The budget "sequester" knife has fallen on federal spending, and many construction programs did not escape. Mandatory cuts of 7.8% to defense accounts and of 5% to non-defense categories add up to a hit of more than $4 billion this year, ENR estimates.
Programs suffering the largest cutbacks include the Dept. of Energy's environmental cleanup programs at former nuclear-weapons plants, Environmental Protection Agency water infrastructure and military construction.
In all, the sequestration directive that President Obama signed late on March 1 requires $85.3 billion in spending reductions, divided evenly between the defense and non-defense sectors.
Industry firms will feel the pain, but not all at once. Jimmy Christianson, director of the Associated General Contractors federal and heavy-construction division, says, "Basically, it's a slow bleed."
Contracts could be deferred or even cancelled. Office of Management and Budget Controller Danny Werfel in a Feb. 27 memo to agencies said, "As a general matter, agencies should only enter into new contracts or exercise options when they support high-priority initiatives or where failure to do so would expose the government to significantly greater costs in the future."
Werfel added, "Agencies may also consider descoping or terminating for convenience contracts that are no longer affordable within the funds available for fiscal year 2013 should no other options exist to reduce contracting costs in these instances." AGC's Christianson says terminations "will not likely be the norm."
The Army Corps of Engineers, which saw its civil-works program accounts trimmed by 5%, has some flexibility in applying the cuts, says John Doyle, a former top Army civil-works official. Doyle, now special counsel with law and lobbying firm Jones Walker LLP, says the Corps has "generic reprogramming authority that allows them to not give every project a 'haircut,' if you will."
A silver lining for construction is that infrastructure accounts financed by trust funds and subject to obligation limits are exempt from the sequester. Exempt programs include most federal-aid highway funding, all Airport Improvement Program construction grants and the majority of transit capital aid. All Dept. of Veterans Affairs programs, including construction, also are exempt.
The sequester pares $316 million from the $6.2 billion transferred last year from the general fund to the Highway Trust Fund, But David Bauer, American Road & Transportation Builders Association senior vice president, says, "The trust fund is still going to end fiscal year 2014 with a surplus in excess of $4 billion."
EPA's main water-infrastructure account was chopped by $210 million, which includes $110 million to $120 million from aid to clean-water and drinking-water state revolving funds, says Adam Krantz, National Association of Clean Water Agencies managing director of government and public affairs. Krantz says, "It's unfortunate that there isn't a smarter way to deal with budget cuts. But at the same time, to the extent that budget cuts are the soup du jour, it could have been worse."