Associated General Contractors: Budget Cuts Could Compromise Fragile Construction Recovery

Report: The sequester combined with caps on federal spending in 2013 could hurt construction markets.

Up to $200 billion in federal spending cuts this year could jeopardize the still-fragile construction market recovery, according to a recent report from the Associated General Contractors of America.

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The figure includes the impact of federal spending caps enacted by the Budget Control Act of 2011 and the $85 billion in annual federal spending cuts – the sequester – set to take effect by  midnight Friday, March 1, as a result of a budget plan agreed to by Congress in 2011.

The signs so far in 2013 are good for construction. Construction spending in January was up 7.1 percent from last year, according to the U.S. Census Bureau, and privately-owned housing starts were up 23.6 percent. The fourth-quarter MDM-Baird Distribution Survey showed that building materials distributors saw an average of 5.2 percent sales growth for the fourth quarter.

According to the AGC report, however, Sequestration and Its Possible Impacts on Construction, the fledgling recovery may be jeopardized by the cuts because about 10 percent of the federal discretionary budget is made up of construction programs.The report suggests that an estimated $4 billion in federal construction projects could be cancelled in 2013 because of sequestration.

“These indiscriminate cuts run the risk of undermining the fragile recovery in demand many contractors are just now beginning to experience,” said Stephen E. Sandherr, the association’s CEO. “It is hard to encourage major new private sector investments in capital projects when Washington can’t even find a way to avoid fiscal crises of its own making.”

In its report, AGC said that sequestration could have a significant impact on a wide range of construction investment funding accounts, including those for building military facilities, which could see more than $1.5 billion in cuts under sequestration.

Cuts to other markets that could take place include a possible $90 million cut to foreign services buildings including U.S. embassies and a $135 million cut to drinking water and wastewater facilities in the U.S., according to the report.

Read more on AGC’s take on the impact of the possible budget cuts in the report.

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