The OMB Rules – Addressing Key Realities in Housing – Part 2

Posted On June 21, 2023

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Think of infrastructure needed or in need of repair or expansion, and the several trillions of dollars committed within legislation the past two years: broadband, water, roadways, manufacturing, infrastructure of all kinds – almost everything we see is affected and housing too. I agree and have for a long time, when the government awards monies for public projects, I would prefer to see those monies spent on American made products.

But the reality is America decided in the 1990’s to disband its manufacturing base through NAFTA and other trade agreements (about 300), including agreements with China.

In part one of this discussion, I concentrated on describing the current conditions surrounding the residential construction industry. Interest rates, credit markets, material and supply chain challenges, and I described a couple of tools to help alleviate the housing shortage.

With the advent of the OMB’s (Office of Management and Budget) updated guidance and waiver process to implement the “Build America, Buy America” program, it is hard to believe housing won’t be further delayed and more expensive. Basically, the rule says there is a preference for U.S. manufactured materials in construction of infrastructure when federal finance assistance is used.

Think of infrastructure needed or in need of repair or expansion, and the several trillions of dollars committed within legislation the past two years: broadband, water, roadways, manufacturing, infrastructure of all kinds – almost everything we see is affected and housing too. I agree and have for a long time, when the government awards monies for public projects, I would prefer to see those monies spent on American made products.

But the reality is America decided in the 1990’s to disband its manufacturing base through NAFTA and other trade agreements (about 300), including agreements with China.

My concern arises from the basic fact the U.S. no longer has the mining or manufacturing backbone to make 100% of all items required for construction and manufacturing. Yet, the “Build America, Buy America” preference requires this.

The list of projects affected by this rule is vast. Public infrastructure under this rule includes “structures, facilities, and equipment for: roads, highways, bridges; public transportation, dams, ports, harbors, other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems; drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property (including housing)”. Equipment that generates, transports or distributes energy (includes EVs and EV charging).

Each agency of the federal government has released its grant funding along with the rules under OMB. There is a waiver provision, but my reading is waivers are complicated and, based on waivers of some of the solar and wind projects (17 years), it may take several years to receive a waiver or the waiver may not be long enough to accommodate industrial and manufacturing reality.

The most recent guidance released by OMB is phase one of a multi phase implementation. A quick review brings visons of trillions of dollars wasted at best as projects are not able to be started or completed, which brings forward another concern…what does happen to all that money? How do communities pay for needed improvements? Below are a few examples from my reading of the Act, OMB guidance, Federal Register, and agency implementation rules:

The OMB does not provide an exact definition of construction materials in the February 9, 2023 Federal Register Notice of Proposed Rulemaking, Guidance for Grants and Agreements. They do provide standards for construction materials to determine if the materials are produced in the U.S. There is a long section on determining de minimus additions, defining predominantly iron or steel items, the meaning of composite building materials, and the cost of components.

First the OMB defines an infrastructure project subject to the Buy America preference as “…any activity related to construction, alteration, maintenance, or repair of infrastructure in the United States regardless of whether infrastructure is the primary purpose of the project.”

Construction materials is defined as “articles, materials, supplies incorporated into an infrastructure project that consist of only one or more of the following materials:

Non-ferrous metals
Plastic and polymer based composite products (including polymers used in fiber optic cables)
Glass (including optic glass)
Fiber optic cable
Optical fiber
Lumber
Drywall

Here are examples of the standards:
Non-ferrous metals: All manufacturing processes from initial smelting or melting through final shaping, coating and assembly occurred in the United States.

My concerns: The United States has only 3 copper smelters. They are all over capacity and have been for several years. Exactly how do we produce copper that will qualify for the infrastructure grant funds? This is only one example. The U.S. doesn’t have a lot of mining and the companies who are gearing up to activate mines are still a few years away from fully functioning output. The government grants contain deadlines that most likely cannot be met.

Fiber optic cable: All manufacturing processes, from the initial preform fabrication stage through fiber stranding and jacketing, occurred in the United States.

My concerns: It is readily apparent by a quick reading of the Wall Street Journal or various other newspapers and industry publications; the United States does not have the ability to meet this requirement. Most of us are aware China provides the U.S. with a lot of the fiber optic materials.

Glass: All manufacturing processes, from initial batching and melting of raw materials through annealing, cooling, and cutting.

My concerns: With imported raw materials a part of glass manufacturing in the U.S., what is the ability of domestic glass manufacturers to meet the growing demand for glass and still conform to the OMB’s rule? I don’t know if solar panels fall under glass, but if so, the top 4 producers of solar panels are Chinese and China produces a large amount of the minerals needed to make these panels.

Drywall: All manufacturing processes, from initial blending of mined or synthetic gypsum plaster and additives through cutting and drying of sandwiched panels, occurred in the United States.

My concerns: While drywall is a concern as China controls large amounts of gypsum, a key component in drywall, the various products that fall under the category of gypsum board products include sheathing, water/moisture resistant board, 5/16 mobile home board and others. The U.S. imported 6,890 metric tons of gypsum in 2022 and 1,840 metric tons in Q1 2023 according to the Department of Interior USGS stats. According to USGS, the United States imported Gypsum from three main sources: Mexico (35%), Spain (33%), and Canada (28%).

There are more items of concern and more construction materials outlined in the OMB guidance.

I looked at an example of one type of grant project to get an idea of what is to come. Last year (2022) the federal government made several middle mile broadband grants available to rural communities to extend and build broadband infrastructure. Here is one waiver I found from the Department of Commerce dated April 5, 2023. Below are a few excerpts.

Except 1

Excerpt 2

Excerpt 3

The document concludes with the effective date of this waiver being March 1, 2023 until March 1, 2024, even though the Department of Commerce (DOC) states earlier in the document the United States does not have “component manufacturing plants, broadband routing manufacturing investment, broadband transport equipment manufacturing. And the relocation of assembly plants to the United States.” The DOC does not expect this ability to occur for 12-36 months.

This is one example of my concern. The same can be said of other agency guidelines and waivers or considerations of waivers. The Bureau of Reclamation, HUD, Transportation, EPA, etc. They all have grant programs both new and old that don’t seem practical anymore.

When I asked several state, local and federal officials at various times about how they expected grant programs to function under the OMB rules and agency guidelines, there was no answer. Apparently, we are hoping for the best.

Hoping isn’t a plan. I suggest each of us over the next year – government official, business or individual – keep track of the issues created by this OMB rule and the various agency specific rules. Then in real time, impart your experiences to state, local and federal elected officials and agency staff. Perhaps if enough noise is created by those impacted, the rule will be changed.

Congress has the ability to impact the implementation of the law. While that should have been done initially when writing the law, there is time to rectify the negative impacts. While we are on the topic, the federal government knows exactly what the state of the U.S. manufacturing and construction industries are. Why wasn’t that information placed as an initial guide post?

How long does it take to fully rebuild the industrial, mining, and manufacturing industries? If history is to be believed, about a century.

Other Resources:

HUD Guidelines

WSJ China Congo Cobalt

NPR Congo slavery

Forbes Top 10 panel makers

U.S. Dept. of Energy: Critical Materials Assessment May 2023

Dept of Energy Advanced Materials & Manufacturing Technologies

Dept of Energy solar manufacturing map

Energy Sage solar panel manufacturers

Solar Power Nerd 10 Top Solar Panel Manufacturers Worldwide (2022)

Glass Magazine Top 50 Glazers