Fast Rail, CDBG Funds Cut in Budget Deal

WASHINGTON — High-speed rail and community development block grant funds were among the $2 billion of cuts in a “bridge” continuing resolution enacted Saturday, which narrowly averted a federal government shutdown.

That stopgap measure, set to expire on April 15, is expected to be replaced with a six-month continuing resolution that will provide funds for the rest of fiscal year 2011, which ends Sept. 30.

But congressional leaders and administration officials are still working the specific programs that will be among those to be cut from discretionary spending levels in place at the beginning of the year, and that deal could still unravel under political pressure.

House Speaker John Boehner, R-Ohio, said the longer-term CR would cut $78.5 billion below President Obama’s fiscal 2011 budget request.  But several lawmakers alternatively described the measure as containing almost $38 billion of cuts from discretionary funding spending levels that were in place at the beginning of the year.

The bridge CR that Obama signed Saturday includes cuts of $1.5 billion for high-speed and intercity passenger rail and $220 million from the Housing and Urban Development Community Development Fund, which includes CDBGs. It also includes other cuts such as $280 million from transit new starts and $6.3 million from transportation planning research and development.

Andy Kunz, president of the High Speed Rail Association, said the funding cut does not affect specific projects underway, but means that future projects will have $1 billion less for which to apply. The high-speed rail money rejected by Florida last month will not be affected because that was allocated by the stimulus law, he said. The House is expected to vote on the final fiscal 2011 spending levels on Wednesday, with the Senate vote to follow.

Sources expressed confidence Monday that the six-month spending package will be approved, especially since another high-stakes battle and vote over the debt ceiling is looming. But it’s unclear whether Boehner can corral enough Republican votes.

If Congress fails to approve the longer-term stopgap measure and another shutdown is threatened on Friday, state and local groups have a clearer picture of what to expect from detailed plans that federal agencies released late last week.

The Treasury Department said state and local government series securities would continue to be sold to municipal issuers if a shutdown occurred. SLGS are specially tailored Treasury securities issued to state and local governments for their advance refunding escrows to ensure the issuers do not violate arbitrage restrictions.

Issuers have sold $3.4 billion of advance refunding bonds this year through April 10, according to Thomson Reuters. That is far less than the first quarter of 2010 when $7.3 billion of advance refunding bonds were sold, the data show.

Build America Bond federal subsidy payments would be treated similarly to federal tax refunds, sources said.

The Treasury’s plan indicated that tax refunds would be among “activities necessary to protect government property” and exempt from a shutdown. The department stated that additionally, as a practical matter, the IRS’ automated tax-processing system does not allow for interruptions, particularly during April.

Market participants had wondered whether, if BAB subsidy payments were to continue, would enough Treasury employees be working to process them. Treasury said that only 35,000 of its 127,000 employees would be on duty in the event of a shutdown, but that included personnel involved in the Bureau of Public Debt and debt-associated activities.

The IRS’ plan said that for tax-exempt bonds, both the director and the manager of compliance and program management would be considered essential personnel and would continue to work during the shutdown. At least two states, Massachusetts and Delaware, were working on contingency plans in the event of a shutdown for their state programs that depend on federal funding, sources said. Officials from the states were not immediately available to comment on Monday.

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