Whether or not the so-called sequestration takes effect March 1, the message to the trade and transportation community is clear: Expect more bumps and prepare for cuts. The nation’s fiscal tightening threatens not only freight-related transportation programs but also general commerce, particularly shippers and carriers involved in military contracting.
Even if Congress blunts or pushes back $85 billion in federal spending cuts, fiscal tightening will still be needed in the coming years. Increased tax revenue from a recovering economy won’t offset expanding entitlements programs such as Medicare and Medicaid, and Congress and the Obama administration have shown little appetite for a grand deficit reduction deal.
However Congress handles the most immediate deadline, the potential impact of the first wave of a $1.2 trillion in total cuts over the next 10 years shows just how intertwined business will be to the federal government’s inaction. J.P. Morgan expects U.S. economic output growth to shrink to 1.9 percent from 2.1 percent if the $85 billion worth of cuts take effect, according to reports.
Federal programs that directly and indirectly affect transportation face more than $1.7 billion in budget cuts, including $41 million less for the Transportation Investment Generating Economic Recovery program (TIGER), according to a White House report released in September. That estimate doesn’t include the more than $600 million in cuts threatening the Federal Aviation Administration, which would lead to furloughing “a large number of air traffic controllers and technicians,” Department of Transportation Secretary Ray LaHood wrote in a Feb. 11 letter to the Senate Appropriations Committee.
“All of this means a less efficient and less convenient air travel service for the American traveling public, as well as impacts to our economy,” LaHood wrote. “Civil aviation contributes 10 million jobs and $1.3 trillion annually to the U.S. economy, and sequestration places this contribution in jeopardy."
Transportation trust funds are exempt from sequestration cuts, but general fund injections into them aren’t. General payments into the Federal Highway Administration’s trust fund, for example, would be reduced 7.1 percent, or $471 million. And the Army Corps of Engineers faces an 8.2 percent or $150 million cut that would wipe out $72 million from the Harbor Maintenance Trust Fund and $6 million from the Inland Waterways Trust Fund. Other major cuts would include a $10 million loss of freight differential grants for U.S.-flag ocean carriers and $2 million less for Surface Transportation Board, the regulating agency of the railroads, according to the White House report.