President Releases Budget Request for 2016

On Feb. 2, President Obama released his $4 trillion fiscal year (FY) 2016 budget request.  The budget calls for tax changes to offset increased spending for defense, infrastructure and job training and education programs.  The budget also includes tax increases for corporations and top individual earners. The budget busts the spending caps set by the Bipartisan Budget Agreement in 2013 by $71 billion ($38 billion extra for defense and $33 billion for nondefense spending categories).  Last year, the president also proposed to bust the spending caps, but Congress rejected that request.  Republican leaders in Congress have criticized this year’s budget request. The budget also outlines a six-year, $478 billion transportation bill and includes several infrastructure financing provisions including: eliminating the volume cap on private activity bonds for water infrastructure; adding to the eligible projects that can be financed through Private Activity Bonds; creating a national infrastructure bank; providing for America Fast Forward Bonds and expanding their eligibility; and creating Qualified Public Infrastructure Bonds.  Unfortunately, the budget also imposes a 28 percent limit on the value of the tax exemption for municipal bonds. In terms of federal construction accounts tracked by AGC, the budget provides about $134 billion for FY 2016 – a 21 percent increase from 2014 enacted levels. There are winners and losers in the budget.  Most of the winners can be found in transportation – where the president proposes to increase both highway and transit spending – and military construction accounts.  The U.S. Army Corps of Engineers Civil Works construction account is the major loser – with cuts of over $3 billion.  Transportation The budget asks for record amounts of funding for transportation infrastructure and presents the administration’s ideas for a six-year reauthorization bill with tax proposals to pay for it. Under the request, the Department of Transportation budget would increase by almost 33 percent in 2016. For the Federal Highway Administration, that would mean a 25 percent increase from $41 billion to $51.3 billion. Transit formula spending would grow almost 70 percent from $8.6 billion to $13.9 billion with the new starts program growing from $2.12 billion to $3.25 billion. The Federal Railroad Administration's budget would roughly triple to about $5 billion. The TIGER grants program would more than double from the fiscal year (FY) 2015 level of $500 million to $1.2 billion in FY 2016. The administration also proposes increasing the cap on Passenger Facility Charges (PFCs) that airlines are allowed to charge for airport infrastructure improvements from $4.50 to $8.00. In exchange for this increase, the budget proposes reducing the Airport Improvement Program (AIP) funding from this year’s $3.35 billion to $2.9 billion but only allowing the AIP funds to go to airports that do not benefit from the PFC increases. The proposed large increase in transportation funding is part of the administration’s revised version of the Grow America Act, its proposal from last year presenting ideas for addressing MAP-21 reauthorization. That proposal was for four years at $302.3 billion using unspecified corporate tax reforms as the way to provide the additional revenue needed to support the increased funding levels. This year’s budget includes a six–year, $478.3 billion version of the Grow America Act. As with last year’s proposal, this version of the Grow America Act would rename the “Highway Trust Fund” as the “Transportation Trust Fund” and would be expanded to include funding for Amtrak, high-speed rail, mass transit new starts, administrative expenses and research, TIGER grants, and the National Highway Transportation Safety Administration’s (NHTSA) vehicle safety programs. All would receive significant funding increases. These programs are currently funded out of general fund proceeds.  The budget also proposes to increase the national limitation amount for PABS for qualified highway or surface freight transfer facilities. To pay for the increased funding, the administration proposes a one-time tax on U.S. corporations’ earnings overseas that would be taxed at a 14 percent rate. This is proposed to generate $239 billion in revenue; however, it would need to be replaced with another revenue source after the six-year period or the transportation programs would revert back to their FY 2015 levels. Federal Construction A majority of major direct-federal construction accounts would see funding increases in FY 2016 compared to FY 2015 levels based on the president’s budget. With the considerable withdrawal of troops in Iraq and Afghanistan and the winding down of stimulus and 2005 Base Closure and Realignment Commission (BRAC) round funding, investments in federal facilities and infrastructure have seen steady decreases since FY 2012. The president’s budget request would generally buck this trend, despite the threat of sequestration looming for FY 2016. The president’s budget would provide the greatest increase in funding for military construction accounts, while the greatest decrease for U.S. Army Corps of Engineers Civil Works (USACE) programs in FY 2016 compared to the previous year.  Military construction accounts would be set at $6.653 billion, a nearly $1.9 billion (40 percent) increase. The president requested $1.669 billion for the Navy and Marine Corps (a $650 million, 64 percent increase), $1.389 billion for the Air Force (a $577 million, 71 percent increase) and $743 million for Army (a $214 million, 41 percent increase) military construction accounts. The defense-wide military construction account would be increased to $2.3 billion (a $309 million, 16 percent increase). On the other side, despite increased calls for infrastructure investment, the president’s budget would cut $758 million (14 percent) from the USACE Civil Works programs, funding it at about $4.4 billion. Most significantly, the construction account would be cut to $1.172 billion (a $467 million, 28 percent cut), the operations and maintenance account would be cut to $2.7 billion (a $198 million, 6 percent cut) and the Mississippi River and Tributaries account would be cut to $225 million (a $77 million, 25 percent cut). Turning to federal facilities, both the General Services Administration (GSA) and U.S. Department of Veterans Affairs (VA) construction accounts would see overall increases under the president’s FY 2016 budget. GSA’s construction and acquisition account would increase to $1.258 billion (a $748 million, 146 percent increase) and the repairs and alterations account would increase to $1.247 billion (a $429 million, 52 percent increase). The VA’s major construction account (for projects over $10 million) would increase to $1.143 billion (a $582 million, 103 percent increase) and the minor construction account (for projects at or below $10 million) would be cut to $406 million (an $89 million, 18 percent cut). Water Infrastructure The budget provided a mixed bag for the Environmental Protection Agency’s (EPA) state revolving loan funds (SRFs) and the Rural Utilities Service’s Rural Water and Waste Disposal program.  As for the SRF’s – the budget provides $1.116 billion for clean water SRFs – a 23 percent cut from FY 2015 enacted levels.  Drinking water SRF’s would receive $1.186 billion under the budget – a 30 percent increase from FY 2015 enacted levels.   The Department of Agriculture’s Rural Water and Waste Disposal Program is funded at $464.9 million, same as the enacted FY 2015 levels. For more information, please contact Sean O’Neill at (202) 547-8892 or oneills@agc.org.