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Cost Report: Federal Construction Funding Is Growing Tighter

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Three years ago, when construction was reeling from the slumping economy, the federal government provided welcome relief for design firms and contractors: Uncle Sam started to pump about $130 billion in stimulus-act construction funding and a similar amount of regular appropriations into the market.

But now, with the construction stimulus funds nearly all spent or spoken for, Congress is tightening federal purse strings. Current and probable future cuts in infrastructure and buildings programs pose yet another obstacle to recovery for a construction industry that has yet to rebound to pre-recession levels.

Cuts started with fiscal 2011 funds. A second wave of pain hit last year, when Congress sliced fiscal 2012 construction appropriations by $7.7 billion, or 6%, to $117.7 billion, according to the Associated General Contractors of America.

Prospects for fiscal 2013 appropriations are not encouraging. President Obama launched the 2013 spending round on Feb. 13, when he sent his budget request to Congress. The proposal seeks some construction program increases but also recommends many cuts. Final word on which line items will be trimmed—and how severely—won't come until late this year. But industry officials say the outlook isn't bright.

"I think the environment is probably as tough … in the federal sector as it [has]been in a very, very long time," says Andrew Goldberg, American Institute of Architects managing director for government relations and outreach. "We are very worried," says Jeffrey Shoaf, AGC senior executive director for government affairs.

House Republicans, who took control of the chamber in the 2010 elections, have campaigned hard to narrow the $1.2-trillion federal budget deficit mainly by chopping spending. Democrats, who hold the Senate majority, have been able to moderate, but not reverse, the deep reductions House Republicans have sought.

House Appropriations Committee Chairman Harold Rogers (R-Ky.) says Congress will continue to cut. "We have to," he told ENR. "We have no choice." A prime reason is the 2011 Budget Control Act, which sets mandatory annual caps on total discretionary spending, the category for all construction programs.

The 2012 ceiling is $1.043 trillion, down $7 billion from 2011. The 2013 cap rises to $1.047 trillion. But Shoaf warns, "Republicans are itching for a lower number than the Budget Control Act."

That law also requires further cuts, under budgetary "sequestration," totaling $1.2 trillion over 10 years. Sequestration was triggered because the congressional "supercommittee" failed to agree on a deficit-reduction blueprint last year.

Sequestration cuts, all from discretionary spending, will start to take effect in January 2013, unless Congress votes to undo them or comes up with another way to reduce the deficit.

Some observers predict Congress will block sequestration. Fears about the cuts' impact on the Dept. of Defense are a key reason. Echoing warnings by DOD Secretary Leon Panetta, Rogers says if mandatory cuts kick in, "it means devastation for the military, which we just simply cannot have happen. And we're all working hard to find a way to save the money sequestration requires but to lessen the impact on the military especially."

Congress probably will delay deciding what to do about sequestration—and maybe 2013 appropriations, too—until after the November elections.

Steve Hall, American Council of Engineering Companies vice president for government affairs, says, "What's problematic for us is, this is probably one of those post-Election Day solutions, particularly when you're talking about sequestration, which is going to add to the uncertainty in the federal marketplace. … Federal clients don't know what [amounts] they have to spend."

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