WASHINGTON — Though President Obama called for more investment in infrastructure and high-speed rail as well as an end to tax cuts for the wealthy, there was little that was new or politically doable in his State of the Union speech Tuesday night, municipal market participants and analysts said.
And Obama’s call for a five-year freeze on domestic spending seemed to run counter to his infrastructure spending proposals and raised a number of questions, they said.
“From a municipal finance point of view, the only thing that would be a bright spot would be infrastructure,” said Bill Daly, senior vice president of government relations for the Bond Dealers of America. “We’ll have to see if there’s anything new here. We’ll have to wait to see the details when the president’s budget comes out in mid-February.”
Obama proposed to “redouble ... efforts” to rebuild the nation’s infrastructure, adding: “We will make sure this is fully paid for, attract private investment, and pick projects based on what’s best for the economy, not politicians.”
“Within 25 years, out goal is to give 80% of Americans access to high-speed rail,” he also told fellow lawmakers.
White House officials provided more information in a fact sheet, saying the president’s fiscal 2012 budget, due to be released in mid-February, “will outline a comprehensive, six-year plan to leverage our resources to repair crumbling roads, bridges and transit” that “will feature up-front investments” and propose creation of an infrastructure bank.
While the U.S. Chamber of Commerce, unions, and transportation and state and local governmental groups all applauded the president’s call for more spending on infrastructure, his proposals appear to be the same ones he floated in September to front-load a multi-year surface transportation bill with $50 billion and create an infrastructure bank.
The idea of an infrastructure bank has been considered for years, but has never moved forward, in part because proponents cannot agree on how to structure it.
Market sources said the transportation and high-speed rail spending proposals seem unrealistic given concerns by Republicans and some Democrats about the growing federal deficit and increased spending.
The day after the president’s speech, the Congressional Budget Office projected the federal budget deficit will run close to $1.5 trillion, or 9.8% of gross domestic product, this year if current laws remain unchanged.
The day before, the Republican-led House passed a resolution to cut non-security, discretionary spending by about $60 billion to pre-stimulus fiscal 2008 levels.
“After the administration derailed a major six-year transportation bill in 2009, it is encouraging that they are now on board with getting infrastructure projects and jobs moving again,” House Transportation Committee chairman John Mica, R-Fla., said in response to the president’s speech.
“However, just another proposal to spend more of the taxpayers’ money, when we have billions of dollars sitting idle tied up in government red tape, will never get our economic car out of the ditch.”
Mica has said he plans to introduce a multi-year surface transportation reauthorization bill later this year.
And on Wednesday, Sen. Barbara Boxer, D-Calif., chair of the Senate Environment and Public Works Committee, said she and Sen. Daniel Inouye, D-Hawaii, are working closely on writing a bill that they hope to see enacted this year.
But Howard Gleckman, a resident fellow at the Tax Policy Institute, said that given the concerns about federal spending, he doubts that such a bill will be enacted this year.
As for high-speed rail, he said: “In this environment, we’re not going to do more high-speed rail, but it sounds good in a speech.”
The infrastructure proposals seem out of sync with Obama’s proposal to freeze annual domestic spending for the next five years, which he said would reduce the deficit by more than $400 billion over the next decade.
“That’s going to put a squeeze on all non-security discretionary programs, including transportation,” said Jack Schenendorf, of counsel at Covington & Burling LLP. “It’s hard to be optimistic in this setting. But you really have to see the details.”
Market participants said it is unclear if Obama is talking about freezing spending at fiscal 2011 levels.
They also want to know whether he would freeze programs across the board, or at one aggregate level with room to increase funding in some areas while decreasing it in others.
Some observers asked if the president was referring to a hard freeze, under which funding would remain at the same levels, or a soft freeze, which would permit increases due to inflation.
In any case, spending freezes cold mean cuts for community block development grants, state revolving loan funds, and other muni-bond related programs, sources said.
Obama proposed ending the extension of income rate tax cuts for the wealthiest 2%, though Gleckman and others pointed out that Congress has already extended the tax cuts for two years.
Gleckman was surprised to see just one sentence on tax reform in Obama’s speech. The president “put it on the table, but I didn’t see any enthusiasm,” he said.
“I’m asking Democrats and Republicans to simplify the tax system,” Obama said. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — +without adding to our deficit.”
But Republicans are likely to hold off on tax reform for two years, hoping to get a majority in the Senate as well as the House during the next election, according to Gleckman. “Why would they give Obama a big victory on tax reform?” he asked.
