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This regulation could have a significant impact on all contractors
that own a fleet of equipment. Margins could decline due to early
retirement of productive equipment. This is compounded by the need
to spend considerable money to modernize, or rather, modify the
fleet structure. Construction is on a competitive bid basis and
only a portion of cost can be passed through. The full impact of
this cost cannot be pushed through until many years down the road
as the field gradually levels out. Hidden equity will decline by
an unknown amount as values decline for all Tier 0 equipment. This
decline could accelerate as other states clone the California model
with the potential for a cascade effect on Tier 0 equipment values.
In my opinion, says, CIT's Ralph Potter, this will likely wipe out
somewhere between 25-50% of hidden equity over time.