AED Washington Insights Newsletter
April 2010
Prepared by Christian A. Klein, AED Vice President of Government Affairs
and the AED Washington team
In this Issue:
AED Members Invade Nation's Capital
As equipment distributors struggle to recover from the recession, dozens of AED members took to Capitol Hill to push for substantial investment in our nation's infrastructure and tax policies that will create jobs and spur economic growth in the industry.
By all accounts, the 2010 AED Government Affairs Conference (GAC), held in Washington, D.C. on April 14 and 15, was a runaway success. The senior executives from equipment distribution and manufacturing companies who attended this year's meeting heard from key members of Congress including:
- House Highways & Transit Subcommittee Chairman Peter DeFazio (D-OR);
- Senate Environment & Public Works Committee Ranking Member James Inhofe (R-OK);
- House Appropriations Committee Member and U.S. Senate candidate, Rep. Mark Kirk (R-IL) and;
- House Energy & Commerce Committee Member Rep. John Barrow (D-GA)
Additionally, House Ways & Means and Budget Committee member Rep. Earl Blumenauer (D-OR) received the 2010 Legislative Leadership Award for his commitment to federal
infrastructure investment and for devising innovative ideas to improve our nation's highway and water systems. Patrick McConnell, president of Clyde/West, Inc., presented the award to Congressman Blumenauer.
The GAC featured briefings from AED Washington office staff and the top lobbyists for the U.S. Chamber of Commerce, the Associated General Contractors of America, the Association of Equipment Manufacturers, and the National Stone, Sand, & Gravel Association. Participants were also treated to a presentation on the status of highway reauthorization legislation by Jeff Davis, editor of Transportation Weekly and a familiar face to past GAC and Executive Forum attendees.
With all that is going on in Washington, there was no shortage of topics to discuss. Items on the agenda included highway and water infrastructure legislation, credit issues, climate change proposals, and the uncertainty surrounding the tax code (e.g., bonus depreciation, estate tax, LIFO repeal, and the looming three percent government contractor withholding tax).
On the conference's final afternoon, AED members took to the Hill to promote the association's recovery agenda at meetings with lawmakers and congressional staff.
The meeting wasn't all work: Social events included a joint reception with North American Dealers Association members on the John Deere Washington office roof deck overlooking the White House and a reception in the new Capitol Visitors Center, as well as plenty of time to network with colleagues.
Thanks to the equipment industry leaders who invested their time and attended this year's meeting. For those who couldn't make the 2010 GAC, we look forward to seeing you in Washington next year!
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More than 80 National Groups Join AED Push for Depreciation Bonus Reinstatement
More than 80 national organizations are supporting AED's campaign to reinstate the depreciation bonus. The tax incentive, created as part of the 2008 Economic Stimulus Act and extended by the 2009 American Recovery and Reinvestment Act, allows companies that buy new equipment to cut their tax bills by writing off 50 percent of the cost in the first year. The depreciation bonus expired on Dec. 31, 2009.
In a letter to Congress on April 1, AED and its allies told lawmakers that, "Reinstating bonus depreciation will help inoculate the economy against a backward slide in business capital investment in the months ahead, enhance the impact and benefits of other job creation legislation (e.g., infrastructure investment), encourage recovery in fragile, capital-intensive sectors of the economy (e.g., construction and manufacturing), and, most significantly, put Americans back to work."
The letter, coordinated by AED's Washington office, was signed by a diverse group of trade associations representing a broad cross-section of the economy. Signatories included the Association of Equipment Manufacturers, U.S. Chamber of Commerce, the National Association of Manufacturers, the Associated General Contractors of America, the Aerospace Industries Association, the Edison Electric Institute, and the United States Telecom Association.
Read the letter here.
Word from the Hill is that depreciation bonus may be included in a package of pro-growth tax proposals expected to move through the Senate this spring, but it's far from a done deal.
Please take a minute to send a note to your congressional representatives through AEDaction.org to support our depreciation bonus lobbying campaign here.
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AED survey illustrates impact of industry depression, recovery priorities
AED's 2010 Government Affairs Survey, conducted during the first two weeks of April, provides important insights about the impact of the equipment industry depression on AED members, the benefits of recent stimulus legislation, and distributor policy priorities.
Impact of the Equipment Industry Recession
The survey confirms the devastating toll the recent economic downturn has taken on equipment distributors. Since January 2007, AED members have taken difficult and painful steps to keep their companies in business:
- 75 percent of AED members have laid off workers
- 68 percent have eliminated positions through attrition
- 64 percent have reduced salaries and wages
- 64 percent have sold equipment from their rental fleets at a loss
- 36 percent have reduced health insurance benefits
- 32 percent have suspended participation in a workforce development program (e.g., training partnership with a local community college)
- 21 percent have cancelled the opening of a new facility
- 17 percent have closed one or more facilities.
On average, the survey found that companies that have reduced their workforces have cut employment by 23 percent since 2007. A 2009 IHS Global Insight study estimated that the equipment industry's workforce had contracted by 37 percent since the start of the recession. A number of factors explain the difference between the AED survey findings and the IHS Global Insight unemployment data. First, Global Insight examined employment at all tiers of the industry (including manufacturing and independent product support), not just equipment distribution. Second, and perhaps most significantly, only active AED member companies were asked to participate in our recent survey. Thus, the survey does not account for companies that have closed their doors entirely (and where, presumably, 100 percent of the jobs have been lost) or that are otherwise no longer AED members.
Fundamentally, the AED survey results reinforce IHS Global Insight's original determination that the economic downturn has taken a devastating toll on equipment distributors and their employees.
Impact of the Credit Crisis
Eighty percent of survey respondents report losing revenue over the past year because a qualified customer (or customers) was unable to get credit to finance equipment purchases. Forty percent report losing more than $1 million in revenues. By an extremely conservative estimate, survey respondents have together lost $75 million in revenues because of customer credit issues.
When the results are projected across AED's entire U.S. distributor membership, equipment distributors have conservatively lost more than $475 million in revenues over the past year because equipment purchasers could not find financing. By combining the results of this survey and last year's (which asked the same question), we estimate AED members have lost more than $1.2 billion over the past two years because of credit issues.
The credit crunch has not just affected equipment markets; it has made it more difficult for distributors to run their companies. Fifty-nine percent of respondents have seen an increase in credit costs over the past year, and 40 percent have had difficulty securing credit.
Stimulus: What Worked and What Didn't
The survey asked AED members a number of questions about the impact of the 2009 American Recovery and Reinvestment Act (ARRA or "the stimulus bill"). The results suggest that ARRA's infrastructure spending had some impact on equipment sales, as well as on equipment rental and product support business. However, the most benefit came from the capital investment incentives (50 percent depreciation bonus and increased Sec. 179 expensing levels). Twice as many members report sales attributable to the capital investment incentives as to ARRA's infrastructure spending. Specifically:
- 36 percent of respondents said the ARRA's 50 percent depreciation bonus and increased Sec. 179 expensing levels motivated equipment purchases at their companies last year
- 29 percent said the ARRA's infrastructure spending created product support business at their companies
- 29 percent said the ARRA's infrastructure spending resulted in increased equipment rentals at their companies
- 19 percent said that ARRA's infrastructure spending resulted in used equipment sales at their companies
- 18 percent said the ARRA's infrastructure spending resulted in new equipment sales at their companies
Infrastructure, Credit Are Critical to Industry Recovery
Members were asked to rate the beneficial impact of the various policy solutions AED is advocating to help distributors recover from the industry depression. Based on average ratings on a five-point scale (1 being "no impact" and 5 being "very beneficial"), survey respondents prioritize our public policy objectives as follows:
- Enacting a new, multiyear highway bill that increases investment in roads, bridges, and transit (average score of 4.18)
- Improving access to credit for distributors, contractors, and developers (4)
- Enacting a new multiyear water infrastructure bill that increases investment in sewers and drinking water systems (3.99)
- Reinstating the 50 percent depreciation bonus for new equipment purchases (3.85)
- Resolving the uncertainty surrounding the estate tax (3.81)
- Creating a new tax credit for the purchase of "clean diesel" equipment. (3.39)
- Increasing federal investment in broadband infrastructure (3.06)
Beneficial Impact of a Multiyear Highway Bill
Enacting a multiyear surface transportation bill that increases highway and bridge funding would create jobs in the equipment industry and increase demand for equipment (which would help ailing manufacturers). Specifically:
- 69 percent of respondents said they would add equipment to their rental fleets if Congress enacts a new multiyear highway bill that increases road and bridge investment
- 46 percent would rehire laid off workers
- 37 percent would add new positions
- 4 percent would open a new facility (or facilities)
- 2 percent would reopen a closed facility
Distributors Are Highly Skeptical About New Health Care Law
Consistent with the surge in grassroots opposition from AED members prior to the enactment of the new health care reform law, AED members are very concerned about the law's negative impact:
- 85 percent believe the new health care law will undermine the quality of health care, increase costs and taxes for their companies, and make it harder for them to provide insurance to their employees
- 11 percent think that the new law won't have much impact, whether positive or negative
- 4 percent think it will improve health care, reduce insurance costs, and make it easier to provide insurance to employees
Tax Issues Are Greatest Threat
Members were asked to assess the negative impact on their companies of pending tax, labor, and environmental policy proposals on a scale of one to five (1 meaning "no impact" and 5 meaning "very negative impact"). Respondents prioritized the threats as follows:
- Increasing capital gains tax rates (average score of 4.44)
- Allowing the new 3 percent tax on government contractors to go into effect as planned in 2012 (4.36)
- Increasing marginal tax rates (4.34)
- Unilaterally imposing limits on U.S. carbon emissions through climate change legislation or new EPA regulations (4.31)
- Allowing the National Labor Relations Board to alter current policies to make it easier for unions to organize (4.25)
- Eliminating right to secret ballots in union organizing elections (card check) (4.23)
- Imposing binding arbitration on union contract negotiations (3.97)
- Repealing LIFO (3.08)
The survey results are consistent with several prior surveys showing that between 30 and 40 percent of AED members used LIFO. In this survey, 41 percent rated the threat of LIFO repeal as a 4 or 5 on the five-point scale. Based on past analyses suggesting that LIFO repeal would cost AED members alone more than $900 million in retroactive liability, AED will continue to play a leadership role in this issue.
Survey Methodology
Multiple e-mails requesting participation in the survey were sent to the primary contact at each U.S. distributor member company. Ultimately, 81 members participated. The survey respondents were highly representative of AED's membership. Fifty-eight percent of respondents had between 20 and 99 employees and 69 percent had between $5 million and $75 million in revenues. Based upon AED's current U.S. distributor membership, we calculate the survey's margin of error at 10 percent, making it a highly reliable snapshot of our industry.
Thanks to everyone who participated in the survey. We're distributing the results on Capitol Hill to support our advocacy on the industry's behalf and using the data you gave us to help channel our resources to the issues that matter most to our members.
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AED PAC Kicks off 2010 fundraising
If it's spring, it's time to kick-off AED Political Action Committee (PAC) fundraising. With the majority in Congress up for grabs, AED is ramping up for what will be a historic election come November.
AED PAC, which is supported entirely by personal contributions from owners and senior executives of AED distributor members, is a special account AED uses to help elect lawmakers who share our commitment to infrastructure, the free market, and entrepreneurship. AED has unprecedented opportunities this year to influence the debate, and there are many exciting races across the country.
This year's fundraising campaign is already off to a record start with nine equipment dealers having already contributed to AED PAC in 2010.
Federal law prohibits AED PAC from soliciting PAC contributions from AED members whose companies haven't given written consent for solicitation. As a matter of policy, AED does not accept contributions from individuals it may not solicit. If you haven't yet filled out the consent form, please consider doing so.
You can download the solicitation consent form and a list of companies who have given consent here.
If you have any questions about AED PAC, please contact AED Manager of Government Affairs Crystal Maguire at 703-739-9513 or cmaguire@aednet.org.
2010 AED PAC Contributors
Chairman's Circle ($2,500)
Dale Leppo, Leppo Rents/Bobcat of Akron
Wes Stowers, Stowers Machinery Co.
Gerald Tracey, Tracey Road Equipment
Capitol Club ($1,000)
Diane M. Benck, West Side Tractor Sales Co.
Walter T. Berry, Berry Companies, Inc.
Lawrence F. Glynn, CMW Equipment
Jay A. Paradis III, Brandeis Machinery & Supply Co.
Chris MacAllister, MacAllister Machinery Co., Inc.
Washington Team ($500)
Michael D. Brennan, Bramco
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Senate bipartisan climate change legislation gets hot, then cold again
At the beginning of April, discussions between Sens. John Kerry (D-MA), Joseph Lieberman (I-CT), and Lindsey Graham (R-SC) regarding a comprehensive climate change and energy bill were moving forward rapidly. Throughout the month, the still unreleased legislation was gaining traction as the country's largest energy-producing companies were agreeing to withhold opposition to the bill, if not offer their support.
The proposal would give electric utilities until 2013 and manufacturers until 2016 to curb greenhouse gas emissions, with the target of cutting U.S. emissions 17 percent by 2020 and 80 percent by 2050. Oil companies would be required to purchase "emissions allowances" to account for the carbon content of gasoline and other fuels. Additionally, there is more than $10 billion to support coal-fired power plants in deploying carbon capture and storage technologies and funding for the construction of up to 12 new nuclear power plants.
A primary concern of AED and our allies is that the Kerry-Lieberman-Graham proposal would include new taxes on transportation fuels and the revenue would be diverted to areas other than our nation's highways, bridges and roads.
AED joined the American Road & Transportation Builders Association (ARTBA), the Associated General Contractors of America (AGC), the American Association of State Highway & Transportation Officials (ASHTO), the American Public Transportation Association (APTA) and others in an effort to encourage Sens. Kerry, Graham, and Lieberman to dedicate any new fees placed on transportation fuels to the Highway Trust Fund and invested, along with other surface transportation funds, under a multiyear highway reauthorization bill.
Climate change deal "blown up"
As quickly as momentum built for the Kerry-Lieberman-Graham climate change and energy legislation, the deal went down even faster. Just a few days ago, right before the much-anticipated April 26 public release of the bill, Graham pulled the plug on the bipartisan compromise because of dissatisfaction regarding Senate Majority Leader Harry Reid's (D-NV) decision to bring comprehensive immigration reform legislation to the Senate floor before a climate change and energy bill.
The move by Reid, widely regarded as a political calculation to win over Hispanic voters before November midterm elections, upset many members of the Republican caucus. Graham, who is also the lead Republican negotiating immigration reform legislation with Sen. Chuck Schumer (D-NY), believes that the climate change proposal is riper for Senate consideration than an immigration bill.
Additionally, given the partisan divide in Congress, the chances of completing immigration overhaul legislation in an election year are even less than the already small chances of finishing a climate change and energy bill. With limited legislative days left before the midterm elections and the Senate set to consider a Supreme Court nominee this summer, the likelihood of considering both climate change and immigration legislation in the chamber this year is slim to none.
As Insights went to press, Kerry, Lieberman, and supporters of the legislation vowed to push ahead, and Reid seemed to be backing off his desire to bring up an immigration bill before a climate change proposal. AED will continue to monitor the very fluid situation and weigh-in where necessary to protect the interests of equipment distributors.
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Business community continues to analyze health care bill
More than a month after President Obama signed the Patient Protection and Affordable Care Act, health care policy experts all agree that the law will do little to cut costs, will expand coverage to millions of people, and will raise taxes on the business community. However, nobody can really assess the impact until the Department of Health & Human Services (HHS), the Internal Revenue Service (IRS), and other government agencies begin issuing regulations to implement the law.
We anticipate that rulemaking related to the health care law will have top priority. However, the federal government is not known for moving quickly and with most of the major provisions of the health care law not going into affect for several years, it could be a while before some certainty is added to the situation.
The first batch of agency guidance regarding the Patient Protection and Affordable Care Act is expected on April 30. While guidance does not carry the force of law, it will give some insight as to how the federal government will interpret several provisions of the health care law. The April 30 initial guidance is expected on compliance with the new requirements and limitations on "grandfathered" plans, dependent care, and pre-existing condition exclusions.
AED will continue to monitor the impact of the health care law on equipment distributors. Stay tuned in the coming weeks and months for further updates.
In the meantime, the U.S. Chamber of Commerce has released "Critical Employer Issues in the Patient Protection and Affordable Care Act." The handbook is a preliminary analysis of the new law and what it means for employers. View the full handbook here.
Legislation to Repeal Health Care Bill's Paperwork and Reporting Provision Introduced
On April 26, Rep. Dan Lungren (R-CA) introduced the Small Business Paperwork Mandate Elimination Act (H.R. 5141). The legislation would repeal Section 9006 of the Patient Protection and Affordable Care Act, which requires any business that purchases more than $600 of goods or services from another company to submit a 1099 tax form to the IRS beginning in 2012. The new reporting requirement is expected to raise $17.1 billion over 10 years.
Current law only requires businesses to submit a Form 1099 for every contractor paid at least $600 for services during a year.
AED supports H.R. 5141 and believes that unnecessary paperwork burdens in the health care law that add disproportionate financial and administrative costs to small businesses should be re-examined.
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IRS details how to take advantage of HIRE Act new employee tax credits
The HIRE Act, signed by President Obama on March 18, extended the highway program until the end of the year, providing medium-term certainty for the construction markets. Additionally, the legislation reinstated the $250,000 Sec. 179 expensing level through Dec. 31.
The HIRE Act also created two new tax benefits intended to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer's share of social security tax on wages paid to these workers after March 18. This reduction will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2-percent share of Social Security taxes, as well as income taxes.
Additionally, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns.
At the beginning of April, the Internal Revenue Service (IRS) released the new Form W-11, HIRE Act Employee Affidavit, along with answers to frequently-asked questions about the payroll tax exemption and the new hire retention credit. The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers should use Form W-11 to meet this requirement.
Most eligible employers then use Form 941, Employer's Quarterly Federal Tax Return, to claim the payroll tax exemption for eligible new hires. This form, revised for use beginning with the second calendar quarter of 2010, is currently posted as a draft form on IRS.gov and will be released in May as a final form along with the form's instructions.
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Committee holds hearing on innovative financing for highway projects
With Congress showing little desire to raise the gas tax in the near term to fund substantial highway, road and bridge investment, the search for innovative methods to finance highway projects has taken on substantial importance.
The gas tax has not been adjusted in nearly two decades and with vehicles getting higher gas mileage, the price of gas remaining expensive, the economic recession, and more people utilizing mass transit, the gas tax as the primary source of funding the Highway Trust Fund (HTF) is by all accounts an endangered species.
Consequently, on April 14, the House Transportation & Infrastructure Committee's Subcommittee on Highways and Transit held a hearing to explore innovative financing for surface transportation projects.
During the hearing, the witnesses discussed the merits of various innovative funding options, including bonding (e.g., Build America Bonds (BABs) and private activity bonds), tolling, and private investment. BABs, a success story from the American Recovery & Reinvestment Act, have supported more than $90 billion of municipal financing for new building projects from April 2009 to March 31, 2010, according to the U.S. Treasury Department.
Federal-credit assistance programs like the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which provides assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects of national and regional significance, were also mentioned.
House Transportation & Infrastructure Committee Chairman James Oberstar (D-MN) and other members of the subcommittee noted that while bonding and federal-credit assistance programs have been helpful in prolonging the life of the HTF, the only way to create a sustainable source of funding would be to reauthorize the highway program with a concrete funding source, such as an increased gasoline tax.
Unfortunately, the hearing produced few innovative ideas on how to fund a multiyear highway reauthorization bill with substantial new investment to meet our nation's growing infrastructure needs.
While AED supports raising user fees to fund highway investment in the near term, all options should be on the table to ensure the viability of the HTF for years to come. AED will continue to push Congress to pursue innovative financing methods to fund a multiyear highway bill sooner rather than later.
View a summary of the hearing subject from the Highways and Transit Subcommittee here.
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Oberstar introduces bill to broaden the scope of the Clean Water Act
On April 21, House Transportation & Infrastructure Committee Chairman James Oberstar (D-MN) introduced the America's Commitment to Clean Water Act (H.R. 5088). The legislation seeks to expand the scope of the Clean Water Act (CWA) following two Supreme Court decisions, which, according environmental groups, greatly reduced the application of the law to far fewer bodies of water than Congress originally intended when the CWA was enacted.
Supreme Court decisions in 2001 and 2006 held that CWA protections only applied to "navigable waters," which according to the Court, does not include rivers that are completely within one state's borders, seasonally dry lakes and creeks, and other bodies of water not connected to larger water systems.
H.R. 5088 would remove the term "navigable waters" from the Clean Water Act, replacing it with "waters of the United States." Unfortunately, a seemingly small change could allow the Environmental Protection Agency to regulate many more "waters" than currently permitted.
In fact, the phrase "waters of the United States" is so broad that the Clean Water Act could be interpreted to apply to storm water ponds, ditches, irrigation and drainage systems, and constructed water features. Of course, this could mean more regulations, more paperwork, and more bureaucratic hoops to jump through before development or construction can occur near such "waters."
A similar bill, the Clean Water Restoration Act (S. 787), was approved by the Senate Environment & Public Works Committee last year and awaits consideration by the full Senate.
AED is joining forces with our construction and aggregate industry allies in educating lawmakers about the substantial consequences and uncertainty that will result if H.R. 5088, in its current form, becomes law.
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Chamber hosts infrastructure index workshops
The U.S. Chamber of Commerce is in the process of developing a set of indicators that collectively reflect performance expectations (the degree to which transportation, energy, broadband and water systems serve U.S. economic and multilevel business community objectives). Those indicators will be combined into indexes for transportation, energy, broadband, and water, and a composite infrastructure index.
The indexes will be used to make the case for improving and increasing investment in transportation, energy, broadband and water systems and to demonstrate how infrastructure is important to the business community and the overall economic health of our nation.
The Chamber is traveling the country to solicit insights and expertise from business leaders on their infrastructure index project. AED President and CEO Toby Mack attended the workshop in Chicago.
If you are interested in joining the Chamber for a free lunch and a discussion on how you use infrastructure to keep costs low, be competitive and grow, the remaining workshop dates and locations are:
- Houston, TX, Westin Galleria, 5060 West Alabama, May 13, 2010, Noon to 4:30 p.m.
- San Jose, CA, The Fairmont, 170 South Market Street, May 20, 2010, Noon to 4:30 p.m.
This is a great opportunity for equipment distributors to shape the future of the infrastructure debate. RSVP by contacting Andrew Brady at abrady@uschamber.com.
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Start Us Up USA! coming to Des Moines
The next Start Us Up USA! rally to build support for highway reauthorization and the equipment industry recovery agenda will take place Friday, May 7 at 4 p.m. at the Iowa State Capitol Building in Des Moines.
The event, which is being organized by the Iowa-Nebraska Equipment Distributors and Iowa-Nebraska Equipment Dealers Association, will feature an array of equipment idled by the equipment industry depression, as well remarks by local and national industry leaders, including AED President and CEO Toby Mack.
INED-INEDA has also made a media buy on WHO Radio to run a 30-second commercial starting next Monday and running throughout the week.
Several leading Iowa equipment companies (dealers and manufacturers) are providing equipment and other support for the event. If you're an Iowa AED member who wants to participate in the rally and provide equipment, please contact INED Director of Government Affairs Will Rogers at willr@ineda.com or 1-800-622-0016.
For more about Start Us Up USA!, a grassroots campaign co-sponsored by AED and the Association of Equipment, go to http://www.StartUsUpUSA.com.
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