An appeal by the president to spend on infrastructure reaches welcome ears across metals supply chain

July 2017 - “Failing to act to rebuild America’s infrastructure costs every American family $3,400 a year, and the costs and consequences to our economy are significant,” says the American Society of Civil Engineers in its quadrennial Infrastructure Report Card of 2017. ASCE provided a grade of D+ to America’s infrastructure, unchanged from the 2013 assessment.

According to the White House blog, President Trump believes regulatory reforms will spur growth and investment. The president aims to “dramatically reduce permitting time for infrastructure projects from 10 years to two years and to get a ‘yes’ or ‘no’ quickly by slashing regulations.” The president dedicated $200 billion in his budget for infrastructure that can be leveraged for a $1 trillion investment, which would include state, county, municipal and private sector spending.

SURFACE TRANSPORTATION¹
2017 Infrastructure Report Card
Bridges: C+
Roads: D
Funding gap: $1,101*
1 Data taken from ASCE’s Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future (2016). *All values in billions of constant 2015 dollars

“In addition to reforming our broken permitting system, we want to partner with state and local governments to better meet the needs of our citizens,” Trump said during a June 8 speech before governors and mayors. “My budget proposal includes a massive investment in new federal support for infrastructure. These dollars will be matched by significant private, state and local dollars for maximum efficiency and accountability.”

Working together, he told them, “We can translate every taxpayer dollar into new pavement on our streets, new locks and new dams, new pipes for our water. We’re going to have a more modern, more acceptable infrastructure. We want to bring it to the top of the world.

Philip K. Bell, president of the Steel Manufacturers Association (SMA), says his members view infrastructure spending “as covering both the public and private sectors. It can mean Army bases, airports, highways, bridges, road safety apparatus, signage, cellular towers, the electronic grid, dams and locks, canals, rivers and lakes, railroads and barges.”

‘Vitally important’

Public and private construction and building projects account for at least 40 percent of steel shipments in a given year, Bell says, but if one includes telecommunications and energy infrastructure, that readily jumps to 50 percent of all shipments. “It’s the biggest market and vitally important.”

DAMS² & LEVEES⁴
2017 Infrastructure Report Card
Dams: D // Funding gap: $39.4
Levees: D // Funding gap: $70
2 Total needs are federal and non-federal high-hazard dams. 4 Total needs number based on discussions with the National Committee on Levee Safety.

From 1950 to 2015, in constant dollars, the United States typically spent $600 million a year on infrastructure. The 30 years from 1950 to 1980 represented a growth phase that saw the U.S interstate system and major airports being built. Seaport expansion and urbanization played a role as well. Then, the average annual spending fell to $450 million between 1980 and 2005. “Most analysts consider that healthy but it was just enough to maintain infrastructure—to make repairs and keep efficient,” Bell says.

Each year from 2006 to 2016, however, roughly $300 million was authorized for infrastructure—a rate at which “most experts believe you will see infrastructure decay. It was clearly a lost decade.”

Bell cites the ASCE report card, and notes that $300 million a year “doesn’t mean breaking even. It means we’re in decline.” For example, Congress approved the FAST Act in 2015, funding a mere $305 billion over a five-year period.

SMA has worked to communicate with the Trump administration about the need for improvements. “We provide comments to Federal Register requests and testify before committees and departments,” he says, but “there is still a lag in staffing at key depths” in various agencies, including Cabinet departments such as Commerce and Transportation. Nonetheless, “we are prepared to help the administration and the House Transportation and Infrastructure Committee to understand the issues.” Bell expects to meet with committee members in the future. SMA also prepares white papers, testimony, comments and fosters grass roots action.

One obstacle Bell sees today is high levels of partisanship. In the past, infrastructure financing was a bipartisan issue. “Everybody got it—that it’s good for everyone. In the last few years, the ability to join hands has been extremely difficult. It’s almost aspirational to do big things in Congress.”

Bottom line, “we’re hopeful the $1 trillion plan bears fruit. We cannot wait to get going on that.”

ENERGY¹
2017 Infrastructure Report Card
Grade: D+
Funding gap: $177
1 Data taken from ASCE’s Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future (2016).

The American Iron and Steel Institute (AISI) estimates that 15 million net tons of steel was consumed last year in projects involving highways and streets, water and sewer systems, conservation and development (dams, waterways, etc.), communications and transportation structures, and energy sector projects (electricity generation, transmission, and distribution, and oil and gas transmission, storage and distribution).

Reforms, fees welcome

Even when infrastructure funding rises year to year, “it has in recent history been inconsistent and insufficient, making it difficult for states and other agencies to commit to large-scale, game-changing construction projects,” says Lisa Harrison, AISI’s senior vice president of communications.

The organization has long-advocated for increased federal investments for infrastructure improvements, she says, “accompanied by reforms that reduce permitting timelines and speed project delivery.

“We also support a dedicated, sustainable, user-fee based solution to restore and ensure the long-term solvency of the Highway Trust Fund, which has historically served as the primary source of revenue for infrastructure improvements,” Harrison says. That point is also advocated by the American Society of Civil Engineers.

Although the steel industry welcomed passage of the 2015 FAST Act, “it did not address the future of the Highway Trust Fund and so we are urging tax-writing legislators in Congress to do just that.”

Transportation infrastructure, in particular, “facilitates broad economic growth and creates significant demand for domestic steel products for projects like highways, bridges, ports and waterways,” Harrison notes. “The steel industry is not only a user of the highway system, but it is also an important supplier in constructing these roads, bridges and transit systems. A long-term and sustainable infrastructure program will enable steelmakers and our customers to plan for the future.”

A comprehensive infrastructure plan should benefit the steel industry in several ways, including “encouraging innovation [through] cost-saving design and construction techniques to include life cycle costs. Robust taxpayer funded investment will ensure steel’s continued critical role as the backbone of America’s infrastructure systems,” Harrison concludes.

Robert Weidner, president and CEO of the Metals Service Center Institute, whose members manufacture, process and distribute a wide variety of materials, says that not only would a boost in road and bridge building itself push demand for plate and sheet, and pipe and beams, but the builders of heavy machinery like bulldozers and dump trucks and graders would need to increase production. “A lot of metal goes into equipment,” he says.

AVIATION¹ & SCHOOLS⁷
2017 Infrastructure Report Card
Airports: D // Funding gap: $42
Schools: D+ // Funding gap: $380
1 Data taken from ASCE’s Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future (2016). 7 Data from State of Our Schools: America’s K-12 Facilities (2016). 21st Century School Fund, Inc., U.S. Green Building Council Inc., and the National Council on Schools Facilities.

‘Demonstrate leadership’

Weidner is cautious about what levels of funding will actually survive Congressional wrangling. “We heard a lot of rhetoric since the stimulus bill in 2009, and the reality is it wasn’t stimulating. Very little of it went into infrastructure. Only $170 million to $180 million of the projects were truly shovel-ready.”

The major issue, he says, “is how do you pay for it? Politicians have to do some hard work to figure that out.” On the federal side of the finance equation, “there would have to be some form of user tax,” without pulling from the general fund. He recommends: “Go big or go home. We want a big bill that truly stimulates the economy, that uses a lot of metal.”

Like Bell, Weidner says he hopes some elected officials are willing to “demonstrate political leadership, to do what’s right for the country, because it’s what they get paid to do.”

The building and construction market is important for the domestic aluminum industry, according to Ryan Olsen, vice president of business information and statistics, and Charles Johnson,vice president of policy, at the Aluminum Association.

“The metal’s light weight and corrosion resistance makes it a popular material for building and infrastructure projects,” says Olsen. “B&C market demand for aluminum tracks very closely with broader economic trends and especially build rates.” While shipments are off from historical peaks in the mid-2000s, demand has risen by about 20 percent since the 2009 recession.

“The other key market to track as it relates to infrastructure is the electrical market, which includes wire and cable. Electrical has been largely moving in the right direction and is back toward the historical peaks of the early 1970s,” Olsen notes.

Revenue potential

Companies belonging to the Precision Machined Products Association serve a variety of end markets, including off-highway equipment, fluid power and power generation. About $3 billion (or 17 percent) of precision machining revenues in 2014 were attributable to infrastructure, says Miles Free, the group’s director of industry research and technology.

INLAND WATERWAYS & MAIN PORTS¹
2017 Infrastructure Report Card
Inland Waterways: D
Ports: C+
Funding gap: $15
1 Data taken from ASCE’s Failure to Act: Closing the Infrastructure Investment Gap for America’s Economic Future (2016)..

If a shop makes medical parts, they won’t realize a benefit from higher federal funding on highways and dams, but “if you’re a screw machine shop serving Komatsu, you will do better,” Free says.

A $1 trillion spending program would perhaps double revenues for machine shops serving public construction projects and create job openings. Although there is a “lack of machine-ready talent” at the moment, PMPA and its members would be ready to train new workers, Free says.

Maybe, baby

Modern Metals asked industry advocates, “If you were placing bets, do you believe Congress will be able to pass funding legislation that will come close to realizing the goal of $1 trillion in spending?”

Lisa Harrison at AISI says, “There is support in Congress for this initiative and I am hopeful that it will be on the calendar after some of the other more immediate topics are addressed.”

At the Aluminum Association, Olsen and Johnson say, “We cannot really speculate but the industry and association have been very much encouraged that the new administration appears to be prioritizing an infrastructure plan as one of its top legislative priorities.” MM