Metal fabricators benefit from government spending

There's a bright side to government spending. On Nov. 10, during the final morning of FABTECH, Omar Nashashibi, a founding partner at The Franklin Partnership, gave insight into how recent legislation could affect the industry and U.S. manufacturing overall. Butler Photography

FABTECH is a technologist's playground. The show paints a picture of what is and what could be. At some booths you see lasers with immense cutting power, 20 kW and beyond. In another booth, an autonomous mobile robot carries cut blanks from a laser to a press brake. Across the hall, you see a robot receive a 3D CAD file and commence welding, no teach pendant or touch-ups required. At another booth, you sit down in front of a computer screen, where you’re shown how you can literally draw a laser beam's power-density profile, customizing it precisely for your laser welding application.

Technology and skilled people drive fabricators forward. Government legislation, regulation, and trade policy determine the playing field. For most of the past two decades, the playing field has remained somewhat steady. Then came the tariffs, then the pandemic and the ensuing economic rescue efforts. Now, manufacturing is politically popular. Its importance has stepped to the forefront, and the playing field is changing.

"This is not a do-nothing Congress," said Omar Nashashibi, a founding partner at The Franklin Partnership, a Washington-based lobbying firm that works with various manufacturing organizations, including the Precision Metalforming Association, a FABTECH show partner. Speaking to an audience on Nov. 10, the last morning of the show, he pointed to a PowerPoint slide detailing recent legislation. "On this screen alone, nearly $5 trillion in federal government spending has been allocated."

These include the bipartisan infrastructure law signed in Nov. 2021, the Inflation Reduction Act of 2022 in August, and that same month, the bipartisan CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act.

He added that, yes, some say that the rapid increase in government spending has likely played some role in inflation. But that spending also happens to target manufacturing—not just OEMs but also down the tiers. The amount of money associated with these programs is staggering, and the opportunities are more than the industry has seen in decades.

As Nashashibi explained, all this presents opportunities fabricators shouldn't ignore. If they do, they might leave serious money on the table.

Nashashibi recalled working with White House representatives in early 2020, during the country's mad rush to produce ventilators. "They were looking at OEMs. Our argument was, you can't get a ventilator without the Tier 1, 2, and 3 suppliers. So, what good is having a contract with an OEM if you can't get the parts, the machinery, and the people to make these products in an emergency?

"During the past 18 months, we’ve seen Washington focus on downstream [suppliers] in ways I’ve never seen. It's no longer, ‘Just throw the money and give the tax credit to the OEM and expect it to trickle down.’ Please reach out to your CPAs. Please talk to your CFOs. There's a business strategy to be had in what Congress has done."

With that, he walked through a smorgasbord of government programs and tax credits designed to save manufacturers money. "First, there's the energy-efficient commercial building tax credit. If you have done anything to your facility—new lighting, new HVAC, a new boiler—there's money to be saved for something that you were going to do anyway."

Another is the Advanced Manufacturing Production Credit. "This is under the Inflation Reduction Act. It's for anyone who purchases or makes manufacturing equipment being used for renewable energy. Anyone who does this now has a production tax credit just for manufacturing equipment for that industry. That's something you’d be doing anyway, and now they’re going to pay you more in the form of a tax credit."

He next turned to the CHIPS and Science Act. "This new law is going to be one of the most consequential for manufacturing that we’ve seen in a while. It encourages and fosters domestic investment beyond just semiconductors. They’re looking to create manufacturing clusters across the United States.

"Then there's the $11 billion for the R&D tax credit," Nashashibi continued. "Don't just think of this as a semiconductor bill. This is a manufacturing supply chain bill. It's about supply chain resiliency. It says the word ‘tooling’ in the law itself. Congress is writing these details in there, and they’re investing in your industry."

As of mid-December, the status of the R&D tax credits—long used by fabricators for product and process development—hung in the balance. The credit isn't going away, but at this writing, a number of provisions were set to expire Jan. 1.

"[In 2023], the R&D tax credit can no longer be immediately expensed in the year you’re using it," Nashashibi said. "You’ll have to expense it over five years. That's part of the Tax Cuts and Jobs Act of 2017. It's law. And no one has anything against the R&D tax credit, but in 2023 it will be amortized." He added that lawmakers are working to restore full expensing of the credit, but, of course, business leaders and their CPAs should plan for both scenarios (either full expensing or amortization).

In addition, the 100% bonus depreciation, as of Jan. 1, slides from 100% to 80%. "That should affect everyone here at FABTECH buying and selling equipment," he said. "If your bonus depreciation goes from 100% to 80%, the machine just got more expensive. But this is also being worked on," he said, adding that a package is in the works to extend that bonus depreciation. Washington is, as always, a moving target, and fabricators need to plan for any tax scenario that might transpire.

In 2022, some defense contractors had significant uncertainties when it came to inflation adjustments. "The 2.2% inflation adjustment allowed in the contract wasn't going to cut it in this inflationary environment," Nashashibi said, who added that an 8% adjustment was in the works as part of the Defense Authorization Act, which was expected to pass during the lame duck Congress in December. That said, with Ukraine and the general state of geopolitics, "you can expect more demand in the defense industry," he said.

Meanwhile, the DOD's Cybersecurity Maturity Model Certification (CMMC) program continues to move ahead, with the introduction of CMMC 2.0. (Nashashibi's brief mention of the requirements complemented other cybersecurity panels at the show. The takeaway: Cybersecurity is no longer a nice-to-have in metal fabrication. It's becoming a fundamental and often extraordinarily challenging aspect of doing business.)

"The workforce is one of the very few bipartisan issues we deal with," Nashashibi said. "If you deal with apprenticeships and workforce issues, we’re used to a million here or a hundred million there. But now, there are literally billions of dollars that will be going toward registered apprenticeship programs, technical career education, and job training." He added that one example already implemented is the Apprenticeship Ambassador Initiative to promote registered apprenticeships.

"There are so many dollars going into this space," he said. "We encourage you to look at your state and local areas to learn how you can bring these dollars home to you."

Although Republicans in Congress didn't see the red wave they were hoping for in November, neither party received the 60-seat majority in the Senate required to move most partisan legislation forward (and these days, nearly every bill is partisan).

"If you can't legislate it, regulate it," Nashashibi said, "and we expect that. We always see regulatory activity during year two [of a presidency], because they’re getting ready in case [the president] has to leave after year four. That's because it typically takes 18 to 24 months for the lawsuits to work their way forward."

Regulations will focus on workers, especially OSHA. One of Nashashibi's chief issues involves a work rule requirement when the heat index (not just the temperature) reaches 80 degrees F. These include additional safety and engineering controls. "We’re especially working with the die casters and forgers on this," Nashashibi said, though it should be on metal fabricators’ radar too, especially those who heat treat or have drying ovens in the finishing department.

Much of the news covers what government doesn't do—but as Nashashibi conceded, when it comes to the broader economy, Congress is running out of recession-prevention tools. "And the Federal Reserve is already under a lot of scrutiny for its actions," he said. "So be cautious. How do you insulate your company for a potential recession? Don't rely on help from Congress. It doesn't have the bandwidth politically, economically, or financially."

He added that fabricators shouldn't expect any significant changes when it comes to tariffs. "We don't see the government fully lifting the tariffs on China," he said, adding that exclusion processes on certain industrial goods could open up. But when it comes to across-the-board changes, "in the current political environment, you just can't lift those."

Although government can be frustrating, it also opens opportunities that shouldn't be overlooked. A smorgasbord of incentives, tax breaks, and investment is on offer from government, from renewable energy to battery plants to broad infrastructure projects—and the benefits go deep into the manufacturing supply chains behind them. Amid all this, fabricators should have a seat at the table.