Federal Budget Could Affect Local Transit

by Thomas P. Healy

Global trade wars have local consequences that could thwart taxpayer-supported efforts to expand public transit options.

For example, buried in the massive National Defense Authorization Act (NDAA) for fiscal year 2020 are provisions that would ban the use of federal funds to purchase buses or railcars made by firms with ties to China.

According to Eno Transportation Weekly, lawmakers fear that “spyware” can be installed in transit rolling stock. Additionally, there are concerns of unfair competition from companies that they say benefit from Chinese government subsidies.

The U.S. House of Representatives’ version of the NDAA calls for a ban only on passenger rail cars with Chinese connections. The U.S. Senate includes both passenger rail cars and buses in its proposed ban. A conference committee is at work on hammering out a compromise to these and many other elements of the sprawling legislation.

Noting the difference in the two versions in a September 4 letter [PDF] to the conference committee, Russell T. Vought, acting director of the Office of Management and Budget, expresses the White House’s support for the Senate’s broader ban. “It is critical that such prohibitions cover procurement of all rolling stock transit vehicles to ensure the nation’s economic and national security and to prevent the use of federal dollars to support foreign state-controlled enterprises.”

If passed with the bus language intact, the bill could disrupt future implementation of the Marion County Transit plan. IndyGo has already received delivery of most of the 31 60-foot battery-electric buses (BEB) it agreed to purchase from BYD Motors LLC, an American subsidiary of BYD Co. Ltd. headquartered in Shenzhen, China. The buses are in use on the Red Line bus rapid transit (BRT) service.

Bryan Luellen, IndyGo’s vice president of public affairs and communications, doesn’t anticipate any service disruptions: “We’re actively working with elected officials to insure that decisions that were made before this point are not jeopardized.” There are no plans to scale back on IndyGo’s fleet replacement plan that aims to replace all of its diesel vehicles with electric ones by 2035.

In an interview after the Red Line ribbon cutting ceremony, Bobby Hill, BYD’s vice president of North American sales, said, “We’re not state-owned. We’re privately held and traded on the Shenzhen and Hong Kong stock exchanges. We don’t have ties to the Chinese government.”

He said that earlier this year, BYD produced its 300th battery-electric bus in its Lancaster, CA, manufacturing plant, established in 2013 in a 106,000-square-foot former mobile home manufacturing facility. Since that time, the firm has expanded its footprint to more than 500,000 square feet, Hill said, with a capacity to produce as many as 1,500 buses a year.

From his office in Los Angeles, Frank Girardot, BYD North America’s communications director, said the company is taking an “all hands on deck” approach to spur its allies to advocate in favor of the House version of the bill. “Environmental groups, conservation groups, and some free trade groups understand that if you remove a business from the market, it creates a huge imbalance that results in higher cost to taxpayers and is way less innovative.”

LIMITED COMPETITION

In addition to BYD, there are only two other BEB manufacturers: Proterra, based in Burlingame, CA, and St. Cloud, MN-based New Flyer of America, a subsidiary of Canadian NFI Group Inc. The U.S. market for BEBs is currently small, with slightly more than 300 units in service according to Bloomberg News. Meanwhile, a recent report by Navigant Research claims that China is the leading e-bus market in the world. The report’s executive summary estimates that some 163,000 e-buses will be sold in China in 2019, asserting, “The Chinese market will make up nearly 98% of [global] e-bus sales in 2019.”

Like IndyGo, many U.S. transit operators are opting for a zero-emissions policy, and transitioning to full electrification of running fleets. This trend leads Navigant Research to note: “The e-bus fleet population will make up roughly 8% of all buses in use in 2019. By 2030, it is expected that nearly one in every three buses on the road will be an e-bus.”

Much of that growth between now and 2030 is expected to come from outside China. The Navigant report states: “Chinese subsidies for e-buses were reduced in 2017 after the domestic bus and battery manufacturing capacity had been developed, which has resulted in a quickly saturated market. Other markets, primarily North America and Europe, will be the next to experience rapid growth.”

A June 2018 report by the City of Albuquerque Office of Inspector General [PDF] details a February 2018 interview with BYD’s contract administration manager, Chao Xue, at the Lancaster plant. The investigator reports: “He said that only the frames of the buses were made in China, and that all of the other assemblies and components were manufactured in the United States by American suppliers.”

BYD’s Hill confirmed that each BYD bus exceeds the Federal Transportation Agency’s “Buy America Act” requirements that stipulate the use of domestic sources for materials in transit vehicles bought with federal funds. “Right now the threshold is 70 percent “Buy America” content,” Hill said. “On our last audit we were 78 percent.”

In May, Hill’s colleague Zachary Kahn, BYD’s director of government relations for North America, testified [PDF] to the House Transportation and Infrastructure Committee. He stressed BYD’s deep roots in the United States. “Since opening its Coach & Bus manufacturing facility in Lancaster in 2014, BYD has grown to nearly 900 total U.S. employees, including more than 775 union workers,” he said. “BYD has invested more than $250 million on U.S. operations since initiating domestic operations in 2014,” he continued. “Last year alone, BYD invested more than $70 million on components made by American vendors located all across the nation.”

INDIANA–CHINA CONNECTION

In September, Gov. Eric Holcomb and Indiana Secretary of Commerce Jim Schellinger met with executives of Shougang Group, the second-largest iron and steel enterprise in China. Its subsidiary, BeijingWest Industries (BWI) recently opened a 276,514-square-foot facility in Greenfield. The $80+ million investment is set to employ nearly 200 Hoosiers by the end of 2019. IEDC photo.

Indiana has substantial economic ties to China. [PDF] According to the Indiana Economic Development Corporation, 21 China-based business establishments support approximately 2,500 jobs across the state. China is among Indiana’s top five international trading partners, with nearly $1.9 billion worth of Hoosier-made goods shipped to China in 2018.

To support that connection, Governor Eric Holcomb and Indiana Secretary of Commerce Jim Schellinger led a delegation of Hoosier business leaders to China in September 2019.  Asked what effects the current trade dispute with China would have on the state’s substantial business ties with China and whether the ongoing dispute would hamper further Chinese investment in the state or expansion of local transit service, Governor Holcomb issued the following statement:

“It might seem counterintuitive, with all of the discussions that are happening around the world, to be going abroad, but in fact it’s the perfect time to be making the trip.” Holcomb added that turbulent times are a reality. “There’s always been good times and bad times and tough times and as the years unfold decade after decade, people remember when you keep those relations direct and open and always seeking to improve on your current standing.

“The world just keeps getting smaller and smaller and smaller. And so those connections, those personal connections and relationships are even increasingly more important today than before,” Gov. Holcomb said.

Ball State economist Michael Hicks applauded Gov. Holcomb’s trip to China. “I commend Governor Holcomb for going there,” he said in an interview. “Trade is the opposite of war. It forges relationships. The policy of trade is designed to build a culture of openness.”

As for the proposed ban on spending federal funds with China-connected firms, Hicks is skeptical. “I acknowledge that China is a Marxist dictatorship that treats their people with disrespect. And it’s true that the Chinese support manufacturers as we do but the goal of our foreign policy is for China to no longer be a military threat or problematic country.”

A retired Army officer who served in South Korea, Hicks added, “There is no motorized equipment assembled in the U.S. that doesn’t have Chinese parts in it. They’re good at making the cheap stuff—ball bearing packs, plastic screws, screw caps for tires, plastic frame to support the wiring harness—but they are the better part of a century behind us in productivity.”

He calls the proposed ban ill advised. “When you make a commuter transit battery into a national security argument it dissipates the believability of more legitimate concerns like those with Chinese telecom giant Huawei.”

Matt Stoller, a fellow at the Open Markets Institute and author of Goliath: The 100-Year War Between Monopoly Power and Democracy, disagrees. “It’s not a good idea to have economic links between the U.S. and China. It’s a fascist, expansionist country that wants to destroy American democracy and puts ethnic minorities in concentration camps,” he said in an interview. “It’s time to stop playing around and recognize what we’re dealing with. If we make a choice that we want to control our rolling stock, having China in our market may not be something we want,” he added.

“We’re dealing with power and the Chinese Communist Party has political aims and we need to acknowledge that and make policy on what is obvious,” he continued. “It’s not that complicated.”

To avoid another government shutdown, Congress passed, and the President signed, a continuing resolution to keep the government open past the Sept. 30 end of the fiscal year and buy more time for negotiations on transit and other issues. Congress now has to pass an appropriations bill and get the President’s signature by Nov. 21.

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