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New "Buy America" Rules Delaying Highway Projects

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(This article first ran in Surface Transportation Innovations). A protectionist measure known as Buy America has long been applied to many federally aided public works programs, including highways and transit. If there is even one dollar of federal money in such a project, the iron, steel, and manufactured products involved in the construction must come from the United States. But after MAP-21 was enacted last year, someone in the federal bureaucracy changed the interpretation of what is covered by Buy America to include utility relocations. And that rule change has put billions of dollars of highway and transit projects on hold, as utilities find it impossible to comply. The problem is painfully evident in California, where major projects such as the $1.6 billion widening of I-405 in Los Angeles, the $1 billion Gerald Desmond Bridge in Long Beach, the $636 million eastward extension of the SR 91 Express Lanes into Riverside County, and the $750 million I-80/I-680 interchange in the Bay Area are in danger of losing federal funding or being considerably delayed.

Major utilities such as Pacific Gas & Electric, Southern California Gas, and Southern California Edison object that utility facilities are not owned by the state DOT, and that utility relocations are often paid for out of state, not federal, funds. In addition, legally speaking, they contend that a utility relocation agreement is not a “procurement contract” for purposes of the highway project and therefore does not meet the requirements of the Buy America rules.

As a practical matter, the utilities explain that they cannot comply at this point for a host of real-world reasons. As one of the major utilities pointed out in its letter to Caltrans, it has 22,000 different items (SKUs) in its system purchased from numerous suppliers, and a typical utility relocation can involve up to 500 different SKUs. Having never had to contend with Buy America regulations, the utility has no data on which of these 22,000 items were produced overseas or include non-US components. And in a utility system encompassing (for this company) 50,000 square miles, it has numerous storage and yard facilities where materials are on hand, in some cases ordered several years ago. Further, in order to comply in the future, the utility would have to create a complete sourcing system, to enable it to use only US-sourced materials and components on federalized projects.

Though most media have failed to notice this imbroglio, a large coalition of infrastructure and utility organizations, including AASHTO, APTA, the American Public Power Association, and many others have sent a letter of protest to the U.S. DOT. In response, a July 11th memo from Gloria Shepherd (Acting Associate Administrator for Infrastructure, FHWA) reiterated the agency’s interpretation of Buy America as applying to utility relocations but offering utilities an additional six months (till Dec. 31) to comply.

This is really foolish policy. Buy America was bad enough in its traditional interpretation as applying only to the iron and steel used in federally aided highway and bridge projects, needlessly raising costs for all highway users to protect a handful of steelworker jobs. But it’s even more ludicrous in mandating, in effect, that public utility companies expend huge amounts of time and money creating dual inventory systems to be used only on their work with state DOTs. This is how an economy becomes less productive, thanks to special interest groups getting themselves exempted from the workings of the market, imposing higher costs on everyone else.

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