Over the past year, Congress has done its best to provide federal assistance to the millions of small businesses that were affected by COVID-19. Still, despite the positive impact of the American Rescue Plan, it has become clear that this legislation is not a long term solution and that in order to stay competitive in the global marketplace, significant changes will need to be made to our nation’s infrastructure. It is for this reason that Congress is currently trying to pass the American Jobs Plan, a new bill that would make such changes possible. In this episode, Gene Marks and Kip Eideberg, Senior Vice President of the Association of Equipment Manufacturers, discuss how the proposed infrastructure plan will benefit small manufacturing businesses.
0:28—Today’s Topic: How Can Small Manufacturing Businesses Benefit from the Government’s Proposed Infrastructure Plan?
1:47—It is the first time in over a decade that there has been such an overwhelming demand for a comprehensive infrastructure package in the US.
4:26—The proposed investments in our national infrastructure could provide small businesses, especially those in rural America, with the tools and resources that they need to compete in the global market; such investments are necessary if we wish to stimulate our economic growth.
7:09—If approved, the money from these incoming legislations can help finance more projects, which in turn will create more employment opportunities.
11:02—Once it becomes clear that there are more project opportunities on the horizon, smaller manufacturing businesses will have the confidence to not only produce more goods, but to also make important financial investments in themselves.
15:43—It is estimated that while 4 million manufacturing workers will be leaving the industry in the next 10 years, there are only enough incoming workers to fill 1.6 million of those vacant positions. This being the case, it would be beneficial for a portion of the infrastructure package to go towards workforce development, specifically educational institutions that could help address the growing skills gap.
19:39—There are two tax provisions that enable businesses to immediately deduct the costs of R and D (Research and Development) investments over the course of 5 or 15 years.
21:57—The extension of these two tax credits would enable R and D investments to remain affordable, ultimately ensuring that the US manufacturing industry can stay competitive with other nations.
23:57—Congress needs to reassess the current steel tariffs because the rising costs and supply shortages are putting this nation’s manufacturing industries at a severe disadvantage.
The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.
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Gene: Hey, everybody and welcome to The Hartford Small Biz Ahead podcast. You are listening to Gene Marks. My cohost, Jon Aidukonis here is fast asleep and laying off on the job. No, I’m just kidding. He was unable to make this conversation today. And so I do miss him, but that’s okay. We have a great guest that we’re going to be speaking to about everything you should be knowing about the potential, the proposed infrastructure plans that are coming our way out of Washington. And we’re really looking forward to a good conversation with that. Let’s get into that, if we can.
My guest is Kip Eideberg. Kip is the senior vice president for government and industry relations for the Association of Equipment Manufacturers. Kip, you know what? I think I’m pretty sure I spoke to your group a few years ago. I love associations that do stuff that sounds so boring like equipment manufacturing and yet you guys make up one of the many associations that make up the core of this country’s economy. Thank you, first of all, for joining me.
Kip: You’re very welcome, Gene. And I appreciate you setting the bar low here. That’s usually not the case, so I will try to be not boring, which hopefully I will succeed at. But I really do appreciate your having me on, I appreciate the opportunity to talk about infrastructure.
Gene: Yeah. It’s just funny because if I was Conan O’Brien, I would be hosting some celebrity or whatever. Here it’s like, okay, we’re talking to buddies from the Association of Equipment Manufacturers and it just makes me laugh because when people first hear that they’re like, oh, the Association of Equipment Manufacturers. But in the end, what you guys do is really, really important stuff. First of all, tell us a little bit about the Association and what you do and then for our listeners, we’re going to get into your thoughts on the coming infrastructure legislation. Tell us about AEM.
Kip: You bet. The Association of Equipment Manufacturers represents off road equipment manufacturers and suppliers and in the United States, our industry supports about 2.8 million jobs. That’s one out of every eight U.S. manufacturing jobs. We are a big piece of the manufacturing sector, contribute roughly $288 billion to the economy every year. But to put it differently, Gene, and maybe perhaps a little less boring, the men and women of our industry make the equipment that builds, powers and feeds the world, which is something that we’re very proud of. Anything you see on the farm, anything you see on the construction site next to the road, all that equipment is made by our member companies.
Gene: Yeah, it’s really, it’s a crucial organization with a lot of companies that do something very important for the economy. And I’m glad that you’re joining us. And listen, I know your members do things like they manufacturer loaders and pavers and excavators and cranes and all sorts of things that are used in any area of construction and manufacturing. And so are your members excited about this potential infrastructure bill?
Kip: Yeah. They sure are. And I’ve been doing this long enough to remember when infrastructure week was not a punchline and I have not seen this much positive momentum for a comprehensive infrastructure package in the last 10 years. And so I think without jinxing it, I think that this might just be the year when we will finally see Republicans and Democrats coming together around a proposal that will make a significant investment in our infrastructure, not just roads and bridges, Gene. Those are important, but other things too, like rural broadband expansion, like locks and dams, waterways, ports, everything that is crucial to a strong economy and that’s crucial to a lot of our members being able to compete in a global economy.
Gene: Right. It’s funny, I’ve been talking about the infrastructure bill for a while. Kip, I do a lot of writing as well, besides for The Hartford, I write for other national publication. I cover public policy and infrastructure has always been a bipartisan issue. It’s always sort of hit the wall a little bit between how much is going to be spent and what defines infrastructure. But I think you’re absolutely right. I think it’s really going to happen. I think a bill is going to come through. Maybe it won’t be as much as what the president is asking, but it’s going to be super significant between now and the midterms. What does that mean, Kip, for small businesses? What does it mean for your members and their customers in the construction businesses and rural and manufacturing communities?
Kip: Well, we believe that investing in our nation’s infrastructure should, first of all, not be a partisan issue. I appreciate your optimism too. Hopefully that rubs off on some of the lawmakers in Washington and they can get this done. It is just common sense. We need to tend to our infrastructure. We all rely on it. We cannot compete in the global economy if we don’t have a state of the art infrastructure. I’ll give you a quick example. You mentioned small businesses. Now we have about a 1,000 member companies. Some of them are large multinational corporations that you and your listeners will be very familiar with, Caterpillar, John Deere, Komatsu, Volvo, etc. But the vast majority are small or mid-sized businesses. Many of them are family owned.
And I was just down in the Greenville, South Carolina area. And there’s a great example there of how and why this is so important. Now the Port of Savannah and the Port of Charleston are both crucial to the ability of small, any size businesses in that part of the country to compete. They get parts and components in through those ports and then they get finished products out to the U.S. but also to markets around the world. And so those two ports have been modernized over time. And in fact, they’ve now put in a rail line from the Port of Charleston to Greenville, where there is now an inland port. Now that’s been great for many of our small member companies in that area. They make pavers, they make rollers, they make excavators, all the stuff that’s needed to build infrastructure.
But the rail lines, the tracks have not been updated and so they are facing congestion. They are having to single track. Trains are sitting for hours just to allow another train pass. And so to me, that sort of captures why this is so important and why it helps not just our industry, but businesses overall. It is just critical that we can have the roads, the bridges, the rail lines, the ports, etc., that we need in order to compete. Otherwise it all falls apart. And so, you talked about the value, there’s the value. But then there’s also the trickle down impact. For every dollar invested in infrastructure, somewhere between two and three dollars is generated in economic activity around the country over time. That investment in infrastructure, not only does it ensure that we have the infrastructure assets needed to compete and to remain competitive, but it also is going to create millions of jobs. It’s going to jumpstart our economy. It’s going to put us on a path back to full recovery. That’s why we just got to get this done right now, Gene.
Gene: Kip, as you and I are speaking right now and it’s the end of May, the president’s proposal, he’s been discussing with the Republicans and it’s down to just a mere $1.7 trillion. He shaved it down a few billion. What’s a few billion between friends? But it’s a lot of money. $1.7 trillion, what does that mean Kip, for your members? You hear that there’s an infrastructure bill, say it gets passed and it’s a $1.7 trillion infrastructure bill to rebuild our roads and our airports and our bridges. And like you said, railroad tracks and okay, that’s great. How can your members take advantage of that? And how can businesses that are in rural and manufacturing communities, businesses in the construction businesses, how can they profit from this?
Kip: Well, that’s a great question. And before we get there, because you did mention the 1.7 and we did have a little bit of breaking news earlier today that the Senate Republicans came out with their latest counteroffer, $928 billion. And so we’ve gone from 2.3 or there abouts, depending on your definition of infrastructure, that was in the American jobs plan. I think the Republicans first came back with something in the 500 billion range, then 1.7 like you said, now 928. I think they are inching slowly, but surely towards some sort of compromise. And we’ll probably end up somewhere in the 900 billion to a trillion dollars, which is an astronomical sum of money. And so what does that mean then? What does it mean for our member companies?
First of all, I think at very basic level, if we can get this money out to state and local government. And it should be said that passing the bill is going to be challenging, getting the money approved is challenging, but we also need to couple that with some permitting reform, have some reduction of red tape, some streamlining so that those dollars don’t just sit for years and years and years before they’re deployed. But assuming we can get that down and we can get them out working for us, obviously we’re going to see lots of new projects popping up. Roads are going to be rebuilt and modernized, bridges will be repaired. Hopefully broadband will be deployed. And obviously that all needs hopefully more sale of equipment, which means we need to make more equipment, which means our members will stand to benefit and they’ll create more jobs in communities across the country. There’s that sort of direct benefit to our industry.
But I think the broader benefit is almost as important. We talked about global supply chains and the need to have an infrastructure that is competitive in the global economy before. The other piece I think that’s going to have a direct impact, not just for our members’ businesses, but also their quality of life in general is broadband. Roads and bridges tend to be in the spotlight whenever infrastructure comes up, but access to affordable and reliable high speed broadband is critical to economic opportunity, to job creation, education, civic engagement in communities across the United States, especially in rural areas. And one out of every five Americans roughly live in a rural area. For our industry, it’s one in three. We are closely tied to rural America. We are part of rural America. And the reality is that millions of Americans in rural areas don’t have access to broadband internet, which leads to many hardworking Americans at a disadvantage.
And so, given the importance today of connectivity, expanding access to the high speed internet will ensure that all Americans can participate in the economy. And so I think that benefit cannot be overstated. It’s critical to our industry. And again, many of our member companies are those small family owned businesses. They don’t have the resources that the large multinational corporations do and if they don’t have access to reliable, affordable broadband, they can’t do business. Simple as that.
Gene: Okay. Let’s talk about broadband for a minute because just specifically and again honestly, Kip, if you don’t know the answers to this, just say so, it’s fine because it’s a little bit into the weeds, but you’re right about broadband. And it’s always been a big thing about getting broadband out to all areas of the country. It’s critical for economic development in this country. Okay, the bill gets approved, this infrastructure bill. There’s a certain amount of money that’s going to be allocated for broadband as it is. Does that money, as far as you know, does that money go to the states and then the states are going to be responsible for their broadband construction? Or is it coming directly from the federal government? And then the second part of that is that once that’s determined where the money’s going, then the government’s not going to build this broadband, I guess they’re going to contract out to companies to do that, correct?
Gene: Does that mean should I be, if I was in this business where I could help in the construction of broadband, should I be applying to do business with my state? Or should I be a federal business? Do you know what I’m saying? What are your thoughts on that?
Kip: No, those are good questions. To the first one, typically when it comes to at least transportation infrastructure, which by the way, Congress is also moving a separate bill to simply just fund roads and bridges, highways and transit, which is another $300 billion on top of this other package that we’re talking about. Just you’d mentioned earlier about these numbers. What’s a few hundred billion dollars between friends? Not a lot, I guess. But typically when it comes to transportation infrastructure, the money is dispersed from the federal government in the form of grants to state and local governments. And that’s not the entire pot of money that they have. Obviously they have their own funds as well. And we saw during the pandemic that those were increasingly stressed because they are raised through a gas tax, through a sales tax and people didn’t drive as much, didn’t buy as much during the pandemic. You get the federal piece and then they got their own piece. And then now they’ve got their pot of money and then it’s up to state and local then to approve projects and to approve funding and then obviously that gets contracted out.
Gene: Let me jump in right there. Whether you’re building roads or they’re building broadband, which I think is a lot of the same, so the money goes to the states in the form of grants, the states then turn around and say, “Okay, we’re now going to approve projects to build new roads or to build broadband.” The states don’t do it themselves. I’m assuming they contract that out to private companies. And I’m assuming that private companies are probably for the most part, a lot of the same vendors that they’ve used in the past, mostly larger companies. Is that true? And if so, you mentioned about small and medium-sized businesses. How can they take advantage of that?
Kip: Yeah, no. And I should say, the process that each state uses is going to differ and obviously there are still federal projects too. The vast majority of projects tend to be state projects using federal funds, but the federal government does also do some maintenance and repair of infrastructure and even construction of new infrastructure. But no, it’s not necessarily just to large companies. There are plenty of small contractors out there, family owned businesses, much like there are family owned businesses who make equipment. And so, but then they’re keeping an eye on this and they’re looking, let’s say, let’s go back to one of our members.
If I’m a small company building pavers and rollers, I’m looking at, okay, what does the landscape look like for the next two to five years? How much money do state local expect to get in the form of grants? What is currently available? And that’s going to obviously inform my business decision. How much product do I want to manufacture? How much product will my dealers and some of the rental houses and other equipment operators, how much will they demand? And so obviously, nothing is perfect, it’s hard to forecast and do it accurately, but this is going to inform their production decisions.
And so again, if I’m that small equipment manufacturer, if I’m thinking, well look, looks like we’re going to reauthorize federal surface transportation programs, $300 billion over five years, then maybe they’ll pass this big bill, another trillion dollars. I’m going to start drawing up my production. I’m going to start making more equipment because I’m anticipating these projects to come through. And that means then hiring more people, maybe expanding my footprint, investing in new equipment. Optimism begets optimism and that’s what we see in our industry. And so, a lot of that will happen once this bill is passed.
Gene: Makes sense. One of the things that are part of this, and again, we said this before we started recording about don’t want to get too political so we’re not going to do that. But I know there is some debate about non-infrastructure spending that’s being part of the infrastructure bill, but there’s the definitions of that really is up to individuals to figure out what’s considered to be infrastructure. One of those big things is workforce development. And I know that that’s a critical part of infrastructure. Can you talk a little bit about where you see this money being spent for workforce development? And listen, skilled labor is so critical, how can this potentially help your small and medium-sized members, manufacturers get more good, skilled labor to fill those open positions?
Kip: It’s a great question. And on the political side, I live in Washington, everything is political. And so plus these days, I think it’s political anywhere you go, unfortunately, in our country. But just very quickly on that point. I think you’re absolutely right, Gene. Lots of discussion, obviously about what constitutes infrastructure. I think some people are applying a very generous definition of the term to try to squeeze in a few pet policy priorities. That’s just the way Washington works. I think the thing not to forget here is that just because something isn’t infrastructure per se, doesn’t mean that it’s necessarily a bad policy idea. It could be a bad policy idea, but it doesn’t necessarily mean that. And so, what we’ve been telling Congress and the White House is that in the interest of getting something done and in the interest of getting a bipartisan common sense bill done, let’s take out those policy priorities that aren’t part of most people’s definition of infrastructure.
We can debate those later. We can move those as freestanding bills if there’s enough support, but let’s focus on infrastructure first and foremost. Just a note on that. But when it comes to workforce development, obviously that is perhaps our industry’s biggest challenge right now. We are creating more jobs than we can fill. We’re looking at a shortage, let’s see here, about four million manufacturing workers are leaving the workforce over the next 10 years, probably only going to be able to fill 1.6 million of those, replace 1.6 million of those. We’re looking at two and a half million positions that will remain unfilled. And so obviously we can’t take advantage of all of this money if we don’t have the workforce to build, not just the equipment, by the way, Gene, but people who are contractors, road builders. They also need to hire skilled labor.
And so I think there’s an opportunity here when we talk about infrastructure too. And I think, the administration deserves a fair bit of credit here because they have included in their proposal, quite a bit of money, originally a $100 billion towards closing that skills gap. That means more money for community colleges that have programs that provide in demand training to train welders, machinists, fabricators, painters, etc. It includes money for career technical schools to expand their training opportunities. It includes grants for businesses to partner with these schools and share their know how. And it includes money to educate young men and women about careers in manufacturing, because reality is that too many of them see it as a less than great career path. And we got to change that perception otherwise we’re never going to fill these jobs. Long answer, but if we cannot address the workforce problem, close the skills gap at the same time as we’re going to make an investment in infrastructure, we’re going to miss out on a lot of the benefits that will come with this money.
Gene: Got it. All right listen, in the time that we have left, I do want to talk a little bit about taxes only because it’s what? 20, 25% of our income. And I know that you wrote a great piece in The Hill actually last month about the R and D tax credit. And you had some suggestions and I thought maybe I could ask you if you can share what you wrote with us in this conversation?
Kip: Yeah, absolutely. We talked about the need for bipartisanship earlier on and I think that this is actually sort of a good segue to another issue that actually enjoys bipartisan support and that’s research and development. It’s something that both Democrats and Republicans are focusing on right now in terms of making meaningful progress on legislation. In this case in particular, to protect two tax provisions that not only would encourage or continue to encourage American innovation, manufacturing competitiveness, but to ensure the long-term competitiveness and growth of our industry. And this is particularly important for smaller and medium sized companies, particularly those smaller companies who do not have the research and development budgets of a larger, competitive. And currently not to get too far into the weeds here Gene, but currently businesses can immediately deduct the cost of new investments, including costs associated with R and D to amortize or deduct, if you will, costs over five or a 15 year period.
And those two tax provisions are set to expire at the end of this year. They were part of the grand bargain around tax reform couple of years ago. This was one way to pay for it. Or one way, at least for it to be somewhat affordable, is that they were going to sunset these two provisions. And so unless lawmakers act, what does it mean for our industry? It means that equipment manufacturers and other businesses too, to be fair, will see significant tax increase on their investment. And I cited a stat in my piece, which I think is telling, according to the Tax Foundation, forcing businesses to amortize new R and D costs would be a tax hike of about a $100 billion dollars over the next decade.
Kip: And the old saying, how does it go? You don’t create jobs by taxing job creators. That’s what we’re looking to do here if we don’t change the law.
Gene: Right. And really you’re not really proposing changing the law, but you’re just extending the law, correct?
Kip: Yeah, that’s a good point. That’s right. It’s just making sure that businesses can continue to benefit from these two tax provisions and look, our industry and we’re not alone certainly, but our industry owes much of its success and global competitiveness to research and development. Many of our members, that’s not fair, all of our members, but all of our members spend a significant amount of time and energy trying to figure out how to improve their existing product offerings, how to solve market problems, how to help their customers be more competitive, more successful. That we’ve seen the move towards what we call digital iron, which means equipment that comes equipped with sensors, computers, the technology that allows them to be more efficient, more precise, more safe. All of this is rooted in research and development. And if we cannot continue to keep R and D affordable and incentivize companies to invest in it, we’re going to lose out to global competitors. Just look at what the Chinese have done on semiconductors.
Gene: Right. Very true. It’s very true. Okay, so let me lead with this Kip, we’ve talked clearly a lot about the infrastructure bill and the fact that, I think we both believe that something’s going to happen. Maybe we’re being naive, but I don’t think so. And it could be anywhere in the trillion dollar range, maybe even a little bit more than that. And it will have a big impact for manufacturers, particularly those in the construction businesses, rural areas as well. That’s a real opportunity that we really have to be keeping our eyes on. And also, we did just speak about a major tax provision that is expiring at the end of this year for the R and D tax credit that would impact manufacturing in the hope that that can get extended.
One final question for you, we’re talking now to manufacturers. Between now and the end of the year, listen your job is you’re looking at everything going on in DC that’s affecting your members. Do you have any issues that you see, any potential issues that are out there that could affect from a legislative standpoint, could be affecting manufacturers in this country over the next couple of years that we should be aware of? And tax wise, labor wise or any other regulatory wise that we should be keeping our eyes on?
Kip: A great question. To your point earlier about perhaps being too naive, you kind of have to when you live and work in Washington, because otherwise it gets a little depressing getting out of bed. I’m kidding. But I think the issue from our perspective Gene, that is perhaps going to make or break our industry is not so much legislative, although there certainly is a legislative fix to it. It’s the rising cost and shortages of steel. And let me just take two minutes to explain the impact here. I looked up the prices this morning, hot rolled coil currently, if you can buy it in the U.S., 1450 to 1500 a metric ton. It’s 900 in Europe. 900. We’re looking here at a five to $600 price difference. And it’s not like the cost of labor is lower in Europe. It’s not like they face a lighter regulatory pressure.
And so that puts our industry at a huge competitive disadvantage in terms of competing with European manufacturers. On top of that, what explains this? Well, that’s the million dollar question. You would think that if the prices were this high and the demand certainly is through the roof, that steel production would be at an all time high. Well, it’s not. In fact it’s actually lower than it was before the pandemic. A lot of mills are running at 70% capacity, maybe 60% capacity. And so as someone who works in the manufacturing space, I am sympathetic to the argument that we should ensure that U.S. manufacturing, regardless of the product, is the strongest in the world. That we can compete against anyone. But at the same time, when you’re looking at an input that is critical to so many other sectors, you’re facing persistent shortages and rising costs that are not keeping up with the rest of the world, something has to give.
And so you asked about legislation. Now, this goes back to those tariffs that were put in place a few years ago, whether it was on steel and aluminum, whether it was on Chinese inputs, tariffs or taxes, I’ve said that a million times about saying that. You know this, there are taxes on American businesses, there are taxes on consumers. And so I think it’s time for Congress and the White House to take a look particularly at tariffs on steel and say, “Is this still a useful tool? Does it help us with the Chinese?” I would argue that if we’re trying to work with our friends and allies to put pressure on the Chinese, putting tariffs on their steel and aluminum isn’t going to make us any friends. And so that’s to us is the biggest challenge. And if things don’t change, I think you’re going to see some smaller equipment manufacturers possibly have to draw down production, perhaps make some tougher choices.
And then just to end it on an infrastructure note, because that’s where we started. Rebuilding our nation’s infrastructure is going to require an enormous amount of steel. Trillion dollars is a lot of money, but if we’re overpaying for steel, those dollars aren’t going nearly as far. That’s going to be a problem too, as that money starts to flow. Will infrastructure projects become too expensive? I hope not, but you never know. Optimistic that something will get done on infrastructure this year. Like you said, cost of steel, steel shortages, less optimistic there, but it’s something that Congress and the White House has to address.
Gene: I love it. It’s a great point. It’s just funny because like I said, I do a lot of writing and as you’re talking, people really underestimate the cost of steel and the cost of these tariffs and what impact that has on infrastructure and the costs over auto manufacturers in this country. And I think more attention needs to be given to it. I appreciate you talking about it. It’s very, very interesting stuff and very important. Kip Eideberg, is the senior vice president for government and industry relations for the Association of Equipment Manufacturers, Kip, first of all, thank you for joining me. This is just a great conversation. What is these Association’s website?
Kip: That is A-E-N, for Association of Equipment Manufacturers .org. And I really appreciate your time today, Gene. And just the opportunity to have a serious policy conversation, which is very rare these days in Washington. Thank you so much for the time and the opportunity.
Gene: You got it and I’m glad you joined. I think it really impacts a lot of our listeners as well, as well as many manufacturers around the country. Everyone listening, if you want more information and help in running your business, advice and tips, please visit us at The Hartford Small Biz Ahead site. It’s sba.thehartford.com or smallbizahead.com. My name is Gene Marks and on behalf of my co-host Jon Aidukonis, thank you very much for joining us on the Small Biz Ahead podcast. We hope you enjoyed this great conversation and we look forward to seeing you again in the near future. Take care.
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