[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                       FULL COMMITTEE HEARING ON

                          BONUS DEPRECIATION:

                    WHAT IT MEANS FOR SMALL BUSINESS

=======================================================================


                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 14, 2010

                               __________

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


            Small Business Committee Document Number 111-072
Available via the GPO Website: http://www.access.gpo.gov/congress/house




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                        MARK CRITZ, Pennsylvania

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)


                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
MARK CRITZ, Pennsylvania

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas


                                 (iii)



               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
MELISSA BEAN, Illinois               Ranking
JASON ALTMIRE, Pennsylvania          STEVE KING, Iowa
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
BOBBY BRIGHT, Alabama                GLENN THOMPSON, Pennsylvania
MARK CRITZ, Pennsylvania             MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                 HEATH SHULER, North Carolina, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)




                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Sandford, Mr. Jack, President, Faulconer Construction Co., 
  Charlottesville, VA. On behalf of American Road and 
  Transportation Builders Association............................     3
Fesler, Mr. Daniel, CEO, Lampert Yards, St. Paul, MN. On behalf 
  of National Lumber and Building Materials Dealers Association..     5
Vander Molen, Mr. Dennis, President, Vermeer MidSouth, Inc., 
  Jackson, MS. On behalf of Associated Equipment Distributors....     7
Ring, Mr. Robert, President, Meyer & Depew Company, Inc., 
  Kenilworth, NJ. On behalf of Air Conditioning Contractors of 
  American.......................................................     9
Budington, Mr. Jon, Global Printing, Alexandria, VA. On behalf of 
  Printing Industries of America.................................    12

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    26
Graves, Hon. Sam.................................................    28
Sandford, Mr. Jack, President, Faulconer Construction Co., 
  Charlottesville, VA. On behalf of American Road and 
  Transportation Builders Association............................    30
Fesler, Mr. Daniel, CEO, Lampert Yards, St. Paul, MN. On behalf 
  of National Lumber and Building Materials Dealers Association..    36
Vander Molen, Mr. Dennis, President, Vermeer MidSouth, Inc., 
  Jackson, MS. On behalf of Associated Equipment Distributors....    41
Ring, Mr. Robert, President, Meyer & Depew Company, Inc., 
  Kenilworth, NJ. On behalf of Air Conditioning Contractors of 
  American.......................................................    51
Budington, Mr. Jon, Global Printing, Alexandria, VA. On behalf of 
  Printing Industries of America.................................    55

Statements for the Record:
Nye, Hon. Glenn..................................................    59
Associated Builders and Contractors, Inc.........................    60
Association of Equipment Manufacturers...........................    61
The Associated General Contractors of America....................    62
American Truck Dealers...........................................    67
Capitol Hill Advocates, Inc......................................    68
North American Equipment Dealers Association.....................    70
Skyline Solar....................................................    72

                                  (v)




                       FULL COMMITTEE HEARING ON

                          BONUS DEPRECIATION:

                    WHAT IT MEANS FOR SMALL BUSINESS

                              ----------                              


                        Wednesday, July 14, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:50 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Kirkpatrick, Graves, and Bartlett.
    Chairwoman Velazquez. The Committee hearing is called to 
order.
    Today's hearing comes at a critical time for the U.S. 
economy. June marked the sixth month in a row that private 
sector jobs increased. Also, GDP has risen over three straight 
quarters after shrinking for six consecutive quarters. Despite 
these positive signs, unemployment remains unacceptably high.
    Small businesses will be critical to putting Americans back 
to work. With business activity picking up, we need to continue 
finding ways to promote entrepreneurship and investment. Last 
month, the House passed legislation aimed at steering tax 
relief to small businesses and promoting the flow of capital to 
our Nation's entrepreneurs. The Senate is expected to consider 
its own small business jobs bill shortly.
    As Congress completes a final package, there will be a lot 
of debate on which policies will best create jobs. One of those 
issues will be extending bonus depreciation. The Senate bill 
contains an extension of the 50 percent bonus depreciation tax 
deduction, while the House version does not.
    Bonus depreciation allows a business to take a 50 percent 
deduction for investments in new manufacturing equipment, 
office equipment, and other capital expenditures. This policy 
lapsed at the end of 2009.
    Today's hearing will focus on the impact of bonus 
depreciation on small businesses. We all know that bonus 
depreciation can help boost economic activity. However, it is 
also important to recognize what it means for smaller firms.
    The witnesses appearing today are small businesses in a 
range of sectors. They will offer insight on how bonus 
depreciation affects them and their industries.
    To many of the businesses here, bonus depreciation has an 
enormous impact. It increases cash flow and encourages 
investment while spurring expansion. Bonus depreciation also 
yields indirect economic benefits for small businesses. While 
small firms may not always purchase million-dollar machines, 
they see new opportunities when corporations make investments. 
Small businesses often sell, manufacture, ship or service big-
ticket items that large companies purchase using bonus 
depreciation.
    This is the kind of economic activity we need to foster 
widespread job creation. As noted in the 2010 Economic Report 
of the President, a true recovery from the current recession 
will be driven by business investment. This just underscores 
why bonus depreciation is necessary and why it has generated 
$10 billion to $20 billion in purchases while helping sustain 
or create between 100,000 to 200,000 jobs.
    Today's hearing will give Committee members the chance to 
consider all of these benefits. It will provide the perspective 
of small businesses and what bonus depreciation means for their 
industries.
    I would like to thank today's witnesses for taking time out 
of your busy schedules to offer your testimony at this hearing. 
Your testimony will be an invaluable part of the process as we 
move tax legislation with the ultimate goal of creating more 
jobs.
    I will now yield to the ranking member for his opening 
statement.
    [The information is included in the appendix.]
    Mr. Graves. Thank you, Madam Chair, and thank you for 
holding this hearing on bonus depreciation. A special thanks to 
all of our witnesses for being here. I know many of you 
traveled a long way, and I appreciate you taking time away from 
your companies to be with us.
    Bonus depreciation is an important tax incentive for 
businesses. It helps owners more quickly recover the costs of 
qualified purchases, freeing up capital to invest in their 
companies. What is not helpful, however, is Congress' pattern 
of temporarily extending or not extending tax provisions. This 
indefinite situation makes it extremely difficult for 
businesses, especially small businesses, to plan for the 
future.
    Making things more difficult for small businesses is the 
atmosphere of uncertainty caused by Washington's antibusiness 
agenda. New taxes, mandates, and regulations and countless new 
laws, including the health care law, threaten to strangle our 
Nation's entrepreneurs. More taxes are looming, thanks to the 
proposed climate change legislation and the financial 
regulatory reform bill, the potential expiration of the 2001 
and 2003 tax relief packages, and the return of the estate tax.
    A prevailing feeling of uncertainty about what lies ahead 
has made a lot of employers hesitant about creating new jobs 
because they aren't able to accurately predict costs and 
revenues.
    Washington has spent a record $3.6 trillion this year 
alone. Because of runaway Federal spending on the stimulus and 
countless other initiatives, the Federal deficit recently 
topped $1 trillion in the first 9 months of this fiscal year. 
Relying on unsustainable borrowing and spending is not going to 
provide small businesses with the stability they need and may 
put added pressure on interest rates and capital supplies.
    Washington has a spending problem. It doesn't have a 
revenue problem. We have got to curb unsustainable spending and 
encourage a return to fiscal sanity. At the same time, tax 
relief, including bonus depreciation, is critical. However, 
these days the benefit of a temporary tax relief is far 
outweighed by the coming thicket of additional taxes, mandates, 
and regulations that entrepreneurs face. Instead of more 
temporary extensions of important tax incentives, I think we 
should make those provisions permanent as a part of a 
responsible overall tax policy.
    Remember, we are depending on small businesses to create 
jobs, hire workers, and get our economy moving. They need 
policies that encourage expansion and job growth such as lower 
taxes, less government spending, and fewer unnecessary 
government mandates and regulations.
    Again, Madam Chairwoman, I appreciate you having this 
hearing. This is a very good hearing for businesses and I look 
forward to what our witnesses have to say.
    [The information is included in the appendix.][2 p.m.]
    Chairwoman Velazquez. Our first witness is Mr. Jack 
Sanford. He is the President of Faulconer Construction Company, 
headquartered in Charlottesville, Virginia. Faulconer 
Construction is a multidisciplined site and road contractor 
founded in 1946. Mr. Sanford is testifying on behalf of the 
American Road & Transportation Builders Association, with over 
5,000 members.
    You will have 5 minutes to make your opening statement.

 STATEMENT OF JACK SANFORD, PRESIDENT, FAULCONER CONSTRUCTION 
  COMPANY, CHARLOTTESVILLE, VA; ON BEHALF OF AMERICAN ROAD & 
              TRANSPORTATION BUILDERS ASSOCIATION

    Mr. Sanford. Thank you, Madam Chairman.
    Madam Chairman and members of the Committee, I am Jack 
Sanford, President of Faulconer Construction Company, based in 
Charlottesville, Virginia. I am here today representing the 
American Road & Transportation Builders Association. I am the 
third generation in my family to own and manage Faulconer. We 
currently have around 260 employees, and we perform site 
development and heavy highway construction primarily in 
Virginia and North Carolina.
    According to the latest economic census conducted by the 
U.S. Bureau of the Census, there are just over 11,000 business 
establishments involved in transportation construction. Most 
are small businesses. More than 90 percent have less than 100 
employees, and the average is less than 40. My industry is 
basically made up of small businesses. The improvements we 
deliver are also very important to the broad range of small 
businesses to move people and products around town and 
throughout the country.
    It is no secret, Madam Chairman, the construction industry 
has been extremely hard hit by the Nation's recent economic 
difficulties. Even with the robust transportation and 
infrastructure investments provided by the American Recovery 
and Reinvestment Act, unemployment in our sector still exceeds 
20 percent, which is more than twice the national average.
    The Recovery Act's transportation investments have met 
their intended goals of supporting employment and generating 
economic activity. One cannot, however, overlook the concurrent 
State budget difficulties and decline in private sector 
construction activities that have somewhat diluted the benefits 
of these investments. The Recovery Act also included a critical 
1-year extension of the 50 percent depreciation bonus enacted 
in 2008. ARTBA member firms have demonstrated how this 
provision allowed firms to strengthen their operations and also 
to boost the overall economy.
    The General Contractors Association of New York reports one 
transportation construction company chose to purchase $10 
million of heavy construction equipment in 2009 because of the 
tax benefits coming from bonus depreciation. Another smaller 
New York firm purchased two pieces of equipment in 2009 from 
their local Caterpillar dealer, and cited bonus depreciation 
provisions as the reason.
    The Virginia Transportation Construction Alliance, the 
statewide industry association to which my company belongs, 
reports a bridge-building contract to purchase a $1.1 million 
crane because of the combination of low interest rates and 
bonus depreciation that was in effect. A second Virginia 
construction firm reports it purchased nearly $650,000 of 
equipment in 2008 and 2009 because of the tax benefits.
    These real-world examples demonstrate the effectiveness of 
the bonus depreciation for stimulating economic activity. As 
such, we strongly support efforts to extend this depreciation 
benefit for 2010.
    One modest improvement that would broaden the use of the 
depreciation bonus is extending its application to firms 
leasing new equipment if they choose to purchase that 
equipment. This is allowed under the current regulations for 
purchase decisions made within 3 months. However, allowing a 
lessee of new equipment who converts to a purchase, regardless 
of the inception date of the lease, to take advantage of this 
provision would greatly expand the applicability and benefits 
of bonus depreciation.
    Madam Chairman, earlier I mentioned the array of challenges 
facing the U.S. transportation construction industry. I would 
be remiss in not pointing out the most meaningful action 
Congress could take for our sector and its thousands of small 
businesses--the enactment of a multiyear reauthorization for 
Federal highway and public transportation programs.
    I recognize the focus of today's hearing is bonus 
depreciation, but members need to understand the 
interrelationship between this tax benefit and the lack of 
action on the multiyear surface transportation bill.
    As a business owner, the lack of certainty about Federal 
transportation programs directly influences my decisions to 
make capital purchases. This creates a situation where two 
factors are working at cross purposes. The depreciation bonus 
is an excellent incentive to purchase new equipment, but the 
lack of a reauthorization bill is an equally powerful 
disincentive. We ask that you urge the congressional leadership 
of both parties to make passing an extension of the 
depreciation bonus and a multiyear highway public 
transportation bill a priority in 2010. Such actions would 
produce immediate and long-term economic benefits.
    Thank you for having me and for the opportunity to appear 
before you today. I would be happy to answer any questions from 
the Committee.
    Chairwoman Velazquez. Thank you, Mr. Sanford.
    [The statement of Mr. Sanford is included in the appendix.]
    Chairwoman Velqazquez. Our next witness is Mr. Daniel 
Fesler. He is the CEO of Lampert Yards in St. Paul, Minnesota. 
Lampert Yards is a Midwest regional lumber company, and Mr. 
Fesler is the fourth generation of his family to hold the 
president's job. Mr. Fesler is testifying on behalf of the 
National Lumber and Building Material Dealers Association, 
which has over 6,000 members.
    Welcome.
    Mr. Fesler. Thank you.

 STATEMENT OF DANIEL FESLER, CEO, LAMPERT YARDS, ST. PAUL, MN; 
  ON BEHALF OF NATIONAL LUMBER AND BUILDING MATERIALS DEALERS 
                          ASSOCIATION

    Mr. Fesler. Chairwoman Velazquez, Ranking Member Graves, 
and members of the Committee, on behalf of the National Lumber 
and Building Material Dealers Association, thank you for 
allowing me the opportunity to testify today. I am grateful to 
be here to discuss these critical business issues.
    My name is Dan Fesler, and I am the chief executive officer 
of Lampert Yards in St. Paul, Minnesota, and am chairman of the 
National Lumber and Building Material Dealers Association. 
Lampert Yards began in 1887, and it continues to be a family-
owned business with 24 operating lumber yards in five States--
Minnesota, Wisconsin, Iowa, South Dakota, and North Dakota. I 
am a fourth generation, and we employ right now, currently, 395 
employees.
    Founded in 1917, the NLBMDA is the voice of the lumber and 
building material industry. The Association has over 6,000 
members, and it operates in all 50 States, operating single and 
multiple lumber yards, component plants, servicing 
homebuilders, contractors, consumers, and new construction, 
repair and remodeling, residential and light commercial 
buildings. Most of the members are family-owned businesses like 
myself, and the vast majority of them are second- or third-
generation businesses.
    As you know, the U.S. economy and housing market is still 
in the midst of one of the greatest downturns in the history of 
our Nation. As reminded almost daily in the media, the housing 
crisis still plagues our economy. Our Nation's lumber and 
building material dealers are on the front lines of this 
crisis, and many, unfortunately, have had to permanently shut 
their doors as a result.
    With respect to my own company, since the decline of the 
housing market, we have closed seven facilities. We have had to 
lay off or terminate 418 employees. We have seen numerous 
lumber yards, builders, distributors, manufacturers, go out of 
business. In addition, the costs of operating our business have 
significantly increased at significant rates due to government 
regulation, such as IRS rules changes, loss of deductions, new 
EPA regulations, and increased OSHA oversight and regulations.
    Health-care costs continue to grow steadily, as they have 
for the last 10 years. While costs have been up sharply, sales 
have been declining over the last 4 years. We have seen our 
margins and profitability erode and decline. The average lumber 
yard lost $1.5 million in 2009. We have been forced to suspend 
investments in new or needed equipment.
    One way to help lumber and building material dealers and 
many businesses out of their current economic difficulties 
would be to extend the bonus depreciation for 1 year, as 
recommended by President Obama in his 2011 budget. While the 
HIRE Act, signed by President Obama in March, renewed the 
increased section 179 expensing levels for this year, the 
temporary 50 percent bonus depreciation lapsed at the end of 
2009, and it has not been restored.
    Bonus depreciation allows businesses to recover the costs 
of certain capital expenditures more quickly than under 
ordinary tax depreciation schedules. Businesses can use bonus 
depreciation to immediately write off 50 percent of the cost of 
depreciated property. Bringing back bonus depreciation will 
encourage companies of all sizes to invest in newer, more 
efficient and more environmentally friendly equipment, which 
will help both large and small businesses alike.
    In a fragile economic recovery, extending bonus 
depreciation for capital investments will help promote 
continued investment. It will stimulate sales of business 
capital investments, such as machinery and equipment, by 
helping customers who have buying needs and suppliers who have 
products to sell. A bonus depreciation extension will help 
lower the cost of such purchases at a time when economic 
uncertainty and high unemployment are thwarting business 
capital investment.
    Bonus depreciation to me is somewhat of a misnomer. It 
sounds like you are getting a bonus or a greater benefit when, 
in actuality, what it does for us is it has depreciation 
matched to the true life cycle of the product. For Lampert's, 
we have 235 computer terminals in our operation. We have 197 
printers in use in the company every day. On average, that 
equipment lasts for 3 years, partially because they run 10 
hours a day, 6 days a week, and also because we operate in a 
harsh environment that often causes the equipment to get dirty 
and dusty.
    Under the normal IRS depreciation rules, these must be 
written off over 5 years, which is much longer than their true 
life cycle. Bonus depreciation allows us to write these off 
over a faster period of time, but also in line with their true 
life cycle. Without bonus depreciation, we hold and use 
equipment longer, and we delay the cost of investment in newer 
and better equipment. Giving a company the ability to write 
these things off in a more timely manner would be much more 
beneficial.
    Taking all of this data and support into account for bonus 
depreciation, we certainly hope the House will seriously 
consider passing a bonus depreciation extension, which we know 
will help our economy to get back on track.
    The NLBMDA appreciates the opportunity to testify on this 
critical issue. We look forward to working with the Committee 
and Congress on this and on other steps that will help us 
emerge from the current crisis.
    I will be glad to answer any questions.
    Chairwoman Velazquez. Thank you.
    [The statement of Mr. Fesler is included in the appendix.]
    Chairwoman Velazquez. The chair recognizes the ranking 
member.
    Mr. Graves. Thanks, Madam Chair.
    Madam Chair, I am pleased to introduce Dennis Vander Molen, 
who is the president of Vermeer MidSouth, a full-service 
equipment dealer based in Jackson, Mississippi, which 
specializes in sales, leasing, training, and in the servicing 
of Vermeer horizontal drilling machines, rock trenchers and 
trench compactors.
    Mr. Vander Molen is the 2010 chairman of the Associated 
Equipment Distributors. Born in Iowa, Mr. Vander Molen has been 
with the Vermeer company for his entire career, working his way 
up through the company in service, engineering and sales. In 
1987, he left Vermeer to co-found Vermeer MidSouth, which is a 
distributor. The company has grown to seven locations. It 
serves four States and employs 60 people.
    Thanks for being here, and I appreciate your coming all 
this way.

STATEMENT OF DENNIS VANDER MOLEN, PRESIDENT, VERMEER MIDSOUTH, 
     INC., JACKSON, MS; ON BEHALF OF ASSOCIATED EQUIPMENT 
                          DISTRIBUTORS

    Mr. Vander Molen. Good afternoon, Chairwoman Velazquez and 
Ranking Member Graves. Thank you for that introduction. It is 
my pleasure to appear before you today both as a small business 
owner and in my capacity as the 2010 chairman of Associated 
Equipment Distributors.
    AED is an international trade association, representing 
independent, authorized construction mining, forestry and 
agricultural equipment dealers throughout the country and 
around the world.
    As you have heard, I am the president and general manager 
of Vermeer MidSouth, a family-owned company since 1987, and our 
company does employ a good many people throughout that four-
State area of Mississippi, Arkansas, Louisiana, and Tennessee.
    I appreciate the opportunity to be with you today to 
discuss how installing the depreciation bonus will help small 
companies like mine recover from the great recession. I would 
like to use my time to highlight three key areas.
    First, the construction equipment industry has been 
affected as much as any other in this economic downturn. For us 
this recession has been nothing short of a depression. A study 
conducted last year by Global Insight for AED and the 
Association of Equipment Manufacturers painted a grim picture. 
The study found that, from 2007 to 2009, spending on 
construction equipment fell 50 percent; and that, over the last 
3 years, manufacturers, distributors and maintenance providers 
shed 257,000 jobs, representing a stunning 37 percent of the 
industry workforce.
    The effects of the equipment industry downturn have been 
felt well beyond the dealer yards and manufacturing plants. 
Global Insight estimated that the equipment industry depression 
has cost an additional 274,000 jobs in the broader economy. In 
total, the downturn in the equipment industry has cost 550,000 
jobs nationwide since 2006.
    My second point is that the depreciation bonus is a 
powerful and proven economic stimulus tool. It was first 
employed in 2002 when the Nation was in the grips of another 
milder economic downturn. A survey of National Utility 
Contractors Association members, conducted by AED in 2003, 
found that 67 percent of the contractors who were aware of the 
loss said that it prompted them and their companies to invest 
in new equipment in the prior 12 months.
    Because of the success of the depreciation bonus in the 
early part of the decade, Congress included it in the 2008 
Economic Stimulus Act. A survey of NUCA members conducted in 
2008 found that, despite the fact that the depreciation bonus 
had been only in effect for just a few months, approximately 
one-third of survey respondents said that they had already 
purchased equipment in the first half of 2008 to take advantage 
of that law.
    More recently, a survey of our own members, conducted this 
spring, found that the capital investment incentives in the ESA 
and in the American Recovery and Reinvestment Act had done more 
to stimulate new equipment sales than even the ARRA's 
additional infrastructure movement.
    In that same survey, equipment distributors were asked to 
rate the beneficial impact of the various policy solutions our 
industry is advocating to help the industry recover. The only 
priorities that ranked higher than reinstating the depreciation 
bonus were reenacting the multiyear highway and water 
infrastructure reauthorization bills and then passing 
legislation to free up credit for small businesses.
    While the depreciation bonus alone would be helpful, 
simultaneous congressional action in all of these areas would 
be mutually reinforcing. Multiyear highway and water 
infrastructure investment bills would address critical national 
needs while giving contractors a reason to start buying 
equipment again. The depreciation bonus would give them an 
additional incentive to do so, and the small business credit 
legislation would ensure that they have the means to make a 
purchase.
    My third and final point is that the benefits of the 
depreciation bonus will be felt way beyond the equipment 
industry. Distributors and contractors who buy equipment and 
take advantage of the depreciation bonus will get a tax cut 
this year, which will free up resources and allow them to take 
additional investments and hire new workers.
    Because the depreciation bonus applies only to new 
equipment, the machines contractors buy will be cleaner and 
more fuel-efficient than the ones that they owned previously. 
Upstream, manufacturing plants idled by the recession will 
again be receiving orders, which will put laid-off workers back 
to work. Large and small companies that supply equipment 
manufacturers will see business pick up as well.
    The scenario will be repeated in all sectors, which is why 
more than 80 organizations representing a broad cross-section 
of the economy are working with AED in an ad hoc coalition and 
are urging Congress to reinstate the depreciation bonus.
    To sum it up, recent government data shows that the 
national economic situation is very volatile and underscores 
the importance of additional recovery legislation. Whatever the 
true state of the U.S. economy is, the depreciation bonus will 
help. If things are going better, the depreciation bonus will 
strengthen the recovery and help it take hold. If the economy 
is once again deteriorating, the depreciation bonus will 
encourage business purchasing, thereby stimulating economic 
activity and, hopefully, helping hold away another economic 
downturn.
    Thank you for allowing me the opportunity to share with 
you, and I would be glad to answer any questions.
    Chairwoman Velazquez. Thank you, Mr. Vander Molen.
    [The statement of Mr. Vander Molen is included in the 
appendix.]
    Chairwoman Velazquez. Our next witness is Mr. Robert Ring. 
He is the president of Meyer & Depew Company, located in 
Kenilworth, New Jersey. Meyer & Depew serves the mid-Atlantic 
region, and it is one of the area's leading residential and 
commercial HVAC contractors. Mr. Ring is testifying on behalf 
of Air Conditioning Contractors of America, which has over 
4,000 members.
    Welcome.

  STATEMENT OF ROBERT RING, PRESIDENT, MEYER & DEPEW COMPANY, 
INC., KENILWORTH, NJ; ON BEHALF OF AIR CONDITIONING CONTRACTORS 
                           OF AMERICA

    Mr. Ring. Thank you very much.
    Chairwoman Velazquez, Ranking Member Graves, Dr. Bartlett, 
and Mr. Moore, thank you for allowing me this opportunity to 
provide testimony on behalf of the small business service 
contractors of the heating, ventilation, air conditioning, and 
refrigeration, or HVACR, industry.
    My name is Bobby Ring, and I am the president of Meyer & 
Depew Company, a 57-year-old family-owned business, located in 
central New Jersey. Meyer & Depew offers maintenance, repair 
and installation services for heating, cooling and indoor air 
quality equipment to residential and commercial clients 
throughout central and northern New Jersey.
    Like a lot of family small businesses in the HVACR 
industry, I began working there when my father hired me, back 
in 1981. Today, I am the majority owner. Incidentally, my 20-
year-old son has recently joined our firm, and may one day 
become the third generation to own and operate our business.
    I come before you this afternoon as a proud member of the 
Air Conditioning Contractors of America, ACCA, where I serve as 
Secretary of the Board of Directors and as chairman of the 
Government Relations Committee. Every day, more than 4,000 ACCA 
member companies across the Nation help homeowners, small 
business owners, and property managers realize the comfort, 
convenience and cost benefits of energy-efficient HVACR 
equipment. Eighty-four percent of ACCA members have fewer than 
50 employees, and 60 percent have fewer than 20 employees, so 
we truly are representative of small business.
    It is an honor to present testimony before you today, and I 
want to commend the Committee for its leadership and its 
efforts to protect the interests of the great economic engine 
known as America's small businesses.
    My comments today will focus on the small business 
investment incentives permitted through Internal Revenue Code 
section 179 and on bonus depreciation. I can attest that these 
tax incentives not only benefit the small businesses of the 
HVACR industry, but they also have a ripple effect through the 
economy to all of the businesses that we purchase equipment and 
goods from. I hope that my testimony will influence future 
policy decisions that further assist our economic recovery.
    As you are well aware, small businesses of all types 
struggle with cash-flow issues, access to credit and dealing 
with the various tax and regulatory burdens from both the 
Federal and State as well as from local governments. In a very 
real way, expensing allowances and the ability to use bonus 
depreciation help a small business like mine by lowering tax 
liability, freeing up more money to hire new employees and 
encouraging the purchase of new equipment, such as trucks, 
computers, office machinery, and furniture. Knowing that I can 
write off half of the purchase price of a qualified vehicle or 
office equipment in the year I place it into service gives me 
the economic justification to invest in my company. Robust 
section 179 expensing allowances and bonus depreciation help 
small companies like mine to get off the sidelines and spend 
money.
    On several occasions since 2002, Congress has approved 
short-term expansions of section 179 expensing and bonus 
depreciation as a way to stimulate the economy. In those years, 
our company has used these incentives to purchase new trucks 
for our service technicians and computers and equipment for our 
office staff. The stimulus bill extended the expansion of the 
section 179 expensing limits and the ability to write off half 
of selected investments through bonus depreciation in 2009. The 
passage of the HIRE Act in March of this year extended the 
section 179 expensing limits retroactively for 2010. Now 
Congress must take the next step and extend bonus depreciation, 
and it must do so quickly.
    Small business needs certainty in today's uncertain times. 
I have to tell you the uncertainty of not knowing where we are 
going, what the law is going to be, what the tax regulations 
are going to be, really puts a lot of us in the position where 
we don't know what to do, and that stifles small business and 
economic growth. A business owner will not spend precious 
financial resources in the hopes that the bonus depreciation 
will pass someday and be applied retroactively.
    HVACR contractors are not the only small business group 
calling for bonus depreciation. In April, ACCA was part of a 
coalition of 82 small businesses that urged Congress to 
reinstate bonus depreciation. Delaying the reinstatement now 
during this fragile economic recovery sends a negative signal 
to small businesses, especially when surveys have shown that 
bonus depreciation prompts small businesses to take advantage 
of investment opportunities.
    In order to increase the economic benefits of section 179, 
I would also like to recommend that, as Congress considers an 
extension of bonus depreciation, that it also expands the 
qualifying property under section 179. Under depreciation 
rules, property with a recovery schedule of more than 20 years, 
known as section 1250 property, does not qualify for section 
179 expensing or bonus depreciation. In fact, HVACR equipment 
must be depreciated over 39-1/2 years, which, according to the 
American Society of Heating, Refrigeration and Air Conditioning 
Engineers, is more than twice the expected life of properly 
installed and maintained HVACR systems.
    ACCA applauds Chairwoman Velazquez for the introduction of 
H.R. 4841, the Small Business Tax Relief and Job Growth Act of 
2010. H.R. 4841 would remedy this problem by expanding the 
definition of a "qualified structural improvement" under 
section 179 property made in 2010 and 2011 to include any 
improvement to a building or its structural components, 
including improvements to the roof, drainage, plumbing, 
electrical components, heating, ventilating, air conditioning, 
insulation, and fire protection, intended to improve or to make 
such a building ready for use in a trade or business.
    Not only would this change in the Tax Code help many small 
firms that are located in commercial properties, like 
professional townhouse suites, doctors' offices and strip 
malls, to be able to afford energy-saving HVACR retrofits, but 
it would also allow these improvements to qualify for bonus 
depreciation. Without any incentive to replace aging HVACR 
equipment, small businesses will continue to maintain and 
repair old, inefficient furnaces, air conditioners, chillers, 
and boilers.
    According to the 2005 Residential Energy Consumption 
Survey, since 1990 only 30 percent of the commercial buildings 
have had their main heating equipment replaced, and only 37 
percent have had their main cooling equipment replaced. Some 
may argue that expanding the definition of section 179 
qualified property would cost too much in lost revenue, but 
those losses would be more than made up for in increased 
economic activity, lower utility costs and fewer greenhouse gas 
emissions, as well as in job creation.
    My fellow ACCA members and I are very concerned about the 
status of our Nation's economic recovery. Economic indicators 
point in different directions over the next few months and 
years. America's small business needs to see positive signs 
from Washington to allay fears that a double-dip recession may 
be occurring. The passage of bonus depreciation will send the 
right message that Congress is interested in helping promote 
job creation and a revitalization of the economy.
    With that, I conclude my comments, and I would be happy to 
answer any questions you may have. Thank you again for giving 
me this opportunity to provide this testimony.
    Chairwoman Velazquez. Thank you, Mr. Ring.
    [The statement of Mr. Ring is included in the appendix.]
    Chairwoman Velazquez. Our next witness is Mr. Jon 
Budington. He is the CEO of Global Printing in Alexandria, 
Virginia. Global Printing provides printing distribution and 
marketing support services to organizations. Mr. Budington is 
here to testify on behalf of the Printing Industries of 
America. PIA is the world's largest graphic arts trade 
association, representing an industry with approximately 1 
million employees.

 STATEMENT OF JON BUDINGTON, CEO, GLOBAL PRINTING, ALEXANDRIA, 
        VA; ON BEHALF OF PRINTING INDUSTRIES OF AMERICA

    Mr. Budington. Chairwoman Velazquez, Ranking Member Graves, 
members of the Committee, on behalf of Printing Industries of 
America, I want to thank you for allowing me to testify today. 
My name is Jon Budington, and I am president now and CEO of 
Global Printing, a manufacturing and marketing services firm 
based in Alexandria, Virginia.
    Global first opened its doors in 1978. Over the past 30 
years, it has grown to employ over 90 employees, and it 
generates revenue annually of around $11 million.
    In talking a little bit about the printing industry at the 
macro level, printing is one of America's oldest and largest 
manufacturing industries. At the start of 2008, the industry 
employed 1 million workers in a uniquely domestic industry. 
Almost all print consumed in America is produced in America, 
providing jobs in every State and district. In total, printing 
comprises approximately 1.2 percent of total annual economic 
output in the United States.
    Unfortunately, the recent recession has shrunk print's 
economic footprints by historic proportions. The number of U.S. 
printing plants declined 8 percent in 2008. Total shipments, 
not adjusted for price changes, in 2009 were down 15.6 percent 
industry-wide, and employment declined by 6.9 percent.
    Lower print demand relative to supply caused printing 
prices to decline by 6.5 percent in 2009. Printers' profits 
have declined by approximately half over the past 2 years. 
Access to capital remains an issue for the printing industry 
with almost one in four printers reporting problems in 
obtaining credit in the first quarter of 2010.
    I can attest to that myself. I became CEO of Global 
Printing during the 2001 recession. In that year, Global lost 
30 percent of its revenue, and we were bleeding cash terribly. 
We understood in order to remain viable in today's online 
world, our print-focused business model needed to change. We 
invested heavily in new technology that integrated print with 
the Internet. This new technology created new jobs and allowed 
Global to provide cutting-edge, creative ideas to our 
established print clients. Those investments made in 2001 are 
what basically got us through that recession.
    In the current economic climate, many businesses have 
closed or slashed payroll. At Global, in seeing this coming, we 
took proactive measures to suspend 401(k) contributions, 
administer across-the-board pay cuts and initiate a hiring 
freeze. We avoided using our line of credit for fear that it 
may not be renewed, and opted not to seek any equipment 
financing. All of these very difficult business decisions 
allowed Global to weather the current economic storm. However, 
in order to continue to grow--and as you know, all small 
businesses must grow--investments must be made, and incentives 
for those investments are necessary.
    Bonus depreciation is a winning proposition that our Nation 
needs for economic recovery. By allowing companies like Global 
to depreciate 50 percent of capital investments in the coming 
tax year, Congress reduces the upfront costs of those 
investments. As a result, bonus depreciation leaves Global with 
more cash resources for both more investments and new jobs.
    The benefits of bonus depreciation aren't theoretical. 
Multiple studies from academic experts, private analysts, and 
the Treasury Department found that past cycles of bonus 
depreciation, from 2002 to 2004, drove substantial economic 
growth, with up to $9 of GDP growth for every $1 of tax 
benefit. More importantly, during the same period, bonus 
depreciation helped create or save between 100,000 and 200,000 
jobs.
    At Global, our efforts to preserve capital and find new 
business has paid off. By making new investments and changing 
our business model yet again, Global has more than doubled its 
revenues and added 30 employees from the 2001-2008 period. This 
past January, I hired 15 new employees from a competing printer 
who decided to close its doors, and, as a result, it has 
expanded our ability in looking at new clients and new markets.
    Global is uniquely poised for significant growth in 2011, 
but this will only become a reality if the company can make 
significant equipment investments to produce this new revenue. 
The investment in new technology will add over $500,000 of debt 
to our balance sheet, and I will say that is a very 
conservative investment, because small printing companies like 
mine can make seven-figure investments on a regular basis. 
Accelerated depreciation is a major cash-flow incentive for 
Global to make these investments, and I therefore urge Congress 
to extend bonus depreciation, section 179 expensing and other 
pro-growth incentives to help companies like ours weather the 
storm.
    Again, thank you for holding today's hearing and for 
inviting me to testify, and I look forward to answering any 
questions you may have.
    Chairwoman Velazquez. Thank you, Mr. Budington.
    [The statement of Mr. Budington is included in the 
appendix.]
    Chairwoman Velazquez. Mr. Sanford, last year businesses had 
access to increased section 179 expensing and bonus 
depreciation. The Committee has heard many times how important 
section 179 expensing limits are for small firms.
    Can you explain how the two provisions work together and 
how bonus depreciation provides an additional benefit for small 
firms? There might be some Members of Congress who do not see 
the direct benefit of bonus depreciation for small firms. Can 
you please explain that?
    Mr. Sanford. Yes, ma'am.
    Well, as you have heard from almost every member, we are in 
a distressed market, and the bonus depreciation extension would 
enable us to invest into equipment--new, greener, cleaner, more 
efficient equipment. Getting that ability to have that 
accelerated depreciation means we will have other revenues to 
reinvest in the company in other ways, most especially in the 
area of jobs. If we can grow our business, grow our revenue, it 
flows to all capacities of the business.
    I don't know if I answered your question.
    Chairwoman Velazquez. Yes, you did.
    Mr. Ring, small firms benefit not only as purchasers of 
business equipment but also indirectly as manufacturers and 
distributors or as sellers of such investments.
    Can you explain how small firms benefit from larger 
companies making investment that might be spurred by bonus 
depreciation?
    Mr. Ring. Absolutely. I am very glad that you asked me 
that.
    Our customers, our commercial customers, have HVACR 
equipment on the roofs of their buildings or serving their 
buildings that, right now, is required to be depreciated over 
39-1/2 years. That is a very old standard that may have applied 
to how heating systems were manufactured and installed many 
years ago when that law was first written. Right now, the 
average life expectancy of a commercial package heating and 
cooling unit is about 15 years. There is absolutely no tax 
incentive whatsoever for anyone to replace a piece of equipment 
that is not 39-1/2 years old.
    We have suggested--and our association has worked with 
Members of Congress in the past, including yourself--to help 
introduce a piece of legislation we call the Cool and Efficient 
Buildings Act that would encourage commercial property owners 
to replace outdated HVACR equipment with high-efficiency 
equipment and entitle them to an accelerated depreciation. This 
would have a tremendous impact on our global warming potential, 
our carbon footprint. It would meet many policy objectives of 
this and many other administrations of reducing our energy 
consumption. At the same time, it would stimulate the economy.
    We currently have a $1,500 Federal tax credit in place for 
our residential clients that is resulting in increased sales 
for us right now. Any type of incentive to our commercial 
clients to replace systems through an accelerated depreciation 
would be phenomenal to our business. Our residential small 
business is up 8 percent right now. Our commercial business is 
down 30 percent.
    Chairwoman Velazquez. And that is related to the $1,500?
    Mr. Ring. Absolutely.
    Chairwoman Velazquez. Thank you.
    Mr. Budington, one issue facing small firms--and you 
mentioned it--is the lack of affordable credit. If a firm is 
going to spend $300,000, for example, on a piece of equipment, 
they would likely need to arrange for some sort of financing. 
So how has the lack of credit affected you or those in your 
industry from taking advantage of bonus depreciation?
    Mr. Budington. That is an excellent question. I am glad you 
asked.
    It is interesting because we missed out on the boat to use 
the credit previously because our business cycle--we spent a 
great deal of time, when this recession first started, aligning 
our business, making sure our costs were in line, getting 
everybody on board to, you know, like I said, take pay cuts and 
the 401(k) contribution cuts. We were not in a position to be 
thinking about investing in the company at that point. After 
putting all those pieces in place and realigning our business 
with what our clients needed, we suddenly found ourselves ready 
to grow, but then realized that some of the credits had 
expired.
    So what is interesting is, when we look at how this bill is 
put together, the time frame that we give companies the 
availability to use it might not always sync up with our time 
frame of how and when we can use it. All companies need to be, 
in this case, profitable right now, and we need to watch our 
covenants very closely, which we have, and we are in a position 
where we can begin to borrow money again; but obviously, the 
last year and a half was a very difficult time for anybody in 
the printing industry to be going to the bank and financing 
equipment.
    Chairwoman Velazquez. Okay. Thank you, Mr. Budington.
    Mr. Fesler, to claim bonus depreciation, a business must 
have not only purchased equipment but must also place it in 
service by the end of the year.
    Have you seen any instances where a company has lost the 
tax benefit because of prolonged production schedules or other 
delays?
    Mr. Fesler. That is a good question, Madam Chairman.
    I think for us there is availability of product to 
purchase, so I don't really see delays. But we often 
consciously make the decision not to purchase equipment if it 
is not affordable to us, and in a declining industry and 
business where profits and margins are shrinking, it is 
difficult to spend money for such things, but we do have to 
replace a certain amount of our equipment every year.
    We are going to replace 30 computers this year. A desktop 
computer is $800, but a blade server is $20,000. We will spend 
$200,000 in computer equipment. We will spend $600,000 in 
trucks, but because of the cost of these things, we will 
replace less this year than we have in the last 10 years. Bonus 
depreciation would lessen that cost over a shorter period of 
time and allow us to purchase more.
    Chairwoman Velazquez. Okay.
    I will come back for a second round of questions, and I 
will have my first question addressed to Mr. Vander Molen.
    I will recognize the ranking member.
    Mr. Graves. This question is for everybody.
    One of the things that we keep hearing in the Committee is 
employers are telling us how reluctant they are to expand their 
companies or to hire workers until there is some sort of 
certainty out there about what the future holds. I am 
specifically interested if you have your own company or if you 
want to speak on behalf of your association.
    Have you frozen your business decisions at this point 
because of the uncertainty? If you could, also give me one 
thing or two things, government policies, that have you more 
concerned about the economic recovery than anything else.
    We will start with Mr. Budington.
    Mr. Budington. I have been with the same company straight 
out of college. I started here in customer service. I was hired 
during a recession. It had some times of prosperity. I took 
over as CEO during a recession, and now I am the principal 
majority owner in a new recession. So my experience is every 
recession is different.
    It is very hard to put this recession into perspective, but 
this one seems very different. It seems longer. It seems to 
affect a broader group of our clients that we depend on 
grabbing our revenue from. I will say that in 2001, I was 
really focused on changing the business model and how we would 
invest to make the business model work to that new model. In 
this recession, we have a moving surface that we are standing 
on.
    I mean, in the economy, there is a lot of uncertainty. I 
mean, if I look at Yahoo! Finance today, there are going to be 
ten different opinions on where the Dow is going to go and how 
the economy is going to improve or fall off a cliff. For a 
business owner, I do not understand what the answer is to where 
we are going, and with that level of uncertainty, it is hard 
for me to make decisions. Every piece of debt that I bring into 
my company, I personally guarantee with my home, with my 
children's college funds, and with my 401(k).
    Having a lack of certainty in the business climate is 
something that I am used to, but from the government climate, 
from where I see the government's approach, there is a lot of 
pressure on taxation. There is a lot of pressure on the rules 
of how this would work. I mean my investments are under 
$800,000 for section 179. Well, what if they go over that? 
Depreciation gets extended, but I don't have a long-term plan 
on how that depreciation should work in my business and an 
understanding of how some assets that we purchase in this new 
economy are going to change much faster than the depreciation 
schedules allow us to, and we seem to defer those decisions 
down the road. That uncertainty, for me, complicates the 
uncertainty that I am already navigating through in this 
economy.
    Mr. Graves. Mr. Ring.
    Mr. Ring. Well, Mr. Graves, I would begin by saying I agree 
100 percent with your opening remark that we don't have a tax 
problem. We do have a spending problem.
    Like all of us up here, as small businesses, I believe the 
best thing that government can do for any of us is to curb 
government spending and to allow us all to keep more of our own 
money to spend in the economy. A tax credit to me for hiring a 
new employee is not going to prompt me to hire a new employee. 
Increased demand for my goods and services will prompt me to 
hire employees. That is the only thing that will prompt me to 
hire employees.
    I have postponed the purchase of vehicles recently because 
of the downturn in the economy and the uncertainty as to how 
many employees I am going to have. One of the reasons, you 
know, I postponed that decision is I reduced the number of 
employees, and I parked vehicles that would normally have been 
used.
    I have a lot of uncertainty about health care. Every day, I 
read something else about another provision of the health-care 
law that seems to be an unknown to us before it is coming.
    I am worried about taxes. I am very worried about estate 
taxes. In the death of George Steinbrenner, they pointed out 
today that the family there saved $500 million because he died 
this year instead of next year or last year. I think that is a 
horrible thing for anyone who owns his own business to have to 
try and predict how the business will continue in the event of 
the majority shareholder's death. What will have to be done? 
Will the business have to be sold in order to pay the estate 
taxes in 9 months or else? Perhaps that is something that 
Congress could look at and give us some flexibility in how the 
estate taxes are paid. I still have a hard time understanding 
how Congress believes or the government believes that death is 
a taxable event.
    Like Mr. Budington, I have a lack of confidence right now 
in what the government is doing to help small business and help 
restore confidence in what is going on. I read, increasingly, 
of a lot of taxpayer/voter lack of confidence in the 
government's ability to get us out of this. When people read 
that, it just reinforces the thought process that they 
shouldn't be spending money right now and that maybe they 
should hang onto what they have got.
    I read something yesterday, excuse me, last week that said 
that our stock market performance is mirroring exactly what it 
did after the Great Depression when we double-dipped, and I 
actually thought about should I take my money out of my 401(k) 
and put it into a more secure investment than leaving it in the 
stock market, which is exactly what we shouldn't be thinking or 
doing, but that is what we are hearing.
    Mr. Graves. Mr. Vander Molen.
    Mr. Vander Molen. Yes, thank you for the question and for 
the opportunity to give you some feedback.
    I can echo what these other two guys have said, with the 
addition that, you know, fear is a terrible thing. You know, 
fear can strangle any kind of movement, whether it is 
economically or whether we walk out of the front door in the 
morning, and it is with uncertainty that people are not going 
to invest.
    That is one of the things that--I think what we can do is 
look at how do we develop a culture that says you know what, I 
am going to invest and I can expect some kind of return on that 
investment. The equipment is going to do a task. It is going to 
be productive, and there is value there. But when fear makes us 
do things, like not buy trucks or not buy equipment or not add 
to facilities, whatever that might be, or add jobs, add to 
people's work at our places of business, then you know we can't 
go forward. Small business has got a strangle on us if we 
operate by fear. We need some confidence out here that there 
are things that can happen for the greater good, and this bonus 
depreciation is one piece of it.
    Bonus depreciation, all in itself, will not do us any good. 
People still have to make money. Businesses have to make money 
so that they can reinvest into equipment and things like that. 
So that is why we really need that bonus depreciation along 
with some other things like--whether it be highway bills or 
water infrastructure, you know, some small business incentives 
that can help that.
    You know, I think, too, that bonus depreciation can help 
with a tangible product. I mean it is something that you can 
see. Things are happening.You know, you can put your fingers on 
it. You know, if we spend money on things that you can't see, 
that doesn't give anybody any confidence that we are going in 
the right direction.
    Mr. Graves. Mr. Fesler.
    Mr. Fesler. Thank you. That is a great question.
    For us, we are in the housing industry, and people want 
houses. People are trying to get them. People work hard to get 
them. The largest holdup to having people move forward at that 
today is the availability of credit. The government used to 
fund, roughly, 10 to 15 percent of the houses that were built, 
through Fannie Mae, Freddie Mac and a few others. Today, they 
are 60 percent of the money that is available for housing.
    The financial industry has been unwilling to step back into 
that industry and to start lending heavily again. A lot of that 
is due to the uncertainty of the regulations that are going to 
get hammered on them, and they don't want to find themselves in 
a bad place, so there is a lot of holding off on the advancing 
of credit. That has more to do with the development and growth 
of our business than anything else right now.
    Until the financial institutions begin to release funding 
for the construction business again, construction is going to 
move very slowly. There is a pent-up demand for it. People want 
it, but they can't afford it. That is going to be directly 
related to the job creation we have. We will grow jobs as the 
economy recovers and as people begin to move into housing. We 
had over 800 employees. Now we have less than 400. Those jobs 
will come back slowly over time.
    As far as the purchasing of equipment goes, if equipment 
were more affordable, either through tax incentives or other 
programs, we would purchase more. We need $800,000 in trucking 
equipment this year, but our banks will only support us to a 
level of 600. That means we spend more money on baling wire and 
duct tape, and that is not a very effective way to manage a 
business, but that is the environment we are in. It is "hang on 
and make things work."
    Mr. Graves. Mr. Sanford.
    Mr. Sanford. Thank you.
    It is unusual. I have never seen these other four 
gentlemen, but I believe we are living under the same tent. Our 
anxieties about the economy and about the market going forward 
and about the uncertainty in the marketplace is just amazing to 
me, especially in my business where we take chunks in assets in 
millions of dollars' worth of equipment when we make purchases.
    Without the enactment of a multiyear reauthorization for 
the Federal highway transportation bill extending into the FAA 
programs and for transit programs, which we do work in all of 
those areas, there is just too much uncertainty, as Mr. 
Budington said, to risk the personal guarantee of your home and 
your family, as we do day-to-day, to make investments in 
equipment. Especially without the bonus depreciation to help in 
the small way that it would help for us, it is just making 
those decisions--they are almost off the table.
    I want to mention the access to credit. Access to credit 
now seems tougher in our industry as we go forward in trying to 
finance jobs than it has ever been. I am watching, daily, 
friends and colleagues in our industry go out of business, good 
businesses that have been in business for 30 and 40 years, 
because of just doing foolish things--trying to cash flow their 
businesses by bidding in increments below their costs, feeling 
that they are just going to be able to continue their business 
by cash flowing because they say they have got a contract. That 
is not happening. What they are doing is working themselves 
directly out of business.
    So that is why I mentioned in my remarks earlier the 
reauthorization and depreciation. All of these things are like 
one leg to the three-legged stool. They all have got to go in 
conjunction with each other.
    Mr. Graves. Thank you.
    Chairwoman Velazquez. I know that I need to recognize the 
gentleman, and I will.
    Would you yield for a second?
    Mr. Moore. Sure.
    Chairwoman Velazquez. Mr. Sanford, where would your 
industry be today if it was not for the stimulus package?
    Mr. Sanford. Well, I regret to tell you, for the work I 
have in Virginia, we have not received any stimulus money. We 
have been fortunate that we are multidisciplined. We do airport 
work, and I do have a project down at a fairly large airport. 
We are working for some military contracts with the Navy and 
the Marine Corps in North Carolina at some military bases. So, 
to the respect that they have gotten stimulus money for that 
spending, it is keeping me going right now.
    Chairwoman Velazquez. But you call for the reauthorization 
of a multiyear in government investment--
    Mr. Sanford. And multiyear for highway projects for the 
Highway Reinvestment Act.
    Chairwoman Velazquez. Yes. So in a way, it is the 
recognition that investment is netted coming from the 
government in terms of the multiyear highway bill?
    Mr. Sanford. Yes. Yes.
    Chairwoman Velazquez. Mr. Moore.
    Mr. Moore. Thank you.
    This is a question I want to pose to any of you who care to 
answer this. The theory behind bonus depreciation is to reduce 
business tax liabilities so that the business will have 
increased cash flow and thereby will help the business make 
more investments.
    In your experience, do you have an example of when your 
business elected to take a bonus depreciation deduction and 
such a deduction resulted in a specific investment being made 
in the business? If so, could you share that with our Committee 
here? Anybody.
    Mr. Budington. You know, what is interesting is our 
accounting firm would regularly come to us at the end of the 
year to say we have a credit that is expiring, and do you have 
the need to spend X number of dollars to take advantage of the 
depreciation.
    What is unfortunate is that making decisions on purchasing 
equipment in my industry takes a long time. I travel. We learn 
about things. We understand it. So I would have to say, no, we 
have not used it to make a decision. What is interesting is 
that, in this case that we are in now, it is time to start 
investing in the company again, and it would be nice to have 
the availability of this advanced depreciation.
    Mr. Moore. Mr. Ring, any comments?
    Mr. Ring. Yes, Mr. Moore.
    We have done that in the past with regard to the purchase 
of vehicles. Typically, we would like to purchase four or five 
vehicles at $100,000 to $125,000 a year. Similarly, my 
accountant has come to me and said that we have an opportunity 
to do this if it makes sense. If this is something that you 
might want to do in the next 6 months, let's do it now and take 
advantage of this. We have done that.
    On a somewhat related note in testimony of the benefit of 
government incentives, our company last year did in the middle 
of this recession spend $375,000 to put 240 solar panels on our 
roof. That was in large part due to the incentives that were 
offered by the Federal Government and the State of New Jersey, 
and it made that a very wise business decision with a payback 
of less than 5 years.
    Mr. Moore. Very good.
    Mr. Ring. Yes.
    Mr. Moore. Does anybody else have a comment?
    Mr. Vander Molen.
    Mr. Vander Molen. Yes. We have used it for investment in 
our rental fleet, and that enables us to utilize those dollars 
somewhere else; but I would say, even more importantly, our 
customers have used it, and they will make purchase decisions 
prior to the end of the calendar year so that they can utilize 
those tax savings and know that those sales that happened at 
the end of the fiscal year, in December, were very welcomed in 
our company.
    Mr. Moore. Thank you, sir.
    Mr. Fesler and Mr. Sanford.
    Mr. Fesler. I would echo those same things.
    Typically speaking, when you have either a rebate available 
to you or a deduction available to you, your accounting staff 
or marketing people, whoever is available or whoever is aware 
of those events, come and they say, you know, this is a good 
time to do this. We then look at our company. What are our 
needs? We know we are going to replace so much equipment each 
year, but it will cause us to accelerate on an earlier basis 
the replacement of some of the equipment that will give us more 
efficient equipment and that will operate better and longer. 
There is also some environmental impact when you go to a more 
energy-efficient product. So we will consciously make that 
decision based on the availability of incentives.
    Mr. Moore. Very good.
    Mr. Sanford, any comments, sir?
    Mr. Sanford. Just one comment.
    In my remarks, I mentioned being able to reach back further 
than 3 months, which would be very important in the 
construction industry, to expand that window for a lessee to go 
back. Sometimes we will lease equipment for 6 to 9 months on a 
long-term purchase option agreement depending on the work you 
have got going forward and looking forward. You feel 
comfortable enough, and you have the credit availability to 
take that equipment and take it down and put a mortgage on it 
and purchase it. It was new equipment when you took it out. So 
I think expanding that window further than the 3 months would 
be very, very helpful in our industry.
    Mr. Moore. Any recommendations for how long to expand?
    Mr. Sanford. Well, I don't know what you all would agree 
to, but 6 to 9 months would certainly help. It gets you from 
one year to the next year.
    Mr. Moore. Thank you, sir.
    My time is just about up. I yield back, Madam Chair.
    Chairwoman Velazquez. Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    I would just like to note, first of all, that I think there 
is a fundamental difference between Highway Trust Fund money 
and stimulus money.
    Highway Trust Fund money is money that was taken from the 
taxpayer through taxes on the fuel you used and put in trust 
for you to be available when you needed to build roads and 
bridges. The stimulus money was either printed or it was 
borrowed from our kids. It was ultimately borrowed from our 
kids. If you borrowed it from some sheikh or Bank of Russia or 
China or someplace, our kids have to pay it back, right? So we 
have borrowed it from our kids.
    I think there is a fundamental difference between those two 
pots of money. Am I wrong?
    Mr. Sanford. I hope I didn't misspeak. I understand what 
you are saying.
    Mr. Bartlett. Okay. Thank you, sir.
    You know, if you had a bonus depreciation of 1 year, that 
is the same thing as expensing it the year you bought it, isn't 
it?
    Mr. Sanford. Correct.
    Mr. Bartlett. Okay. You know, when I sit back and look at 
this thing, I am wondering, like the old farmer said, if the 
juice is worth the squeezing.
    What we have are these very complex depreciation schedules 
which cost you a lot of money for bookkeeping. It costs the 
government a lot of money to make sure you have kept your books 
in accordance with the law, and at the end of the day, it is 
exactly the same as if you had expensing the year you bought 
it, is it not? You get it all back in terms of depreciation and 
salvage value, and the government gets that much less in taxes 
because you ultimately got it all back except they spread it 
out over a number of years. When you first start, there is a 
temporary benefit to the government because the government gets 
a bit more taxes until you depreciate the thing, but at the end 
of the day, if you are looking at it over a lifetime or over a 
decade, it comes out exactly the same.
    I am wondering why we do this, because I doubt that the 
increased cost of capital to the government, the benefit of 
that, comes anywhere close to the bookkeeping cost to the 
government, to say nothing of the bookkeeping cost that you 
have.
    I was in the small business world in a former life, and I 
know those stupid depreciation schedules and how difficult they 
are to maintain--different for this and different for that. Why 
don't we just expense things the year we bought them? Because 
at the end of the day, it comes out exactly the same for both 
the taxpayer and the government.
    Why do we want to pay in ourselves for these depreciation 
schedules? Am I missing something?
    Mr. Budington. Amen.
    Mr. Bartlett. Everybody is a loser here. I understand win-
win. I do not understand lose-lose, and everybody loses here. I 
think the taxpayer loses and the government loses. The taxpayer 
loses in two ways. He loses because his government is less 
efficient with all of the bookkeeping they have to do to make 
sure you have followed these silly laws, and you have huge 
investments and all the bookkeeping to keep track of and the 
stuff in it. At the end of the day, it comes out exactly the 
same.
    Can you help me to understand why we do this?
    Chairwoman Velazquez. Will the gentleman yield?
    Mr. Bartlett. Yes.
    Chairwoman Velazquez. So it is a great argument and quite 
convincing. Why is it that during the majority Republican-
controlled Congress, you were not able to make that argument?
    Mr. Bartlett. I did make that argument, but wisdom doesn't 
always prevail. And you may have noted that I broke with the 
prior administration very early in their administration. They 
spent too much, and they had too many regulations. I broke with 
them very early.
    Well, I just want to understand why we do this, because we 
are just hurting--everybody loses when we do this.
    Yes, sir. Why do you think we do it?
    Mr. Ring. Obviously, the government saw some benefit. But I 
have to say, if we knew that was up for discussion, we would 
have talked about that today. We would have probably asked for 
that. I guess the government--I would imagine the government is 
concerned that businesses would go out and buy stuff to avoid 
paying taxes. Imagine that.
    Mr. Bartlett. But that is only a very temporary thing. At 
the end of the day, you expense everything. With the salvage 
value and the expensing, you get it all back, right? The 
government loses all the taxes at the end of the day because 
you have depreciated the thing, right? So it is exactly the 
same as if you had expensed it the year you bought it. So I do 
not understand why we are doing this to ourselves.
    Mr. Sanford. Well, I think, as counsel mentioned before the 
hearing started, it has been since 1986 since the whole 
depreciation schedule en masse has even been reviewed. It gets 
reviewed from year to year in smaller segments, and I think 
that it needs to be en masse.
    Mr. Bartlett. I don't want to review it. I just want to do 
away with it because I think that it is a lose-lose for 
everybody concerned, is it not? Tell me where I am wrong.
    Mr. Ring. You are not.
    Mr. Bartlett. Thank you, sir. Thank you very much.
    I yield back.
    Chairwoman Velazquez. Thank you.
    Mr. Vander Molen, if bonus depreciation is enacted this 
year, we will need to decide whether to make it retroactive or 
only effective for the rest of 2010. Some argue against making 
it retroactive. Their argument is that it will not encourage 
new business activity.
    Are they opposed to reasons why purchases made in the first 
part of the year should be eligible for relief?
    Mr. Vander Molen. I think, if you look at our business, 
when you look at the first 6 months of productivity, it hasn't 
really been anything to write home about. I don't know as far 
as on the revenue side of government. It is probably not going 
to make that much difference. For the contractors or the people 
that can take advantage of that bonus depreciation, it is still 
all about the cash.
    When you have tax incentives, you have a cash incentive, 
and that cash incentive enables a small business to function 
and to perform and sustain itself and to succeed itself; and 
that is what we pay taxes on, is income, and if you roll that 
thing back to January 1, I think it is a viable option that 
needs to be considered.
    Chairwoman Velazquez. Okay.
    Mr. Budington, bonus depreciation is designed to spur 
purchases now rather than at some point in the future. So did 
the expiration of bonus depreciation in 2009 prompt you to make 
purchases you may not have otherwise made?
    Mr. Budington. Well, going back to one of the points I 
brought up, I think that is exactly the problem. The situation 
that we were dealing with in 2009 was trying to understand what 
the situation was, what our business climate was going to 
become, and how severe this recession would be.
    Every time a recession starts, people talk about there is a 
turnaround coming next quarter, maybe next half. As you can 
imagine, nobody predicted we were going to be here in the 
beginning of 2009. We spent most of 2009 getting costs aligned 
with the realities of where our business was and understanding, 
once again, how our business was going to have to adapt to this 
new environment that we were in.
    I think the problem with the way these bills are set up is 
that, if we believe that depreciation is going to spur 
investment in our businesses and if we believe that investment 
in our businesses is going to create jobs, then it should just 
be open to say when our business has come up with a model, 
understands where our future is going and is ready to make that 
investment, that that depreciation is available for us to take 
at that time.
    It is hard for us to plan all of this and get all of these 
stars in alignment in advance of what the rules are for when we 
can and when we cannot use it. When my accountant does come in 
to yell that it is time to take that depreciation, I am rarely 
ready, unfortunately.
    Chairwoman Velazquez. Okay. So, if Congress enacts bonus 
depreciation this year, with the understanding that this may be 
the last time this deduction is offered, will that create an 
incentive for you to make an additional purchase before the end 
of 2010?
    Mr. Budington. Well, as I brought up earlier, we are at a 
point where we are ready to make some investments. We see some 
opportunities to grow that we are, actually, pretty excited 
about. So this will be a big boost and a big help for us.
    What is interesting if you think about depreciation, when I 
buy a big fixed asset, it is not a linear depreciation for me. 
I have huge upfront costs. I have to build the market. I have 
to build the sales force around it. In that initial year, year 
and a half, I am usually taking a loss on what I am paying into 
that; whereas, later on down the road, I am hopefully getting a 
return on my investment.
    So, yes, I will use that in 2009, but at the same time, I 
think it would be unwise for businesses to be making rash 
decisions on spending and putting companies in jeopardy. Banks 
are very different entities to be dealing with now than they 
were in 2007. So, if I get someone who is encouraging me to 
take on debt that I don't personally believe that our company 
is ready to handle--because that debt might require me to make 
decisions that have nothing to do with that equipment--I have 
to make sure that our company can make up those payments and 
cover the covenants that the bank requires. Again, I don't want 
to be making a rash decision based on time frames.
    Chairwoman Velazquez. Okay.
    Mr. Fesler, your industry is tied to the housing industry--
    Mr. Fesler. Correct.
    Chairwoman Velazquez. --where unemployment is, roughly, 
double the national average.
    Why is bonus depreciation so important to the housing 
sector, and do you believe that it can assist you?
    Mr. Fesler. Well, it does assist us as a lumber supplier. 
We have the need to replace a certain amount of equipment each 
year because equipment ages; it gets old; it runs out of its 
useful life. In fact, with computers, we have already made the 
determination that we are going to buy 25 of those this year, 
and that is what we need to replace to keep our entire company 
up and running at the proper stage.
    With bonus depreciation, they become more affordable. If 
that were retroactive, we could literally afford 30 instead of 
25. The reality is we should be replacing 50, but because of 
the economic downturn, we are withholding spending more than 
what we need to and are trying to stay within the guidelines of 
our banks. But having more dollars available as an incentive to 
purchase would encourage us to purchase more. Purchasing 
equipment like that helps other industries. It helps us to 
manage better, and it should theoretically spur some job 
growth.
    Chairwoman Velazquez. Okay. Thank you.
    Mr. Graves, do you have any other questions?
    Mr. Ring, I noticed that you mentioned that the tax credit 
of $1,500 helped your industry.
    Mr. Ring. Yes, ma'am.
    Chairwoman Velazquez. That costs money. Given the 
constraints that we are in, the government, this is a very 
complex issue to decide whether this and that. I can see, based 
on the arguments that I heard, that some people believe that, 
yes, we should spend money to encourage investment and to 
encourage purchases of new equipment, but we know that that 
will have a direct impact on the deficit that we are facing.
    So, in terms of the stimulus package, Mr. Sanford, I saw, 
when you mentioned here in your testimony how the stimulus--not 
maybe for you, personally, but for some others in your 
industry--has been a lifeboat for our sector and the State 
Department of Transportation, and we would be in a much deeper 
hole without the Recovery Act's transportation investment.
    So these are difficult choices that we are all facing, and 
it is quite a long debate that we are going to be facing and 
knowing that it is going to have an impact on the deficit, and 
it will have an impact on spurring economic activity that we 
need in order to create jobs that will get this economy growing 
again.
    With that, I want to thank you all. This has been quite 
enlightening for us, and we will be sharing some of the things 
and the arguments with the leaders that we heard here, who will 
be considering small business tax relief for small businesses. 
Thank you very much.
    I ask unanimous consent that members will have 5 days to 
submit a statement and supporting materials for the record. 
Without objection, so ordered.
    [The information is included in the appendix.]
    Chairwoman Velazquez. This meeting is now adjourned.
    [Whereupon, at 3:00 p.m., the Committee was adjourned.]


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