After coming within hours of a government shutdown, on April 8 the president and congressional leaders reached an agreement and backed away from the brink of mutually assured political destruction. Both ends of Pennsylvania Avenue grumbled about not getting everything they wanted in the deal, but there was also a palpable sense of relief that neither the House GOP nor President Obama would have to endure the uncertain political backlash from the government closing its doors.
As acrimonious as the fight over federal spending for the remainder of fiscal-year 2011 may have seemed, it was just the first skirmish in a much bigger battle. Within days of the appropriations deal (and before it had passed either the House or Senate), House Republicans and President Obama fired the first salvos in the next round by laying out competing visions for federal spending in 2012 and beyond. Here's the Associated Equipment Distributors' take:
What does the CR mean for construction markets?
The $1.049 trillion continuing resolution (CR) brokered earlier this month and approved by the House and Senate on April 14 funds the federal government for the rest of fiscal year 2011 (through September 30). It will result in an overall reduction in government spending of close to $40 billion from last year. While AED generally applauds the House GOP leadership and Obama administration for reaching a deal that trims the budget deficit and puts the nation on more responsible fiscal footing, it's important for distributors to understand what the CR means for construction markets in the near term.
- Highway funding rescission. Despite the chaos surrounding highway reauthorization and Highway Trust Fund (HTF) revenue shortfalls, the road and bridge program emerged from FY 2011 budget negotiations relatively unscathed. The CR rescinds $2.5 billion in highway contract authority. Congressional appropriators claim that because states don't have enough obligation authority to use all their contract authority, the rescission won't affect their ability to invest in roads and bridges this year. The CR also confirms that the HTF won't be getting a special $650 million transfer from the general fund like the one in FY 2010 and rescinds roughly $630 million in older transportation project earmarks that were never used.
- 28% cut in water infrastructure funding. Water infrastructure lost big in the budget deal. The CR reduces water infrastructure investment by $997 million in FY 2011. That's a 28% cut from the $2.1 billion and $1.4 billion that the Clean Water and Safe Drinking Water State Revolving Funds (SRFs) respectively received in FY 2010 ($3.5 billion total). Based on AED's estimate that each dollar spent on water infrastructure construction yields 12 cents in contractor spending on equipment purchase, rental, and product support, the $997 million cut could mean $120 million in lost equipment market opportunity. Given the hundreds of billions of dollars in water infrastructure needs nationwide, the cuts reinforce the importance of attracting more private money for investment (e.g., by lifting private activity bond caps) and creating a new, sustainable funding stream to support investment in this critical area.
- Other federal construction cuts. The CR also slashes several other federal construction programs. Among the biggest cuts are $414 million from the Army Corps of Engineers' construction budget, $812 million from the General Services Administration's building program, and $6.514 billion in combined Department of Defense and Veterans Affairs construction.
- No money for high speed rail. While there's no doubt that high speed rail (HSR) projects would drive additional demand for construction equipment in some parts of the country, most AED members we've spoken to are dubious that the economic benefits to the overall economy justify the enormous costs. One major criticism: Unlike roads, HSR only carries people, not goods. The 2011 CR eliminates all funding for HSR for 2011 (a $2.9 billion savings from FY 2010). From AED's standpoint, the HSR discussions were a distraction from the more important issue of stabilizing the HTF and getting a new multiyear highway bill in place, so we're not shedding any tears.