As the clock ticked closer to the Aug. 2 deadline for raising the federal debt limit, the focus shifted to dueling plans from Senate Democrats and House Republicans. Both proposals, unveiled on July 25, would raise the debt cap and cut deeply into federal spending, but the plans themselves differed sharply on the timing and structure.

Lawmakers on each side maintained they did not want to see the U.S. default, but they remained at odds and continued to blast the other's proposals. Construction industry and state officials also hope lawmakers can avert default, which economists say could drive up interest rates as well as curtail financing and demand for projects. Andy Ball, president and CEO of Webcor Builders, San Mateo, Calif., says, “If the federal government defaults and stops paying its bills, the result will not only be devastating, it will potentially have a negative impact on job growth for years to come.”

A deal to boost the debt ceiling would be a relief to the markets. But if an agreement includes substantial federal spending reductions, as seems likely, some of the cuts would fall on infrastructure and construction accounts.

The debt and deficit issue “is like a dark cloud, a storm cloud, that's over all of us,” says Peter Ruane, the American Road and Transportation Builders Association's CEO. “The question is, everyone's going to get wet, but are we going to be struck by lightning in this storm?”

Ball says, “Clearly, the federal government is spending too much and needs to bring it under control.” He adds, “However, they also need to be careful not to cut in areas that will have a negative multiplying effect within the economy.” If construction and infrastructure programs go under the knife, he says, it would affect hundreds of thousands of jobs.

States are watching Washington deliberations closely. Scott Pattison, National Association of State Budget Officers executive director, says if there is a brief default lasting only a few days and interest rates rise, states “would certainly hold back on certain issuances for bonds … for transportation and other projects.” A long-lasting default clearly would have more significant impacts.

The debt-ceiling battle in Washington took a sharp turn for the worse on July 22, when talks between President Obama and House Speaker John Boehner (R-Ohio) broke down. Obama and Boehner each said the other was responsible for the deadlock.

Boehner and Senate Majority Leader Harry Reid (D-Nev.) then moved to draft outlines of new backup debt-limit and spending-cut plans.

Boehner offered a two-step proposal that would pare the deficit by about $3 trillion over 10 years. First, it would require Congress to cut spending by $1.2 trillion over 10 years. Then, it would allow the president to seek to raise the debt limit by $1 trillion, which would put off default only until about February 2012.

Step two of Boehner's plan calls for a new joint congressional committee to draw up legislation by Nov. 23 to chop the budget deficit by an additional $1.8 trillion. Under the proposal, if the deficit reductions were enacted, Obama could seek a further $1.6-trillion increase in the debt limit.

Democrats, led by Reid, had their own one-step proposal, which would raise the debt limit through 2012 by $2.7 trillion and slice the deficit by about the same amount. The reductions would include $1.2 trillion in cuts from non-defense and defense discretionary spending, $100 billion in cuts to such “mandatory” programs as agricultural subsidies, $40 billion from reducing “fraud and abuse” in federal programs and $1 trillion from phasing down the military efforts in the countries of Iraq and Afghanistan.

Obama endorsed Reid's blueprint and, in a July 25 address, criticized Boehner's as “a cuts-only approach … that doesn't ask the wealthiest Americans or biggest corporations to contribute anything at all.” Boehner countered by saying the president “wants a blank check,” adding, “This is just not going to happen.”

Ray Riddle, vice president with Holder Construction Co., Atlanta, says his gut feeling indicates that “whatever deal is reached will be a short-term solution to get us more time to negotiate longer-term structural changes—or let the election next year be a referendum on whose approach is best.”

Ruane says ARTBA members are mulling what impact the bitter debt fight will have on future legislation, especially the delayed highway-transit bill. He says, “Primarily, their concern is that this debate has sucked all the oxygen out of the room, so many other key domestic issues, including our own reauthorization effort, [are] not being focused on.”

Uncertainty is pervasive. “Everything's up in the air, including spending,” says Jack Basso, American Association of State Highway and Transportation Officials director of program finance and management. “We have to take a wait-and-see attitude,” he adds. “There's always kind of the abiding faith that something will get worked out, although I'm not completely sure that's true this time around.”