2015 FEDERAL REVIEW
2015 FEDERAL REVIEW
MARCH 2015
WWW.IEDCONLINE.ORG
The Federal Review is an annual publication of the International Economic Development Council (IEDC) JoAnn Crary, CEcD President Saginaw Future, Inc. William Sproull, FM, HLM President & CEO Richardson Chamber of Commerce Jeffrey A. Finkle, CEcD President and CEO International Economic Development Council
International Economic Development Council 734 15th Street NW, Suite 900 Washington, DC 20005
www.iedconline.org
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TABLE OF CONTENTS TABLE OF CONTENTS..........................................................................................1 2014 YEAR IN REVIEW........................................................................................2
2014 ECONOMIC SUMMARY: BY THE NUMBERS...........................................................................4 2014 STATE OF THE UNION……………………………………………………………………………………...…………......6 2014 BUDGET AND APPROPTIATIONS……………………………………………………………………………………….8 DEFENSE……………………………………………………………………………………………………………………................13 DISASTER RELIEF……………………………………………………………………………………………………....................14 ENERGY & ENVIRONMENT…………………………………………………………………………………………………….....15 MANUFACTURING…………………………………………………………………………………………………………………....17 RURAL DEVELOPMENT..................................................................................................................20 INFRASTRUCTURE…………………………………………………………………………………………………………………....21 SMALL BUSINESS & ENTREPRENEURSHIP......................................................................................26 WORKFORCE……………………………………………………………………………………………………………………..........28 ECONOMIC OPPORTUNITY & TRANSFORMATION…………………………………………………………………....31 INTERNATIONAL………………………………………………………………………………………………………………….......33
FISCAL 2016 BUDGET BREAKDOWN..................................................................38 FUNDING BY DEPARTMENT..............................................................................40 2015 BY DEPARTMENT......................................................................................41 DISCRETIONARY FUNDING BY DEPARTMENT....................................................45 DEPARTMENT OF AGRICULTURE.................................................................................................45
DEPARTMENT OF COMMERCE………………………………………………………………………………………………..46 DEPARTMENT OF DEFENSE..........................................................................................................47 DEPARTMENT OF EDUCATION.....................................................................................................48 DEPARTMENT OF ENERGY……………………………………………………………………………………………………….49 DEPARTMENT OF HOUSING & URBAN DEVELOPMENT…………………………………………………………...50 DEPARTMENT OF LABOR………………………………………………………………………………………………………...51 DEPARTMENT OF TRANSPORTATION……………………………………………………………………………………...52 ARMY CORPS OF ENGINEERS.......................................................................................................53 DEPARTMENT OF THE TREASURY……………………………………………………………………………………………54 ENVIRONMENTAL PROTECTION AGENCY………………………………………………………………………………..55 NATIONAL SCIENCE FOUNDATION…………………………………………………………………………..................56 SMALL BUSINESS ADMINISTRATION………………………………………………………………………………………..57
TOTAL GOVERNMENT SPENDING......................................................................58 International Economic Development Council 1
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2014 YEAR IN REVIEW EXECUTIVE SUMMARY 2014 began on a positive note, with Congress adopting a two‐year budget resolution setting the top‐line dollar amount for discretionary spending in fiscal years 2014 and 2015. Congress had struggled for years to achieve even this first, crucial step in the appropriations process. The resolution allows for total discretionary spending to reach levels of $1.012 trillion and $1.015 trillion in 2014 and 2015 respectively. Congress approved an extension of the Agriculture Act of 2014 (Farm Bill) another major legislative hurdle, which restored some semblance of consistency to a number of vital programs, most importantly to economic development: the rural development functions of the U.S. Department of Agriculture. The administration also sought economic development victories through various inner‐agency initiatives. The initiatives ranged in areas from rural development to manufacturing and public‐private partnerships. Primarily focusing on competition‐based funding, these initiatives provided varied incentives for manufacturing firms to further increase worker skills and develop specialized lightweight materials. The Senate Finance Committee passed an ill‐fated legislative package extending nearly 50 tax incentives early in 2014. The tax extensions were aimed at promoting initiatives that support economic development, including renewable energy production, increased R&D, as well as the creation of manufacturing jobs in economically distressed areas. Surface transportation rose to the top of the agenda, as the current legislation authorizing the federal role in state and local infrastructure projects, as well as the funding mechanism needed to finance these projects, were set to expire and become insolvent. Moving Ahead for Progress in the 21st Century (MAP‐ 21) was extended through May of 2015, but a long term transportation bill never materialized. Legislators in both chambers of Congress have suggested an increase in the gas tax and other measures to address the perennial issue of insufficient funds in the Highway Trust Fund. In May 2014, the Water Resources Reform and Development Act (WRRDA) was signed into law by president Obama, capping several years of debate on water infrastructure policy and funding. WRRDA represented significant steps forward in addressing the federal role in infrastructure projects, including funding, project selection, environmental reviews, and timelines. Foreign Direct Investment (FDI) remained a central focus of economic policy makers in 2014. A study by The Brookings Institution confirmed that millions of Americans are employed by International Economic Development Council 2
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foreign‐owned companies. SelectUSA received up to $7 million in potential funding out of the International Trade Administration’s roughly $450 million appropriation for fiscal 2014, a seven‐ fold increase versus previous years. A key factor in FDI attraction is the availability of a skilled workforce. In July, shortly after the Brookings report was released, the Workforce Innovation and Opportunity Act (WIOA) was passed by Congress and signed into law by President Obama. The bill, which represents the single largest overall of federal workforce programs and funding authorization since the passing of its predecessor bill, the Workforce Investment Act (WIA) in 1998, received overwhelming bipartisan support. The third quarter of 2014 finished strong economically, with increased demand for American manufactured goods, decreased unemployment, and continued economic growth through the end of the summer. The Federal Reserve Bank announced the end of quantitative easing (QE) in response to several months of consecutive growth. As the fiscal year came to a close on September 30, Congress passed a continuing resolution (CR) to fund the government through December 11, 2014. Following the midterm elections that brought about a shift in the balance of control of Congress, lawmakers passed the cromnibus, a hybrid of an omnibus bill and CR, which funded the government for the remainder of fiscal 2015 with the exception of the Department of Homeland Security (DHS). DHS would have to wait until early 2015 to learn its fate for the remainder of the fiscal year. Economically, 2014 finished strong, with a fourth quarter report citing an unemployment rate of 5.8 percent and GDP growth rates of 5 percent and 2.5 percent in the third and fourth quarters of 2014, respectively. Despite the midterm elections looming, Congress was able to make significant advances, particularly in the areas of infrastructure and workforce development. However, several key economic development items were left on the table, including tax reform, surface transportation, international trade, and a permanent end to sequestration among others. 2015 began with the convening of the 114th Congress, with Republicans controlling both chambers and the beginning of the last two years of the Obama administration.
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2014 ECONOMIC SUMMARY: BY THE NUMBERS 2014 saw significant decreases in unemployment, continuing a two‐year trend. With the unemployment rate now below 6 percent, the U.S. created more than one million jobs between January 2014 and January 2015. As gas prices have fallen to their lowest point since their pre‐recession levels, business has been booming in a variety of sectors, causing total U.S. output to grow 2.6 percent over the course of 2014. Additionally, 2014 saw one of the highest growth rates since the recession in its 3Q ‐ 5 percent, which was preceded by a Q1 of ‐2.1 percent and a Q2 of 4.6 percent. National Unemployment Rate 2012 ‐ Present
Unemployment Rate (%)
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National Unemployment Rate: January 2012 – December 2012 January ’12 February ’12 March ’12 April ’12 8.3 8.3 8.2 8.2
May ’12 8.2
June ’12 8.2
July ’12
August ’12
September ’12
October ’12
November ’12
December ’12
8.2
8.0
7.8
7.8
7.7
7.9
Source: Bureau of Labor Statistics
National Unemployment Rate: January 2013 – December 2013 January ’13 February ’13 March ’13 April ’13 8.0 7.7 7.5 7.6 July ’13 August ’13 September ’13 October ’13 7.3 7.2 7.2 7.2
May ’13 7.5 November ’13 7.0
June ’13 7.5 December ’13 6.7 Source: Bureau of Labor Statistics
National Unemployment Rate: January 2014 – December 2014 January ’14 February ’14 March ’14 April ’14 6.6 6.7 6.6 6.2 July ’14 August ’14 September ’14 October ’14 6.2 6.1 5.9 5.7
May ’14 6.3 November ’14 5.8
June ’14 6.1 December ’14 5.6 Source: Bureau of Labor Statistics
Note: January ’15: 5.7% February ’15: 5.5% International Economic Development Council 5
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2014 STATE OF THE UNION President Obama delivered his fifth State of the Union address on January 28, 2014. During the speech, he highlighted multiple milestones the country achieved in 2013 and provided a preview of his policy agenda for 2014. Proclaiming 2014 to be a “year of action,” he proposed numerous economic directives that he believed would help the country bridge a widening gap between ‘the haves’ and the ‘have nots’. Increasing the Minimum Wage The White House announced, ahead of the address, a plan to increase the compensation federal contractors receive to a minimum wage of $10.10. The administration’s action is not without controversy, however. Opponents argue that the scope of the measure was small, in that it only applies to new contracts or contracts up for renewal. This action, taken through the power of executive order, proved to foreshadow the President’s request for Congress to increase the federal minimum wage for all Americans. Obama also challenged state legislatures not to wait for congressional action but to also visit the issue in their respective assemblies. The administration outlined an incremental wage increase to ultimately reach $10.10 as well; the current wage is $7.25. Immigration President Obama also stated that the passage of immigration reform was a critical component of keeping the nation’s economic recovery on track. “Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams — to study, invent and contribute to our culture — they make our country a more attractive place for businesses to locate and create jobs for everyone. So let’s get immigration reform done this year.” Not everyone shared the President’s view on the issue, leaving comprehensive immigration reform unfinished in 2014. Energy The President premiered his plan to create Sustainable Shale Gas Growth Zones, intended to promote the safe extraction of shale gas. This gas requires extraction through a process called hydraulic fracturing, more commonly known as “fracking.” While this technology has fueled a rapid increase in the United States’ domestic production, it requires the injection of water, International Economic Development Council 6
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sand, and various chemicals into the earth to crack rock. Many believe this process endangers water aquifers. He stated that moving forward, it is in the best interest of the nation to continue to explore new energy technologies to increase energy production and create jobs that cannot be “outsourced,” such as solar energy. To encourage continued industry growth, Obama called for a change in tax policy, halting the annual $4 billion tax credit received by the fossil fuel industry. Instead he believes these funds should be redirected to support the Energy Security Trust and other renewal endeavors. Tax Reform Obama called upon Congress to institute reform to the U.S. tax code, which he asserted would increase revenue. As an issue, tax reform’s bipartisan support showcased that legislative action could spur investment to stimulate job creation across the nation. In his address the president stated, “Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home.” Infrastructure President Obama posited that additional tax revenues could best be used to invest in skills training programs that spur innovation or to revitalize the country’s vast infrastructure, including roads and ports. He continued in his address, “Moreover, we can take the money we save from this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes ‐ because in today's global economy, first‐class jobs gravitate to first‐ class infrastructure.” The administration also pledged to speed up the federal permit process for large‐scale projects through the use of executive orders. Manufacturing In a continued effort to fulfill his 2013 State of the State Address proposal to create Manufacturing Innovation Institutes or high‐tech manufacturing hubs across the country, Obama petitioned Congress to fund 45 “institutes,” creating public‐private economic partnership that will foster innovation and will ultimately lead to job creation. There are already hubs operating in four cities: Youngstown, Ohio, Raleigh, North Carolina, Detroit, Michigan, and Chicago, Illinois.
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Workforce Development Vice President Joe Biden was tasked with evaluating federal job training programs. This evaluation seeks to ensure that programs are equipping potential workers with high‐demand skills that will increase their employability. In keeping with most of the domestic proposals, he also sought a funding increase for federal training programs to provide services to more workers. Small Business The State of the Union Address touched every aspect of the economy, and small businesses and entrepreneurs were not excluded. Supported by the statistic that 98 percent of the United States’ exporters are small businesses, he called for legislation that would support their capital needs as well as reducing their tax liability. He also tied in calls of support for the trade agreements currently under negotiation with Asia and Europe and the need for Congress to pass trade promotion authority in order to secure deals that would reap the most benefits for all constituents. Foreign Direct Investment Lastly, Obama called for additional appropriations to fund the SelectUSA program. SelectUSA is the first program of its kind to seek foreign direct investment in the United States by the systematic coordination of federal programs and agencies. The program is well‐known to our members, and the recent omnibus appropriations bill included language to target up to $7 million in funding for fiscal 2014, a dramatic increase but still short of the $20 million in annual funding requested in 2013.
2014 BUDGET AND APPROPRIATIONS In January, Congress bucked the nearly four year trend of failing to follow normal order in appropriations bills by adopting a budget resolution that covers both fiscal 2014 and 2015. The budget resolution, first passed in the House, passed the Senate 64–36 and adopted fiscal year 2014 total spending of $1.012 trillion and $1.014 trillion for 2015. These combined levels surpassed Budget Control Act (BCA) set spending levels by $62 billion. The deal blunted sequester cuts, which indiscriminately slashed funds to non‐discretionary domestic and military programs. Even though the resolutions increases spending over the next two years, the Congressional Budget Office (CBO) projects it will cut the deficit by $23 billion over 10 years, International Economic Development Council 8
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keeping it consistent with BCA requirements. The resolution produces these savings from a number of controversial measures including cuts to military pensions, a $3.10 increase in airline passenger fees, and Medicare provider cuts. Congressional passage of a budget resolution for the first time in years temporarily set an optimistic mood in Washington. The fiscal deal made in 2013, following that year’s budget battles, resulted in modest increases to the budget caps for discretionary spending in fiscal years 2014 and 2015. These increases were divided between defense and, where most of the economic development priorities live, non‐defense discretionary spending. The increase, spread out over the entirety of federal spending, doesn’t amount to much; i.e., spending levels remained the same for the rest of fiscal 2015 where they would remain close to where they were for fiscal 2014. Consequences, however, may still appear despite the positive trend. BCA cuts to Medicare providers cost the U.S. 750,000 jobs over a decade. Continuation of these cuts threatens to extend healthcare related job losses past 2022. The act also required businesses to increase contributions to the Pension Benefit Guaranty Corp. (PBGC), which draws money away from hiring new workers and other investments. While the United States’ deficit has been decreasing in recent years, projections from the CBO suggested that the deficit would begin to grow again in 2016. If the CBO’s projects are correct, the end of the next decade (2024) could see the nation’s deficit spending reach $7.9 trillion. The 2014’s appropriations omnibus contained a number of items of interest to economic development. The legislation added $1 billion to Head Start and pre‐kindergarten education, a significant investment as every $1 invested returns $8 in economic development. TIGER grants, which faced extinction last year, instead obtained greater funds. SelectUSA, the federal government’s lead program for FDI attraction, received $7 million in funding from the International Trade Administration’s appropriation, the first time the program has been allocated specific funding. Most importantly, by passing the omnibus appropriations bill in January, the government avoided a costly shutdown and avoided painful across‐the‐board budget cuts brought on by sequestration. However, the fiscal year would not end on a high note for normal order appropriations. Before hitting the campaign trail in September, Congress passed a continuing resolution (CR) to fund the federal government at fiscal 2014 levels until December 11, 2014, after failing to pass appropriations legislation for the full year. Fresh off a transformative mid‐term election, Congress moved to pass an appropriations bill that would fund the government fully for the remainder of fiscal 2015. As December 11th fast approached, the lame duck Congress scrambled to pass a final bill, or risk a government shutdown. The president had recently announced a series of controversial actions related to immigration through his power of executive orders, angering many in International Economic Development Council 9
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Congress at exactly the moment it was trying to conclude the time‐sensitive appropriations work. In response to the president’s action, Congress passed what became known as a ‘cromnibus’ bill that would fund the federal government for the remainder of fiscal 2015, with the exception of the Department of Homeland Security (DHS). DHS funding would continue through a CR until February 2015, after the 114th Congress had been seated and was fully under Republican control. The executive orders issued by the president related to immigration were to be executed by DHS; it was thought by some in Congress that closer examination of DHS funding and statutory authority might yield a path for Congress to block the president’s actions, thus the CR instead of full year appropriations. In the end, economic development priorities within the budget saw modest increases in their funding for fiscal 2015 and DHS received their funding in full, without any measures taken to block the president’s immigration action. The big money battles loom. Fiscal 2016 spending could see the return of sequestration, and, while the deficit has fallen two years in a row for the first time since the 1950s, that trend is expected to change. Discretionary spending accounts for only one‐third of total outlays annually, the bulk of spending comes from entitlement programs such as Medicare and Social Security. In this space, spending has increased significantly and is projected to continue to increase significantly – 61percent ‐ between 2015 and 2024, reversing the downward trend of the deficit and likely leading to more budget cuts. The question that faces lawmakers now and in the future is where to make cuts or how to increase revenue, but ideally both. This will come in the form of calls for tax reform, entitlement reform, and, because it is the easiest to address, roll backs in discretionary spending. Debt Ceiling Secretary of the Treasury Jack Lew announced the U.S. would exceed its borrowing authority by late February of 2014. Lew estimated that despite “extraordinary measures” the Treasury would be unable to pay the nation’s creditors after February 27, 2014. The temporary suspension of the debt ceiling expired Friday February 7, 2014, which meant Congress would have to act to raise the debt ceiling. Fortunately, unlike recent debt ceiling debates that grid‐ locked Congress and sent unwelcome waves of uncertainty through the economy, Congress acted to raise the debt ceiling automatically through March of 2015. With this increase, the Treasury Department announced that it had begun special accounting measures to ensure the U.S. does not overspend and breach its debt limit before March 2015. However, the debt limit will technically be reached on or around March 15, 2015, but the Treasury Department’s “extraordinary measures” and tax revenue expected to come in this spring will afford Congress a few additional months to act.
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Economy and Taxes Tax breaks and expenditures for numerous economic sectors expired at the end of 2013. Industries and persons affected by the tax deduction expirations ranged from green energy to research tax credits and amount to a $54 billion tax hike across the board. Nine expirations raised individual rates while the rest impact businesses. Almost all of these expirations only increased taxes for 2014 tax forms, which are filed in 2015. Congress retroactively passed one year tax extensions for all of the itemized deductions – Congress allowed similar expirations to occur almost every year and retroactively took action prior to tax filing season. As spring began, the Senate Finance Committee, chaired by Senator Ron Wyden of Oregon with Ranking Member Senator Orin Hatch of Utah, passed a broad sweeping legislative package that reinstated most of the nearly 50 tax incentives that expired at the end of 2013 for another two years. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act passed the committee with strong bipartisan support and included key economic development priorities, such as: New Markets Tax Credit (NMTC), Renewable Energy Production Tax Credit (production tax credit, PTC), Research and Experimentation tax credit (R&D tax credit) and the Empowerment Zone tax credit. Of particular interest was the new language in the bill that permits the R&D tax credit to be used by start‐ups, specifically allowing small and medium sized businesses to apply up to $250,000 against payroll taxes paid out by the employer. The bill also included language that established the Manufacturing Communities Investment tax credit (MCI). MCI is based on the popular and successful NMTC model that provides significant tax incentives to companies that invest in manufacturing job creation in economically distressed communities. The provision, offered by Senator Sherrod Brown of Ohio and co‐ sponsored by Senator Debbie Stabenow of Michigan, was a component of broader manufacturing legislation introduced previously by Senator Brown, including legislation to fully fund the administration’s National Network for Manufacturing Innovation (NNMI) program. The EXPIRE Act went to the full Senate for consideration shortly after passing the Senate Finance Committee, however, it failed to be taken up in the House. Instead, the House decided to move individual tax credits or smaller packages of tax credits. The contention centered around making some of the credits permanent, while potentially abandoning others. In the end, the House failed to pass any of their bills, which prompted an end of year compromise bill to pass the House and then the Senate, providing for a one‐year extension of the package of credits that would cover the 2014 tax year. Although Congress extended these 55 tax International Economic Development Council 11
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deductions through the end of the 2014, this annual ritual creates a climate of uncertainty to the detriment of nearly every sector of the economy. In the fall of 2014, The Federal Reserve Bank released a statement following a monetary policy meeting – Federal Open Market Committee (FOMC) – indicating the end of the Federal Reserve Bank’s asset purchasing and affirming the 0‐1/4 percent interest rate. The vote to end the asset purchases, through a controversial program known as quantitative easing (QE), was nearly unanimous among bank heads, with only Minneapolis bank president Narayana Kocherlakota dissenting. The program began two years ago, under then‐chairman Ben Bernanke, as an aggressive measure to boost the sluggish economy fully out of the Great Recession. The program has had very vocal supporters and opponents. Supporters pointed to an economy that is adding hundreds of thousands of jobs every month and an unemployment rate that has dropped below 6 percent. Opponents viewed the action as dangerous monetary manipulation that could lead to another financial crisis or run‐away inflation. In making the announcement, the Fed showed its belief that the economy was continuing to improve with inflation under the target rate of 2 percent and no signs of a looming financial crisis. Critics of the program remained concerned over the extent of the Fed’s balance sheet as a result of QE. The Fed held over $4 trillion in assets, compared to roughly $900 million it held prior to QE. Last year, the Fed indicated they did not plan to actively reduce this amount, instead they would allow the assets to roll‐off as they came to maturity. The effect of this direction was that the balance sheet would likely remain very high over the next decade. The Fed further stressed that this direction could change in the future, if changing economic conditions, such as an inflation rate above the target of 2 percent, warranted actively shedding assets. The market reacted very moderately to the news. The Fed is widely expected to increase its borrowing rate sometime this year from its current floor‐level of 0‐1/4 percent, which is the next major step in expected Fed action as a result of the economy stabilizing and growing. The Commerce Department’s Bureau of Economic Analysis reported the economy grew at a rate of 3.5 percent in the third quarter of 2014. 2014 finished strong when Commerce’s Bureau of Economic Analysis released the ‘third estimate’ of GDP for the third quarter of 2014. BEA estimated the economy grew at a stellar 5 percent in the 3Q, up from the ‘second estimate’ of 3.9 percent, which itself was very strong.
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Major cutbacks were outlined last year in Secretary of Defense Chuck Hagel’s budget, affecting every branch of the armed services. The restructuring was the result of an ongoing effort by Defense to balance national security and fiscal responsibility with the need for efficiency and effectiveness. The budget recommendations represented a turning point for the military; this was the first budget presented to Congress in almost a decade that was not driven by war‐laden growth. Hagel stated, “You might say that it’s a defining budget because it starts to reset, reshape … rebalance, [and] refine our enterprise for the future.” He believed the restructuring would aid the military in prioritizing the nation’s strategic military interest. With the defense budget slated to dwindle by $75 billion over the next two years, prioritization is becoming a necessity. The reduction was a part of the December 2013 budget agreement reached between Congress and the president, which ultimately capped Pentagon spending at $496 billion. One of the largest efforts to meet these budget reductions was the reduction of military personnel. The outline called for a slimmer and more agile force reflected by the U.S. decline in large and long‐term stability operations, such as the Iraq and Afghan wars. At the peak of these operations, the military stood at 570,000 troops. The budget forecast a reduction to 440,000‐ 450,000 soldiers. Hagel conveyed that reduced numbers would help ensure that forces are modernized, well trained, and better equipped than would be possible at the current level of service members. It is also a matter of budgetary reality that the U.S. can no longer afford to maintain and modernize such a large army. Other cuts were made to military personnel benefits in an effort to align compensation and benefits to post‐war reality. 2017 was also noted as a tentative time for more base realignments and closures (BRAC), though it remains to be seen if the White House or Congress has the political will to carry out future BRAC rounds. The Office of Economic Adjustment (OEA) at Defense has already begun to aid communities impacted by defense cuts, including funding opportunities for communities impacted by reduced or canceled military contracts. The National Defense Authorization Act (NDAA) allocated $632.8 billion for defense programs last year, which included everything from personnel salary to combat operations. The NDAA increased defense spending beyond levels set by the Budget Control Act (BCA), though as an authorizing bill and not an appropriations bill, the legislation does not enact funding. The bill authorized only $80.7 billion for military operations (Overseas Contingency Operations – OCO) and 44 percent of total funds for defense personnel. Other major expenses include construction, research and development, and procurement. Base Realignment & Closure
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Congress continued to strongly resist, including passing legislation barring it outright, any planning for a future round of BRAC activity. The Pentagon has sought Congressional approval for beginning a new BRAC round for years, in addition to requesting reductions, eliminations, or retirements for various weapons systems it says it does not need. Members with defense‐ spending sensitive businesses or military installations continued to block these efforts.
DISASTER RELIEF Congress acted to prevent FEMA from instituting scheduled National Flood Insurance Program (NFIP) premium increases in the early days of 2014. The rider, attached to must‐pass appropriations legislation, prevents premium hikes until at least October 2015. Homeowners without the rider faced insurance premium spikes upwards of 500 percent under the Biggert‐ Waters Flood Insurance Reform Act of 2012 (BW‐12). While the spending bill merely delayed rate increases for homes mapped into flood prone areas, another bill, S 1846, postpones for four years all premium spikes for all affected structures, including businesses, and reforms how FEMA maps flood prone properties. Short term alleviation by the appropriations bill saves real estate markets across the coasts and near bodies of water. BW‐12 caught homeowners completely off guard with the high costs associated with FEMA’s re‐mapping areas to reflect flood‐prone conditions. By FEMA’s own estimates, BW‐12 could increase premiums for single‐story, $250,000 homes to $20,000 per year, from $1000 per year. These exponential hikes already devalued homes in states such as Louisiana. Conservative estimates place the number of homeowners immediately impacted by NFIP premium increases at 1.1 million. Price devaluations for homes lead to significant losses in savings for middle class homeowners, who often use their home as a nest egg. With unaffordable insurance premiums of $20,000, middle class homeowners have no choice but to sell their homes for a loss or abandon them entirely. Massive losses in wealth from home devaluations in turn would lead to decreased consumer spending. Homes in the vicinity of property marked as flood prone would similarly suffer losses in value due to the increased number of vacant homes while local governments would see tax revenue vanish. The measure avoided the worst of these consequences for homeowners for the immediate future.
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Finance Clean Energy Finance Through the Bond Market: A New Option for Progress, a report from The Brookings Institution, found that local infrastructure bond authorities are underutilized in funding clean energy projects. With these agencies having more than a century of experience financing transportation projects, Brookings posits, local bond markets are an ideal vehicle to move clean energy activities forward. Though companies were in the nascent stages of funding energy‐related development, the local bond markets were viewed as an archetype for scale financing. Dwindling loan availability from commercial banks and reduction of federal funds such as tax credits gives great promise for financing with local bond authorities. If successfully achieved, the effort will develop new models to be implemented on the regional and state level, ultimately creating a new tradable energy class for the markets. The financing option was not without challenges, however. The foundational barrier is a lack of partnership between state energy offices and infrastructure finance entities. The report concluded that these “sustained” partnerships are vital so that financers can better understand the complexities of the energy market and vice versa. Secondly, in 2014 there was a low market demand for clean energy bonds. Until demand accelerates, scaling clean energy bond financing is not feasible. Lastly, demand for clean energy bonds as a security class by institutional investors, such as large corporations, remains low. This hindrance is grounded in the unavailability of performance information and standardized data and documentation methods. The large‐scale support by these investors is imperative to sustaining the emerging clean energy bond market in 2015. Regulatory Measures Currently, the nation’s power plants are subject to limited emissions of arsenic, mercury, sulfur dioxide, nitrogen oxides, and particle pollution, but there is no federal limit on carbon dioxide emissions. The EPA, under President Obama’s Climate Action plan, proposed a rule that seeks to reduce carbon emission from the nation’s existing power plants by 30 percent from 2005 levels by the year 2030. The proposal claims that states will be given plenty of flexibility in developing plans to meet the EPA’s emission targets. States will be able to decide what goes into their plans whether it be investing in existing energy efficiency programs or creating new ones, tapping into investments already being made to upgrade aging infrastructure, or collaborating with each other to develop plans on a multi‐state basis. States will have one to
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two years to submit their plans and up to 15 years for implementation after the Clean Power Plan is finalized. Groups in favor of clean energy use and investments in future clean energy technologies welcomed the regulation and considered it a vital step in the movement toward cleaner energy. The Blue Green Alliance, for example, supported the proposed rule and the possibility it holds to “mitigate the impacts of climate change, to open doors of economic opportunity, and to better protect and improve public health.” Furthermore, Calpine Corporation, one of the nation’s largest producers of electricity, also supported the proposed Clean Power Plan because it will “ensure continued progress toward cleaner energy in a way that will still allow market forces to work to deliver the lowest‐cost solution for reducing GHG emissions.” By contrast, the CEO of the National Association of Manufacturers, Jay Timmons, stated that this proposed plan will end up completely eliminating fossil fuels from the U.S. economy which will reduce our competiveness in the global economy. President Obama has asked the EPA to finalize the rule by June 2015, and the rule itself will not take effect for at least two more years. 2014 marked a major shift in Liquid Natural Gas (LNG) export policy. The Department of Energy maneuvered to reflect changing market dynamics with its proposal to review applications and make final public interest determinations, only after completion of the review required by environmental laws and regulations that are included in the National Environmental Policy Act review (NEPA review). Principal Deputy Assistant Secretary for Fossil Energy Christopher Smith mentioned that “the proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects, while also providing the Department with more complete information when applications are considered and public interest determinations are made.” Various industry groups were not happy with this proposed change. The Industrial Energy Consumers of America (IECA) claimed that the DOE proposal would violate the Natural Gas Act. The IECA said “the DOE proposal threatens the integrity by creating, at minimum, the appearance of a perverse incentive (a kind of regulatory capture).” President Bill Cooper of The Center for Liquefied Natural Gas (CLNG) was also not pleased with the DOE’s proposal. He noted that the proposal failed to address concerns about delays in the agency’s review process and the financial impact of regulatory uncertainty.
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MANUFACTURING National Network for Manufacturing Innovation & Manufacturing Institutes The Senate Commerce, Science, and Transportation Committee members passed a measure introduced by Ohio Senator Sherrod Brown to establish manufacturing research centers across the nation in the early days of 2014. A similar bill was introduced in the House by Representative Tom Reed of New York’s 23rd Congressional District. The program closely mirrors the administration’s concept of manufacturing institutes. The bill, adapted from previous legislation introduced by Senator Brown and Senator Roy Blunt of Missouri, authorized $300 million in funding for the program ‐‐ previous legislation called for $1 billion in funding. The so called “manufacturing network” would be placed within the National Institute of Standards and Technology, a division of the U.S. Department of Commerce. Structurally, a created “National Program Office” would have programmatic oversight and develop a strategic plan. Brown’s bill establishes a framework of collaboration between the hubs and universities to develop manufacturing techniques that will ultimately increase the United States’ manufacturing competiveness. The association between the two entities is an archetype as the National Science Foundation found that the majority of the country’s basic research occurs on educational institutions campuses’ with support of federal funding. An additional provision outlined for the centers to provide occupational related workforce development and training. Building on existing federal manufacturing initiatives, the new network would also be mandated “to incorporate the Hollings Manufacturing Extension Partnership into program planning efforts.” Representing even greater benefit for the manufacturing community, a provision advanced the creation of a National Strategic Plan for Advanced Manufacturing “to better coordinate federal activities supporting U.S. manufacturing competitiveness.” The White House made significant progress on its goal of opening 15 manufacturing hubs by the end of 2014. Early in 2014, President Obama announced the creation of two new high‐tech manufacturing institutes, representing a combined public‐private partnership investment of $280 million. The new hubs will be based in Detroit, Michigan, and Chicago, Illinois. The first hub, the “American Lightweight Materials Manufacturing Innovation Institute,” (LM3I) will specialize in lightweight metals, collaborating with some of the world’s leading metal manufacturers and advanced research universities – 60 individual organizations in total. The second hub is planned for Chicago and will focus on digital manufacturing and design (DMDI). International Economic Development Council 17
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The consortium will unite 73 organizations seeking to hone the country’s digital creation competitive advantage. Like its three sister hubs, DMDI draws talent related to digital manufacturing and design from across the Chicago region and across the U.S., making the impact both regional and national. There are two existing hubs in Raleigh, North Carolina, and Youngstown, Ohio. Stating that these regional hubs or “teaching factories” are critical to the future of US economy, the president has pledged to sponsor four more niche‐innovation centers this year. Ultimately by “bridging the gap between applied research and product development…. [and] invest[ing] in key technology” the country’s skills gap and disinvestment can be addressed. The White House also announced the first of four competitions to be run by the Department of Energy in support of energy‐related advanced manufacturing. The Advanced Composites Manufacturing Innovation Institute (ACMII) will match up to $70 million in federal dollars to private sector funding for the creation of an institute that draws on regional and national talent to develop lighter, cheaper, and recyclable composites for uses in the energy industry. The initial funding for these hubs was pulled together from various line items across several participating agencies. The future for them is, however, perilously contingent upon Congress appropriating funds. Sen. Sherrod Brown of Ohio and Sen. Roy Blunt of Missouri introduced a bill last year to provide nearly $1 billion in federal funding – to be matched by the private sector – to provide start‐up resources for up to 15 hubs. The hubs are meant to take an initial federal investment but to become self‐sustaining within a few years. Appropriators included very modest funding ‐ $5 million – for the creation of a national office within NIST to oversee the establishment of manufacturing institutes similar to those already operational. This addition to the appropriations measure largely mirrored the language from a bill introduced by Senator Brown earlier in 2014. While the funding is for administrative and coordination costs, the fiscal 2015 crominbus included a provision for up to $237 million to be spent over the next several years from appropriations for the Department of Energy’s Office of Energy Efficiency & Renewable Energy, which received over $1 billion in funding for fiscal 2015, on the creation of other manufacturing institutes. While this does not come close to the initial $1 billion, and the $300 million requested by the administration and supportive members of Congress, it represents a significant step forward in the movement to restore America as a center for manufacturing innovation. International Economic Development Council 18
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Patent Protection Businesses and interested parties divided the Senate in their testimony of patent trolls and suggested reforms to the Senate’s Patent and Transparency and Improvements Act, S 1720. Patent trolls, also known as Patent Holding Companies (PHC), purchase patents without intent to manufacture and threaten businesses with patent infringement lawsuits to extract settlements. All testifiers agreed the burden PHCs place on the U.S. economy; their lawsuits drive small businesses like grocery stores out of business and drained up to $80 billion from the U.S. economy in 2011 alone. All agreed PHCs do not contribute to economic development, discourage innovation, and the current litigation system encourages reckless PHC lawsuits. However, large technology companies opposed small business groups on whether to slightly modify litigation practices or address low quality patents. S 1720 embraced small scale reforms in its current state – it designates the FTC to regulate abusive lawsuit threats via demand letters, protects end user businesses from patent law suits, and requires patent lawsuit losers to pay for court fees. S 1720’s authors designed the bill to expand upon these measures. Senate recommendations sparked praise and protest; some advocated S 1720 address broad low‐ quality patents which empower patent trolls. Patent quality advocates pressed for expanded language for a Covered Business Methods (CBM) board, an administrative board which reviews patent quality and throws out unmerited lawsuits. The measure would impede the pace to patent products, which led companies like Microsoft to oppose the plan. Others backed full funding for the Patent Trade Office (PTO) so it could better review patents. Sequestration cut $148 million from the PTO even though it raises its own revenue through user fees. Deficit hawk Senators and high tech companies similarly opposed increased PTO allocations. Small businesses, meanwhile, supported these reforms. They claimed pre‐court reforms enable small businesses to avoid costly litigation, which may require too many upfront costs to defend against PHCs. Small firms also claimed litigation changes would impair legitimate lawsuits against companies with more resources. Patent reform affects every sector of the American economy. Intellectual property directly supports 38 percent of America’s GDP and 55.7 million jobs. All worry that poorly worded legislation might cripple America’s economic engine. Others fear strict litigation reforms may hamstring the court’s flexibility to practice wise discretion. Interests stand so stark to each other that without clear Senate leadership for S 1720, infighting might destroy the act and the chance to reform an economic black hole. The bill, unfortunately, failed to move and the issue remains a priority for the 114th Congress.
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Regional Challenges The Economic Development Administration, leading a collaborative effort across over a dozen federal agencies, launched the Investing in Manufacturing Communities Partnership (IMCP) challenge in February of 2014. The IMCP centered on designating up to 12 communities as “manufacturing communities” based on submissions highlighting comprehensive regional strategies that would support the establishment and growth of manufacturing industries. While the designation did not come with guaranteed federal funding, it did allow designated communities to receive preferential consideration in future federal funding opportunities from participating federal agencies, as well as providing each community with a designated point‐of‐ contact within each of the participating agencies to help guide them in utilizing agency programs and resources. The response from the economic development community was very strong and EDA would announce in early 2015 the second round of the popular challenge.
RURAL DEVELOPMENT Farm Bill The ultimate passage of the 2014 Farm Bill authorized $956 billion for a diversity of agricultural programs, including expanded crop insurance, new subsidies for crops such as rice and peanuts, additional soil conservation efforts, food stamps, and rural economic development initiatives. Included in the bill is the official launch of the new “Made in Rural America” initiative. In collaboration with the White House Rural Council, the effort called for the unification of federal agencies to help rural businesses tap into new investment opportunities, particularly globally. Collaborative agencies included: the U.S. Department of Agriculture, Department of Commerce, Small Business Administration, Export‐Import Bank, Office of the United States Trade Representative, among many others. Rural development at the USDA staff nationwide received funding for training on counseling businesses on export options. The initiative also showcased rural goods at trade shows promoting the awareness and expansion of rural markets. Rural Investment Initiative The Department of Agriculture teamed up with a national cooperative bank called CoBank, which put forward the first $10 billion, and Capitol Peak Asset Management to leverage funds for rural projects that will promote investment in rural communities. The U.S. Department of Agriculture has been a major contributor to rural development in that it has funded about $2.75 billion, excluding farm loans and subsidies, to rural projects in just the past five years. International Economic Development Council 20
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However, the agency has seen operational budget cuts of about 12 percent in the past three years, and this has made partnering with private investors crucial. Agriculture Secretary Tom Vilsack emphasized the benefits of this fund and partnership by mentioning that “It (the Fund) allows us to act as a matchmaker between strong projects and potential private investors and expands our capacity to facilitate rural investment beyond what we can do alone.” Robert Engel, CEO of CoBank, also expressed the importance of this new fund by saying “To remain competitive, we must develop innovative financing strategies that will ensure infrastructure investment keeps pace with the needs of agriculture and other key rural industries. We strongly believe this public‐private partnership will facilitate the flow of capital to deserving projects and promote the health of rural America.”
INFRASTRUCTURE MAP‐21 & Highway Trust Fund Highways and mass transit development grinded to a halt at the end of August as revenues from user taxes dwindle and the two‐year surface reauthorization bill, MAP‐21, expired on September 30. All projects for surface transportation rely on the Highway Trust Fund as the primary means for allocations. Traditionally, revenue in the form of a $0.184/gallon in gasoline taxes and $0.244/gallon in diesel taxes finance the fund. However, gas and diesel taxes have failed to keep the fund solvent since 2008, when Americans started driving less in response to higher gas prices. General Fund transfers from the Department of the Treasury have since compensated for shortfalls in the HTF. Congress originally expected MAP‐21, passed in 2012, to provide just enough money for the dual highway and mass transit accounts until the end of fiscal 2014. Yet, monthly DOT fund projections confirmed a certain shortfall for highways in the last weeks of August 2014. Highway Trust Fund shortfalls spelled a crisis for development across the country. America loses $101 billion annually due to decaying roads. The Federal Highway Administration estimated the nation needs to invest $170 billion annually to correct our congested roadways. Even MAP‐21 only provided about $37 billion in funds for road development prior to 2013 sequestration cuts. States cannot plan for long term development and address longstanding endemic highway problems since Congress has not approved a normal six‐year surface reauthorization bill in over ten years. Costly contracts plagued local governments enough as they sought upfront payment assurances in absence of long term funding. Now that the HTF faces complete insolvency and a $7 billion deficit by 2015, these problems will only get worse. Contractors will have to start laying off workers in the midst of summer’s customary peak International Economic Development Council 21
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construction season without new contracts. Absent reforms or fund infusions in the immediate future, states may have to delay projects originally set for 2014 until 2015 at the earliest. Congressman Dave Camp, then‐chairman of the House Committee on Ways and Means – the committee responsible for tax legislation – released a proposal to dramatically overhaul the nation’s tax code. The content of the bill was not unexpected, having been proposed by both Republicans and Democrats at various points over the past few years. Other than the gas tax, HTF revenue is derived from taxes on tires, truck/trailer sales, and heavy vehicle use. With consumers driving fewer miles and driving more fuel‐efficient vehicles, revenue for the fund has continually declined. Looking to reverse the trend, President Obama and Secretary Foxx announced a $302 billion highway bill. The four‐year plan was consistent with Obama’s State of the Union remarks to use tax reform savings to support infrastructure investment. Specifically, a $150 billion infusion from these savings would be directed towards transportation capital outlays. The White House expects the plan to save over 500,000 jobs connected to the construction sector. The president’s plan mirrored that of Congressman Dave Camp, chairman of the House’s Ways and Means committee, calling for corporate tax reform to fund transportation expenditures. Although the president’s proposal was not adopted by Congress, there is progress on transportation authorization legislation. The leadership of the Senate Environment and Public Works Committee drafted an outline for a bipartisan highway bill to succeed MAP‐21, the current authorization in effect until September 30 of this year. The framework provides a six year reauthorization for highway, bridge, and transit programs with a continuation of current funding levels. Chairwoman Barbara Boxer anticipates a release of the bill in the coming weeks after the committee has translated the agreement into legislation. A markup of the bill will follow shortly after Congress returns from recess. The EPW measure stopped short of offering a funding mechanism for the bill or proposing a long‐term funding source to stabilize the highway trust. David Vitter, Ranking Committee Member for the Senate Environment and Public Works Committee, acknowledged the long‐ term challenges facing the trust. However, Vitter believes the imminent funding gaps placed a higher emphasis on creating a short‐term solution and long‐term challenges should be revisited later. Enacting the proposed EPW bill would require $16 billion annually or $96 billion for the duration of authorization. Like Senator Murray, Boxer embraced the funding mechanism offered under House Ways and Means Chairman David Camp’s tax reform but defers to the Senate Finance Committee, which has oversight of tax matters in the Senate.
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Transportation Investment Generating Economic Recovery (TIGER) The administration also announced that the Department of Transportation would provide $600 million for infrastructure projects nationwide in 2014. The announcement marked the sixth round of funding authorized under the department’s competitive Transportation Investment Generating Economic Recovery (TIGER) grant program. 2014’s allocation represents a $126 million increase in funding over 2013. Awards prioritize activities that connect citizens to employment opportunities, promote revitalization, and community connectedness. Funding for these capital projects was initiated by the American Recovery and Reinvestment Act to advance large‐scale, multi‐modal activities. The TIGER program represents a public‐private partnership with funding coming from local, state, and federal sources, as well as the private sector. Since its inception in 2009, the program has invested $3.5 billion to address transportation issues in all 50 states. Worth noting is the significant increase in maritime projects receiving TIGER support. Port officials previously complained that too much funding was being directed towards roads, bridges, and transit systems, in comparison to the funding being given to ports. Transportation has since directed $420 million to 33 port projects and ferry services ‐‐ including awards of $123.5 million from the Federal Transit Administration (FTA) and the Federal Highway Administration (FHWA). Transportation Infrastructure Finance & Innovation Act (TIFIA) Administration leaders decided to bypass Congress for transportation project funding and use the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. The White House shifted DOT appropriations to secure $17 billion for TIFIA. TIFIA leveraged resources to finance transportation infrastructure via low interest loans, loan guarantees, and standby lines of credit. White House personnel justified increased use of TIFIA after Congress failed to approve over $54 billion in infrastructure allocations via appropriations. Both the Senate and House scuttled their respective Transportation Housing and Urban Development, and Related Agencies Appropriations Act appropriations bills, S 1243 and HR 2610, in late summer of 2013. TIFIA’s frontline role in financing transportation infrastructure delivered an immense relief to transit construction and repairs with its stability and resources. America faced a significant backlog in DOT‐related infrastructure project funding. Roads require $170 billion annually to keep up with repairs and bridges, $20.5 billion. Although TIFIA cannot address the significant backlog by itself, it acts as an effective vehicle to raise and coordinate other resources for development. TIFIA offers aid expecting repayment and risk mitigation for private lenders and International Economic Development Council 23
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can thus leverage a minimum of times the resources for a project with its initial seed investments. Since TIFIA also funds itself through interest payments via their beneficent loans, the program finances itself and can offer increasingly significant aid for infrastructure projects in the future. Successful investments permitted TIFIA to loan New York State $1.6 billion last December to finance the Tappan Zee Bridge. Although states must ultimately repay these large loans, TIFIA provides rates far more favorable than the private sector at 2.93 percent interest over 35 years, with payments that start five years after project completion. Soundness of TIFIA has never been in doubt since its creation. White House infusion of funds therefore not only offered capital to finance infrastructure but also a safe way to raise money for the federal government. Build America Bonds, the National Infrastructure Bank & Public‐Private Partnerships Senator Edward Markey of Massachusetts introduced a permanent authorization of the Build America Bond program (S 2203). His proposal included a federal subsidy for insurers or a tax credit for borrowers equal to almost 28 percent of bond interest. A similar bill has been introduced in the House (HR 2084) calling for the issuance of “American Infrastructure Bonds” to raise funding for infrastructure needs. Unfortunately, both bills died without moving forward before the conclusion of the 113th Congress and will return as a priority for the 114th Congress. The bond program was not the only proposal that has been closely reviewed by Congress. President Obama’s appeal for a national infrastructure bank has also gained some traction with legislators. Chairman of the Senate Finance Subcommittee on Energy Michael Bennet introduced a bill (S 1957) to do just that. The bill was introduced early in 2014, though it too would fail to move forward and will no doubt return again in the 114th Congress. One alternative to raising the gasoline tax, which has not been adjusted in 21 years, is the use of toll roads. Advocates of this source of revenue‐generation state that it fosters public‐private partnerships which can spur additional investment. A report from the House Committee on Transportation and Infrastructure provides greater insight as to the viability of these projects in the United States. The report found that these collaborations are scarce in the United States with only 15 out of the 158 transportation infrastructure public‐private partnerships worldwide located here. Regardless, proponents cite that in Canada there has been lower overall costs compared to solely government funded projects. According to a CQ.com report, projected cost to rebuild the Interstate Highway System tops more than $600 billion or almost “more than 10 times current annual federal road spending.”
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Critics of toll roads express that it is a form of double taxation as pump taxes (gasoline and diesel) are earmarked to fund the highway system. Many notable companies such as McDonald’s, FedEx, and transportation related membership groups have formed the Alliance for a Toll‐Free Interstate to express their opposition to the expansion of toll systems on U.S. highways. The companies argue that tolls could decrease interstate traffic resulting in reduced retail traffic and sales for highway establishments or added shipping cost for freight carriers — both ultimately affecting their bottom line. They also caution that travelers would be more prone to using alternate routes to avoid tolls, which in turn would add wear to state roads. The discussion is not settled, however. The 2012 surface transportation law provided regulators with increased ability to add tolls on existing interstates under certain conditions. Water Resources Reform & Development Act (WRRDA) Congress passed waterway legislation with a joint chamber conference committee expecting to complete its report soon. In an early week conversation with the press, the bipartisan measure, the Water Resources Reform and Development Act of 2013 (WRRDA), passed in both the House (HR 3080) and the Senate. The bill authorizes much needed funding for conservation and development projects on and along the nation’s harbors and waterways. Prior, the Senate had presented its own legislation (S 601) with a $5.7 billion appropriation compared to the House’s $3.1 billion offering; the precise dollar amount is being negotiated in conference. The bill authorizes $5.7 billion in funding for the Nation’s ports and inland waterways (rivers, canals). Highlights from the bill include:
Dramatically reduced project review periods – targeting three years max – that include concurrent review processes across multiple federal agencies; Creates avenues for local and private sector participation in water infrastructure projects through the creation of Water Infrastructure Public‐Private Partnership Program, as well as other opportunities for local entities to conduct project feasibility studies and projects outside of the traditional approval and finance mechanisms; Creates WIFIA, modeled after the very popular and successful TIFIA, which will be a five‐ year pilot program that leverages private sector funding streams and federal resources to jump start new projects or accelerate existing projects; and Adjusts traditional funding mechanisms – Harbor Maintenance Trust Fund and the Inland Water Ways Trust Fund – to better fit with fiscal realities.
The domestic marine transportation industry and water‐related infrastructure are integral components which literally keep the U.S. economy flowing. The sector supports more than 13 million American jobs and facilities the shipment of billions of tons of cargo every year. International Economic Development Council 25
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Notably, almost 50 percent “of all consumer goods purchased by Americans pass through harbors maintained by the Corps.” Currently 14 “pending” water resources construction plans have been evaluated with the likelihood of being adopted into the bill for passage. These are in addition to projects presented by the Army Corps after its last oversight meeting held in June 2013.
SMALL BUSINESS & ENTREPRENEURSHIP JOBS Act Changes to the Jumpstart Our Business Startups (JOBS) Act were reviewed in the House early in 2014. JOBS, billed as “game changing” legislation, was enacted with the hope that it would spur more startups by easing security regulations. Conceptually, it was supposed to make it easier for new firms to raise and access capital. Modified security provisions included removing the “general solicitation” ban which prohibited entrepreneurs from advertising equity to potential well‐endowed investors. The 2012 law also quadrupled the number of investors a private company can have. Citing unimpressive performance, however, some Congressman wanted to reduce security regulations even further, a move opponents believe will weaken important investor protections. The new measure, dubbed JOBS Act 2, sought to simplify regulatory language and reduce the burden, some believe, the rules have placed on small enterprises. Complicating the issues is the fact that the Securities and Exchange (SEC) commission has yet to finalize rules for titles III, IV, and V of the act, despite passage of the law two years ago. Representative Patrick McHenry’s (R, NC) “Equity Crowdfunding Improvement Act of 2014” was the most notable proposal to reform the law. The draft calls for: 1) double the amount that can be raised from a sole public offering to $10 million; 2) increase to $5 million amount of capital a company can raise under equity crowdfunding; and 3) raises the audit exempt fundraising total to $3 million. Withstanding the criticism from lawmakers, the SEC contended the original JOBS Act has benefited small businesses and startups. An in‐house report detailed a collective $10 million has been raised from almost 900 new offerings since the elimination of the “general solicitation” ban. International Economic Development Council 26
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Net Neutrality The U.S. Federal Communications Commission (FCC) proposed to reinstate net neutrality rules, asking whether it should allow broadband providers to engage in “commercially reasonable” traffic management. The FCC has also asked if it should regulate broadband providers like public utilities, a move that broadband providers have vowed to fight if it happens. The final judgment on this proposal is expected to be made by the end of this year, but for now it is open for comment by the general public. Advocates of strong net neutrality protections have criticized FCC Chairman Tom Wheeler’s proposal claiming that it “would create a two‐tier internet: a high‐speed digital toll‐road for big content providers with the dollars and market power to make their customers pay, and a digital dirt‐road for everyone else,” as The Economist contends. Despite FCC Chairman Tom Wheeler’s reassurance that “he will not allow the national asset of an Open Internet to be compromised,” people fear that the new proposal will create a web in which consumers have to pay for fast access to the content they desire. Since the proposal, the FCC’s online comments section has been flooded with questions and concerns. Congresswoman Anna Eshoo, an advocate of net neutrality, has said that “this is an extraordinary demonstration of how much people care about the Internet, and how it has functioned for them, and they don’t want that changed.” The potential impact on economic development is complex. While policymakers and practitioners push for greater access to broadband in order to capture benefits for small businesses and educators, a tiered system of service delivery could have a negative impact. The possibility that larger companies would be able to afford access to faster or better internet service, potentially out‐bidding or blocking out small businesses or educational institutions, warrants a close look at the pros and cons. Export‐Import Bank of the United States
The bank closed out fiscal 2014 with nearly three‐quarters of a billion dollar surplus pumped back into the U.S. Treasury. The Export‐Import Bank of the United States ended a tumultuous year by transferring $675 million back to the U.S. Treasury. EXIM returned the surplus, which was the result of fees and interest payments collected from their financial services products, after closing out the fiscal year on September 30. In 2013, EXIM was able to feed roughly $1 billion back to the U.S. Treasury and has contributed nearly $7 billion over the past two decades. International Economic Development Council 27
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EXIM has come under heavy fire in recent years as the bank has sought both reauthorizations and lending limit ceiling increases from a gridlocked Congress. Exporters large and small rely on the bank to provide financial services for deals with foreign companies and countries that would otherwise not happen through traditional banking means. The bank has an incredibly low default rate and has consistently returned funding to the treasury annually. In 2014, the charter for the bank was set to expire on September 30, causing alarm among exporters, but a last minute deal to include a temporary reauthorization until June 30, 2015 was added to the must‐pass continuing resolution passed by Congress at the end of the fiscal year. The Senate passed S 2709 earlier this year, which called for a five‐year extension and lending limit ceiling increase for the bank. However, the House failed to pick up the bill. For now, parties on both sides of the issue will have time to breathe and regroup for what is sure to be a contentious debate come next summer.
WORKFORCE Workforce Innovation & Opportunity Act of 2014 The Senate Committee on Health, Education, Labor & Pensions (HELP) and the House Committee on Education & the Workforce announced a deal to overhaul the nation’s workforce development system. The six year authorization replaced the Workforce Investment Act of 1998 (WIA), which was first passed in 1998 and expired in 2003. WIA had operated under a series of temporary reauthorizations and piece‐meal bills since it expired. The Workforce Innovation & Opportunity Act of 2014 (WIOA) contained some significant changes versus WIA, including:
Requires states to develop a comprehensive workforce development plan that addresses core program areas highlighted in the bill and that this plan should be consistent with the state’s economic development and education priorities; Reduces significantly the number of required seats on both state and local workforce boards; Establishes a common metrics for evaluating program success across all workforce programs; Encourages economic developer participation at the national, state, and local level; and Eliminates the ‘sequence of services’ and allows for a more tailored approach for job seekers.
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By a vote of 95‐3, the Senate passed the Workforce Innovation and Opportunity Act (WIOA). The bill, introduced by Senators Murray and Isakson and a result of a compromise between the Senate Committee on Health, Education, Labor and Pensions (HELP) and the House Committee on Education and the Workforce, would go on to pass the House 415‐6 before heading to the president’s desk for his signature. In addition to the signing of WIOA, a report called “Ready to Work: Job‐Driven Training and American Opportunity” was released by Vice President Biden. The report, after a six month review, details what is and what is not working in federal job training programs. President Obama plans to act on this report as he previously promised an "across‐the‐board reform of America's training programs.” Specifically, the President mentioned that the administration would make sure that job training programs disclose how many of their graduates get jobs and how much they make in order to put a stop to the “train and pray” approach to job training. Trade Adjustment Assistance Community College and Career Training (TAACCCT) The president announced new funding for TAACCCT totaling $500 million. TAACCCT is a grant program meant to strengthen partnerships between community colleges and industry groups— honing targeted skills deemed essential for employment. The funding underscores the vital role of community colleges in promoting the U.S. recovery. Nationwide, these institutions are increasingly acting as clearinghouses, offering resources such as recertification and career counseling to combat the skills gap in the labor market. The president’s announcement marked the final round of funding for the Trade Adjustment Assistance Community College and Career Training program. The grant competition, administered by the Department of Labor, emerged from the 2009 stimulus package with a $2 billion, four‐year authorization. The funding enables community colleges to improve and scale career training programs in which participants can complete in 24 months. For this cycle DOL grant awards will prioritize proposals, which: collaborate with national industry and employers creating a national model; effectively incorporate the workforce system, employers, educators, and apprenticeships to develop or expand state career pathways; and/or meaningful integrate state employment and education data. Partnerships consisting of community colleges, employees, and industry representation will be considered for awards. Apprenticeships The president also announced a $100 million grant competition to expand access to apprenticeship opportunities. According to the White House American Job Training Investments International Economic Development Council 29
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fact sheet, “87 percent of apprentices are employed after completing their programs and the average starting wage for apprenticeship graduates is over $50,000.” Funding for the grants will come from H‐1B visa fees and will facilitate a crucial skill transfer in some of the country’s fastest growing industries. The administration is also seeking to expand some of the more successful existing apprenticeship models. The private sector has joined the administration’s push with several private entities including the United Auto Workers and UPS pledging to create opportunities. The need for apprenticeships is not a new issue. Dr. Robert Templin, Jr., President of Northern Virginia Community College and keynote speaker at the US Chamber of Commerce’s Tapping Into Talent: Improving the Transition from School to Work event, chronicled the need for both the business and educational communities to create more training opportunities, such as apprenticeships. Dr. Templin called these “pipelines” critical to the future of business and education in the U.S. According to the Washington State Department of Labor & Industries, an apprenticeship is a “combination of on‐the‐job training (OJT) and related classroom instruction under the supervision of a journey‐level craft person or trade professional in which workers learn the practical and theoretical aspects of a highly skilled occupation.” The Center for American Progress’s article on apprenticeship expansion in England mentioned that “England demonstrates that by increasing marketing, establishing business outreach, and creating financial incentives for businesses to sponsor apprentices, it was able to create new apprenticeship opportunities that boost worker’s employment outcomes, improve businesses’ productivity, and generate new economic growth.” Although a formal registered apprenticeship system through the National Apprenticeship Act exists in the United States, America had only 358,000 active registered apprentices in 2012; this number is only 7 percent of the number of apprenticeships in England, when adjusting for population size. Industry surveys show that a lack of qualified workers is a top concern for many employers; however, employers are spending less on training than they have in the past. The Center for American Progress suggests that apprenticeships are the solution to this problem, as they “can help meet demand from businesses, while offering workers higher wages and better employment outcomes.” Although this solution seems simple, there are a number of obstacles that will need to be overcome before there is a broader adoption of apprenticeships in the United States. Examples of these obstacles are business and worker unfamiliarity with benefits and salaries associated with apprenticeships and a disjointed national system of administering International Economic Development Council 30
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apprenticeships. Lessons can be learned from how England addressed these problems. The government launched a national marketing campaign, improved business outreach, and created financial incentives for employers to sponsor apprenticeships. Data from the U.K. Department for Business, Innovation, and Skills shows that, because of these efforts, England has been able to significantly expand its number of new apprentices, as well as the businesses that offer apprenticeships. Economic Opportunity According to the National Journal, by 2030, minorities are projected to provide all of the net growth in the labor force. Minorities own 15.1 percent of all U.S. businesses with 99 percent being small businesses. The next K‐12 class will be the first class in which the majority of students will not be white. These changing demographics imply that investing in our nation’s minorities is not just a civic responsibility but an economic development imperative. A study done by Young Invincibles, a non‐partisan and non‐profit organization that focuses on education and economic opportunity for young adults, shows that race is associated with disparate unemployment rates at every level of education. The organization’s studies show that “African American millennials have to earn two educational levels higher than their white counterparts in order to have the same employment probability” and increasing educational attainment is key to closing the unemployment gap. Not only should we focus on policy measures that increase minority graduation rates, but, like their fellow white students, they must graduate with skills and credentials that are in demand. According to a study done by the Organization for Economic Cooperation and Development (OECD), the U.S. is lagging behind in literacy (16th), numeracy (21st), and technological skills (14th). Considering all of these facts, if we do not address the changing demographics of our education system these rankings will continue to decline in the future.
ECONOMIC OPPORTUNITY & TRANSFORMATION According to The Economist, “95 percent of the gains from the recovery have gone to the richest 1 percent of people, whose share of overall income is once again close to its highest level in a century.” Between 1981 and 2011, the share of income (including capital gains and excluding government transfers) of the highest earning 1 percent increased from 8.9 to 19.9 percent of the total.
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The Economist mentions that “Although some degree of inequality is good for an economy, creating incentives to work hard and take risks, the recent concentration of income gains among the most affluent is both politically dangerous and economically damaging.” In response to this trend, many have called for policy intervention and proposed possible solutions. Thomas Piketty, an economist and author from the Paris School of Economics, argues that “when the rate of return on capital exceeds the rate of economic growth, then rising inequality becomes inevitable.” Piketty’s recommendation is to “significantly increase the progressivity of both income and wealth taxation” and to do this he has proposed a marginal tax rate of 80 percent. However, some argue that such a high tax rate would have undesirable side effects and before taking a drastic action like that, the cause of rising inequality needs to be better understood. While trying to understand the cause of the rise in income inequality, experts have come up with many explanations. These explanations range from technological change, the decline of unions, all the way to deregulation. A few scholars have also commented on the role of entrepreneurship in rising income inequality. Daniel Isenberg, for example, has noted that entrepreneurship which is viewed as the engine of economic growth has a “secret;” he states that “successful entrepreneurship always exacerbates local inequality, at least in the short run.” Isenberg further claims that entrepreneurship “rewards smart and risk‐tolerant investors with wildly above‐market financial returns.” It used to be thought that income inequality was a necessary condition for growth, but scholars such as economist Jared Bernstein are now claiming that “there are compelling reasons to believe that inequality can harm growth.” However, this is hard to establish in empirical terms due to the many factors at play. Due to the lack of empirical evidence, it is crucial that before making any decisions, policymakers conduct more research on the causes of rising income inequality and its effects. Minimum Wage One week out from a very contentious, high‐stakes midterm election, some analysts are predicting a possible vote on a federal wage increase from $7.25 to $10.10 per hour. President Obama has supported a federal increase in the minimum wage for some time, but a measure introduced by out‐going Senate Health, Education, Labor and Pensions (HELP) Chairman Tom Harkin, S 2223, was dead on arrival in April. A report from the Congressional Budget Office (CBO) projected the bill would cost the economy 500,000 jobs, effectively killing the bill. However, as more states and municipalities advance their own measures to increase the minimum wage, momentum is building for a federal increase. Given the likely quick transition from Congressional to presidential campaigning, a federal wage increase vote is likely to come International Economic Development Council 32
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forward and pass regardless of who is in control of Congress next year. More than 2/3 of Americans support a federal increase in the minimum wage. Promise Zones The Department of Housing and Urban Development and the Department of Agriculture announced the second round of the Promise Zone designation competition last week. The program, similar to other recent competitions such as the Investing in Manufacturing Communities Partnership, does not include any direct funding for communities that are given the designation. Instead, when Promise Zone communities apply for future federal funding opportunities, where permitted, their applications will receive preferential treatment. Promise Zones were introduced by President Obama in his State of the Union address in 2013. The program seeks to provide technical and financial assistance to revitalize high‐poverty communities. While any of the tax‐related benefits associated with the program are still waiting on Congressional action in order to move forward, the administration announced the first Promise Zone communities earlier this year. They are located in San Antonio, Los Angeles, Philadelphia, Southeastern Kentucky, and the Choctaw Nation of Oklahoma. These communities, as are the ones to be named through the second round, receive direct technical assistance to aid greater federal collaboration across over a dozen federal agencies, including an assigned federal liaison.
INTERNATIONAL Trade Trade Promotion Authority (TPA) advanced to the floor of the House and Senate in 2014, which would enable greater executive powers in negotiating trade deals abroad. The bills in the House and Senate, HR 3830 and S 1900 respectively, requires Congress to vote up‐and‐down on trade deals the President reaches without the ability to offer amendments. TPA also counters greater executive authority by mandating increased disclosure to congressional committees while trade packages are in negotiation. Congress proposed a renewal of the TPA, which expired in 2007, in the midst of significant trade deal negotiations between America and Asia in the Trans‐Pacific Partnership (TPP) talks and Europe in the Transatlantic Trade and Investment Partnership (TTIP) meetings. TPA advocates claims that uncertainty over whether or not America will keep its word in negotiations prevents trade deals such as the TPP and TTIP from being struck. TPA sponsors conceded to critics’ fears over currency manipulation by including language that International Economic Development Council 33
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would allow the U.S. to withdraw tariff concessions if a trade partner engages in currency manipulation. Bill authors also included similar protections to advance intellectual property protections. Passage of the new TPA establishes these practices for trade negotiations for the next seven years. The last TPA from 2002 to 2007 allowed the previous administration to successfully negotiate trade deals with 15 nations from South Korea to Panama. Immediate trade talks with TTIP and TPP affects 70 percent of global trade. Trade experts project new streamlined access to markets worth a total of $44 trillion in annual economic output will create 13 million jobs. Increased exports in the future promise even more jobs in the future since every $1 billion in exports creates 5,000 jobs. At the same time, open markets may sap American communities of sole control of markets and drive workers into unemployment and communities into distress. Unless legislation such as the Trade Adjustment Authority passes along with the TPA, economic developers may experience chaos in the new ecosystem the TPA creates. Yet the long‐run benefits offer America significant wealth, as all 20 nations the U.S. has a free trade deal with results in trade surpluses. Despite obvious economic benefits in trade, TPA may not come to pass even with bipartisan support. Senate leadership in the past opposed similar free trade legislation and economic interests potentially negatively impacted by free trade deals heavily lobby their Congressmen to vote down the TPA. The Administration needs to secure a larger cross‐party coalition to advance the TPA over the currently bigger bipartisan opposition. Both S 1900 and HR 3830 were reported to committee only recently, which gives a decent amount of time for an alliance to form to pass the TPA. Senior Senate leadership opposition to the TPA precludes passage of the act in the near future and associated economic benefits at a critical juncture. The U.S. engages in negotiations today with both European and Asian nations in multilateral trade deals, the Transatlantic Trade and Investment Partnership (TTIP) and Trans‐Pacific Partnership (TPP) respectively. Economists project both deals to create 13 million American jobs and open markets to American businesses worth $44 trillion in annual economic output. Negotiations, though, fail to see breakthroughs in large part due to Senate modifications to agreements on issues ranging from tariffs to intellectual property rights. When nations perceive White House trade representatives as unable to follow through on promises, they are less likely to seriously engage in dialogues. Although opposition to the TPA arises from concerns of unequal terms, they inhibit access to over 70 percent of global trade. Traditionally, America benefits from free trade agreements as the U.S. has trade surpluses with the nations it has agreements with. Since $1 billion in exports
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creates 5,000 jobs, even marginal increases to trade from the TPA would create a multitude of jobs. Without floor consideration, though, these benefits cannot be realized. Granting TPA has been a large point of contention in both the House and the Senate. Members of Congress have been steadfast in their objection to TPA because they believe current talks do not protect America’s vested interest such as the environment and domestic employment and the administration’s broad authority to negotiate through TPA will further weaken U.S. positions on these issues. U.S. Trade Representative Michael Froman quelled these concerns by saying that TPA would not prevent Congress from having a voice in negotiations or lead to weakened language on labor and environmental issues in the agreements. TPA allows U.S. negotiators to enter into good‐faith talks with their foreign counterparts because the legislation calls for an up‐or‐down vote on any potential treaty with minimal opportunity for changes. This is critical for the negotiating process because, without it, Congress can theoretically change anything in the treaty similar to amending a piece of legislation, thereby putting at risk months/years of negotiations. He repeated the often heard mantra from U.S. trade negotiators when he referenced all American trade agreements as being comprehensive, including robust language on labor and environmental issues. Going forward he believes the best strategy is to continue to convey the benefits of the Trans‐Pacific Partnership (TPP) to both Congress and the American people. If trade promotion authority is not granted by Congress, he cautioned that the United States will be left behind. “It is not a static game.” He quantified that countries are no longer waiting on the United States before making trade agreements. In fact, currently there are regional, bilateral agreements being made by Pacific states that run counter to the values and interest of the U.S. Foreign Direct Investment America is leading the world in attracting investment. The AT Kearney survey on Foreign Direct Investment Confidence ranks countries based on “how changes in their political, economic, and regulatory systems are likely to affect foreign direct investment inflows in the coming years,” and the results of this survey show that U.S. is the top destination in the world for Foreign Direct Investment. The U.S. extended its lead with one of the highest confidence scores on record for any country, and a full 49 percent of respondents had a positive view of the U.S. which is the highest number recorded in the index’s 1 year history. These results imply that improvements made over the past two years have been significant and that investors are still confident about the International Economic Development Council 35
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U.S. The report’s findings also confirm that the U.S. and foreign companies are investing billions of dollars that strengthen our economy which in turn supports thousands of high‐quality jobs. These investments also expand our exports and fund a big share of our nation’s spending on research and development. It is clear that more and more companies are choosing to locate here after weighing the United States’ competitive advantages which include:
Skills and Productivity: The U.S. workforce is among the most skilled and productive globally; Innovation: The U.S. is the global leader in patents and also has over a third of the world’s total R&D investment; Energy: Natural gas costs one third as much here as it does in Asia and low energy costs overall are estimated to save U.S. manufacturers nearly $130 billion annually compared to Europe; and Access to markets: The U.S. provides unparalleled access to the largest consumer market in the world along with rapid access to global markets.
This growing interest in the U.S. is motivating efforts to expand the President’s SelectUSA initiative which was launched by the administration in 2011 with the goal of bringing jobs and investments from around the world to the United States. SelectUSA has facilitated more than $18 billion in job‐creating business investment in the U.S. and has made investment attraction a core priority across federal agencies. The survey’s results also serve as a confirmation that economic developers have been on the right path in that their work has contributed to the U.S. remaining an attractive destination for foreign investment. International Taxation OECD released their much‐anticipated guidelines for tax avoidance related to the Base Erosion and Profit Shifting Project In 2013, the Organization for Economic Cooperation and Development (OECD) began the Base Erosion and Profit Shifting (BEPS) project in response to a clear need to overhaul the international corporate tax scheme. A major deliverable of that project is the guidelines released to the G20 finance ministers in 2014. The guidelines seek to streamline the international tax scheme in order to both prevent tax base erosion and profit shifting while also providing greater transparency and predictability to businesses operating in multiple markets. The steps taken will benefit countries and businesses, with one major multi‐national indicating International Economic Development Council 36
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that the only thing worse than the project succeeding is that it will fail, resulting in continued variation in schemes, disputes and lack of predictability, which all ultimately hurt the bottom line. The committee that developed the guidelines included 10 corporations, as well as China and Russia; all have endorsed the guidelines. The final plan is due next year. From there, several processes will take place that will lead to the adoption of the system by OECD and, in theory, all member countries, which includes the U.S. Full adoption of the guidelines will, however, require legislative action, leaving in question what this announcement really means in the long‐term. Congress has been struggling to tackle the issue of broad tax reform legislation, including recent talk of addressing corporate inversion. The practice, whereby a U.S. company purchases a foreign‐based company, presumably in a more tax friendly country, and inverts ownership to that country to avoid U.S. taxes, has come under heavy fire in recent months. Many in Congress are calling for swift action to prevent companies from receiving any benefit from such a practice considering the damaging impact it has on the U.S. tax base. Some in Congress called the OECD guidelines an attempt to infringe on U.S. sovereignty, a fairly standard claim against any and all international treaties. The ongoing debate on tax reform and the recent debate on combating corporate inversion, though, make the OECD release timely and likely to advance the debate toward broad, comprehensive reform in the 114th Congress. International Economic Development Council 37
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FISCAL 2016 BUDGET BREAKDOWN EXECUTIVE SUMMARY On January 20, 2015, President Obama delivered his State of the Union Address, in which he outlined a number of priorities he would like to see addressed in the year ahead. The White House published the budget proposal on February 2 which provided specific details behind the president’s priorities outlined in his State of the Union address. The details shed light on myriad topics that seek to advance the theme of middle class economics. The budget proposal reflects on making middle class economics work, providing investments in infrastructure, economic opportunities, trade, skills training and education. Although the budget proposal and its contents may not be implemented fully by Congress, the goals set forth within it provide a framework of economic development priorities for America to accomplish in fiscal 2016. The proposal includes language on building a 21st century infrastructure system, which could provide both immediate job growth through the construction of infrastructure and long term jobs creation through having a world–class infrastructure system. Supplemental to infrastructure investments, the proposal also funds a long term transportation bill, with funding mechanisms coming from an increase in the gas tax and potentially from increased taxes on profits made by U.S. firms in foreign markets. Economic opportunity, skills development, and education also were among the prominent issues to receive attention from the budget proposal. The proposal seeks to establish apprenticeship programs using a model similar to a successful initiative enacted in the United Kingdom. The incentives included in the proposal vary, ranging from tax cuts to companies who provide apprenticeship programs all the way to the extension of the Pell Grant program for the next 10 years, keeping it indexed to inflation over time. As in 2014, manufacturing remains a focus where properly trained, educated, and skilled workers continue to be in high demand. With several manufacturing hubs already established across the country the budget looks to improve upon that through encouraging public–private partnerships. The National Network of Manufacturing Innovation (NNMI) was established to meet this objective as an organization that could pair manufacturers and business owners. NNMI would also seek to develop manufacturing in 45 different subfields. Paired with other initiatives, manufacturing would continue to gain governmental support as the Department of
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Commerce has planned a loan program for innovative manufacturing firms that specialize in the research, development, and production of lightweight metals and fibers. The president’s budget proposal included resources for the research and development of new energy technologies. Whether it be on a larger organizational scale or just subsidies for single family home upgrades, energy will continue to be a focus in fiscal 2016. The president’s budget proposal also seeks to develop and permit renewable energy projects on both public land and water. Allocating more efficient uses for public spaces may prove to be a key theme in Fiscal 2016, as well as in economic development for this year and those ahead of us. Our first stop in this analysis is the department by department breakdown, which highlights aspects of the budget that could prove important to economic development efforts in the year to come
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FUNDING BY DEPARTMENT Agency
Fiscal 2014 Actual
Fiscal 2015 Enacted
Fiscal 2016 Proposed
Dept. of Agriculture
$23.5 billion
$23.8 billion
$23.5 billion
Dept. of Commerce
$8.3 billion
$8.8 billion
$9.8 billion
Dept. of Defense
$496 billion
$496.1 billion
$534 billion
Dept. of Education
$67.3 billion
$67.1 billion
$70.7 billion
Dept. of Energy
$27.2 billion
$27.3 billion
$30 billion
Dept. of Housing and Urban Development Dept. of Labor
$34.2 billion
$34.8 billion
$41 billion
$12 billion
$11.9 billion
$13.2 billion
Dept. of Transportation
$13.6 billion
$13.8 billion
$14.3 billion
Army Corps of Engineers
$5.7 billion
$5.5 billion
$4.7 billion
Dept. of the Treasury
$12.7 billion
$12.2 billion
$12.8 billion
Environmental Protection Agency National Science Foundation
$8.2 billion
$8.1 billion
$8.6 billion
$7.2 billion
$7.3 billion
$7.7 billion
Small Business Administration
$928 million
$887 million
$701 million
Source: Congressional Budget Office (CBO)
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2015 BY DEPARTMENT Department of Agriculture The U.S. Department of Agriculture (USDA)’s focus for their resources is primarily on the well being of farmers and U.S. citizens in rural communities. This year’s proposed budget includes rural development and funds for community loans which are provided with over $3.2 billion, with an additional $206 million investment put towards competing backlogged infrastructure on USDA research facilities. An additional $900 million will be put towards low income residents in rural areas in the form of loans. The USDA is seeking to invest over $8 million in infrastructure upgrades for rural national parks and monuments which would allow better access to those monuments, generating additional tourism revenue. Department of Commerce The budget proposal for the Department of Commerce is one of the main mechanisms through which president Obama has made his push for the emergence of a stronger middle class. Of the $9.8 billion in discretionary funding for the Department of Commerce, $1.9 billion is dedicated towards the development of a National Network for Manufacturing Innovation which would expand manufacturing research and production in 45 manufacturing subfields. Not only would the proposal look to increase manufacturing in the U.S., but it also would fund the International Trade Administration (ITA) at a level of $497 million, allowing it to accelerate the trade initiatives and remove unfair trade barriers faced by U.S. exporters. The budget provides $273 million for the Economic Development Administration and $20 million for the SelectUSA program. Department of Defense The Department of Defense (DoD) is provided with $534 billion in the president’s proposed budget for fiscal 2016. The DoD’s budget funds $322 million for the Defense Advanced Research Projects (DARPA) division which develops vital technologies and resources for both the civilian population and the military. The budget also provides for increased Office of Economic Adjustment funding at a level of $110.6 million. Most relevant to economic development, the budget aims at funding research and development of scientific technologies, cyber capabilities, as well as funding the modernization of our nuclear delivery systems. Department of Education With a budget of $70.7 billion, the Department of Education is the third‐highest funded agency in the president’s budget proposal, only behind the departments of defense and transportation. Education is one of the major components of the middle class economics theme. The budget mainly invests in the indexing of Pell Grants for college students to inflation for the next ten years and the implementation of a program that would provide preschool education for all children. The budget also looks to provide working parents of young children with aid in paying for childcare through the Head Start program. International Economic Development Council 41
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Department of Energy Receiving $30 billion in funding in the president’s proposed budget is the Department of Energy (DOE). The budget for the DOE primarily focuses on investment in the research and development of new energy technologies and resources to reduce America’s dependence on fossil fuels. The budget funds $2.72 billion for the Office of Energy Efficiency and Renewable Energy for this exact reason and an additional $1.2 billion in funds to national labs for research and development on electric grid modernization, water‐energy nexus and cybersecurity. The Advanced Research Projects Agency Energy (ARPA‐E) would also receive $325 million to innovate new energy technologies. The opportunities in the DOE’s budget are myriad and provide a strong framework for energy and economic development priorities in 2016. Department of Housing and Urban Development In the budget for 2016 the Department of Housing and Urban Development (HUD) is looking to increase middle class housing opportunities for low‐income individuals and families. This is a primary reason for the $300 million Local Housing Policy Grants which would increase economic development in localities and organizations both on the state and national scale. Of the total $41 billion being appropriated to HUD, 2.8 billion will go towards the Community Development Block Grant (CDBG) program, a reduction of about $200 million versus last year’s request. CDBG provides 1,200 block grants to state and local governments to support a wide range of economic development activities including infrastructure improvements, housing rehabilitation, and construction. HUD’s budget would also invest more than $250 million to transform low‐ income neighborhoods with distressed HUD‐assisted housing through the implementation of the Choice Neighborhoods program. The program would allow communities to restructure their public goods (such as schools, public safety buildings, and community spaces) to best benefit themselves, which would ultimately provide greater housing opportunities and nicer neighborhoods for low‐income families. Department of Labor The Department of Labor’s budget is set at $13.2 billion under the president’s budget for fiscal 2016. Some of the department’s highlights include the implementation of the Workforce Innovation and Opportunity Act (WIOA) through staffing procedures and state database compilation, $100 million in apprenticeship grants to states, and reducing unnecessary occupational licensing requirements to remove barriers of entry for individuals seeking to gain entrance into a particular field. With additional focuses on trade such as the Trans‐Pacific Partnership (TPP) and Trans‐Atlantic Trade and Investment Partnership (TTIP) the Department of Labor’s budget seeks to improve workforce opportunities as well as those of domestic and international markets. International Economic Development Council 42
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Department of Transportation The president’s budget proposal provides the Department of Transportation (DOT) with $94.7 billion in discretionary and mandatory budgetary resources with $14.3 billion of that being mandatory. Primarily, the resources will look to push a long‐term highway bill. The proposed bill included would cost $478 billion over the course of the next six years, with funding for the bill starting in fiscal 2016. Not only that, but the proposal also focuses on the DOT’s role in infrastructure investment through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program which would leverage $1 billion in annual federal transportation funding and generate $30 billion annually for such an investment. Grant funding up to $6 billion over a six year period will be made available for states to incentivize them to develop new surface transportation means and systems. An additional $1.25 billion will be included in the budget for Transportation Investment Generating Economic Recovery (TIGER). Army Corps of Engineers The U.S. Army Corps of Engineers (USACE) is an organization charged with developing, managing, restoring, and protecting water resources through construction and maintenance projects that involve infrastructure. The president’s fiscal 2016 budget proposal includes $4.7 billion for USACE. One of their largest projects is the implementation of the Water Resources Reform and Development Act (WRRDA). USACE is currently developing guidelines for WRRDA implementation which will be released in the coming months. USACE’s budget is particularly focused on funding waterways and infrastructure that are the most economically efficient and highly traveled through implementing WRRDA. The budget outlines $1.17 billion investment for projects that pose a serious environmental and economical gain for the U.S. and $2.71 billion for high traffic U.S. inland waterway projects. Department of the Treasury For fiscal 2016, the Department of the Treasury’s proposed budget is $12.8 billion. The department’s budget pin points help for low‐income communities through a $233.5 million investment in the Community Development Financial Institutions (CDFI) initiative. As part of the CDFI initiative, the budget provides for a $1 billion commitment to provide long‐term loans for economic development projects specifically. In addition to CDFI, the Treasury’s budget includes funds for small businesses and homeowners living in economically distressed communities. $1.5 billion for second round of State Small Business Credit Initiative (SSBCI) to strengthen the relationship between economic developers, the government and small businesses through creating a network for each agency to communicate with one another. SSBCI will provide $1 billion to States to find communities that are in need of the most help and an additional $500 million to States on a need‐based formula. International Economic Development Council 43
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Environmental Protection Agency Under the proposed budget for the Environmental Protection Agency (EPA), the agency would be granted a budget of $8.6 billion. Most recently, vice president Biden announced the roll out of a Water Infrastructure Resiliency Finance Center to support infrastructure development as part of the EPA’s budget. The budget also provides $25 million to aid states in developing their Clean Power Plan strategies as well as an incentive of over $4 billion to states that are under their required levels of carbon pollution as set by the Clean Power Plan in 2014. In order to reach out to communities in need, the EPA looks to set up a program that would incorporate the use of Community Program Coordinators who would work to enhance economically vulnerable communities. With a relatively large budget (compared to recent years) and new programs looking to fund “circuit riders” and Community Program Coordinators, a much larger portion of the country will be able to be helped and reached by the EPA. National Science Foundation The National Science Foundation (NSF) is an agency dedicated to the advancement of the sciences and education of our students through extensive research and Science, Technology, Engineering and Mathematics (STEM) programming for public schools. In the fiscal 2016 budget, the NSF would be provided with $1.2 billion for STEM education activities out of their total proposed budget of $7.7 billion. In order to support the scientific advancement of our country, the NSF budget also provides $143 million to support the Cyberinfrastructure Framework for 21st Century Science, Engineering, and Education. Small Business Administration The proposed budget for the Small Business Administration (SBA) has been significantly decreasing in recent years. Down almost 10 percent from fiscal 2014 enacted levels, the fiscal 2016 budget allocates $701 million to the SBA. Despite the SBA easily having the smallest budget of the 13 major agencies and departments in this report, it has more than $40 billion in loan authority, significantly benefiting small businesses. Initiatives such as the Start‐Up America initiative allow small businesses to interact with over 1,000 enterprises nation – wide while the SBA will continue to work with the Export Import Bank (EXIM) to reduce trade barriers internationally for small businesses. Additionally, the fiscal 2016 budget outlines a provision that would provide $15 billion in 504 and $19 billion in section 7(a) loans, respectively.
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DISCRETIONARY FUNDING BY DEPARTMENT
Department of Agriculture (in billions of dollars) 25 24.5 24
Proposed Enacted
23.5
Actual
23 22.5 2014
2015
2016
Department of Agriculture – Funding Highlights
Fiscal 2016 Proposed: $23.5 billion $1 billion in funding for rural America o Focusing on rural business development, economic development $2.2 billion in community facility loans for rural areas o Will aid in doubling current broadband network capability o New business, public health and safety options for rural areas $206 million to complete backlog of infrastructure projects o Would fund building of and upgrades for USDA’s five most needed labs (Southeast Poultry Research Lab, Beltsville Agricultural Research Center, National Lab For Agriculture and Southwest Watershed Research Lab)
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Department of Commerce (in billions of dollars) 10 8 6
Proposed Enacted
4
Actual
2 0 2014
2015
2016
Department of Commerce – Funding Highlights Fiscal 2016 Proposed: $9.8 billion Promotion of American Exports and Foreign Direct Investment o $497 million total funding for International Trade Administration (ITA) o $15 million for ITA creation of Interagency Trade Enforcement Center to address unfair trade practices and barriers that impede U.S. exports o $20 million for the continued expansion of SelectUSA, a program that recruits businesses to invest and create new jobs in the U.S. $273 million towards Economic Development Administration (EDA) o Includes $39 million for Partnership Planning o $8 million increase EDA power so it can have more influence on federal economic development programs and local communities through planning Bureau of Economic Analysis (BEA) receives $110 million Economics and Statistics Administration receives $114 million Bureau of the Census receives $308 million International Economic Development Council 46
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Department of Defense (in billions of dollars) 540 530 520 510
Proposed
500
Enacted Actual
490 480 470 2014
2015
2016
Department of Defense – Funding Highlights Fiscal 2016 Proposed: $534 billion $534 billion discretionary, $51 billion for Overseas Contingency Operations (OCO) $12 billion investment in science and technology in areas such as quantum information science, cognitive neuroscience, nanoscience, synthetic biology, autonomy, cybersecurity, and countering weapons of mass destruction $110.6 million in funding for Office of Economic Adjustment (OEA) $322.9 million in funding towards Defense Advanced Research Projects Agency (DARPA) International Economic Development Council 47
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Department of Education (in billions of dollars)
72 71 70 69 68
Proposed
67
Enacted
66
Actual
65 2014
2015
2016
Department of Education – Funding Highlights $70.7 billion discretionary spending and $145 billion in new mandatory funding $2.05 billion for adaption of long term preschool grants and initiatives $29.7 billion to continue Pell Grants and index them to inflation until after 2017
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Department of Energy (in billions of dollars) 30 29 28
Proposed Enacted
27
Actual
26 25 2014
2015
2016
Department of Energy – Funding Highlights Fiscal 2016 Proposed: $30 billion $2.72 billion for Office of Energy Efficiency and Renewable Energy to reduce the U.S.’s dependence on fossil fuels and develop renewable electricity through investing in transportation technologies and enhanced home energy and efficiency $1.2 billion in funds to national labs for research and development on electric grid modernization, water‐energy nexus and cybersecurity $325 million for Advanced Research Projects Agency – Energy (ARPAE Funding $34 billion loan program for loans, loan guarantees and conditional commitments $40 billion loan and loan guarantee authority to finance advanced nuclear energy, renewable energy and advanced technology vehicle manufacturing jobs $200 million investment in the American Technical Training Fund to expand technical
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Department of Housing and Urban Development (in billions of dollars) 50 45 40 35 30 25 20 15 10 5 0
Proposed Enacted Actual
2014
2015
2016
Department of Housing and Urban Development – Funding Highlights
Proposed Fiscal 2016: $41 billion $2.8 billion for Community Development Block Grant (CDBG) program. o CDBG provides 1,200 block grants to state and local governments to support a wide range of economic development activities including infrastructure improvements, housing rehabilitation and construction. 70% of funds will be distributed to urban communities, and 30% to States Reduction in FHA mortgage insurance premiums for 250,000 homebuyers over three years $300 million Local Housing Policy Grants program to make housing available to more workers, increasing economic development in localities and statewide organizations $1 million in vouchers for disaster relief and recovery efforts plus $39 million as part of the Disaster Relief Appropriations Act of 2013 $250 million in resiliency and sustainability based funding for redevelopment of housing to create more middle‐class housing in low – income areas International Economic Development Council 50
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Department of Labor (in billions of dollars) 13.5 13 12.5
Proposed Enacted
12
Actual
11.5 11 2014
2015
2016
Department of Labor – Funding Highlights
Proposed Fiscal 2016: $13.2 billion discretionary funding Implementation of Workforce Innovation Opportunity Act (WOIA) $100 million towards expanding formal apprenticeship opportunities in the form of grants as incentives for firms $15 million to research and aid areas that have too many barriers to entry in an occupation. $2.7 billion in funds for the Employment and Training Administration (ETA)
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Department of Transportation (in billions of dollars) 16.5 16 15.5 15 Proposed
14.5
Enacted
14
Actual
13.5 13 12.5 12 2014
2015
2016
Department of Transportation – Funding Highlights Proposed Fiscal 2016: $12.3 billion $1.25 billion in funding for Transportation Investment Generating Economic Recovery (TIGER) Includes funding for proposed six year $478 billion transportation reauthorization bill $7 billion in increased transit funding to support infrastructure needs $18 billion over six years for creation of high speed rail network $1 billion for subsidy for credit assistance program known as Transportation Infrastructure Finance and Innovation Act (TIFIA) $956 million towards modernizing our air traffic control system, involving the integration of satellite technology to help make the landing and takeoff process safer Modernizes infrastructure permitting process. Allows for more than one department or federal agency to review and research a particular infrastructure project at a time
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Army Corps of Engineers (in billions of dollars) 5.6 5.4 5.2 5
Proposed Enacted
4.8
Actual
4.6 4.4 4.2 2014
2015
2016
Army Corps of Engineers – Funding Highlights Proposed Fiscal 2016: $4.7 billion $1.17 billion for construction projects that have high economic and environmental benefits $2.71 billion for maintenance of inland waterways with high commercial traffic Legislative proposal to reform laws of governing the Inland Waterways Trust Fund (IWTF). Adding an annual per vessel fee generating revenue to support the IWTF Investment in technology that can better collect and analyze data to more effectively plan and budget in future years Water Resources Reform and Development Act (WRRDA) implementation guidelines which are currently being drawn up and updated for each project involved.
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Department of the Treasury (in billions of dollars) 18 16 14 12 Proposed
10 8
Enacted
6
Actual
4 2 0 2014
2015
2016
Department of the Treasury – Funding Highlights Proposed Fiscal 2016: $12.8 billion $233.5 million for Community Development Financial Institutions (CDFI) initiative which aids economic development efforts in low‐income communities $1.5 billion for second round of State Small Business Credit Initiative to strengthen the relationship between economic developers, the government and small businesses through creating a network for each agency to communicate with one another o $1 billion to States to find communities that are in need of the most help o $500 million to States on a need‐based formula Launch of Water Infrastructure Resiliency Finance Center
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Environmental Protection Agency (in billions of dollars) 8.6 8.4 8.2 Proposed
8
Enacted Actual
7.8 7.6 7.4 2014
2015
2016
Environmental Protection Agency – Funding Highlights Proposed Fiscal 2016: $8.6 billion $25 million to help states develop their Clean Power Plan strategies $4 billion to states that are under their required levels of carbon pollution as set by the Clean Power Plan $50 million to assist in the updating of our drinking water infrastructure systems Creation of Water Infrastructure and Resiliency Finance Center as part of the Build America Investment Initiative. The program would explore more funding techniques for the nearly $600 billion needed over the next 20 years for water and wastewater infrastructure improvements.
International Economic Development Council 55
2015 IEDC Federal Review
National Science Foundation (in billions of dollars) 7.7 7.6 7.5 7.4 7.3
Proposed
7.2
Enacted
7.1
Actual
7 6.9 6.8 2014
2015
2016
National Science Foundation – Funding Highlights Proposed Fiscal 2016: $7.7 billion $75 million to design, research and model interconnected food, energy and water systems $257 million for cyber‐enabled materials manufacturing, involving engineering research and advances to contribute to the manufacturing industry $1.2 billion for science, technology, engineering and mathematics (STEM) education activities
International Economic Development Council 56
2015 IEDC Federal Review
Small Business Administration (in millions of dollars) 1000 900 800 700 600 500 400 300 200 100 0
Proposed Enacted Actual
2014
2015
2016
Small Business Administration – Funding Highlights Proposed Fiscal 2016: $701 million discretionary funding, $40 billion or more in loan guarantees for small businesses SBA will continue to partner with the Department of Commerce and the Export Import Bank to work to make it easier for small businesses to export internationally and increase their market audiences Makes available up to $4 billion annually at a zero subsidy cost through the Small Business Investment Company program (SPIC) Removes small barriers to entry for small businesses through Start‐Up America initiative that enables government agencies to interact with over 1,000 entrepreneurs nationwide $15 billion in 504 Loans $19 billion in section 7(a) loans International Economic Development Council 57
2015 IEDC Federal Review
TOTAL GOVERNMENT SPENDING BY YEAR
U.S. Government Spending Totals (in trillions of dollars) 1.09 1.08 1.07 1.06 1.05 1.04 1.03 1.02 1.01 1 0.99
Proposed Enacted Actual
2014
2015
2016
International Economic Development Council 58
