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Sequestration Threatens Construction Budgets

10/1/2012 | Construction Blog

As election season hits full stride in the race to November 6, a good deal has been discussed about sequestration. The term has been mentioned most prominently in the context of cuts to defense spending. If it should occur, however, it will hit construction related budgets hard as well.

The 2012 Budget Control Act mandates $1.2 trillion in automatic cuts to the federal budget over the next 10 years if Congress fails to pass a deficit reduction plan before the end of this year. This would amount to a $109 billion reduction in federal spending in 2013 and be split between defense and non-defense spending. A cut of 9.4% would apply in defense spending and an 8.2% cut would result in non-defense programs. The construction portion of this likely comes out of both defense and non-defense portions of the budget.

Federal construction dollars are allocated to the defense budget for things like military installations and non-defense projects such as public infrastructure. Because sequestration would hit both parts of the budget, the impact in the construction market would be larger than some other industries if it were to occur. Because trust funded obligations (such as federal highway dollars) would be exempt, other programs would see the necessary decreases. Department of the Interior and Environmental Protection Agency projects would suffer the largest cut, followed by energy and water projects and then transportation projects respectively. EPA cuts could also hurt state budgets, as the EPA would no longer be able to fund state revolving funds for water projects.

Congress effectively has until January 1, 2013, to do something that would prevent sequestration from occurring. It is not likely much of anything will get done on this until the upcoming election is over though.