Signs indicate that the D.C. area’s transit agency will use a budget gimmick to work around rules that promote domestic manufacturing and employment.
The Washington Metropolitan Area Transit Administration (WMATA) – the D.C. Metro – has selected Hitachi Rail, an Italy-based rolling stock manufacturer whose parent company is the 100-year-old eponymous corporation from Japan, to build the subway system’s next series of rail cars. They’ll look pretty similar to the last bunch to roll out, only these will have power outlets for riders’ personal devices. Nice! As part of the deal, Hitachi Rail could be incentivized to build a plant in the Mid-Atlantic region of the United States to assemble the rail cars. This may create some jobs.
The plugs are cool, and potential jobs at a potential plant are potentially good news, but the procurement process for the next cars to run along DC’s Metro lines has been a big deal, and not only because of the size of the contract awarded (potentially $1 billion).
First, a Chinese state-owned enterprise – CRRC, a huge rolling stock manufacturer that had won contracts to build rail cars for subway systems in Chicago, Los Angeles, Philadelphia and Boston – showed interest. That prompted such scrutiny that the Capital region’s U.S. senators, citing cybersecurity concerns, introduced legislation forbidding transit agencies from awarding contracts to state-backed Chinese companies. The legislation was signed into law last year.
Then in April, Metro got a letter from U.S. Del. Eleanor Holmes Norton, D.C.’s non-voting representative in Congress, about the budget gimmick it was rumored to be considering to avoid Buy America requirements attached to the hundreds of millions of dollars it receives in funding from the federal government. Metro wrote back, saying the gimmick – it planned on using local money received from D.C., Maryland and Virginia, and not money with Buy America rules from the federal government, to buy new rail cars – was to ensure funding for contract was coming from a “predictable source.”
That may be a polite burn on Congress, but even if Washington seems dysfunctional now and then, Buy America laws are pragmatic and effective ways to promote domestic industry and workers. The rules here specifically would require both 70 percent of the cost of components produced and the final assembly of the rail cars to take place in the United States. So the Alliance for American Manufacturing sent a letter to WMATA, too, in late July. We pointed out:
WMATA’s arbitrary assertion that it is funding this procurement solely from funds it receives from the District of Columbia, Maryland, and Virginia is particularly galling in light of its recent use of more than $767 million in federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
WMATA at the time told the Washington Post it was still considering bids. But not anymore: It has picked its winner, Hitachi Rail. And the contract will be paid for specifically with money given by D.C.-area governments, so it doesn’t have to adhere to Buy America requirements. Good job exploiting that loophole, Metro lawyers! From the Post:
The transit agency has pushed back (on critics), saying its contract will incentivize the builder of the 8000 series to create an assembly plant in the Mid-Atlantic. It also will require that 8 percent of the contract’s total value stay in the region. Many other jobs could be created in other states, manufacturing parts and components, Metro officials have said.
But critics — including the Federal Transit Administration — said it’s a far cry from what “Buy America” rules require.
In a letter sent to (Metro General Manager) Paul Wiedefeld last month, the FTA strongly urged Metro to adhere to Buy America guidelines “to support the nation’s economic recovery from the covid-19 public health emergency.”
“Given the significant level of annual federal financial support of [Metro], and the considerable benefit to American workers when FTA Buy America requirements apply, I strongly encourage [Metro] to require bidders to comply with FTA’s Buy America requirements, regardless of the source of funding, for this particular procurement,” FTA Deputy Administrator K. Jane Williams said.
So …
But it’s not enough, Marge! It’s a good thing that this contract for rail cars for the national capital’s subway system didn’t go to a Chinese state-owned enterprise. I guess it’s a good thing that the contract incentivizes an assembly plant in the States. But because Metro is using creative accounting to avoid rules that incentivize actual manufacturing in America, large chunks of these rail cars won’t be. Some of their parts could be potentially even be made by CRRC; it’s a long supply chain, after all, and it’s a huge manufacturer of these kinds of components.
While the American economy is terrible, millions are out of work, and the chances of Washington producing another relief package before the presidential election are basically nil, Metro is making a point to avoid rules on a $1 billion contract that would send business to domestic manufacturers.