels. The three security-related subcommittees (Defense, Homeland Security, and Military Construction-VA) collectively receive $643 billion, a 2.4 percent increase from fiscal year 2011.  The other nine subcommittees take an almost 11 percent cut to $376 billion.

Of the bills that AGC closely monitors, the Transportation-HUD bill takes the third-largest cut of all, $47.7 billion, a $7.7 billion or 13.9 percent reduction from FY 2011.  That number is a 36 percent cut from President Obama’s request.  The Energy and Water bill takes a nearly $2.7 billion or 3.3 percent reduction; Military Construction a $615 million or 0.8 percent reduction; and Interior-Environment bill a $2 billion or 7.1 percent reduction.

For a complete list of the appropriations schedule and funding levels, click here.

This year’s appropriations process was delayed because of the debate over FY 2011 spending,  which was settled just last month. Taking that delay into consideration and the fact that Senate appropriators are waiting on the Senate Budget Committee to move their budget before they begin their work on FY 2012 bills, the chances of Congress finishing all twelve bills by September 30 is slim.

AGC will continue to work through the appropriations and budget process to ensure the construction industry does not see a disproportionate amount of the cuts that will be a part of the FY 2012 spending levels.

For more information, contact Sean O’Neill at (202) 547-8892 or oneills@agc.org. Return to Top

AGC Joins Coalition Urging Action on Debt Limit to Promote Economic Growth
 

While recognizing the need for spending reforms, AGC joined a large group of companies and associations urging action to increase the nation's statutory debt limit. 

The letter focused largely on the international economic consequences of failure to increase the statutory debt limit.  AGC signed onto the letter knowing full well that a strong U.S. economy is critical to construction industry growth and also knowing that a strong U.S. economy requires international faith that the U.S. government will pay its bills. The letter also reiterated the groups’ commitment to working with Congress and the administration to address the nation’s fiscal challenges.

For more information, contact Jeff Shoaf at shoafj@agc.org. Return to Top

LABOR
National Labor Relations Board Creating Controversy with Boeing Suit
 

The National Labor Relations Board (NLRB) General Counsel filed a complaint April 20 against Boeing, claiming that Boeing violated federal labor law by building a second production line for its Dreamliner at a non-union factory in South Carolina in retaliation against past strikes by the unions. 

The complaint also claims that Boeing failed to negotiate with the union on the decision to move the work. On the other side, Boeing is saying that this is a new facility they are opening in South Carolina that will not take jobs from those in Washington and that the decision was made to open the new plant for solely business reasons.  Boeing also has said that as they ramp up for this new production, jobs will be added in Washington as well as in South Carolina. 

Boeing made the decision to open a plant in South Carolina in 2009. The construction of the new facility is almost complete and production had been expected to start this summer.  It has long been the prerogative of business to decide where to choose to do business and there are many who believe this is an effort by the NLRB to make the decision of where and how a company operates.   In addition, some view this as an attempt by the NLRB to help pay back the unions for the failure of Congress to pass the Employee Free Choice Act when both the House and the Senate were under Democratic control.  

A hearing in front of an administrative law judge is expected in June.   That decision can be appealed to the full NLRB Board and the Board’s decision can be appealed in federal court.  The case will hinge on what the law judge and the Board feel was Boeing’s intent by opening a facility in South Carolina. 

Republican members of Congress in both the House and the Senate have written the president and the NLRB General Counsel of their concern over this matter.  The same is true of a group of state attorneys general.  Legislation is expected to be introduced this week in the Senate that would guarantee that employers have the right to decide where to do business within the United States.   

AGC is closely watching developments in this case as it could have an impact on construction if companies react to the case by limiting the amount of construction needed to expand or refurbish buildings. AGC will also review the legislation to evaluate how it affects current labor law.  

For more information, contact Kelly Knott at (202) 547-4685 or knottk@agc.org. Return to Top

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