[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
BUY AMERICA
=======================================================================
(110-32)
HEARING
BEFORE THE
SUBCOMMITTEE ON
HIGHWAYS AND TRANSIT
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 24, 2007
__________
Printed for the use of the
Committee on Transportation and Infrastructure
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of HOWARD COBLE, North Carolina
Columbia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida VERNON J. EHLERS, Michigan
BOB FILNER, California STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi FRANK A. LoBIONDO, New Jersey
ELIJAH E. CUMMINGS, Maryland JERRY MORAN, Kansas
ELLEN O. TAUSCHER, California GARY G. MILLER, California
LEONARD L. BOSWELL, Iowa ROBIN HAYES, North Carolina
TIM HOLDEN, Pennsylvania HENRY E. BROWN, Jr., South
BRIAN BAIRD, Washington Carolina
RICK LARSEN, Washington TIMOTHY V. JOHNSON, Illinois
MICHAEL E. CAPUANO, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
JULIA CARSON, Indiana SAM GRAVES, Missouri
TIMOTHY H. BISHOP, New York BILL SHUSTER, Pennsylvania
MICHAEL H. MICHAUD, Maine JOHN BOOZMAN, Arkansas
BRIAN HIGGINS, New York SHELLEY MOORE CAPITO, West
RUSS CARNAHAN, Missouri Virginia
JOHN T. SALAZAR, Colorado JIM GERLACH, Pennsylvania
GRACE F. NAPOLITANO, California MARIO DIAZ-BALART, Florida
DANIEL LIPINSKI, Illinois CHARLES W. DENT, Pennsylvania
DORIS O. MATSUI, California TED POE, Texas
NICK LAMPSON, Texas DAVID G. REICHERT, Washington
ZACHARY T. SPACE, Ohio CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii JOHN R. `RANDY' KUHL, Jr., New
BRUCE L. BRALEY, Iowa York
JASON ALTMIRE, Pennsylvania LYNN A WESTMORELAND, Georgia
TIMOTHY J. WALZ, Minnesota CHARLES W. BOUSTANY, Jr.,
HEATH SHULER, North Carolina Louisiana
MICHAEL A. ACURI, New York JEAN SCHMIDT, Ohio
HARRY E. MITCHELL, Arizona CANDICE S. MILLER, Michigan
CHRISTOPHER P. CARNEY, Pennsylvania THELMA D. DRAKE, Virginia
JOHN J. HALL, New York MARY FALLIN, Oklahoma
STEVE KAGEN, Wisconsin VERN BUCHANAN, Florida
STEVE COHEN, Tennessee
JERRY McNERNEY, California
VACANCY
(ii)
?
SUBCOMMITTEE ON HIGHWAYS AND TRANSIT
PETER A. DeFAZIO, Oregon, Chairman
NICK J. RAHALL II, West Virginia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York DON YOUNG, Alaska
ELLEN O. TAUSCHER, California THOMAS E. PETRI, Wisconsin
TIM HOLDEN, Pennsylvania HOWARD COBLE, North Carolina
MICHAEL E. CAPUANO, Massachusetts RICHARD H. BAKER, Louisiana
JULIA CARSON, Indiana GARY G. MILLER, California
TIMOTHY H. BISHOP, New York ROBIN HAYES, North Carolina
MICHAEL H. MICHAUD, Maine HENRY E. BROWN, Jr., South
BRIAN HIGGINS, New York Carolina
GRACE F. NAPOLITANO, California TIMOTHY V. JOHNSON, Illinois
MAZIE K. HIRONO, Hawaii TODD RUSSELL PLATTS, Pennsylvania
JASON ALTMIRE, Pennsylvania JOHN BOOZMAN, Arkansas
TIMOTHY J. WALZ, Minnesota SHELLEY MOORE CAPITO, West
HEATH SHULER, North Carolina Virginia
MICHAEL A ARCURI, New York JIM GERLACH, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania MARIO DIAZ-BALART, Florida
JERRY MCNERNEY, California CHARLES W. DENT, Pennsylvania
BOB FILNER, California TED POE, Texas
ELIJAH E. CUMMINGS, Maryland DAVID G. REICHERT, Washington
BRIAN BAIRD, Washington CHARLES W. BOUSTANY, Jr.,
DANIEL LIPINSKI, Illinois Louisiana
DORIS O. MATSUI, California JEAN SCHMIDT, Ohio
STEVE COHEN, Tennessee CANDICE S. MILLER, Michigan
ZACHARY T. SPACE, Ohio THELMA D. DRAKE, Virginia
BRUCE L. BRALEY, Iowa MARY FALLIN, Oklahoma
HARRY E. MITCHELL, Arizona VERN BUCHANAN, Florida
VACANCY JOHN L. MICA, Florida
JAMES L. OBERSTAR, Minnesota (Ex Officio)
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Capka, Hon. J. Richard, Administrator, Federal Highway
Administration................................................. 3
Catoe, Jr., John B., General Manager, Washington Metropolitan
Area Transit Authority......................................... 25
Iwasaki, Randall, Chief Deputy Director, California Department of
Transportation................................................. 25
Luffy, Robert H., President and CEO, American Bridge Company..... 25
Simpson, Hon. James S., Administrator, Federal Transit
Administration................................................. 3
Trenery, Richard, Vice President, Northeast Region, Cubic
Transportation Systems......................................... 25
PREPARED STATEMENT SUBMITTED BY MEMBERS OF CONGRESS
Mitchell, Hon. Harry E., of Arizona.............................. 43
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Capka, Hon. J. Richard........................................... 45
Catoe, Jr., John B............................................... 50
Simpson, Hon. James S............................................ 64
Trenery, Richard................................................. 68
SUBMISSIONS FOR THE RECORD
Iwasaki, Randall, Chief Deputy Director, California Department of
Transportation, Statement of Will Kempton...................... 54
Oberstar, Hon. James L., a Representative in Congress from the
State of Minnesota, Buy America: Federal Highway
Administration, 100th Cong. 1-11 (1988)........................ 58
ADDITIONS TO THE RECORD
American Iron and Steel Institute, Committee on Pipe and Tube
Imports, Steel Manufacturers Association....................... 72
National Steel Bridge Alliance, Conn Abnee, Executive Director,
Statement...................................................... 76
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HEARING ON BUY AMERICA
----------
Tuesday, April 24, 2007,
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Highways and Transit
Washington, DC.
The Subcommittee met, pursuant to call, at 2:00 p.m., in
Room 2167, Rayburn House Office Building, the Honorable Peter
DeFazio [Chairman of the Subcommittee] presiding.
Mr. DeFazio. The Subcommittee will come to order.
I want to welcome the two Administrators here today and I
have a very brief opening statement.
There are ongoing issues regarding Buy America provisions.
This is a long and hallowed tradition in the United States,
dating back to 1933. It has always been an issue for the
creation of jobs, with the expenditure of public funds. This
has been revisited most recently in SAFETEA-LU, but only with
report language. And there are ongoing questions about the
interpretations of the existing law, its limitations and how it
might be improved to better accomplish the objectives which we
have had over time.
I could go on with a much longer summation of the history,
but I don't think that is necessary. We will certainly be
enlightened by the two Administrators. With that, I will yield
to the Ranking Member.
Mr. Duncan. Thank you very much, Mr. Chairman. I am very
pleased that you have called a hearing on this Buy America
subject. The Federal Highway Administration and the Federal
Transit Administration have similar but different Buy America
requirements that are applied to project construction and other
procurements using Federal funds. These requirements were
passed by the Congress in surface transportation laws in the
1970s and 1980s, to foster and protect American industry and
workers, something that we all want to do.
Both Federal highway and transit law includes certain
waivers for Buy America requirements, based on public interest,
non-availability, and cost differential. These waivers are very
seldom necessary. In fact, in an average year, FHWA funds
13,000 projects and receives requests for Buy America waivers
for only 7 projects.
However, some people have criticized FHWA's application of
the cost differential waiver. I believe that the agency is
striking a good balance between supporting American businesses
and making the best use of taxpayer dollars, something else
that we all want to do. Breaking up large highway projects into
segments or phases encourages more companies to bid on these
highway projects, especially smaller businesses. More
competition translates directly into cost savings and
efficiencies.
If projects could not be broken up into separate contracts,
and if the Buy America cost differential test was not applied
on a contract basis, only very big companies would be able to
compete for these contracts, and the total project cost could
be substantially higher.
On the transit side of Buy America enforcement, my
understanding is that the transit agencies and transit
manufacturers are all generally pleased with the changes made
in SAFETEA-LU and with the FTA's implementation of these
changes. I look forward to exploring these issues further with
the two agency administrators who are here with us today and
also with the users and manufacturers who are represented on
the second panel.
Thank you, Mr. Chairman.
Mr. DeFazio. I thank the gentleman. Mr. Baird, do you have
an opening statement?
Mr. Baird. I thank the Chair for holding this important
hearing.
As the Chairman has mentioned, the original Buy America Act
was put in place to protect our domestic industry and to ensure
we can always produce our own steel. This is especially
important for America's economic competitiveness, as well as
for our national security. The domestic steel industry is a
huge contributor to our economy. In 2005, it was valued at $50
billion and employed 95,000 people. Buy America is a big part
of the success of this economic sector.
A vibrant steel industry domestically is important for our
security as well. Over-reliance on imports could leave us in
peril should we face major natural disasters or security
incidents. We may well need steel in a hurry to rebuild
infrastructure or even quickly enhance our armed forces. That
is not a situation in which we want to be held over a barrel by
a foreign government, but I fear our Country is heading in
precisely that direction.
Unfortunately, the Administration's policies are
undermining our domestic steel industry. I have learned about
this first-hand from a Federal Highways Administration
memorandum and conversations with then-Secretary Mineta.
Despite clear sense of Congress language in SAFETEA-LU, the
Administration has decided to encourage States to break
projects into smaller components to circumvent Buy America. The
most recent example of this we know about is the San Francisco
Oakland Bay Bridge project.
Regardless of the particulars, CalTrans' decisions and the
Administration's approval have already had dramatic
consequences. Universal Structural, Inc. (USI), a steel
fabricator from my district, has linked massive layoffs and its
closure in part to the loss of the California bridge potential.
While one bridge alone did not shut down USI, this is
symptomatic of the effect the Administration's views have on
the industry at large.
I have introduced legislation, along with my good friend
and colleague from Pennsylvania, Mr. Altmire, to close
loopholes in Buy America and ensure that the Transportation
Department, as well as State transportation agencies, are
complying with the law. First, the legislation would make clear
that Federal funding would not go toward any project not in
compliance with the Buy America statute, even if the violation
took place before Federal funding was received.
Second, the legislation would make clear that bridge
projects cannot be broken into components for the purpose of
Buy America. With these two loopholes closed, we can ensure
that Federal transportation dollars are being spent on projects
using American steel as intended by Buy America.
I am happy to have the support of the Subcommittee
Chairman, Mr. DeFazio, the chair of the Steel Caucus, Mr.
Visclosky, the Steel Bridge Alliance and others. I hope the
Subcommittee, after hearing the testimony today, will tackle
this issue and mark up this important legislation.
Again, I thank the Chairman very, very much for holding
this hearing, and I look forward to the testimony. I yield
back.
Mr. DeFazio. I thank the gentleman for his leadership on
this issue.
No further requests for opening statements, so at this
point, we would turn to the Honorable J. Richard Capka,
Administrator of the Federal Highway Administration. Mr. Capka.
TESTIMONY OF THE HONORABLE J. RICHARD CAPKA, ADMINISTRATOR,
FEDERAL HIGHWAY ADMINISTRATION; THE HONORABLE JAMES S. SIMPSON,
ADMINISTRATOR, FEDERAL TRANSIT ADMINISTRATION
Mr. Capka. Thank you, Mr. Chairman and Ranking Member
Duncan, for the opportunity to testify today.
Before I begin my statement, I would like to express our
most sincere condolences on behalf of the Federal Highway
Administration and the Department of Transportation to the
family of Congresswoman Millender-McDonald, and to the Members
of the Committee for the loss of their colleague.
Representative Millender-McDonald was a tireless advocate for
transportation improvements for her constituents. We in the
U.S. Department of Transportation were privileged to have
worked with her and will miss her.
Mr. DeFazio. I want to thank the gentleman. I was remiss in
not mentioning Ms. Millender-McDonald's passing. She was an
esteemed Member of the Committee, and I thank the gentleman for
making the remarks, which I should have led off with. Thank
you.
Mr. Capka. Yes, sir.
Again, Mr. Chairman and Ranking Member and Members of the
Committee, Federal Highways supports the goal of the Buy
America Act and understands the issues that have been raised
about its implementation. We in the Federal Highway
Administration take seriously our responsibilities to enforce
the requirements of the law, and have consistently ensured that
States comply with the provisions of Buy America whenever
Federal aid funds are obligated on a project.
As provided in Section 313 of Title 23, it is a State's
obligation of Federal Highway funds that triggers the
provisions of Buy America. Federal funds are obligated to a
project through the execution of a specific project agreement
that describes the work and scope of the project being
constructed.
Each of these individual contracts, for the purpose of the
Federal-Aid highway program, is considered to be an individual
project and is considered independently for Buy America
purposes. As you have observed, there may be a number of
separate contracts that constitute a large project, like the
San Francisco Oakland Bay Bridge.
Since its enactment, Federal Highways has interpreted Buy
America to apply on a contract by contract basis and only
applies when States use Federal funds in a construction
contract. Federal Highways' interpretation is in keeping with
Section 145 of Title 23, which provides for the State's right
to decide on which projects to use Federal-Aid highway funding.
The State DOTs have the discretion to develop
transportation projects and programs, including decisions
regarding contract scope and contract size. Also, the State
DOTs have always had the discretion of using or not using
Federal-aid on any given construction contract.
Section 313 of Title 23 does provide for waivers of the Buy
America requirements under certain circumstances. First, a
waiver may be granted if Buy America would be inconsistent with
the public interest. Second, a waiver may be granted if the
required steel and iron materials or products are not produced
in the United States or are not in sufficient or reasonably
available quantities. Finally, a waiver may be granted if
inclusion of domestic material will increase the cost of the
overall project contract by more than 25 percent.
Federal Highways' review of waiver requests, based on
availability, involve coordination with the appropriate
industry associations to verify the industry's inability to
respond. When this informal coordination process results in the
identification of a domestic supplier, the State generally no
longer pursues a Buy America waiver.
The cost differential between domestic and foreign products
can be grounds for a waiver. The use of foreign steel or iron
may be justified as a result of a special bidding procedure
where the project's bid identifies two alternatives, one based
on foreign-sourced products and one based on domestic products.
If the total contract cost for the domestic product alternative
is 25 percent higher than the cost of the foreign product
alternative, a waiver may be granted to use the foreign
product.
We understand the concerns that have arisen about how the
law has been defined and what projects are applicable under Buy
America. We have had very productive discussions with industry
representatives. Let me assure you that Federal Highways
remains very respectful of Congressional direction and the
sense of Congress that was provided in SAFETEA-LU.
Consequently, the Federal Highway Administration sought
diligent and careful legal interpretation of all applicable
statutes. Notwithstanding the sense of Congress, our legal
review determined that since Buy America was first enacted in
the early 1980s, the Federal Highway Administration has
consistently and correctly ensured that States adhere to the
requirements of the law and that we do not have the legal
authority to modify that application of law.
We strongly support the aim of Buy America requirements to
strengthen the national economy, and understand very clearly
what it means to our Nation to remain competitive in a global
marketplace.
We appreciate our role in the Buy America process. Mr.
Chairman, Members, thank you for this opportunity to testify,
and I look forward to answering your questions.
Mr. DeFazio. Thank you. The Honorable James Simpson,
Administrator, Federal Transit Administration.
Mr. Simpson. Thank you.
Good afternoon, Chairman DeFazio, Ranking Member Duncan,
Congressman Oberstar and Members of the Subcommittee. Thank you
for the opportunity to testify today regarding the Federal
Transit Administration's implementation of the Buy America
amendments initiated by SAFETEA-LU. This is my first appearance
before this Subcommittee since taking office in August, and it
is a great honor for me to be here today.
FTA split its rulemaking into two parts: one part to
address routine matters and the second part to address the more
complex issues that deserve further consideration and public
comment. To address routine matters, FTA issued a final rule on
March 21st, 2006, implementing several SAFETEA-LU mandates
which removed the general waiver for Chrysler vehicles,
provided a definition for negotiated procurement and
contractor, required certification under a negotiated
procurement process, allowed administrative and judicial review
of decisions and streamlined pre-award and post-award review of
rolling stock purchases.
To address the more complex issues, such as the definition
of end product, the definition of system and whether a system
can be an end product, FTA issued a second NPRM on November
30th, 2006. The comment period for the second NPRM closed on
February 28th, 2007, and we are currently working on responding
to comments and developing a final rule.
Mr. Chairman, I would like to make two important points
about our final rule and the second NPRM. First, neither our
final rule nor our second NPRM changes the requirements for
steel and iron manufactured products. Specifically, Federal
funds may not be obligated unless steel, iron and manufactured
products other than rolling stock used in FTA-funded projects
are produced in the United States, unless a waiver has been
granted by FTA or the product is subject to a general waiver.
The Buy America steel and iron requirements apply to all
construction materials made primarily of steel or iron and used
in infrastructure projects, such as transit or maintenance
facilities, rail lines, including third rail and bridges. These
items include, but are not limited to, structural steel or
iron, steel or iron beams, running rail and contract rail.
Second, our final rule and second NPRM also do not change
the procurement requirements for rolling stock. That is rail
cars, buses, train control equipment, communication equipment
and traction power equipment as end products. Sixty percent of
all components in rolling stock must still be of U.S. origin
and final assembly of all vehicles must take place in the
United States.
We are still considering two open items: the treatment of
end products and system. With respect to end products, we agree
with the comments we received from the first NPRM that
expressed concern with the current shift approach for end
products. In our second NPRM, we proposed adopting a non-shift
methodology. Under our non-shift proposal, using the
procurement as a bus, for example, procurement replacement
items such as an engine, which would be a component, or a
piston, which would be a sub-component, would no longer shift
to being an end product, but would instead remain a component
or a sub-component for the life of the item. We believe this
non-shift approach will provide the necessary consistence,
stability and favorable price structures for the transit
industry and streamline procurement practices.
With respect to our proposed treatment of a system, FTA
agreed with comments submitted on the first NPRM that it should
continue its longstanding practice of including system as a
definable end product. To ensure that major system procurements
are not used to circumvent Buy America requirements, FTA's
second NPRM proposed to define a system as the minimum set of
components and inter-connections needed to perform all the
functions specified by the granting in its procurement. We
believe this proposed definition will avoid the creation of
supersystems and thwart potential abuses.
Mr. Chairman, we believe our proposals address the concerns
raised by Chairman Oberstar and Representatives Young and
LaTourette in their February 7th, 2006 letter, which emphasized
the need to develop a clearer and more consistent definition of
end product, and to ensure that major system procurements are
not used to circumvent the Buy America requirements.
In conclusion, Chairman DeFazio, Ranking Member Duncan and
Members of the Subcommittee, FTA's program takes a holistic
approach to funding transit projects. In other words, we look
at projects in their entirety and apply the Buy America
requirements to the project as a whole. We also look at our
rulemaking proposal as an opportunity to fine tune our
regulation to ensure consistency, predictability, transparency
and to stimulate competition.
I look forward to working with Congress on this and other
issues facing our Nation's transit systems, and I would be
pleased to respond to your questions. Thank you.
Mr. DeFazio. Thank you.
We have 6 minutes 15 seconds until the vote. Unless the
Chairman would like to make some really brief remarks now, we
would just adjourn until after those. Unfortunately there are
five votes, so this will take a bit of time. Can both of you
gentlemen remain?
Mr. Capka. Yes.
Mr. Simpson. Yes.
Mr. DeFazio. That would be great. Thank you. Sorry for the
inconvenience.
Mr. Oberstar. [Presiding.] Mr. Chairman, may I just make a
brief--and I will keep it to a minute.
Twenty years ago, almost to the month, the Subcommittee on
Investigations and Oversight of this Committee held an
extensive hearing, a three-part hearing on Buy America, to
inquire into the operation and effectiveness of the Buy America
law that I originated in the 1982 Surface Transportation
Assistance Act. We didn't have fancy names for them in those
days, just called it the Surface Transportation Assistance Act.
I would like to ask, Mr. Chairman, unanimous consent to
include in the record for the first few pages, the first 11
pages of that hearing, because I think it is instructive, it
reflects from back then to where we are today. The Federal
Highway Administration in those hearings was doing a superb job
of implementing the Buy America Act, and not segmenting
projects, as we found them trying to do at the time, do just
the center arch span and say, oh, that is a project, and do
another thing and say, that is a project, instead of the whole
bridge being a project, instead of the whole 20 mile highway
length a project.
The Federal Transit Administration was not doing so well.
One, because in the neglect of transit over 30 years, much of
the industry that had been American had moved offshore. It was
gone. And there wasn't much left with which to contract.
Third was the Corps of Engineers, and we found them putting
pilings, steel sheathings, around the caissons where they were
building bridge structures, buying foreign steel and putting it
in place, and then leaving it after the project was constructed
and saying, oh, this is wonderful, it is protecting the bridge
structure. Oh, but it becomes a permanent part. So you are
escaping the Buy America. We caught the Corps of Engineers
doing that and we tightened that up.
So today's hearing is both a retrospective and a
prospective. Our purpose here is to get a better understanding
of how the law is being implemented. I think it is instructive
to quote from my then-Committee colleague, Ranking Member Bill
Clinger of Pennsylvania, who said that ``The erosion of our
industrial base in this Country cannot be allowed to continue
without running the risk of making the United States much less
than a world power. You cannot be a world power or a
significantly player in the world scene if you don't have a
healthy, viable steel industry.'' Bill Clinger, no longer a
Member of Congress, still living. I think he would subscribe to
that statement today.
Mr. Baird has raised the bar on this issue in the last
session of Congress, as we crafted SAFETEA-LU, and raised some
of these very issues. So we will return after this series of
votes to pursue the inquiry, and appreciate your remaining with
us.
The Committee will stand in recess until after this series
of votes.
[Recess.]
Mr. DeFazio. [Presiding] The Subcommittee will come back to
order.
I appreciate the indulgence of the witnesses. There should
not be any votes for about an hour and a half, so hopefully we
can move both through this panel and the remaining panels.
As we concluded, both witnesses had presented their
testimony and we are now going to move to questions.
First, to Mr. Capka. You stated how, I think you said
respectful of the direction that Congress has indicated, but
sort of that respect falls short of doing what Congress
indicated it wanted to do, because of the feeling that you are
constrained by the conflict between the statute and the
direction which was only provided as non-binding in the
SAFETEA-LU, is that correct?
Mr. Capka. That is correct, yes, sir.
Mr. DeFazio. So if we wanted, what direction do you think
we were attempting to provide in terms of our report language?
Mr. Capka. Mr. Chairman, when we took a look at the report
language, the sense of Congress indicated that preference not
to break up large, specifically bridge projects, specifically
the San Francisco Oakland Bay Bridge. And that a Federal
investment on any one part of the bridge would attach Buy
America to the entire Project, big P, Project.
So that was the intent that I think that was being
expressed by Congress in the sense of Congress.
Mr. DeFazio. How would you recommend we accomplish that
goal? I agree with you on the stated intent.
Mr. Capka. Yes, sir. Of course, that put us in conflict
with the letter of the statute that attaches Buy America when
there is an obligation of Federal dollars. And that obligation
of Federal dollars occurs legally in a contract.
So the sense of Congress was not significant enough to have
us re-look or re-assess our interpretation of our legal opinion
of what the statute requires. In order of precedent, our
interpretation of statute supersedes the sense of Congress in
this particular case.
Mr. DeFazio. But you see what Congress was attempting to
get at in the sense of Congress and what I think we will
attempt to get at again, perhaps in a statutory manner, is the
idea that, I mean, what is the logical or illogical extent to
which someone could go in segmenting? I could do a contract on
my bridge for the bolts. I could do a contract for the cable. I
could do a different contract for each diameter of cable. I am
going to do a contract for the footings, I can do a contract
for the cement that goes in the footings.
At some point, it seems to me you are creating something
that attempts to try and circumvent Buy America for segments of
a project while taking Federal funds, it becomes sort of
wasteful administratively and illogical. It is really, you are
not limiting their discretion. Right now you say the law
doesn't limit their discretion in segmenting a project, does
it?
Mr. Capka. Sir, when we look at how a contract is broken
up, we would make a judgment call and determine whether or not
the breaking up of the contract was being done to evade the Buy
America or any other Federal requirement, as opposed to doing
something from a very practicable engineering construction
management.
Mr. DeFazio. So then, we are not here to pick on them, but
you are saying in the case, because I believe they follow your
direction and what your interpretation of the law is, but so
you are saying that it wasn't done for the project in the Bay
area to evade Buy America, it was done, that was the most
logical engineering way to do it?
Mr. Capka. It was a very logical way to break up a very
large project. Then it is up to the State to determine where
they want to invest their Federal dollars, for whatever reason.
For an example, on the Woodrow Wilson bridge, we went through a
stage where we were looking at a very large contract. The
construction industry, the bonding community could not handle a
job quite that large, and the initial bid came in very, very
high.
So we broke that contract up into three pieces and were
very successful with it. It had nothing to do with any of the
Federal statutes that attach to Federal funding. It was a
matter of doing something that was practicable from an
engineering and construction management perspective.
Mr. DeFazio. But given what you understand as the stated
intent or at least the non-statutory intent of Congress,
wouldn't it be the State's right just not to accept Federal
dollars and then contract as they wish?
Mr. Capka. Mr. Chairman, that is absolutely correct. They
would not have to accept or apply Federal dollars to any
project they would wish not to apply it to.
Mr. DeFazio. Right. But when you are putting Federal
dollars into a project, I think the average American would
think of a project is a bridge which gets me from this shore to
this shore. That is a project. Not, well, the decking is a
project, the supports are a project, superstructure is a
project. So if one was going to take money for that project
from the Federal Government, I mean, the case that I would make
is if you want to the Federal money for that project as defined
by the bridge that goes across the water, then certain
obligations come with that, and one of them being that we want
to, as best as we can, protect our critical infrastructure in
this Country, our manufacturing infrastructure, our steel
infrastructure, our jobs.
Do you think that would be unreasonable in an engineering
or other sense?
Mr. Capka. Certainly not from an engineering sense. If the
project was assembled in a way that made good practical sense,
I would agree with you that if we wanted to achieve that kind
of an arrangement, right now the statute does not provide us
the latitude to make that kind of a judgment.
Mr. DeFazio. Okay. You made that clear.
Mr. Simpson, you are going to get off easy, because nobody
can understand what it is you are doing.
[Laughter.]
Mr. DeFazio. I don't know if you have been privy to the
testimony. There is one subsequent witness who will raise
concerns. They think you are not quite there as a second NPRM.
Are you aware of those concerns?
Mr. Simpson. There are a multitude of concerns on both
sides. You can be specific, Mr. Chairman.
Mr. DeFazio. Well, it is on the technology. When we get
into sub-components, components, things like that.
Mr. Simpson. Right.
Mr. DeFazio. This has to do particularly with the
manufacture of fare equipment and what constitutes a component
or sub-component.
Mr. Simpson. I am very well familiar with it.
Mr. DeFazio. Do you think you can thread the needle yet? Of
course, you are in the midst of rulemaking, so I guess it's not
fair to belabor the point.
Mr. Simpson. I could delineate the issue, if you would like
that.
Mr. DeFazio. Sure, why don't you do that simply, so
everybody in the audience understands.
Mr. Simpson. Sure. A lot of it has to do with technology.
Let's say we went back 30 years, when you had fare systems that
didn't talk to each other, where you had a standalone
turnstile. Basically that was an end product.
Today, you have inter-dependent products where you have a
synergistic relationship where the whole is greater than the
individual parts. A perfect example of that is an automated
fare collection system, where you are buying a whole bunch of
integrated parts that in and of themselves in most cases won't
work alone but they work as an integrated unit to achieve and
end. We know what our automated fare structure systems are, our
automated fare card systems. You are not buying a turnstile.
You are not buying a com device. You are buying an integrated
system.
And we have history on this with the Massachusetts case,
where it was clear at the time at the FTA that this was indeed
a system. So the system could be procured. So the system
becomes the end product.
And I am not going to make it complicated, you have three
things. You have the end product and you have your components.
So if your automated fare collection system is the end product,
then your component would be any one of those things that you
see in Metro, the ticket vending machine----
Mr. DeFazio. The turnstile----
Mr. Simpson. You have got it, any of those boxes. Now, it
is the stuff inside the boxes that are the sub-components.
Mr. DeFazio. Right, okay.
Mr. Simpson. However, sub-components, as we know, sub-
components can be forced on a foreign basis. You can have
foreign sourcing. When you have the automated fare collection
system, you are moving what was maybe previously, if it was a
standalone product, a component that had been sourced in the
United States. Now because you are procuring a fare collection
system, rather than one of those boxes, you are moving the
guts, some of the guts in that box down one rung on the food
chain and it can be source on a foreign basis.
Mr. DeFazio. So if we said that the turnstile was a----
Mr. Simpson. End product.
Mr. DeFazio. If that was a component, not a sub-component,
then the things of which it was made would have to be
domestically sourced.
Mr. Simpson. No. If we said that the turnstile----
Mr. DeFazio. I had this yesterday, I lost it.
Mr. Simpson. Guess what? We had it yesterday, too.
[Laughter.]
Mr. Simpson. The turnstile would be end product. Then the
component has to be sourced in the U.S.
Mr. DeFazio. Okay.
Mr. Simpson. The end component, which would be like the
ticket handling----
Mr. DeFazio. So you would say that the turnstile then has
to be classified as a system?
Mr. Simpson. Yes, really end product. What we are saying is
the whole system is the end product for procurement. Then we
are----
Mr. DeFazio. The Ranking Member understands fully, so I am
going to defer to him at this point in time. Thank you, Mr.
Simpson.
Mr. Duncan. Thank you, Mr. Chairman. Will both of you
gentlemen give me some idea about how many waivers get
requested each year?
Mr. Simpson. Prior to SAFETEA-LU, we had no ability to
grant post-award waivers, which yo have now given us the
ability to. In those cases, it is for non-availability. We have
issued none yet. In our history, we have had no price
differential waivers, we have had none. And public interest
waivers, every now and then we would have a public interest
waiver.
Mr. Duncan. So it is very rare?
Mr. Simpson. Very rare, yes, sir.
Mr. Duncan. What about you, Administrator Capka?
Mr. Capka. Sir, on the order of about seven a year. That is
out of about 12,000 to 14,000 contracts that are being worked
at any given point in time. So it averages about seven a year,
requests that come in for waivers to Buy America.
Mr. Duncan. Is it accurate to say that if you break up
these projects or these contracts into segments or phases, that
that does open up the process more to small or medium size
companies?
Mr. Capka. Sir, from our perspective, there are advantages
like that to breaking up a larger project. Certainly, those
kinds of decisions are made at the State level. We support the
States' freedom to exercise their engineering judgment as they
most efficiently do.
Mr. Duncan. The estimate on this Oakland San Francisco Bay
Bridge waiver, you say that it produced a savings of over $400
million, is that correct?
Mr. Capka. Sir, there was an alternative form of bidding on
that main span at one point in time. And I would defer to the
gentleman who will be testifying in a moment from CalTrans to
provide the specifics for it. But there was one bid that was
based upon foreign steel, and then there was one bid based upon
domestic steel. The foreign steel was about $1.4 billion, the
domestic steel bid was about $1.8 billion. That was on the
entire contract, not just the steel, but the entire contract.
So the difference between the two bids was about $400
million.
Mr. Duncan. Is there any other waiver that has ever
produced that much in savings or close to it? Do you have any
other examples like that?
Mr. Capka. Sir, we never waived Buy America in that
situation, because even the low bid exceeded what the State was
willing to sign up for. So there was a redesign that followed
that particular bid.
Mr. Duncan. Okay. The waivers that you have granted, these
seven or so waivers that you are granting in a year, have those
saved substantial amounts of money?
Mr. Capka. Most of those waivers were the result of
materials not being available.
Mr. Duncan. Not being available.
Mr. Capka. Not being available, as opposed to the cost
differential.
Mr. Duncan. So there wasn't a choice?
Mr. Capka. That is correct, sir.
Mr. Duncan. All right. Mr. Simpson, your November 30th,
2006 proposed rule stated that the FTA already employs a model
to determine if a system is too large to be a single end
product. Can you describe for us the model that the FTA
currently uses to determine whether a system is so large that
it would potentially circumvent this Buy America requirement?
Mr. Simpson. Yes, we are defining it as the minimum amount
of parts necessary in order to have a benefit. And also, items
that are normally procured as part of a system. Going forward,
what the proposal is, part of the proposal is to look at it,
and since technology is changing so rapidly, what is not a
system today may be a system tomorrow, to look at it on a case
by case basis to make sure we don't get any of these
``supersystems,'' like for somebody to go out and procure and
entire transit system. Because if you look closely at the
definition on system, one could easily construe that a transit
system would qualify.
So we are very cognizant of that, and we are aware that
through a lot of the outreach that we have had, we are getting
there. We still have more comment, but we believe that we have
gotten our hands around the adequate definition of system.
Mr. Duncan. All right. Thank you, Mr. Chairman.
Mr. DeFazio. Mr. Baird was next in order of arrival.
Mr. Baird. I thank the Chair, and would ask unanimous
consent, if I may, to submit the statement of Conn Abnee, who
is Executive Director of the National Steel Bridge Alliance, as
part of the testimony for the record.
Mr. DeFazio. Without objection, so ordered.
Mr. Baird. Thank you.
Mr. Capka, have you ever been to a steel mill?
Mr. Capka. Yes, sir, I have.
Mr. Baird. How about a steel fabricator?
Mr. Capka. Yes, sir, I have.
Mr. Baird. Are you aware of the immense cost in terms of
capital and investment and land that goes into these places?
Mr. Capka. I am.
Mr. Baird. And the trained work force that it takes to put
together these really extraordinarily complex and expensive
structures?
Mr. Capka. Yes, sir.
Mr. Baird. Do you believe it is in the national interests
of the United States of America to have a vibrant domestic
steel industry, including production and fabrication?
Mr. Capka. Yes, sir, I believe that capability is important
to a nation.
Mr. Baird. Do you believe the Buy America Act is incentive
to support that industry?
Mr. Capka. I believe the Buy America Act was intended to
support the industry, and is.
Mr. Baird. Do you believe that facilitating or encouraging
people who are involved or entities who are involved in
construction to circumvent the Buy America will strengthen or
weaken the U.S. domestic steel industry?
Mr. Capka. Sir, I know of no one who is encouraging the
States to bypass Buy America. Certainly, we are not, at the
Federal Highway Administration.
Mr. Baird. Well, the United States Congress, in a sense of
Congress resolution in SAFETEA-LU, set out some standards,
which we are actually working with here, legislation introduced
by Mr. Altmire and myself. Internal memos from your folks seem
to suggest to the States that they didn't necessarily have to
apply to the sense of Congress resolution, they didn't have to
comply with the sense of Congress resolution, that there were
ways they could work around that. That seems to me to be not
consistent with the intent of the Congress.
Mr. Capka. Sir, the memo that you are referring to was a
product of our legal investigation or legal opinion into----
Mr. Baird. Was Attorney General Gonzales part of that?
Mr. Capka. Sir, that was Federal Highways.
Mr. Baird. You could have said, I don't recall, that would
have been sufficient.
Mr. Capka. But we were well aware of your interest, of
other Members' interest in Buy America. So we did diligent and
careful legal work to determine exactly where we in the Federal
Highway Administration would have to be in executing our
primary mission, and that was to enforce the statute, the law
that was in place.
Mr. Baird. Well, it seems to me this Administration,
through signing statements and a host of other ways, has found
all kinds of ways to fudge around the intent of the Congress.
The purpose here is this: we believe, we the Congress, on
behalf of the American people believe a domestic steel industry
is essential to our economy and our national security. Point
one. We believe that if U.S. taxpayer dollars are spent on
domestic highway projects, they ought to go toward U.S. made
goods, because that employs U.S. workers and maintains a
vibrant infrastructure, which we just might need one day.
We believe that if you start parceling these things out in
contracts, that you circumvent the intent of the Buy America
Act, the intent of the Buy America Act, and you weaken the
domestic steel industry. That is going to have both immediate
and long-term consequences. So I have to tell you, and it will
come as no surprise, many of us believe that you are
undermining the national security and the economy of this
Country, in the long haul, through your interpretation.
Mr. Capka. Sir, we disagree on that point, but I do agree
with you that the approach that you are taking is the right one
to change the statute that governs what we enforce at the
Federal Highway Administration. I think that is what it will
take to change the situation with the implementation of the Buy
America Act.
Mr. Baird. When you drive across a bridge, do you like to
have a start, a middle and an end to a bridge, or do you like
to jump like they do in the movies and just sort of jump that
middle section?
Mr. Capka. Sir, we drive when the bridge is complete and
the shore to shore is intact.
Mr. Baird. The purpose is that there are some semantics
here. As Mr. DeFazio said, the Chairman said, when we think of
a project, we think of the bridge as the project. And yes, of
course there are smaller contracts that go into that. But if
you purposefully break that up into smaller projects, as a way
to circumvent the cost ceilings on Buy America, you are
encouraging portions of that bridge to be outsourced, I
believe. Do you share that?
Mr. Capka. Sir, we are not encouraging anything to be
outsourced with respect to allowing a State to break up a very
large project into manageable pieces, which I think we have
learned from experience, it is the practicable way to deliver
these very large projects.
Mr. Baird. Let me, if I may, I want to respond to----
Mr. DeFazio. We are about to run the clock on you. You have
one more.
Mr. Baird. I won't take the remaining five, in deference to
my comments. But I do want to address Mr. Duncan's statement.
Mr. Duncan raised the question about whether breaking these
projects into smaller components was advantageous to smaller
companies. I would submit that it is not, in the manner in
which you have done it. I have living, or actually dying proof
of that in my district.
The problem is, when uncertainty is created in the
contracting process, when gimmicks are used about breaking
things into contracts instead of bigger projects, when delays
in use of Federal funds create uncertainty about whether Buy
America provisions will be adhered to or not, small companies
cannot have the scratch, the up-front capital, to bid on these
big projects. They go belly-up. That happened to a company in
my district. They tried to put forward, it was a bet the
company strategy. The uncertainty created on the Bay Bridge
project cost us several hundred jobs and a very vibrant
industry.
I think there is a real problem, and I respect you
immensely, as you know. But I really would encourage you to
look into this. Because an enormous company and multi-nationals
may have the facilities and the capital to take advantage of
this uncertainty. Smaller companies perish because of the
uncertainty you folks have created. I think that is why the
Steel Bridge Alliance and many others have endorsed this
legislation by Mr. Altmire and myself.
I think what you are doing is contributing, whether
intentionally or not, it is hard for me to imagine you are
doing it intentionally, there will be, one day, a major,
massively destructive earthquake on the West Coast. On that
day, if we have to call China and Korea and Japan up and say,
can you come rebuild our infrastructure, because we have nobody
here who can do it any more, we are going to be in big trouble.
And I think it is going to be on your watch, and we are going
to try to stop that, as a Congress.
I yield back the balance of my time.
Mr. DeFazio. I thank the gentleman.
Mr. Boozman.
Mr. Boozman. Thank you, Mr. Chairman. I don't have any
questions.
Mr. DeFazio. Mrs. Schmidt.
Mrs. Schmidt. Yes, thank you. I arrived late, so this might
be redundant.
I understand sometimes that contracts have to be broken up
into smaller contracts simply to be able to get a manageable
contract regardless of Buy America provisions or not. In my
limited role in my past life as a local government official,
sometimes we couldn't get people to actually answer the
contract until we broke it up into smaller feats.
But I really want to go back. I briefly read a little bit
about the Oakland San Francisco Bay Bridge waiver. I understand
that the savings was over $400 million.
I do support American-made products and American
businesses. But I also understand the use of prudent tax
dollars. Could you walk me a little bit through that waiver
process and how that worked in that case?
Mr. Capka. Yes, ma'am, and I would like to characterize it
first by saying that the situation never evolved to the point
where we had to grant a waiver. Even the low price associated
with the foreign steel was too much for CalTrans, the
California State Highway Department there to accept. So they
did not accept the bid and they did something different.
But when they got to the point, they elected to use an
alternative form of bidding, which is authorized under the Buy
America procedures, where a contractor would submit a bid based
upon the use of foreign steel, and then a second bid based on
the use of domestic. And at the end, take a look at the bottom
line price of both bids, which is more than just steel, but the
entire contract. In this particular case, there was a
difference of about $400 million. The low bid, which was based
on foreign steel product, was about $1.4 billion; the domestic
alternative was about $1.8 billion. So the difference was $400
million.
But even the $1.4 billion was too high for the contract to
be awarded. So we were never posed with an official Buy America
waiver on that.
Mr. Baird. Would the gentlelady yield for just five
seconds? I would just suggest that you really look with great
scrutiny about that figure. I am well aware of data suggesting
that the $400 million was not the Buy America difference. That
is a gross exaggeration of the actual cost differential between
U.S. steel and foreign steel. I would be happy to share with
you that for the record. I don't want to leave that statement
unchallenged, because it is not a fact.
Mrs. Schmidt. My second question is, if we make it so
impossible to ever get a waiver granted, knowing that the tax
dollars for infrastructure in States is not keeping up, the way
tax dollars are collected for infrastructure in States,
especially in my State of Ohio, it is not keeping up with the
demand to just maintain the roads and the bridges as well as
expand new roads and bridges. Where will the potential cost of
narrowing the field to a limited supply source come from, and
would this be something that the Federal Government would pay
for the additional cost, the State government? How would that
be managed? Would the States think this was an unfunded
mandate?
Mr. Capka. Ma'am, if I understand your question correctly,
if we narrow down the requirements to limit the source----
Mrs. Schmidt. The bidding process itself, which you can't
break it down, if we limit it to the point where it is 100
percent Buy American, and that might limit the resources to be
able to produce bridges, highway bill construction, because
there is a supply and demand issue. That cost is then going to
go back to the States, like ODOT, Ohio Department of
Transportation. Where are they going to get the additional
dollars, when they are seeing their revenue sources not keep
pace with the inflationary cost of building the roads and the
bridges, as well as the need to continue to build more roads
and more bridges?
Mr. Capka. I am not aware that there would be additional
funding. It is hard to speculate there. I am not aware that
there would be additional funding. I think normally what the
States would do when presented with something like that would
be to look internally, re-prioritize, delay projects and make
the adjustments in order to pay for the project at the bid
opening time.
Mrs. Schmidt. My final thing, and it will be quick, is that
Ohio continues to be a donor State when it comes to Federal
dollars. We are the fifth highest use for traffic. So whatever
we do to improve the Buy America bill, I would hope that it
compensates for the dilemma that Ohio faces. Thank you.
Mr. DeFazio. I thank the gentlelady for her questions and
comments.
Mr. Altmire?
Mr. Altmire. Thank you, Mr. Chairman.
For Mr. Capka, how much does the Federal Highway
Administration expect to save over the next five years by
purchasing foreign steel over domestic steel in the
construction of bridge projects and through the application of
the 25 percent test on the piece by piece basis?
Mr. Capka. Sir, we have no figures and there is no
expectation or anticipation that there will be any savings. It
is entirely up to the States to manage their contracts within
the limits of the law.
Mr. Altmire. So I guess your opinion on this question, if
there is no estimated cost savings to the taxpayer, the
estimate has not been provided, then what is the point of
dividing up the project and circumventing the Buy America Act?
Mr. Capka. Sir, the projects that we look at are not broken
up to circumvent the Buy America Act. The decisions made at the
State level are made with a number of different variables that
help decision makers determine a course of action to take.
Provided that course of action is within the law, the law that
we are required to enforce, we have no problem with the States
taking their discretion and making those decisions.
Mr. Altmire. Can you talk, perhaps Mr. Simpson can weigh in
on this as well, just about philosophically, what the balance
is? You hear the different discussion points and we know what
is at work here. What is the balance between the
appropriateness of cost savings by sending American tax dollars
overseas, and at what point are we hurting our domestic
production and our domestic industries, as Mr. Baird talked
about, versus the importance of lowering the cost? In your
opinion, at what point is it not worth the effort to move in
the direction that you have chosen to move?
Mr. Capka. Sir, I am not an expert in that area by any
means. I do know that it is important for decisions to be made
at the level at which the consequences can be best understood.
And certainly at the State level, where they are faced with the
challenges that all State departments of transportation are
faced with, as long as those decisions and the discretion being
used fits the statute, we will support that at the Federal
level.
Mr. Altmire. Do you want to call it, Mr. Simpson?
Mr. Simpson. The only thing that I will comment on at a
philosophical level, I guess you have to look at the cost and
benefits to society and somehow enumerate them in dollars, the
taxpayers saving a billion dollars on one side and on the other
side maybe some jobs have been lost, and maybe that is at a
$100 million level. I think that is part of our rulemaking
process, to try and vett out what is happening in the economy,
to try to determine, to try to come up with informed decisions.
Mr. Altmire. Thank you. Mr. Capka, do you have confidence,
when the States are making these decisions, when you are
allowing them to make the determination, that they are thinking
in the long-term interest of the domestic steel industry as
well as just a potential short-term gain with a specific
project?
Mr. Capka. We haven't looked philosophically at what each
State does and the basis for the decisions that are made.
Certainly the Buy America Act is there to encourage the
investment domestically. Again, the way the statute is
constructed right now, it attaches to the obligation
instrument, which is the single contract, as opposed to a
collection of contracts.
Mr. Altmire. Do you want to comment, Mr. Simpson?
Mr. Simpson. No, thank you, sir.
Mr. Altmire. Thank you both, and thank you, Mr. Chairman.
Mr. DeFazio. I thank the gentleman.
Mr. Arcuri.
Mr. Arcuri. Just one question, actually two. Wouldn't you
agree that it is the role of the Federal Government to
determine what is best for the Country, for the United States
as a whole?
Mr. Capka. I believe the Federal Government has a
perspective that is broader than those that you would find in
the States, for the obvious reasons.
Mr. Arcuri. Isn't buying domestic steel good for the
Country as a whole?
Mr. Capka. I would say that strengthening any one of our
industries would certainly be beneficial for the Nation.
Mr. Arcuri. Taking it to the next logical step, then,
wouldn't it be the kind of thing that the Federal Government
should do to promote purchasing of domestically produced steel?
Mr. Capka. And I think within the law, that is correct. As
the Federal Highway Administrator, I am required to enforce the
law as it has been written. In this particular case, the Buy
America Act has been written in a manner that we feel as though
we have been enforcing accurately and correctly.
Mr. Arcuri. Based upon how your agency interprets it.
Mr. Capka. How it has been interpreted since about 1982
through a number of Administrations. We haven't changed from
Administration to Administration during the enforcement of Buy
America. So it has been rather consistent since 1982.
Mr. Arcuri. Thank you, sir.
Mr. DeFazio. I thank the gentleman for his questions.
We are going to do a second round--oh, Mr. Hayes. You
sneaked in, you are so quiet. Your turn, sir.
Mr. Hayes. Thank you, Mr. Chairman. Thank you for holding
the hearing.
Mr. Capka, thank you for being here, and Mr. Simpson as
well. This is a subject that is very near and dear to my heart.
Mr. DeFazio mentioned that a strong industrial base is crucial
for our future. If you wouldn't mind speculating a bit, as we
compete in various areas, steel is certainly critical. As you
compete with the Chinese, who get a 40 percent cut for currency
manipulation, right off the bat, if nothing else, do you have
any suggestions from your perspective, having to make this
work, how we can maintain an attitude, and be careful to use
the words, this is not about protectionism. Our steel is
better, our workers are better.
How do we work within those parameters to maintain this
vital part of our industrial base and still acknowledge and
recognize the importance of squeezing every ounce we can out of
the taxpayer dollars? You have had to work this thing for some
time. Can you suggest to the Committee something that we can do
to help move this process forward? Again, it is not about
protectionism. It is about good, common sense business
practices that keeps our industries and the people that make
them run viable.
Mr. Capka. Sir, that is a challenge that I think all of us
are very concerned about. The fact that the global marketplace
is changing every day, that we are competing globally, and
whether the playing field is level or not, the impacts are
certainly being felt. With respect to Buy America, I think the
intention of the Act was to provide some leveling of that
playing field. But the way the statute is written, from my
perspective, has directed the Federal Highway Administration to
make those calls the way we have been making them with respect
to Buy America. Whether there needs to be a strengthening of
the Buy America Act or the provisions, I think that is
something for the public debate as we go forward.
But I would not argue with you at all that having a strong
industrial base is to the advantage of the Nation's economic
strength.
Mr. Hayes. Well, if I might suggest, Mr. Chairman, and a
partial answer on the question, if the USTR and other
Administration folks would be a lot more serious and committed
to enforcing trade agreements, putting safeguards in place and
countervailing tariffs, as you have seen some limited emphasis
on doing, then again, I think that helps to make us
appropriately competitive in a global marketplace.
Mr. Simpson, would you like to add anything to that?
Mr. Simpson. Yes, the only thing I would like to add that
maybe will allay some of your fears with respect to how DOT is
implementing Buy America, currently, there are about $25
billion worth of new starts of transit projects in the Country,
and there is no foreign steel there. It is all with American
steel. Additionally, the FTA spends about, I think it is in the
area of $4 billion or $5 billion between our urbanized money
and our rail mod money. Once again, we meet the Buy America
requirements.
Mr. Hayes. I thank you for your answers, and Mr. Chairman,
I yield back. Thank you.
Mr. DeFazio. I thank the gentleman for his excellent line
of questions.
If I could just follow up, Mr. Simpson, again on this
system component, sub-component issue. This is from a letter
that was directed to you, not to you, sorry, to before you were
there, to the chief counsel at the FTA, February 7th, 2006. I
just want to make certain that you believe the SNPRM has
addressed this issue, if I can just read from the letter. It
was sent by then-Chairman Young, Mr. Oberstar and Mr.
LaTourette. ``We are concerned that an end product system could
be so large and incorporate so many different levels and types
of equipment, that eh sub-components, which are not subject to
Buy America compliance analysis, would be relatively major
items.''
Was it the intent of your second NPRM to address that
issue?
Mr. Simpson. Yes, it was, and we have had outreach with
Chairman Oberstar's office, Congressman LaTourette and, I
forgot the third Congressman. Congressman Young. And it is my
understanding that the staff is comfortable with what our
proposals, we haven't made any decisions yet. We are
comfortable that in the direction we are moving, we have the
system well balanced.
Mr. DeFazio. Is this going to require some extraordinary
encyclopedia of what constitutes components, sub-components,
end products?
Mr. Simpson. No, it is not, because SAFETEA-LU directed us
to have a representative list and also to look, as new issues
come up, to take a look at it in a regular basis and to have
transparency and have an open door policy.
Mr. DeFazio. Okay. What is a fare card?
Mr. Simpson. A fare card would be probably--the card
itself?
Mr. DeFazio. Yes.
Mr. Simpson. A sub-component.
Mr. DeFazio. All right. That is good. That is what I
thought, but I just wanted to make sure I had grasped this. I
hope we aren't going to print our fare cards overseas.
Thank you for that.
Mr. Baird?
Mr. Baird. I want to go back to this memorandum. Mr. Capka,
you continually refer to this memorandum, and with respect, it
is baloney. I will tell you why I think is baloney. It is
because you are basically saying that project is synonymous,
not basically, that is what you are saying in this memorandum,
or your attorney, supposedly is saying, project is synonymous
with contract. As you look at SAFETEA-LU and the couple hundred
billion bucks that were allocated to various projects and what-
not, did we, for example, say we want $100 million to go to
project X or did we say, let's say it is a bridge. Let's say
$100 million for the bridge, or did we say, we want $20 million
to go to the paving of the bridge and $40 million to go to the
concrete of the bridge? Did we break the projects out that way,
or did we build the project as a bridge?
Mr. Capka. Sir, those project designations in SAFETEA-LU
were scope and description driven, as opposed to component
driven.
Mr. Baird. So when the Congress allocates money to a
project, we are not saying that the project is an amalgam of
sub-contracts, we are saying the project is the project, finish
the bridge, are we not?
Mr. Capka. The----
Mr. Baird. We certainly are not. Have you seen it as
standard, let me ask it this way, is it standard in language in
SAFETEA-LU or in transportation appropriations to break
projects into sub-contracts, or do we refer to the project as
the project?
Mr. Capka. In SAFETEA-LU, the designation is the project.
Mr. Baird. Then how can you justify the logic of this
memorandum saying that the sub-contracts are in fact the
project, when the Congress doesn't itself allocate the money
that way?
Mr. Capka. Section 313 of Title 23 defines the attachment
of the Federal requirements to the obligation document. That is
attached to the contract itself. So the application of the Buy
America Act that we are enforcing has nothing to do with how
the project designations occur in the legislation. But the
attachment of the obligation occurs at the contract level. And
that is where the Buy America----
Mr. Baird. I just really disagree with that. The Federal
Government, when we make decisions here, we say, we basically
say this: we have deemed as this Committee, as the elected
representatives of the people, that completing X bridge or
repairing X highway is in the best interest of this public, and
that is why we commit the dollars to it. We do it, writ large.
Nobody comes before this Committee and says, I want to parcel
out this project into component parts, so that the contracts
can be written in a sub-way.
Then you are allowing the States to take Federal dollars
which went to a big project which this Committee and the full
Congress has said matters as a full project, and you are
allowing the States to then parse that out as if we considered
the projects in form of sub-contracts. I just think that is
faulty reasoning. I think it is logically inconsistent.
Mr. Capka. Sir, it is the way the law was written.
Mr. Baird. No, it is the way you are interpreting the law,
is what I am telling you. I believe it is clearly the way you
are interpreting the law, and I would assert that a far better,
more consistent matter with how this Congress functions and the
intent of this Congress functions is to say, the project is
what we are after. This Congress does not say, we are going to
authorize tiny subsections. We authorize big projects. And to
then say that the contract is synonymous with the project I
think is inconsistent with how the Congress functions and the
intent of Congress.
What I find troubling is, it seems to me that you went out
of your way with legal legerdemain to say, we are going to try
to find a way to redefine this. It is really pretty astonishing
in this memo. You go through this whole thing, once the project
agreement is executed, the State will then proceed to award a
construction contract, a construction contract for the project,
work covered by the project agreement through competitive
bidding. But you have again conflated project with contract. I
don't think that is how it works. I think you just found a way
to do it because you really want to undermine Buy America.
I sure don't see that you honored, and clearly the sense of
Congress, the reason we do a sense of Congress is to say, no,
that ain't right, people. That is not the interpretation this
Congress wants. And you went ahead and did it. And so to hide
behind this memo, which is flawed on the face of it, I think is
it disingenuous for you to say, oh, we were sincerely, as I
think you said in your testimony, implied you sincerely wanted
to honor the spirit of Buy America. I don't think you do. I
think you went out of your way to violate the spirit of it. I
think that is undermining our industry.
Mr. Capka. Sir, we have been consistent, since the early
1980s, in our approach to Buy America. So there has been
nothing inconsistent during that time frame. It is not just
this Administration, but every one----
Mr. Baird. Well, I would assert that Mr. Oberstar, perhaps
he will have time to join us, would see it a good bit
differently.
Mr. DeFazio. Could I ask the Administrator, has there been,
has this issue been litigated, or are we just relying upon, you
are relying upon advice of counsel?
Mr. Capka. I am not aware of any litigation that has
occurred. But I do rely upon the advice of legal opinion and my
counsel.
Mr. DeFazio. Are you bound by that?
Mr. Capka. When it comes to the statute, sir, I listen very
carefully to my legal opinion with respect to what our
requirements are.
Mr. DeFazio. Right. So even though you understand what
Congress intended in the sense of Congress, or the report
language, you feel that, and you certainly made that clear at
the outset, that your higher duty is to follow the advice of
your counsel, whose ultimate conclusion disagrees with what
Congress would prefer to have done. As I think you stated
earlier, the only way we can give you a higher direction is
with statutory language.
Mr. Capka. That is correct, sir. I am aware of other
situations where the language of the statute has caused
problems and had to be corrected that way as well.
Mr. DeFazio. It was probably written by the Senate, that is
probably the problem. It is not as clear as it should be.
[Laughter.]
Mr. DeFazio. Chairman Oberstar had expressed a strong
desire to have one very gentle round with the two of you before
you left, I am certain, since he has only been working on this
issue for at least 20 years. So if we could just sit here
quietly, unless Mr. Hayes wants another round.
Mr. Hayes. Thank you, Mr. Chairman. I am smiling, Mr.
Baird, I agree with your conclusion but I don't agree with what
gave you that gleam. We need to be more clear if we agree, and
we do. If we want to use American steel, then we need to say
that. A bridge is no different than an interstate highway going
from Lexington to Charlotte, because Lexington to Salisbury,
that is one segment, Salisbury to Concorde is another segment.
But again, this issue comes up over and over again, how do
we keep America strong. I really don't fault your
interpretation in what you are seeing, but I would like to see
us get together and make i ta little bit more clear, at the
same time, make sure that our industries are competitive as
they need to be, in order to protect the taxpayer, who is
footing the bill for everything. Your assistance in helping us
do that would be much appreciated.
Mr. Baird. Would the gentleman yield for a second?
Mr. Hayes. I will try to.
Mr. Baird. I appreciate it. The thing is this, Mr. Hayes,
had the Administration sincerely wanted to do this, an equal
form of reasoning could have been, whereas the Congress of the
United States appropriates money and authorizes funding for
projects writ large as whole, therefore it is intended that the
total amount of funding for that project is intended for the
whole project. Therefore, breaking those projects into sub-
contracts for the purpose of finding ways that might exceed the
125 percent cutoff for Buy America is inconsistent.
In other words, that is what is going on here. They are
breaking, entities are breaking up their projects, for which
they get a lot of Federal money, into smaller contracts and
saying, well, this portion of the project, this contract
doesn't have to adhere to Buy America because this portion
would exceed the 125 percent. We are saying, if you look at it
as a project as a whole, then you no longer exceed the 125
percent cap and the entire thing must be governed by Buy
America. My point being, Mr. Hayes, that instead of going out
of their way to do exactly as you say, and I know you are
sincere in this, instead of going out of their way, or not even
out of their way, instead of offering, I think, a more
logically consistent and well-reasoned argument that would
support the Buy America Act, they are in fact going out of
their way to allow contractual structures that circumvent Buy
America. That is the problem I have.
Where I am trying to say, they should be helping us here,
they are going out of their way to undermine it, I think.
Mr. Hayes. Again, I appreciate the gentleman's conclusion.
As the number one proponent of the very amendment, this is the
same thing in a different arena, we need to get our heads
together and give some assistance and clear direction to these
gentlemen in Highways and at Department of Defense. I would
welcome the opportunity, as always, to do that with you.
Mr. Oberstar is here. I yield back.
Mr. DeFazio. I thank the gentleman.
We would now hear from the esteemed Chairman of the Full
Committee, with a lengthy history and knowledge, he can
probably even explain systems components and sub-components in
great detail and how that law would apply. But we won't ask him
to do that.
Mr. Oberstar. Thank you. I will refrain, Mr. Chairman,
thank you very much.
I appreciate the panel being here. Administrator Capka and
Administrator Simpson, I didn't realize this was your first
visitation before the Committee. We will have you back
frequently.
Mr. Simpson. I am looking forward to it.
[Laughter.]
Mr. Oberstar. Look, common sense tells you, when you are
building a bridge, you don't just build a center arch span. It
is a whole project. The bridge is a project. I don't want to
hear parsing of construction projects about, you can get a
thousand angels dancing on the point of a pin to discuss some
fine point of tautological inquiry. We don't need to do that.
Highway construction, bridge construction is common sense
stuff. You build a whole bridge.
You know what happened between Duluth and Superior, 26 year
ago? The State of Wisconsin wanted to avoid buying American
steel. So they let the bid first on the center arch span,
10,000 tons of steel come into the harbor in Duluth. And under
this bridge that they want to build with Japanese steel that
came on a journey of 10,000 miles, will go iron ore from my
district to lower lake steel mills to make American steel, pass
under a Japanese steel bridge. Outrageous.
And they are going to sell it for $100 a ton less than it
could be produced 500 miles away at South Works of U.S. Steel
in Chicago? Common sense tells you that steel is subsidized.
I had the economic staff of the Japanese embassy in my
office, and I looked them right square in the eye and I said, I
know what you are doing, I know how you are subsidizing this, I
know how you are skirting the law, and here is how you did it,
and I won't go through all that now, these big subsidies that
they did through the Bank of Japan. But if this contract isn't
withdrawn, I will tell you, we have a $2 billion steel bridge
program in the current Surface Transportation bill that I will
make sure there won't be another pound of Japanese steel in the
U.S. marketplace. Oh, consultation with Tokyo. But the Japanese
came back and said, if the contract is rebid, we won't submit
Japanese steel. But the Governor of Wisconsin said, oh, we will
save money on building this bridge. It was a shared bridge,
Minnesota and Wisconsin. But Wisconsin, in the trade-off that
we do between our two States, had the authority to do this
bridge. So the center arch span went up with Japanese steel.
The other 70,000 tons of steel were American steel, because I
put a provision in the 1982 Surface Transportation Assistance
Act that said it was going to be all American steel.
But that was the first instance of segmenting projects.
Then in 1988, as I said earlier, I think Mr. Hayes, you weren't
in the room at the time, but I quoted from my statement in
1988, when I was chairing Investigations and Oversight
hearings, and that of my Republican partner on the Committee,
Congressman Bill Clinger from Pennsylvania, who was very, very
clear that we need to have a domestic steel industry. His
statement was very, very clear, I won't go back and repeat it.
It is in the record.
So now we are coming back again and seeing this segmenting
again of contracts. That defies common sense. I heard your
defense of it, Mr. Capka, but I don't accept that. You have
lawyers dancing on the head of a pin to try to achieve a
result. Do you have any idea how much steel China produces
today?
Mr. Capka. Sir, I know they produce a lot.
Mr. Oberstar. Yes, a lot. The highest raw steel production
in the history of the industrial revolution was in 1979, the
U.S. domestic steel industry poured 129 million tons of raw
steel. Last year, Chinese steel industries poured 450 million
tons of raw steel, 95 percent of it for domestic consumption.
They are building ports and railways and highways and airports.
They are investing a trillion dollars in their infrastructure.
They have completed a rail line from Beijing to Lhasa, Tibet,
2,500 miles. You can travel it in 48 hours, 14,000 feet
altitude, pressurized rail cars. We can hardly go across the
United States in Amtrak limping along.
But they are investing in their future and they are doing
it with their steel industry. What do you think they are going
to do in time? Dump that steel into the U.S. marketplace at
some point.
Steel is the basic building block of an industrial society.
We have an obligation to support our steel, just as they are
supporting theirs. We put that 26 percent in the law because
that was the margin by which the International Trade Commission
found foreign governments were subsidizing steel to be dumped
in the U.S. marketplace, International Trade Commission finding
under the Reagan Administration. Subsidizing their exports to
the United States at 26 percent below domestic market prices,
what I said in my opening statement 19 years ago. So I picked
that out and said, that is the benchmark.
Now, to shift over to the transit program, the problem
there was that we had neglected transit so badly in America,
and made such a cultural shift to the highway, that the
domestic component production industry withered. And at the
time, there wasn't, in the 1980s, there were only a handful of
industries capable of supplying the needs, because there wasn't
demand. The demand is there now, and it is going to be up in
the future. We are going to increase and build on the 18
percent out of the Highway Trust Fund for transit in the next
authorization, we are going to expand upon that. We will have a
more robust transit sector and a more robust production
industry and build light rail and trolleys and commuter rail
and streetcars and whatever it takes to move America more
efficiently. And we are going to do it with American goods.
These are American taxpayer dollars. When I hear from people
who say, oh, it is cheaper to buy it from overseas, that steel
isn't paying Social Security, it isn't paying unemployment
compensation, it isn't paying into workers comp. It isn't
paying the resources for trade adjustment assistance. Take into
context the total economic consequence of out-sourcing our
steel.
I don't think you ought to have your job out-sourced to
India, to a call center. We don't want our steelworker jobs
out-soured to China or Japan or Korea or Taiwan, or the
European Community, which is subsidizing until just recently.
That is the fundamental that I bring to this issue. If you
don't administer the law in a common sense way, then we will
write it even tighter. But we shouldn't have to do that.
I will leave a moment for your response, if you wish.
Mr. Capka. Sir, I don't take exception to anything that you
have said. I think there have been some excellent observations
made. I do think that in order to tighten up Buy America the
way that the Members have suggested this afternoon, we do need
to look at the statute and see how we can tighten it up.
It has not just been this Administration's interpretation
that has attached the Buy America to the contract document, it
has been, as far as I know, back into the 1980s when the bill
first was passed and you were involved in the initial stages of
the bill. So we in the Administration, in the Department, have
been consistent with what the interpretations have been in the
past. Being consistent in that interpretation is important for
the whole dynamic of working with the States, of delivering the
highway requirements. It is important that we have a consistent
interpretation of the law.
So if a law needs to be changed, a law would need to be
changed, sir.
Mr. Oberstar. I know there is history, I know there is. But
those are aberrations, past practices are aberrations from
common sense, and we need to get back on a common sense track.
Until we get to the next law, let's try to impose common sense.
Administrator Simpson, I just wanted to thank your staff
for their splendid work on the Northstar Corridor project.
Mr. Simpson. Thank you.
Mr. Oberstar. The bid came in under expectations and we
will be able to move ahead with it.
Mr. Simpson. My staff has been out there this week, I just
signed yesterday a letter of no prejudice for the purchase of
the locomotives, the diesel locomotives.
Mr. Oberstar. I would yield to the gentleman from North
Carolina.
Mr. Hayes. Thank you, Mr. Oberstar. You presented the case
very accurately as always. The only little thing I want to make
sure you include in there is that 40 percent discount on that
however many millions of tons of Chinese steel for currency
manipulation.
Mr. Oberstar. Yes, that is a Treasury issue. Darned right.
I am with you on that.
Mr. Hayes. It is a Treasury issue, but it translates into a
huge subsidy, as you mentioned.
Mr. Oberstar. That is right.
Mr. Hayes. Thank you for bringing that up.
Mr. Oberstar. Thank you.
Mr. DeFazio. I thank the Chairman. In fact, in clarifying
definitively the statute, we might have to deal with that issue
in terms of the percentage allowance that is given for foreign
bids, since now they have a built-in advantage that is so
large, because of currency manipulation. We might want to, that
25 percent figure which was valid 20 year ago, may not be valid
today for a competing bid.
I thank the two Administrators for their testimony and look
forward to continuing a productive relationship as we try and
rebuild and better build America's infrastructure. Thank you.
I would call the next panel. Mr. Randall Iwasaki, Mr. John
Catoe, Mr. Richard Trenery, and Mr. Robert Luffy.
Again, I thank you for your patience. We will move right
ahead with your testimony. Mr. Iwasaki, you would be first.
TESTIMONY OF RANDALL IWASAKI, CHIEF DEPUTY DIRECTOR, CALIFORNIA
DEPARTMENT OF TRANSPORTATION; JOHN B. CATOE, JR., GENERAL
MANAGER, WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY;
RICHARD TRENERY, VICE PRESIDENT, NORTHEAST REGION, CUBIC
TRANSPORTATION SYSTEMS; ROBERT H. LUFFY, PRESIDENT AND CEO,
AMERICAN BRIDGE COMPANY
Mr. Iwasaki. Thank you, Mr. Chairman, Members of the
Subcommittee. This is actually my first time that I have
testified here as well. It is an honor to be here. Thank you
for inviting the Department to testify. Director Kempton sends
his regrets; however, Governor Schwarzenegger asked him to stay
in Sacramento and testify in front of the State legislature, so
he couldn't be here.
I am going to give you a quick snapshot of CalTrans, the
California Department of Transportation. Current year budget is
around $12.8 billion. We have more than 22,000 employees.
Currently we just hit a milestone in the history of California
and we have $10 billion worth of contracts under construction
in the State, on the highway system that we oversee.
The State's transportation system is comprised of over
50,000 lane miles of highway, 12,000 State-owned bridges, 2 of
the top five largest transit operators and 2 of the busiest
ports in the Nation. Even with all that, the State is still
growing. It is projected by 2020 to grow by 29 percent from 34
million people to about 44 million people.
The vehicle miles traveled on an annual basis is projected
to grow 38 percent. We are in love with the car out west. So we
are growing from 344 billion miles to 475 billion miles. And
the trade volume will double on top of all that.
So in response to that, we not only have our Federal
dollars, we also have our Federal dollars, but we have State
dollars as well. We recently passed the Governor's strategic
growth plan. The voters of the great State of California passed
a proposition, in my case, or CalTrans' case, Proposition 1A,
which safeguarded Prop 42, which is the sales tax on gasoline.
It used to go to the general fund, now it goes to the State
highway account. Proposition 1D was a $19.925 billion general
obligational bond initiative for transportation.
Even though we passed that bond initiative, we still need
more money. The first segment of money was the corridor
mobility improvement account. It was $4.5 billion. The key
thing on the Governor's strategic growth plan is that projects
have to be under construction by 2012. For that $4.5 billion,
we had $11.5 billion worth of ready projects to use those
dollars.
So what I am trying to say is that the needs outstrip the
available funding in California, and I am sure the rest of the
Nation. So we have another program we call the ICE program, or
Industry Capacity Expansion. So we are concerned that we need
the labor to put all this money to work, we need the materials,
we need contractors and we need suppliers. So we are taking a
look at the whole gamut to ensure that when al this money hits
the street, that we can adequately use it in the most efficient
and effective manner.
We also partner with the Federal Highway Administration, as
Administrator Capka said. We are very close partners with the
Federal Highway Administration. They are with us every step of
the way.
We also adhere to the Buy America requirements. Current
year, the STIP, the State Transportation Improvement Program
and the State Highway Operation and Protection Program, is
about $2.89 billion, which includes $1.6 billion of Federal
money. having said that, the Federal share of funding in
California is declining, because we have self-help counties
where the sales tax on goods are used for transportation. In
San Diego County, TransNet was extended for 40 years, it
generates about $15 billion. Then we have our Governor's
strategic growth plan, which is more bonds. We plan to put $107
billion to work over the next 10 years.
Once again, when we use Federal funding, we are in
compliance with the Buy America provisions under the current
Federal law. We have asked for six waivers in the last five
years and were granted six waivers in the last five years for
specialty items. One wa sa local bridge, three for double
slide, which is a tunnel slide, then two for the San Francisco
Oakland Bay Bridge. There has been a total of five waivers
granted since 2001 for the San Francisco Oakland Bay Bridge, so
the last five years only goes to 2002.
Buy America continues to apply for a majority of the work
in which the waivers were granted. It only applies when you
have Federal funding. So if you have State funding, there are
no Buy America provisions. If it is a State-only funded
project, it is not a requirement. However, much or all of the
materials are purchased out of American vendors.
The number of State-only contracts is increasing due to the
fact hat many counties are helping themselves and in our bond
initiative. But once again, American products still will be the
most likely source with regards to the funding source. And
domestic reinforcing steel, we build a lot of concrete bridges,
is very competitive.
There were a lot of questions about the toll bridge seismic
retrofit program. Basic ally, we had an earthquake in 1989 in
Loma Prieta, which damaged the east span, which is a
cantilevered truss section going from Yerba Buena Island to
Oakland. So the retrofit, the earthquake then generated a
seismic retrofit program. We retrofitted all the bridges that
we deemed vulnerable. The last bridges are the toll bridges,
which are the most complex. They are large span, they span
water and you need to have a long span between the frames. So
we used steel in many cases, because it is lighter and you can
span greater distances with steel structures.
The program is about $8.7 billion, of which $500 million of
it is Federal. The Buy America is included in all contracts
that have Federal funding.
The Bay Bridge is important to us, because if you look at a
shake map, an AASHTO seismic map, the State of Texas is rated
at a 2, this location is 60. So it is a very seismic reactive
area.
I think in closing, the contract that we are talking about,
the south anchor suspension contract, so what we do is we split
these contracts up. After 9/11, the contractors are having
problems getting bonding and getting insurance. It has raised
the cost of all these things to do business. And so we have
gone out with a number of peer reviews to say, okay, how do we
deliver this program in the most safe and efficient and
effective manner. So we have determined that splitting these
contracts up is one of the ways.
You do not want to split these contracts up for the sake of
splitting them up, because you will have contractors walking on
contractors. So it is really critical that you stage the work,
it makes a lot of sense. But the goal is to make these
contracts more biddable.
We advertised the SAS, the south anchor suspension contract
in 2003, with Buy America requirements. We asked for two
estimates that Administrator Capka talked about, one domestic
and one international. One bid was $1.8 billion domestic and
$1.4 billion international. And when you take a look at it, it
was greater than 25 percent. So if we had the money to award,
we would more than likely award it, International Steel bid.
But we didn't, because we didn't have the money. So we went
back and worked with our partners, the Metropolitan
Transportation Commission and the legislation and the
administration, and we crafted new legislation. It was
determined that are going to State fund the SAS. So Buy America
provisions do not apply to a non-Federal project.
Some of the construction community input is that when you
have a complex contract like this, and we don't split every
contract up in the State of California. It is these big bridge
projects that we are taking a look at, specifically this east
span. And so it was determined that it would probably get us
more bidders. We added stipends, we added stipends of $5
billion for each responsible bidder that would bid the south
anchor suspension bridge. We also required a $350 million
performance bond on a $1.4 billion project and a $350 million
bond for materials.
Mr. DeFazio. If you could summarize very quickly, you are
considerably over at this point.
Mr. Iwasaki. I am sorry about that.
So State-funded projects, market forces will prevail. You
still have high level domestic products. Special requirements
may result in a distinct advantage for foreign products,
especially in cost differentials. So you have to look at your
specialty requirements of your structures. Then you need to do
what is financially prudent. We will continue to follow the
Federal process for federalization of projects.
I want to thank you for your time.
Mr. DeFazio. I thank the gentleman.
Mr. Catoe.
Mr. Catoe. Thank you, Mr. Chairman and Members of the
Committee, for inviting me here and giving me this opportunity
to testify.
I look forward to the future, as Chairman Oberstar
mentioned, when the funding for transit in future years will be
far greater than what it is today, because that is a necessity
for the communities in this Country.
First, a little bit of background about WMATA, the
Washington Metropolitan Transit Authority. We are the largest
public provider of transportation in the region. We carry 1.2
million people on a daily basis. We are the second largest
subway system in the Nation and the fifth largest bus system.
Sometimes we have been called ``America's transit system.''
I want to commit to you, Mr. Chairman and Members of this
Committee, that we will become America's best bus system. There
have been many issues that have confronted us in the last few
months. We are going to overcome those and we will come back
and be America's best.
As an FTA grantee, WMATA includes Buy America requirements
in all procurements over $100,000 that utilize Federal funds.
Buy America regulations distinguish between procurement of
steel, iron or manufactured goods, and of rolling stock. For
example, when WMATA procures steel for the construction and
maintenance of its facilities, or for track work, the contract
must certify that that product is of 100 percent domestic
origin.
On the other hand, when we produce or procure buses or rail
cars, the contractor must certify that more than 60 percent of
the components by cost are produced in the United States, and
that final assembly takes place in the United States. The
marketplace has changed significantly since WMATA acquired the
four regional bus systems in 1973 and since it procured its
first 300 rail cars in 1976. There are fewer manufacturers of
bus and rail rolling stock today and, in fact, only one
domestic manufacturer of buses that is owned by an American
company. WMATA has been able, though, to purchase equipment and
materials and to comply with the Buy America requirements.
WMATA thanks the Committee for its direction in the
SAFETEA-LU Act to update the Buy America regulations. We
believe this will result in increased clarity for manufacturers
and transit providers. With regard to the current FTA
rulemaking, WMATA supports the FTA's approach and the changes
that they propose to the existing regulations.
As concerns the end product definition, WMATA believes that
it is most important that the final rule provide clarity,
consistency and predictability for the transit industry. We
believe by removing the so-called shifting methodology, as the
FTA now proposes, there will be more predictability and
competition in the marketplace, benefiting both the transit
industry and American manufacturers.
We also believe that the representative list of end
products should balance the purpose of Buy America_to promote
the domestic industry_with the needs of transit industries_to
obtain high quality products at a reasonable price. We believe
that balance can be achieved.
WMATA's goal is a representative list that would add
clarity and consistency as to whether a particular item is an
end product for the application of the Buy America rules.
Therefore, we encourage the FTA to provide an additional
comment period on the proposed list and suggest that the FTA
revise this list periodically.
Again, we commend the FTA for its efforts. We thank this
Committee for your efforts and we thank you for the opportunity
to appear before you today.
Mr. DeFazio. Thank you, Mr. Catoe.
Mr. Trenery.
Mr. Trenery. Mr. Chairman and Members of the Committee, my
name is Richard Trenery, and I am Vice President and Regional
General Manager for Cubic Transportation Systems. Cubic is
based in San Diego, and we are the world's largest turnkey
solution provider of automated fare collection systems for
public transport.
I also serve in the capacity as President of the U.S.
Transit Suppliers Coalition, a trade association consisting of
more than two dozen manufacturers, composed of both large and
small firms that supply products for the mass transit programs.
The Coalition strongly supports the Buy America statutory
requirements for the purchase of products manufactured in the
U.S. in federally-funded transit contracts.
Since its inception, Buy America has served as the basis
for hundreds of millions of dollars in American manufacturing
facilities in the creation of a highly trained work force
composed of thousands of manufacturing jobs. Several years ago,
the U.S. Transit Suppliers Coalition was formed out of
necessity. Despite Buy America's obvious value, it becomes
increasingly clear to many observers that Buy America, as
administered, has become increasingly mis-interpreted,
exploited and manipulated to the detriment of U.S. workers and
the economy.
The Coalition responded with a positive approach designed
to clarify Buy America and make it more open and accountable.
Our Coalition advocated a common sense solution centered around
three key improvements to the law. First, keep Buy America up
with the times. Amend the law to eliminate any confusion and
reflect the current marketplace. Close existing loopholes.
Eliminate the temporary and overly broad microprocessor
exception and minimize the use of any ambiguous and broadly
defined complex system as an end product. These loopholes often
allow companies that do not manufacture public transit
equipment in the U.S. to profit from taxpayer dollars.
Lastly, put teeth into the law. Require open and
accountable enforcement procedures. In passing SAFETEA-LU,
Congress made it clear that it too wanted the FTA to
specifically promulgate regulations that would assure that the
Buy America requirements and goals would not be circumvented by
an expansive use of the microprocessor waiver and the bundling
of complex systems in the so-called end products as a means to
circumvent Buy America compliance.
I want to congratulate this Committee, and particularly Mr.
Oberstar and Mr. LaTourette for their steadfast leadership
efforts to continue in its careful and thoughtful consideration
of our views, and the issuance of specific reform language,
both legislation and by letter, to direct the FTA to follow
Congressional guidance in its rulemaking process.
Mr. Chairman, we strongly believe that the FTA's second
notice of proposed rulemaking is a step in the right direction
toward compliance with the letter and spirit of the
Congressional direction as it applies to Buy America. However,
we continue to have some concerns with two specific elements of
the second proposed rulemaking.
First, FTA's proposed rulemaking offers factors that can be
used to distinguish between a system that would be truly as an
end product and what is designated as an end product as a way
to avoid Buy America requirements. Indeed, this is an
acknowledgement of the past problem and a step in the right
direction toward a workable definition.
However, in its proposed rulemaking, FTA continues to
propose a definition of end product that includes undefined
systems classification. This will clearly undermine the spirit
intended by Buy America. The inherent problem with the proposal
is that it does not definitively state how these factors will
be used to determine whether a system is being properly
designated as an end product.
As an aid, we have recommended to the FTA the following
simple test to identify an end product. The solicitation should
provide separate line item pricing for individual products, or
if a procurement provides for individual performance warranties
for individual or separate performance, products, other than
warranties related to degraded modes. Therefore it can
demonstrate a clear independence.
Or if items that are identified in the solicitation that
constitute a system originally sold separately and can function
independently of a system. Put simply, Congress perceived the
old interpretation of major system end products as a
circumvention of Buy America directed at FTA to redefine the
end product way that a major system cannot be used to reduce
other items that must be manufactured in the U.S.
Again, we suggest a mandatory bright line test is required
to put an end to the confusion.
Secondly, we propose that FTA clarify the description of
the microprocessor waiver. But we would like to see the input/
output facility of that to be readjusted. These devices do more
than just process data.
Mr. Chairman, our industry and thousands of tax-paying U.S.
workers applaud and appreciate the strong work this Committee
has done for its inspired leadership role in reforming Buy
America. We trust that you will continue to monitor the FTA as
it finalizes its Buy America regulations.
Cubic and our 29 member firms in the U.S. transit supply
area look forward to continuing to manufacture products that
will help keep our Country on the move. Thank you, sir.
Mr. DeFazio. I thank the gentleman.
Mr. Luffy.
Mr. Luffy. Thank you, Chairman DeFazio and Members of the
Subcommittee. Thank you for inviting me here today.
I first want to apologize for not having written comments.
I got word of this while I was overseas in China visiting some
of the facilities that Chairman Oberstar talked about and just
got back into town Monday. So I have been out and have not had
an opportunity to give written documentation. But I will
provide it afterward, naturally.
I would like to tell you that I am President and CEO of
American Bridge Company. We have been building steel bridges
around the world, particularly in the United States, for over
140 years. We are a heavy civil contractor and there is
probably not a major bridge to be built anywhere in the world
today, with the exception of the Far East, that we would not be
in pursuit of the project. We currently are the lead in two
contracts on the Woodrow Wilson Bridge, two main crossings, we
are the contractor there. And we are the lead of the joint
venture that has the SAS project that was the subject of
questions here with the last group.
So I have, I think, the facts on many of your questions,
and I am going to cut my comments short, so that you have the
opportunity to ask me whatever. I do want to say that we as a
company are pretty unique. We not only are a large civil
contractor bridge builder, but we are a steel fabricator. We
have facilities in Western Pennsylvania, in Pittsburgh, also in
Reedsport, Oregon. So we support, in a large way, Buy America,
and applaud the efforts of Congressman Baird and Congressman
Altmire.
But I can tell you, and I can go into detail, that is not
enough. This has been in effect for over 20 years now. I have
been in this business 35 or 40 years, and I can tell you that
the steel fabrication capability in the United States has
deteriorated over the last 20 years. It has not gotten
stronger. It probably would not exist were it not for Buy
America.
But still today, bridges without Federal money or, I don't
even understand how this works, bridges by the Corps or the
Coast Guard are open to Buy America, or are not subject to Buy
America. In fact, we just completed a Florida Avenue bridge
down in the Port of New Orleans for the Coast Guard, and that
steel went to a foreign provider.
Huey P. Long Bridge, it will be a $60 million to $100
million steel contract. It is bidding in June in New Orleans.
It will definitely go to a foreign steel fabricator.
This is not an issue often of dollars. Ultimately it is,
but until the issues of capacity and capability in guarantees
are addressed, you won't be changing much. This is where the
problem lies. The SAS project that everybody got into, and you
were tied up over this $400 million difference, I put those
numbers together personally, so I can tell you exactly how they
were arrived at, was not an issue of the steel being more
expensive. It was the issue of nobody in the United States
could do the job. The capacity is not here. It could simply not
be done. There is a requirement by the law that you cannot bid
the foreign price unless you bid the domestic price when you
bid the contract like that both ways.
So we had to ourselves bid the domestic end of that job. We
would not normally have gone after that job. And that
difference in price reflects the investment in the
infrastructure we would have to have made in order to
drastically expand our facilities, to hire and train people and
the liquidated damages that would have been necessary, because
we would have been late. There is no way we could have done the
job on time. And nobody else in the United States was
interested in the job because of the constraints of the project
itself.
Any major project that requires a fast delivery, you are
going to have this problem, whether you have Federal money in
it or not. There is not capacity. The largest steel fabricating
facility in the United States for bridges, I don't know if Conn
Abnee is still in the room, but I am guessing, because I know
the industry so well, is probably 300 or 400 people on the
floor working. I was in a facility that is going to fabricate
the steel for the Oakland Bay Bridge all last week. They have
32,000 people in that facility. It is not even a contest. It is
not even a contest.
Anyway, we are in support of Buy America. We would like to
see it a lot more strongly enforced. There is some ambiguity,
obviously, and that needs to be straightened out. It should
apply to the whole project.
The details of a job will require that the job be broken
into various segments, just so they can be bid and make more
competition and therefore a better price to the State or the
letting agency. But you have to look at the Buy America
provision across the whole project, and that can still be done.
So I will cut my comments off there. I really appreciate
being here. I have a lot of first-hand knowledge to this
particular issue and I will answer any questions you have.
Thank you.
Mr. DeFazio. I thank the gentleman. That was excellent
testimony, very informative for the Committee.
We have a vote in five minutes, so I am going to ask one
quick question, and then each of you, I don't know what your
schedules are for planes or whatever, if you can remain, we
will come back for a few questions. And anybody that has to
leave, we understand.
Mr. Luffy, if the language was in place, a more stringent
Buy America, and we certainly know if our infrastructure
deficit, one could project forward with it, would there then be
more fabricators willing to make the investments here, knowing
that there was a potential for business out into the future?
Mr. Luffy. Well, it is a good question. That is something
else I was going to address. Because we personally, our company
has invested $20 million, these two facilities are new, they
are not old facilities that we have as a company. And we
invested in the late 1990s up through 2003 in both these
facilities.
We believe that Buy America, didn't think we were going to
see a lot of change. But now, I think if we had the decision to
make today, we would not invest. There needs to be a clear
signal that the steel bridge structures will go to U.S.
fabricators.
Mr. DeFazio. Right. But if we tighten the law so that we
are sending a signal that it will be fabricated----
Mr. Luffy. Absolutely. Absolutely.
Mr. DeFazio. I had heard that actually the Chinese didn't
have the capacity for this particular structure, either, and
they had to either modify or build a plant to do it?
Mr. Luffy. Believe me, they have capacity. It is beyond
your comprehension if you haven't been there.
What they did is, we insisted that they segregate this
bridge, because the requirements are so stringent with regard
to quality that they segregate this completely from everything
else they do.
Mr. DeFazio. Okay.
Mr. Luffy. To give you an idea how fast they work, they
were given a contract in June. They are building a completely
new facility that I just visited last week. It will be open for
business and producing steel the beginning of this June. In 11
months time from inception to completion to producing steel, in
11 months time.
Mr. DeFazio. Okay, thank you.
With that, we are going to have to recess until--we should
be back hopefully in about 20 minutes. Thank you.
[Recess.]
Mr. DeFazio. All right, the Committee will come back to
order. Other Members will be along shortly. Again, I appreciate
your indulgence in terms of the schedule and length of this
hearing.
Mr. Luffy, if I could just pursue the line of questioning
just before recessed for the votes on the Floor, as I
understand it, at the time the project was proposed, there was
no one domestically who could produce the components.
Mr. Luffy. Within the time constraints that they required,
that is correct. There are two issues there, not to interrupt
you. One is the capacity to get it there with regard to
schedule and people. The other is the guarantee that you have
to give in order to get the contract. There are not fabricators
today in the United States that have the capital, the balance
sheet that can get the guarantees needed, the bonding needed to
guarantee the project on these mega-projects.
So if there is a steel sub-contractor you are going to give
to a steel supplier, if it is more than $100 million, other
than ourselves, I don't think there is another fabricator in
the United States that would be able to provide a bond, which
is the surety bond that is required as part of the construction
process.
Mr. DeFazio. Okay. But in response to, I mean, we will get
this, I find it odd that you bid both the domestic bid and the
foreign bid.
Mr. Luffy. That was a requirement. That was required by the
contracts.
Mr. DeFazio. So basically, you said okay, for bidding it
domestically, we know we are going to have to acquire the steel
from overseas?
Mr. Luffy. Yes, you actually go through a separate pricing
process, one doing it with domestic steel and one doing it with
foreign steel. Because there are implications on delivery and
timing and size of components and on and on. It affects the
whole job.
Mr. DeFazio. But at the $1.8 billion, you would have been
building some additional capacity here in the U.S.?
Mr. Luffy. A lot of additional capacity.
Mr. DeFazio. Right. So in a sense, because of the way Buy
America is set up, we are investing in capacity in China.
Mr. Luffy. No doubt about it.
Mr. DeFazio. And the way we can turn that around for the
future would be statutory change that makes it much more
definitive that we are not going to allow this segmentation and
these major projects will be required to be sourced here in the
United States. And at that point, either your company or
perhaps some other new entrants might be willing to take a risk
on the investment necessary to meet that, what would be a
fairly substantial projected demand into the future, very
substantial demand?
Mr. Luffy. Yes, it would be a pretty safe prediction that
that would happen. You would have significant investment.
Mr. DeFazio. So we have a great chance to bring some
capacity and jobs home here, potentially, if we revise this
law?
Mr. Luffy. Absolutely.
Mr. DeFazio. Okay, thank you.
Mr. Trenery, I heard your concerns at the end. I couldn't
get very specific, unfortunately, with Mr. Simpson, because he
is in the middle of a rulemaking, so he is in the quasi-
judicial mode, et cetera. So he can't really comment on exactly
what he is doing.
Did you propose, I assume you submitted comments, and in
those comments, did you propose specifically how they might
address your continuing concerns? You don't think he has quite
gotten to the point of resolving the issues I raised in the
letter I read to him?
Mr. Trenery. That is correct, sir.
Mr. DeFazio. Could you explain those in layman's terms?
Mr. Trenery. We prefer the common sense approach to it. We
try and look very pragmatically at what is the end result, does
it create jobs or does it not create jobs. In the particular
instance of the second notice of proposed rulemaking, we gave a
set of formal approach, very simple, and said that we in the
industry would this as a way you could determine whether
something is an end product or isn't.
Mr. DeFazio. Would you do it with all these specific lists,
or would you do it more with a generic kind of test?
Mr. Trenery. I think there are two answers to that. We
definitely applaud the representative list. That puts clarity
with everybody you know right from the get-go, what is an end
product. And if it isn't in there, because times will change,
there should be a set of tests that you can go through with
clarity, so you as a manufacturer and you as a buyer would know
exactly what was on there.
So we laid out in our comments, in both the original
rulemaking and we echoed again in the second rulemaking a set
of specific approaches to be able to offer. And that was done
from a coalition standpoint of 29 member firms.
Mr. DeFazio. Okay. Mr. Catoe, I appreciate your
determination to improve the service here locally. That is
grand. But on the specific topic here before us, has Buy
America presented any particular challenges to your
organization?
Mr. Catoe. I would say there have been challenges to this
organization and other organizations, because we have had the
same experience across the Country. We have been able to not
only meet the guidelines but in a lot of cases, particularly
with buses, to exceed the guidelines.
Part of the problem we have been confronted with, though,
because of the peaks and valleys, valleys of Federal Transit
appropriations, is that the bus industry has left the United
States. As I mentioned earlier, there is only one truly
domestic manufacturer of buses, and that has provided a
challenge from a competitiveness standpoint. There are fewer
manufacturers. It is really not tied into the United States, it
is just the way the funding has occurred.
Buy America has limited some of the manufacturers, since
they don't exist in the United States, from being able to bid
here. So we have less competition, and when you have less
competition, you have costlier products, or you don't find the
technology that you want in the few providers that exist.
Mr. DeFazio. But in the aggregate, the amount of Federal
funding that is going in at this point isn't enough to create
or induce someone to produce domestically?
Mr. Catoe. The problem is the long-term certainty of it. It
takes an enormous capital investment to build the capacity to
build a transit vehicle. It is an assembly line type of
operation. What the industry has seen over the last decade or
two has been the peaks and valleys. When it is good, it is
great. But when it is slow, it is real slow, to the point that
we have all three domestic bus manufacturers, one from
Michigan, one from New Mexico and one from California, that
have gone out of business, that went bankrupt as a result of
the valleys. It looks good today. If, as Congressman Oberstar
mentioned, there will be increased funding in the future, and
it is a long-term funding source, I think you would see more
domestic providers coming into the market or start-ups. But
today, again, there is some uncertainty on the amount of monies
that would be appropriated for rolling stock.
Mr. DeFazio. So the more certainty we could provide in the
next iteration of the surface transportation reauthorization
over the longest period of time, in addition to strictures on
out-sourcing, could bring manufacturing?
Mr. Catoe. Yes.
Mr. DeFazio. I would just reflect that in the last
reauthorization bill, I did get in a provision regarding
domestic manufacture of street cars, since we are about to have
the rebirth of the street car industry in America, and the
domestic manufacturer has stepped up and is working now on the
first prototype. They did license some Czechoslovakian
technology, but they have actually improved on it. This is a
company that produces a lot of exotic things for DOD. It
happens to be in Oregon, too. I am quite confident that we are
going to have state of the art streetcars available. I would
hope that we can get back to buses, too.
Just back to Mr. Luffy for a second, we have had a series
of hearings, and I will continue to hold hearings on private-
public partnerships. I am not sure how much you followed the
debate. I draw distinctions between greenfield projects, new
capacity, enhanced capacity and then the third iteration, which
is essentially just monetizing an asset and having someone run
the existing capacity.
Mr. Luffy. Right.
Mr. DeFazio. The last area I am very skeptical of.
But you raise kind of a new concern with me here. As much
as PPPs don't require Buy America, clearly, unless an
individual State negotiated those terms in the contract with
the--is that correct?
Mr. Luffy. Yes, this is a major concern, and I voiced it in
the break. We see the trend, we are involved in a couple PPPs
right now outside of the Country. We see the trend in the
United States will be on the increase. By their very nature,
they are free to go and buy where they like. Major structures
are done this way and there is a shortfall in the revenue from
the DOTs. This is how the problem is going to be solved, in our
opinion. Then those bridges will go to foreign steel.
If the dividing line is about 5,000 tons or so, if a
project has more than that, there is a very good chance it
would be in its open competition and it would go to a foreign
supplier. And when we say foreign today, forget, the Japanese
are no longer competitive, really. The Koreans are no longer
competitive. What you are talking about is mainland China and
Canada. Canada has three major fabricators up there that take
work from us every day. So when you talk foreign, I think you
can be specific. You are really talking about mainland China on
major structures and Canada.
Mr. DeFazio. I assure the gentleman that we are shining a
spotlight on PPPs. Even the most enthusiastic proponents of
PPPs realize that it is going to be a small percentage of our
future investment. We will continue to do that.
I have a question the staff gave me. What volume of work on
an annual basis would be needed to sustain a viable domestic
steel fabricator industry in the United States? How many
fabricators would be in such an industry?
Mr. Luffy. I don't know that I am confident, that I could
answer that off the top of my head. I can tell you that it
would be tough to have a facility that had the wherewithal, the
technical skills to develop a facility where you have people
that can do major bridges. Then you would have to have a
facility that is drawing roughly $50 million in revenues a
year, and if you could use a number of about $3,000 a ton to
$4,000 a ton, that would tell you the capacity, if somebody can
do that arithmetic.
That is about what you would need to maintain an ongoing
entity. Again, the Steel Bridge Alliance probably has more
accurate figures than my guess. But there are two or three,
depending on which part of the Country you are in, because
transportation has something to do with this, if you don't have
a facility, there are two or three competitors in existence in
most areas today. The problem is that if the job is
significantly large, and the schedule is challenging enough,
they just can't be competitive.
Mr. DeFazio. So the scheduling, the bonding, the
predictability of demand, the total dollar value of demand, all
those would be the major factors. It would be helpful if we got
some analysis of our answer to that question subsequent to the
hearing from either you or the Alliance, just because if we are
making a real objective in the next reauthorization bill to
really bring this industry home, we just need to know what we
have to be protecting in terms of investment in order to
perhaps accomplish that goal.
Mr. Luffy. We will get you accurate numbers. In fact, we
are one of the few that probably have them, because we have
investment in two new facilities here.
Mr. DeFazio. I thank you.
With that, I have some people waiting patiently in my
office, but this was a compelling panel and I had to come back.
I am going to ask Mrs. Napolitano to assume the Chair for the
remainder of the questions, and I am not certain whether
Chairman Oberstar is coming back or not. She will assume the
Chair and we won't keep you here much longer, I promise.
Mrs. Napolitano. Thank you very much.
We would like to continue. I thank the Chair for allowing
me to come up here, because I do have questions, and I told
him, don't make promises I can't keep.
Part of what I wanted to ask was, for many years, because I
have been through the different levels of government, city
council, and we wanted to put in a Buy America, because back in
the 1980s, we started losing manufacturing, losing the ability
to create, to make the rail cars, to do many things that we
knew the industries were going abroad. We weren't training
personnel. We were not investing in being able to keep up the
infrastructure to maintain. And everybody was not of the
opinion that we should invest or that we would be able to
remain competitive and be able to get things done cheaper.
What it really boiled down to was, bottom line was the
money and how much it was going to cost, and where can you cut
corners, or how can that be made at a cheaper price for the
taxpayer. In the end, the taxpayer did lose, and we know that.
Following the Chairman's line of questioning, how do we
begin to rebuild that which we have allowed to erode, knowing
full well that yes, we don't have a lot of the ability to do
the major projects, because we don't have the infrastructure we
once had. How do we together, the industries, the labor,
everybody, work together, work towards that aim. I would like
to pose that to all three of you.
Mr. Catoe. Thank you very much. I will attempt to respond
from a transit operator's perspective.
As I discussed earlier, one of the issues that has happened
to the rolling stock industry. For example, there is no
American or domestic manufacturer of a rail car. From a bus
standpoint, there is only one remaining domestic manufacturer
of a heavy duty bus that we use in the transit industry, the 40
and the 60 foot vehicle.
Again, some of the issues have been the inconsistencies in
the demand and the funding for vehicles, and that the
businesses did not survive in the United States. Instead, you
have businesses that are owned by firms in Europe, because
there is a consistency in the demand that came into the market.
So if there is a way that, from an industry perspective,
and we as operators have to be a part of this, to plan out the
needs over the next ten years, to schedule those needs out and
then look, from a funding perspective, a Federal funding and
local funding perspective, to ensure that the dollars are
there, there is the opportunity for someone to come in to
invest and to make a profit. Because no business is going to
come here and manufacture a product just for patriotic duty.
There is a profit involved in this also. That is one way.
As an industry, as we look at the aspect of the Federal
regulations, the FTA, and we are here today to support those,
if we continue that support, because you are right, there is a
direct relationship. With regard to the transit industry and
ridership, between those individuals who have jobs and the
ridership in the transit organization, my job is to pick up
people and carry people. I want as many people as possible out
there to use the system.
So I want jobs in this Country because jobs in this Country
support everything that we do. So from a personal perspective,
I support Buy America. But from an industry perspective, again,
we need to define and clarify our demands, through the American
Public Transportation Association. The work of Congress is to
ensure that funding is there to fund those needs for a
sustained period of time.
Mrs. Napolitano. Thank you.
Mr. Trenery. From the transit suppliers' perspective, let
me just echo and agree with Mr. Catoe's remarks. I think
funding is key and important. But also, there is a lot of
funding out there. Congress allocates a lot of funding each
year to this. So there is funding there.
What is also needed is consistent regulations. So the field
is level and plain. From a supplier standpoint, we need to know
what the interpretation is going to be, and not that it
changes. Because we make investments, and those investments
have to be equitable for all parties. We don't want to make a
$100 million investment in plant and supplies and then find out
the next year we didn't need to do that, all we needed to do
was interpret the regulations in such a way we could offshore
it. That doesn't help our manufacturing capacity and
capabilities.
So it is not only funding, it is also consistency of the
regulations and clarity that is necessary.
Mr. Luffy. From the steel fabricators' perspective, it is a
similar answer. At the heart of this is that you have to create
a level playing field. As I said, I was just in China looking
at steel fabricators. They are paying their people a buck, a
buck and a half a day. Our cost of labor is $30 an hour. So it
is not competition when you are going head to head. It just
doesn't exist.
Something has to be done about that. If you are going to
allow them to compete here without any requirements that they
do anything to level things out, then they are going to have
the work and we won't have the fabricating capability in the
United States. That is the long and short of it. This is not a
very complicated issue. We can help with the Buy America
clauses, of course, in that in some portions of the steel
fabrication industry, we can maintain a steady revenue stream,
projects. If that is the case, and we can see it out there in
the future, people will invest in facilities. So you maintain
some fabricating capability.
But there is an awful lot of steel produced in the United
States that is not subject to this, and of course, that will go
foreign and will further diminish the steel fabrication
capacity in the U.S.
Mrs. Napolitano. Can you elaborate a little more on the
level playing field aspect of it?
Mr. Luffy. Well, I think the labor, cost of labor is a big
issue. We are paying 20 times what they pay for labor. So their
cost to produce the steel is a heck of a lot cheaper than ours.
Mrs. Napolitano. What about quality? Is the quality
comparable? Is it better?
Mr. Luffy. They solve quality with labor. They just keep,
they will do it over five times until they get the quality
right and it is still way cheaper than us.
Mrs. Napolitano. Well, but that brings to point the safety
issue. Because we hold our standards much higher than China.
Mr. Luffy. No, no. This is not the case. Because, and
CalTrans is a good example, the requirements are very specific.
The quality standard has to be met. They will meet the quality
standard. So this is not an issue where we are buying an
inferior product.
Somebody made the statement earlier that their steel is not
as good as ours. Steel is a chemical composition. Anybody can
do a spectrographic analysis and look at it and determine
whether the steel is steel or not, and if it meets the
standards of the specification. Their steel is exactly the same
as ours, it is exactly the same.
The fact is that the government subsidizes their steel
production. So if you are a steel fabricator from China, you
buy your raw materials cheaper and your labor is cheaper. How
can we compete?
Mrs. Napolitano. Well, that also brings to mind the
difference between the dollar which plays a major part in that.
Mr. Luffy. Right. Absolutely. And you put them all together
and again, it is not a level playing field. If there is open
competition, they will always win.
Mrs. Napolitano. One of the areas that has really played a
big part in the resurgence of American economy, if you will,
back in the 1930s, when there was recession and you had dams
being built, bridges, highway construction, why is it we can't
begin to look at transportation as being one of the cogs of
rebuilding America's economy? Anybody?
Mr. Catoe. Thank you. You are preaching to the choir here.
Absolutely.
Mrs. Napolitano. But I want it for the record, sir.
[Laughter.]
Mr. Catoe. I support that. That is something that we can
look at, and as we look to the future, with the growth here in
the Metropolitan Washington area.
An example, today we are very quickly approaching capacity
on our rail system. We will be able to add additional cars.
That would give us some additional capacity. But as you look
five, ten years out, the increase in the population growth and
jobs will again exceed that capacity.
While we have said this is a system that is completed,
because it is 106 miles, plus some additional miles in a plan
for Dulles, there are many more corridors where we could
enhance the transportation and the transit system in this area
and around the Country. So if there is any proposal to have a
public works program for transportation, I volunteer our agency
and I volunteer this area, because the need will be there.
There is a way of creating jobs and a way of creating an
industry that will continue after the project is completed, if
we revitalize the rail car industry, as well as the tracks and
all the other components that we use on an ongoing basis.
Mrs. Napolitano. Anyone else?
Mr. Luffy, you did make a statement that we cannot compete
because of inequity, the cost or the price. Then what should
we, or what can we do to sustain or improve our steel industry?
Mr. Luffy. It is not going to happen without a steady
revenue stream. Nobody is going to invest in a production
facility unless you have a buyer for the product. And it is
just not going to happen here, because our product will cost
more.
The result is that you are not only losing industry and
basic jobs, you are losing a lot of engineering talent. I
happen to sit on the board of an engineering school. This is a
major problem we talk about constantly, is that the engineering
jobs are leaving with the manufacturing jobs. So you are
losing, you have everybody wanting to be a consultant, and at
the end of the day here, we are all going to consult with each
other, we are not going to produce anything. Something has to
be done to stem the tide. This is a good place to start,
because it affects us.
Mrs. Napolitano. Thank you.
Is it also a factor that we are not providing enough
training for our young people to become the engineers?
Mr. Luffy. This is a whole other issue. I can speak to it
with some knowledge, having been involved in these programs.
The issue is the attractiveness of an engineering education. We
are as a Nation, if you turn on your television tonight, you
will see seven shows about attorneys and not one about an
engineer. The fact is that kids go to school and want to do
everything but be an engineer.
Yet today the highest starting salaries out of any
university are for engineering. This story isn't getting to
kids. Unfortunately because of the high math requirement, you
have to get kids in grade school. In high school, it is too
late. Sixth or seventh grade, you have to get their attention.
There are a lot of privately funded programs ongoing to
make this happen, but the Government is doing nothing to
support it that I know of.
Mrs. Napolitano. I hate to pick on you, but the next
question, will not the open competition take all the projects
away, even with higher investment expenditure?
Mr. Luffy. Well, even with Buy America--I didn't understand
the question.
Mrs. Napolitano. The reference is to the foreign
competition, because they can't underbid. The competition,
because they will come in and it will be open, foreign
companies can still come in and underbid, would that affect it?
Mr. Luffy. Even with the Buy America in place, you are
saying? Well, it depends on the limits of Buy America,
obviously. Right now it is 25 percent higher. If that
percentage was increased, no. As a matter of fact, it is pretty
close, even at that, depending on the project. The
complications here is that there are some jobs, even today,
because there is a lot of capacity, say, in steel girder
making, steel girders are the steel that is on the Wilson
Bridge. There is a local supplier up in Lancaster,
Pennsylvania, that is very competitive. Even with steel
competition from a foreign country, High Steel is the name of
the company, they would still be low, in my opinion, given an
advantage of Buy America.
But there are other jobs like SAS and other major projects
where 25 percent isn't enough. It needs to be higher.
Mrs. Napolitano. Then would you suggest that that be part
of the actual Federal requirement, is that certain areas that
you know are a necessity have a higher percentage?
Mr. Luffy. Yes, absolutely. I think we could define
specific types of projects. But the percentage needs to be
higher on almost all types of bridge structures.
Mrs. Napolitano. Do you gentlemen agree?
Mr. Trenery. If I could amplify on one comment. The 25
percent criteria between U.S. and foreign, we applaud that. But
we have come across so many instances where that is not
applied. We have the systems procurement approach being
applied, which so-called levels the playing field, and
therefore there is no 25 percent. I have had companies that are
under our coalition that have lost contracts to a foreign firm
that is producing overseas for less than 10 percent, because
they will get a waiver or get put under a systems procurement.
So therefore, the 25 percent differential doesn't even get to
be applied.
So that is why we talk about leveling the playing field and
making sure the regulations are fully applied to everybody.
Mr. Luffy. I just want to add one thing. The point
specifically on, say, the Oakland Bay Bridge project, where
they break these projects up, if that percentage would have
been applied across the whole project, it would have gone to a
domestic fabricator.
Mrs. Napolitano. Across the project, instead of being
broken up and considered separately?
Mr. Luffy. Yes, it had to be a 25 percent improvement
across the whole project, well, then it would have become a
domestic fabrication project. The arithmetic can get
complicated, but it is a matter of, you are increasing the size
of the denominator when you apply it across the whole project.
Mrs. Napolitano. There are a lot of issues connected with
it. When I was reading some of the material given to us to
review prior to the hearing, it leaves a lot of questions
unanswered. Because we continue to say to the American public,
we are trying to improve our economy, trying to provide jobs,
trying to provide more funding for job training, and there are
no jobs. Somewhere along the line, we need to include the
business sector, as you have indicated, together with
education, together with companies who, I am sorry, the bottom
line is the money, that we need to ensure that we protect our
American jobs and that we continue having hearings where we
will bring this to the forefront, so people understand what
really is important to us and to this Country.
So with that, unless you have any further statements,
gentlemen, we thank you for your participation and thank you
very much for being so patient. This meeting is adjourned.
[Whereupon, at 5:40 p.m., the Subcommittee was adjourned.]
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