This week in Washington focused on all things budget. On Monday, President Obama unveiled his $3.7 trillion fiscal year (FY) 2012 budget, while the House of Representatives continues to debate a continuing resolution (CR) for the remainder of FY 2011 that would cut about $100 billion from last year’s spending level.
The President and House Republicans are claiming that their respective efforts show fiscal restraint and will begin to chip away at our country’s mounting federal deficit. The fact is that neither of the approaches for dealing with the deficit really focuses on the biggest parts of the federal budget, including entitlements such as Social Security and Medicare. Instead the budget balancing efforts focus cuts on a small portion of the federal budget known as non-defense discretionary spending.
In the federal budget for FY 2012 proposed by President Obama, the non-defense discretionary portion of the budget is only $610 billion of the total $3.7 trillion dollar budget or about 16 percent of the total federal spending. That 16 percent of the budget funds about 75 percent of the $100 billion+ in annual federal construction investment.
The deficits are large and need to be addressed. The 2012 budget proposed by the president will result in a $1.1 trillion deficit, which will be smaller than the $1.6 trillion deficit forecast for 2011. Over the 10 years covered by estimates in the president’s budget, annual deficits are forecast to stay between $600 billion and $775 billion.
Contractors who work for the federal government or under programs funded by federal and state dollars should be worried. There is not a lot of fat in the construction budgets, and federal agencies are keeping score by how many total dollars are cut, not by the results of the investments.
AGC has done an analysis of the cuts in the House Republicans' CR for FY 2011 and the president's budget for FY 2012. The House Republicans’ CR cut nearly $18 billion in construction spending (about half of the cuts are in BRAC, High Speed Rail and Water Infrastructure), while the president's budget cut non-transportation federal construction by nearly $1 billion. The budget did propose a significant increase in transportation spending. The plan outlines a $50 billion increase for FY 2012 but does not identify revenue sufficient to support such an increase. A detailed analysis of the Department of Transportation’s budget request is available here.
AGC is also working to educate members of Congress on the impact of the budget cuts on programs that are successful in their districts. Please take this opportunity to understand what construction programs are being cut and talk to your members of Congress about how these cuts will impact your state, your company and your employees.
Short-hand method for analyzing the impact of nonresidential construction on GDP, earnings and jobs:
- An extra $1 billion in nonresidential construction spending would add about $3.4 billion to GDP, about $1.1 billion to personal earnings and create or sustain 28,500 jobs.
- 9,700 jobs would be direct construction jobs located in the state of investment.
- 4,600 jobs would be indirect jobs from supplying construction materials and services. The majority of these jobs would be located within the state of investment but there would be some out of state jobs supported.
- 14,300 jobs would be induced when workers and owners in construction and supplier businesses spend their incomes locally and nationwide.