Study: ‘Buy America’ rules raising costs for US transit systems

Study: ‘Buy America’ rules raising costs for US transit systems
© Greg Nash

Federal requirements to buy American-made products may be forcing some U.S. transit systems to spend more money, according to a new study from a center-right think tank.

The American Action Forum (AAF) released research Friday that found “Buy America” rules for Federal Transit Administration (FTA) grants could be raising procurement costs in some areas.

Washington’s beleaguered Metrorail system, according to the study, could have saved $700,000 on each of its 7000-series rail cars if it was able to purchase new cars at the price  they cost overseas.

President Trump has repeatedly promised that his policies, including his massive infrastructure proposal, would require companies to buy and hire American.

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The study could give new ammo to congressional opponents worried that Buy America rules would create an unfair system of winners and losers by denying federal funds for certain companies.

House GOP leadership stripped similar requirements from a water infrastructure bill last year.

“The benefits of Buy America/American policies are likely overstated, and they are, at least partially, responsible for higher infrastructure costs,” the think tank report said. “When comparing the metro car procurement costs in the U.S. to notable foreign systems, the U.S. is clearly more expensive.”

Rolling stock, which includes buses, vans and railcars, must have 60 percent of its components from American sources under current federal requirements. That percentage is set to increase to 70 percent by 2020 under a highway bill Congress passed in 2015.

The FTA can waive Buy America requirements if it is not in the public interest, the products are not available domestically or if it would cost at least 25 percent more than the foreign product.

But waivers for rolling stock are not generally issued by the FTA, even if the price-differentials are greater than 25 percent, because the 60 percent domestic content requirement is already considered a form of a waiver.

The AAF study claims that Buy America requirements are contributing to higher transit costs in the U.S., and questions whether the policy outweighs the economic costs.

The study also points out that Buy America doesn’t always benefit U.S. companies or workers, since oftentimes the contracted company is a subsidiary of a foreign company. Boston’s new metro cars, for example, will come from a subsidiary of CRRC, a Chinese-owned train manufacturer.

However, the study also notes that Buy America isn’t the only factor that may be contributing to higher U.S. infrastructure costs.

“Because the procurement process of metro cars in the U.S. tends to favor large procurements in a short amount of time, there are also startup costs baked into the contracts (since new manufacturing plants may need to be built), as well as baked in risk costs for the volatility of materials prices,” the study says.