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Construction Braces for Cuts Under New Debt-Limit Deal

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After weeks of partisan battles on Capitol Hill, Congress averted a government default by passing legislation to boost the government’s debt limit and trim its budget deficit.

Construction industry officials had feared default would have led to widespread interest-rate hikes and a slowdown in project financing and new projects.

President Obama signed the measure, the Budget Control Act of 2011, on Aug. 2, a few hours after the Senate approved it by a 74-26 vote. The House had cleared the measure one day earlier, by a 269-161 tally.

Although the construction industry, and businesses in general, breathed a sigh of relief with the debt limit deal done, construction's worries are far from over. The industry now must brace itself for a share of the measure’s $2.1 trillion or more in deficit-reduction steps over 10 years.

Enactment of the bill narrowly beat the deadline. The Treasury Dept. had said unless the debt limit were increased on Aug. 2, the government would go into default and be unable to pay all of its bills due at that time.

The measure’s first wave of deficit reduction, totaling $917 billion over the next decade, will include $741 billion from cuts in discretionary spending, the budget category that includes all federal construction programs. The bill doesn’t specify which programs would be cut, or by how much.

Stephen E. Sandherr, the Associated General Contractors of America CEO, says the passage of the debt and deficit bill merely sets the stage for the next hotly contested debate over federal fiscal issues and spending priorities.  “This created a process, not a solution,” he says.

The next round of the spending fight will take place in congressional appropriations committees, as House and Senate members wrestle over spending levels for fiscal 2012, which begins on Oct. 1.

If the last appropriations tussle, which in April produced a catch-all spending package for the rest of fiscal 2011, is any guide, construction, and its Capitol Hill allies, will have a tough battle on their hands.

Sandherr notes that of the $38 billion in overall 2011 cuts enacted in April, $22 billion came from construction accounts. They include high-speed passenger rail, General Services Administration buildings construction and Environmental Protection Agency aid for wastewater treatment plants.

Obama and other leading Democrats provided a ray of hope for construction, saying that with work on the debt and deficit measure completed, they now plan to focus on ways to create jobs, citing highway, aviation and other infrastructure legislation as examples.

In remarks after the Senate vote, Obama again called for a new entity to provide loans for public works projects. He said, “We have workers who need jobs and a country that needs rebuilding; an infrastructure bank would help us put them together.”

But congressional Republicans said little or nothing about infrastructure in their statements before and after the bill was approved.

Sandherr says, “It seems to me that everybody talks about Infrastructure with a capital “I” but the infrastructure projects with a lower-case “I” that are right in front of us seem to be impossible to do.”

One example he cites is the long-delayed surface transportation authorization. The lack of agreement on a new multi-year bill has led to a series of extensions, the latest of which lapses on Sept. 30.

Under the new debt legislation, federal borrowing-limit hikes and deficit reduction will come in phases.

The $14.3-trillion federal debt limit will go up $400 billion initially, Unless a congressional  “resolution of disapproval” is enacted, there would be  two further increases through the end of 2012 boosting the cap by an additional $1.7 trillion to $2 trillion.

The first round of spending reductions is estimated at $917 billion over the 10 years from 2012 through 2021, mostly via cuts in discretionary spending, according to an Aug. 1 Congressional Budget Office analysis.

CBO says that total includes $741 billion in discretionary-spending reductions, plus $156 billion in lower interest on the federal debt, offset a bit by a $17-billion increase in Pell Grants for college students.
A larger, second round of cuts will hinge on recommendations from a bipartisan committee composed of House and Senate lawmakers.

The panel’s recommendations are due just before Thanksgiving and would then go before Congress for a vote by Dec. 23. The committee will look at further discretionary-spending cuts, but also consider reductions in entitlement programs as well as changes in the tax code.  If Congress doesn’t pass legislation, based on the committee’s recommendations that achieves at least $1.2 trillion in deficit reduction,  discretionary spending caps would be imposed.                              

The amount of deficit reduction called for in the newly enacted bill is large, but Obama said it “still allows us to make job-creating investments in things like education and research.” He added, “We also made sure that these cuts wouldn't happen so abruptly that they'd be a drag on a fragile economy.”

Vice President Joe Biden, who played a key role in the negotiations leading up to the deal, said the legislation “has one overwhelming redeeming feature. It says that this debt-limit issue cannot come up again until 2013.”  After the bill’s enactment, “We will be talking about nothing from then but about jobs,” Biden said during a televised press conference yesterday.

He said that the legislation “does not prevent us from being able to continue to fund those initiatives within our budget that are the job creators—infrastructure, innovation and education. “

The text of the legislation doesn't include line-item figures for individual federal accounts, such as highways or General Services Administration federal buildings. In addition, it will be up to congressional appropriators to fill in the specifics each year over that decade as they produce the annual spending measures covering various departments and agencies.

And with the cuts to be spread over 10 year, there will be five Congresses and three more White House administrations in that period. It is impossible to predict who those lawmakers and officials will be or what federal-spending policies they will espouse.

The plan does, however, set overall levels for discretionary "security" programs and discretionary "non-security" spending. The security category includes the Depts. of Defense, Homeland Security and Veterans Affairs, as well as the National Nuclear Security Administration (which is part of the Dept. of Energy). All construction programs are part of the discretionary categories.

According to the office of the House Democratic Whip, Steny Hoyer (Md.), the plan's caps are $1.043 trillion for fiscal 2012 and  $1.047 trillion in fiscal 2013. Appropriations in 2011 totaled $1.050 trillion.

Hoyer's office says that the $10-billion combined two-year cut from the 2011 enacted level, would be split between non-security and security sectors. 

 

 

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