[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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[GRAPHIC] [TIFF OMITTED] T5914.005



                         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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