Senate Amendment to Cut Discretionary Spending Fails  

The House and Senate passed a Continuing Resolution (CR) to provide funds to continue the operation of the federal government until December 3.  The CR is necessary because Congress has failed to enact any of the 12 appropriations bills for FY 2011. Under the terms of the CR most government programs will continue to be funded at FY 2010 levels. 

One federal program monitored by AGC will see a decrease in funding levels; the Department of Defense Base Closure and Realignment (BRAC) will see a decrease in the amount available from over $7 billion in FY 2010 to a rate equal to $2.35 billion, the FY 2011 administration budget request.  Congress intends to wrap up the 12 unfinished appropriations bills in a large omnibus during the lame-duck session after the November 2 elections, which is tentatively scheduled to start in mid-November.

As Congress continues to look at ways to cut spending, their focus is likely to turn to limiting discretionary spending in the federal budget.  An example of this approach occurred during Senate debate of the CR through an amendment offered by Senator John Thune (R-S.D.). The Thune amendment proposed a 5 percent across-the-board cut in discretionary spending, excluding defense, homeland security and veterans' programs. The amendment - which required 60 votes to pass - failed by a vote of 51-48, with eight Democrats voting yes.  AGC is continuing to push for full spending bills.

Sharp criticism from both parties was leveled at the Obama Administration's plans to cut the budget for the U.S. Army Corps of Engineers in a hearing yesterday before the House Energy and Water Appropriations Subcommittee. The Army Corps would receive $4.9 billion under the president's fiscal 2011 budget request, down from the $5.4 billion appropriated for the agency in the current fiscal year.

The budget request slashes the investigation account, which funds project studies, from $162 million this year to $104 million in 2011. The proposal also cuts $39 million in funds for operating and maintaining existing projects, suggesting $2.4 billion for the account next year. In addition, the construction budget would drop to $1.7 billion, compared with $2 billion awarded by Congress for this fiscal year.

Rep. Ed Pastor (D-Ariz.), Energy and Water Development Subcommittee Chairman, said his staff estimated those cuts would result in the loss of more than 350 ongoing studies or projects. Rep. Zach Wamp (R-Tenn.) also expressed concern that the cuts to the construction and operations and maintenance accounts could result in shutdowns of key waterways like the Tennessee River. Lt. Gen. Robert Van Antwerp, the Corps' Chief of Engineers, said that many of the nation's locks are old — the average is 58 years of service — and that the Corps recognizes that the key to keeping them operating is good maintenance.

AGC believes that in order to complete ongoing infrastructure projects in a timely and efficient manner and to save future costly repairs by adequately addressing the existing backlog of critical deferred maintenance, funding for the Corps of Engineers Civil Works budget must increase to at least $7.0 billion for FY 2011.

On February 1, President Obama unveiled his $3.8 trillion budget for fiscal year 2011. The budget projects a deficit of $1.27 trillion while placing a total freeze on non-security domestic spending.  That freeze has resulted in cutbacks in most of the key federal construction accounts.  According to AGC's analysis,  the Administration's proposed total of $112.4 billion for construction projects represents a nearly $9 billion, or 7.5 percent, decrease from the $121.5 billion appropriated for construction projects in FY 2010 (this does not include ARRA funds).

While the budget recommends a mix of increases and reductions in programs across market areas, it does recommend boosting a few construction programs (albeit very modestly) including 1 percent increases for both the highway and transit programs.  In addition, the Administration is calling for the creation of a $4 billion National Infrastructure Bank for transportation projects of regional or national significance.

In contrast, the proposed budget cuts the construction budget for the Army Corps of Engineers' Civil-Works Program from $2 billion in 2010 to $1.7 billion, a 17% decrease.  The Environmental Protection Agency budget would cut the Clean-Water State Revolving Funds by 5% to $2 billion and the Drinking Water State Revolving Funds by 7% to $1.2 billion.

The President's budget is simply a request of the Administration's priorities for the next fiscal year and the first step in the federal budget process.  AGC will continue to advocate for the increased federal investment in the nation's infrastructure and public facilities through the nearly 100 construction programs at the federal level.

A cover-page story from Engineering News Record about President Obama's 2011 budget request, quotes AGC's CEO, Steve Sandherr, talking about how the budget has a mixed outlook for construction, the positives being the President continues to see investing in infrastructure as a good way to boost the economy.  The negatives include significant cuts to the Army Corps of Engineers budget.

For a chart compiled by AGC that compares the Administration's FY 2011 budget request, click here.

For more information contact Sean O'Neill at neills@agc.org or 202-547-8892.

The White House announced this week that President Obama will deliver his State of the Union address on January 27 and release his FY 2011 budget February 1.  It is widely believed that the State of the Union and the president’s budget will focus on cutting the federal deficit and may downplay other new domestic programs beyond jobs programs.  In order for the administration to achieve the goal of deficit reduction, the FY2011 budget may contain a discretionary spending freeze at some federal agencies.  At the same time the president wants to ensure policies are in place that will lead to the creation of jobs.  Deficit reduction and job creation will be a difficult balancing act for the administration to achieve. 

The impact of the FY 2011 budget on spending for federal construction programs remains to be seen.  AGC will continue to work with relevant federal agencies and the Congress to ensure adequate funding is provided for these programs.  A detailed chart tracking budget requests and final appropriated dollars for these programs can be found here FY 2010 Budget | AGC - The Associated General Contractors of America.  Thanks in part to AGC’s advocacy, the final appropriated dollars for federal construction programs in FY 2010 was 2.4 percent greater than requested in the president’s budget and 1.7 percent greater than what was appropriated in FY 2009.

AGC showed the need for increased investment in infrastructure during a media conference call yesterday, which included results from a construction outlook survey completed by AGC members. The news was covered by Reuters,Seattle Times, Miami Herald and Omaha World Herald, among others. Meanwhile, Ken Simonson urged owners to move on projects quickly.

While the health care reform negotiations continue, the Senate returns next week and will consider legislation that will raise the federal debt limit above the $13 trillion ceiling the House approved last year.

Senate Majority Leader Harry Reid (D-Nev.) has not said how much the bill would raise the limit but it is widely expected that a significant increase above the $925 billion passed in the House is needed to avoid another increase before the November mid-term elections. As part of the Senate agreement to consider the debt limit increase, they will vote on a series of amendments, including: one that would block EPA from using the Clean Air Act to regulate greenhouse gas emissions; another on the creation of a bipartisan budget commission to recommend spending cuts to Congress; and another that would end the Troubled Asset Relief Program (TARP).

The Obama Administration today released additional details regarding its fiscal year 2010 budget request to Congress.  The Administration released a blueprint of its budget in February.  For federal construction spending programs, the Administration proposes a total of $118.7 billion, a $724 million or 0.6 percent decrease below the $119.4 billion appropriated for FY 2009.

While the budget recommends a mix of increases and reductions in programs across market areas, it does, however, increase in funding for water and wastewater infrastructure construction.  Specifically, the budget recommends $2.4 billion for the Clean Water State Revolving Loan Fund (SRF) program and $1.5 billion for the Safe Drinking Water SRF program, together representing a 160 percent increase over FY 2009 funding levels. 

On a related note, Congress on April 29 approved its $3.5 trillion budget resolution for FY 2010.  No Republicans voted for the measure in either chamber.  The budget resolution, which provides a non-binding framework for future tax and spending legislation in Congress, assumes $764 billion in tax cuts over five years, and aims to cut the deficit in half by FY 2012 and by two-thirds by FY 2014.  The agreement sets discretionary funding at $1.1 trillion for FY 2010, $10 billion less than the amount President Obama recommended in his budget, and sets non-defense discretionary spending at $529.8 billion for FY 2010.

For a chart comparing the Administration's FY 2010 budget request, click here.

The House and Senate Wednesday approved their $3.5 trillion budget resolution for fiscal year 2010. No Republicans voted for the measure in either chamber. The budget resolution, which provides a non-binding framework for tax and spending legislation in Congress, assumes $764 billion in tax cuts over five years, and aims to cut the deficit in half by FY 2012 and by two-thirds by FY 2014. The agreement sets discretionary funding at $1.1 trillion for FY 2010, $10 billion less than the amount President Obama recommended in his budget, and sets non-defense discretionary spending at $529.8 billion for FY 2010.

The budget resolution extends the Bush 2001 and 2003 tax cuts for the middle class, and assumes a continuation of the 2009 estate tax rate of 45 percent on estates worth more than $3.5 million, or $7 million per couple, which would be indexed for inflation. Under current law, the estate tax rate would drop to zero in 2010, but would be reinstated at a top rate of 55 percent and $1 million exemption in 2011.

The agreement also includes special instructions that would allow health-care and education overhaul proposals to pass the Senate by a simple majority vote to defeat a filibuster. Republicans have warned that these special instructions could be used by the Democrats to expedite passage of other controversial legislation, such as a carbon emission cap and trade bill.

Passage of the budget resolution is the first step in the annual Congressional spending process, which allocates funding for, among other things, federal construction programs. AGC will continue to advocate for the increased federal investment in the nation's infrastructure and public facilities through the nearly 100 construction programs at the federal level.

The House and Senate today are expected to approve their budget resolutions for fiscal year 2010. The budget resolution is a non-binding framework that guides tax and spending policy for the upcoming fiscal year.

Consideration of the FY 2010 budget resolution has been highly partisan, with both the House and Senate Budget Committees having approved their respective resolutions on a party-line vote. In the House, the GOP offered a substitute amendment, and the Senate has debated a number of amendments during the course of the week.

The GOP has argued that the resolution spends and taxes too much. AGC sent a letter to the Hill expressing concern with provisions in the resolution that would increase taxes on individuals and couples earning over $200,000 and $250,000, respectively, which could impact nearly two-thirds of construction firms that are organized as subchapter S corporations (S Corps) and pay their taxes on their shareholders' individual tax returns.

AGC supported an amendment in the Senate that would have provided for additional permanent relief from the estate tax. The budget resolutions in both the House and Senate propose to freeze the 2009 estate tax levels. The amendment would raise the exemption to $5 million - up from $3.5 million - and reduce the tax rate to 35 percent from 45 percent.

AGC also expressed concern with the Democratic leadership's threat to include special instructions in the budget resolution that would have allowed the House and Senate to speed up passage of controversial legislation, such as health care reform and climate change. While the House resolution includes these instructions for health care reform, neither resolution would do the same for climate change. The Senate approved an amendment by a vote of 67 to 31 that would prevent Senate leaders from using this tactic on climate change.

AGC also wrote in appreciation of both chambers' rejection of the Obama Administration's proposal to eliminate the use of "contract authority" for the federal transportation programs. As a result of this action, the highway, transit and aviation programs will retain their unique budgetary treatment. In addition, AGC expressed its support for the levels of funding assumed for the federal highway and public transportation programs and for the "reserve funds," which allow these levels to be adjusted upward if additional federal revenues are generated to finance increased surface transportation investment.

House and Senate Budget Committees this week passed their respective budget resolutions providing a non-binding blueprint for FY 2010 federal spending and tax policy.  The House and Senate will consider the resolutions next week, with final passage votes expected by the weekend.  Although leaders in both chambers decided against using the budget resolution to “fast track” controversial legislation to address climate change, the House version proposes this tactic to expedite health care reform. 

Both resolutions provide for level funding for surface transportation programs, but provide room for more spending if sufficient resources are made available in subsequent legislation (i.e., SAFETEA-LU reauthorization).

The resolutions also follow President Obama’s proposals to extend the 2001 and 2003 Bush tax cuts for couples with incomes under $250,000 and singles under $200,000.  The resolutions also continue the estate tax parameters for 2009, with an exemption of $3.5 million ($7 million for a couple) indexed to inflation and a top rate of 45 percent.  Without this change, the estate tax is scheduled to phase out completely in 2010, only to be reinstated at a top rate of 55 percent and $1 million exemption in 2011. 

Transportation and Infrastructure Reserve Funds

The House budget resolution includes a “reserve fund” for surface transportation reauthorization that allows Congress to revise spending for surface transportation programs upward if Congress writes legislation that “establishes or maintains a solvent Highway Trust Fund over the period of fiscal years 2009 through 2015.”  The provision leaves open the option of a transfer of general fund revenues to the Highway Trust Fund, “as long as the transfer of Federal funds is fully offset.”

The Senate budget resolution includes a reserve fund for a broader array of infrastructure projects, including energy, water, and public housing.  It also allows for more spending on surface transportation if the “solvency of the Highway Trust Fund will be maintained for the length of the surface transportation authorization.” 

Both resolutions reject the Administration’s proposal to change the budgetary treatment of “contract authority,” which would have treated surface transportation programs like any other federal program.

Senate Estate Tax Amendment

During Senate consideration of the budget resolution next week, Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) are planning to offer an amendment that would provide greater estate tax relief.  The Senators’ amendment is expected to propose a top rate of 35 percent with an exemption of $5 million indexed to inflation.  AGC supports efforts to provide a permanent reduction in the estate tax.

Tax Increases for High-Income Individuals

Both resolutions follow President Obama’s proposal to increase taxes for higher-income individuals.  Since approximately two-thirds of construction firms are organized as subchapter S corporations and their taxes are paid on their shareholders’ individual tax returns, these tax hikes would be damaging to the construction industry. 

AGC opposes President Obama’s proposed tax hikes in the budget and his use of the budget resolution to push through controversial legislation such as health care reform and climate change.  To view more about AGC’s concerns and to voice your opinion to your Senators and Representatives, use AGC’s Legislative Action Center.