P&Q Roundtable & Conference part two: Solution searching

Participants discussed highway funding, energy costs, Tier 4 emissions regulations and more at the annual Pit & Quarry Roundtable & Conference in Cleveland.

The roundtable event was divided into two sessions, with different participants in each. Following is an abbreviated transcript from one of the discussions.

DARREN CONSTANTINO: One popular public-policy consultant suggests the days of massive transportation bills are over because the political environment makes it almost impossible to pass a single legislative package worth hundreds of billions of dollars. Do you believe another large multi-year highway bill is still a possibility, or are we more likely to see continued short-term extensions? Should organizations like NSSGA, AEM and others rethink their lobbying approach? Also, more states are stepping up to carry the load. Is this the new normal? Where will states get the money for highway funding?

DAVE MCLAUGHLIN: Well, this is our 12th short-term bill in five years and I don’t see anything changing. With the politicians fighting, I can’t see a long-term bill in the near future.

JOHN BENNINGTON: You asked if lobbying groups should change their focus. I think that’s the course, because for the next couple of election cycles, Washington is a lost cause until the electorate decides they need something. There’s no plus side for the people in Washington to stick out their necks until we demand something out of them as voters.

MARK KRAUSE: It’s been 20 years since we’ve had a gas tax increase. It’s 18 cents still today, right? Which is about 10 cents if you put it in today’s dollars. But something like 75 to 80 percent of that actually goes toward highways. The rest goes toward bike paths, landscape. So we’re not even getting the 10 cents on the dollar.

There’s a guy running for Senate in Michigan who wants to pass a bill that suggests taking those funds and giving them back to the states. I think there’s actually something there. I think we’ll see a lot more of a push for states to take more control of what’s going on. And you have states like Illinois that are broke, right?

And yet they have a hell of a highway program planned for the next five years. So as a state they’ve figured out how to do it. So the lobbying efforts should be at the state level because at least something is going to happen there. It’s not going to happen everywhere, but it’s certainly going to happen in some places.

MIKE HINRICHSEN: I think the larger issue here is we have a nation that needs to right their ship before they can start fixing their problems. That’s the whole issue. I have to believe that eventually we’ll get it right and I would also suggest that Illinois is probably not the best shining example, right?

MARK KRAUSE: No, but at least you have a highway program.

MIKE HINRICHSEN: I don’t know how we’re paying for it.

MARK KRAUSE: I don’t either.

MIKE HINRICHSEN: We have to be collectively, and I say collectively because all of us have served, the construction and the construction materials business need to have one voice. It needs to be consistent, it needs to be powerful and it needs to be unwavering, and we still don’t have that. We think sometimes we do, but I don’t think we’re there yet.

SCOTT ALEXANDER: One approach to lack of funding has been private groups coming in and funding toll roads, and that’s a success in certain areas. But I don’t think that’s the solution. It’s kind of been a Band-Aid to the problem of the infrastructure needs versus the lack of funding.

JOHN BENNINGTON: Speaking of toll roads, it just so happens I drove here from Iowa yesterday, and a large portion of that drive is toll roads basically from eastern Illinois all the way to here. And by far and away, the best piece of road was western Illinois. Western Illinois is the best part before you get to the toll road.

When you get to the toll road, there is a lot of construction, admittedly, but even the parts that are recently constructed, especially in Indiana, are kind of in an awful state. So that’s my concern with the toll roads. It’s a little bit like with the gas tax. The money is being collected, but is it going where it needs to go to do the job it’s being asked to do? That’s the big question.

MARK KRAUSE: I believe a foreign company actually owns that toll road.

SCOTT ALEXANDER: It’s not uncommon that a foreign company came in and made a huge investment. But, because of the fees, the usage of the road wasn’t what they expected, so they haven’t had the anticipated return.

MIKE JOHNSON: I’ve been resisting the urge to jump in early conversation, as the guy who is probably most responsible for the advocacy programs around this industry. I wanted to hear what you guys were saying first, and I have to tell you, I’m hearing a lot of the same when I go out and speak in the states. This room is exactly on point as it relates to what we’re hearing across the country on this. You heard it from the conference speaker [George Reddin] this morning: We cannot continue to live on the short-term extensions. Those will not get us to where we need to be.

Terri Lynn Land is the candidate in Michigan, running against Gary Peters. And for the first time in a Senate race in this country, you’ve actually got this issue at the forefront. She started calling him Pothole Peters and claims that it’s his fault as a member of Congress that the roads of Michigan are so bad.

Her solution is to get the federal government out of the business and send the money to the states. (Land was defeated.) You talked about the amount of the money that’s syphoned out of the Highway Trust Fund for things other than roads. It’s the smallest percentage at the federal level you’ll find. It’s states where you really find the raping, pillaging and plundering of highway trust funds because governors get in this mode where they’ve got to find fast money and that’s where it is. At the federal level, you’ve got a firewall. They can only use money in the Highway Trust Fund for highway or transit, or to your point, some bike paths, some landscaping. By law, the bulk of the money goes to builds roads.

A state senator in Missouri, the chairman of their transportation committee, said the problem with the Highway Trust Fund is waste, fraud and abuse, and that the money is being used to pay for ObamaCare. That is absolutely not true, and I had to stand up and correct the record. Some have said the problem is that people are driving less and cars get better mileage. That’s really not the problem.

The problem is if we had just indexed the 1993 increase for inflation, we’d have a surplus today in the Highway Trust Fund. So yeah, while private/public partnerships, while toll roads, while everything should be on the table, there’s really no other way to get to what we need, no other way to get to the level of spending we need without an increase in the gas tax. You can do 12 cents over two or three years, or even a penny a quarter. It would be a manageable impact. Look at the states where they’ve taken this action and raised their state gas tax: Prices haven’t gone up, and 90-plus percent of the people who cast that vote got re-elected. We’re not talking about liberal bastions here: We’re talking about Iowa, Wyoming, Virginia, Pennsylvania.

I’ve been in this industry only a year, but I have 20-plus years in advocacy work for trade groups. We’re just too nice, and we’re not coordinated enough with a tough message to electives on this issue. And that message can’t come from Washington. I would love to tell you as your chief trade association guy that we can fix all of this for you. We can’t. What we can do is a better job of equipping you. And that unified message Mike [Hinrichsen] talks about, it’s got to get more pointed, it’s got to get more demanding and we’ve got to hold these electives’ feet to the fire.

We’ve got to do it in a concerted way. We’ve got to go out in our communities and build what they built in Pennsylvania with the Keystone Coalition, where they had environmentalists and bicyclists and truckers all going together to ask for more highway funding. We’ve got to change the message, and it’s got to be delivered locally. We got to hold their feet to the fire. It’s not good enough to have them show up at a quarry, take a tour, get a PAC check, snap a photo and pat you on the back and say, I’m with you. It’s garbage. We need to get them at the quarry, snap a photo, ask them tough questions:

“Are you in favor of a gas tax increase? If you’re not, what are you in favor of?”
“Well, I’m studying the issue.”
“That’s great, how long are you studying it? Two weeks? Three weeks? When can you get back to me with an answer?”

And then follow up with them. [The National Stone, Sand & Gravel Association] can’t solve the problem for you in Washington. What we will do better is help you get the tools you need to ask those tough questions and make that grassroots outreach locally. We’ve got to change the political dynamic as much as we can.

SCOTT ALEXANDER: I think that all sounds good, but historically it hasn’t worked. The construction materials industry, as well as the Associated General Contractors, the coalition of everyone coming together gets great support by members that are happy to donate and happy to spend their time. But, quite frankly, we’ve just been spinning our wheels. I’ve done the lobbying, I’ve gone to the fly-ins. I have trouble trying to think about doing it now because it hasn’t worked. I’ve sat down with a Senate majority leader, and he’s listened to our big group, and he says, “Yep, that’s what we need to do by God.” And you walk away, and nothing gets done. They’re very good about telling you what you want to hear, but they don’t follow through. Our national associations need to get the message that we’ve got to do something different. I don’t know what the answer is, but there’s got to be a new approach, because what’s going on hasn’t worked.

EVAN CLARKE: Being a European and having lived in Europe, I can say that the road infrastructure is so much better-funded. If there are potholes in the roads, the people over there complain. But the American public doesn’t complain about it as much. The bottom line is that it has to come from the general public. How do we get the general pubic to help us raise awareness and get the funding for it?

DAVE CISZCZON: It seems to me that the problem is all political: How do we apply pressure in a unified voice? Do we target certain politicians? I don’t know. But it’s really frustrating that they can’t agree on anything. Some agree that we should have a long-term bill but others don’t want to spend the money. Nobody wants to have their name on anything that’s spending money right now.

EVAN CLARKE: You have to raise taxes and no politician wants to do that. Especially in today’s economy.

PAT JACOMET: The pressure needs to come from the state administrations. Our Governor [John] Kasich has taken a lead role in looking at innovative ways to fund highways. One of the things that we supported as an association and testified in front of the Senate and the House on was bonding against future revenue for the Ohio Turnpike. We didn’t sell the turnpike, didn’t lease the turnpike, but we bonded it against future revenue. We’re in a lot better position than some surrounding states.

MARK KRAUSE: I don’t believe anything is going to happen in Washington D.C., other than in 2016 we’re going to have an anti-big government, and they will not want to pass any big sweeping bills. And so I will agree that that’s where we need to get to, but I don’t believe we’re going to get there any time soon. And so that’s why I would rather use my energies to take it to state level, because there we can at least make something happen.

PHIL GOSNELL: Democrats, Republicans drive on these roads. FedEx drives on these roads. UPS drives on these roads. What if we just started with a basic grassroots campaign on the billboards that says: “Hate potholes?” … and there’s your congressman’s phone number on the billboard. Everybody driving on that road will want to call that number regardless of whether they’re Democrat or Republican, because everybody hates potholes. If you start on that basic level, you’ve got everybody’s attention, and it’s a cheap way to make an impact.

BRIAN BELL: We have something like that in Pennsylvania. It’s 1-800-Fix-A-Road.

PHIL GOSNELL: Do you think it makes an impact?

BRIAN BELL: Well, I know I’ve called a couple of times.

PHIL GOSNELL: Grassroots idea.

DARREN CONSTANTINO: Energy costs for aggregate producers continue to rise. Producers, what are you doing to keep costs down? Manufacturers, how are you making your products more energy-efficient? The last of the Tier 4 regulation deadlines is approaching. How has this legislation affected your capital purchasing decisions? How has it affected your site-maintenance routine?

MIKE HINRICHSEN: At first we looked at Tier 4 as a real threat to improvements we’ve made in fuel efficiency. But we decided we needed to look at the entire system. We vertically integrated because we virtually design and manufacture all our components. The integration of how those components walk and talk and speak to each other is where a lot of the efficiencies came from. I think Tier 4 had better inherent fuel advantages than we initially thought.

EVAN CLARKE: When it comes to Tier 4, we didn’t just change the engine, but basically the entire machine – to come up with new ideas and concepts, trying to make it more efficient. So for us, it’s still the early days. We just brought our first Tier 4 Final machines into the market this year, and we’re still learning from it.

RICK ROBINSON: We’ve experienced the same as what’s been said already by Mike and Evan. We focused on things such as control systems so that we’re basically only using the horsepower when needed. So, yeah, it was a learning curve that we all had to go through. I think we were all suspicious as you said, Mike, but now that we’ve got quite a few of the Tier 4 Final products out and operating. We’re pleased with the results.

MIKE HINRICHSEN: I think the upside potential on the investments that manufacturers have made is making sure that the producers understand how best to utilize that technology.

JOHN BENNINGTON: I was privileged to work with a couple of producers on a lean manufacturing program that they were running, and they looked at their entire operation. They would bring in a group of people with a variety of expertise, and they would look at everything from blasting to sales and literally just tear the whole thing apart and try to put in back together on a whiteboard.

They would look at cycle times on trucks. They would look, for example, at what was the most efficient way to get material from the face to the processing plant. And while you can go at it from an engineering standpoint and say, “It’s more energy efficient to use conveyors versus trucks,” there are places where trucks make more sense than a conveyor. Rather than taking a hammer and using it for whatever happens to be needed, people are looking to see what is the exact right tool for each part of the process. I don’t see how that can be a bad trend.

MARK KRAUSE: I think we’ll find, at least in the short term, that people will tend to hang onto equipment longer than they used to, because who is going to want to belly up and put that amount of capital out unless you have some certainty about the long term?

MIKE HINRICHSEN: I think that’s going to be a challenge for this industry. You’ve got components that are going to live 18-plus years. Think about that number of years and the pace of change that is going to happen with technology – and with whatever Tier 5 is. And, let’s be clear, there is a Tier 5 coming. I don’t know if you can hang onto equipment for 50,000 hours, because it won’t be an issue of wearing out; it will be an issue of obsolescence.

NICK ROSETO: When you’re looking at motor and drives, for instance, there are about 100 to 110 cement mills in the United States. That power draw is 5 percent of all available energy that’s produced – just in those 100, 110 mills. It’s a massive amount of electricity.
So the EPA has tightened regulations, and the cement mills have complied. But when you look into the quarries that actually produce the stone that goes into the cement mills, some of those quarries have several hundred conveyors. If they’re not up to date with high-efficiency motors, if they’re using gear reducers with belt drives, that is inefficient. So we’re seeing a shift from major manufacturers – moving from belt drives into direct drives.

ROB VANDERWALL: The EPA has made it clear that they don’t like generators. They really want online power to get rid of the generators.

PHIL GOSNELL: Our operators or plant managers don’t see the power bills. And so if one of the capacitors goes out, it could be two months before they notice it, because they don’t see the bills.

The bills go directly to our corporate office. So one of the things we’re trying to build into the capacitors is lights, horns and email notification.