Obama's Budget, From Sweeping Infrastructure Plan to Rare Earths Exploration: Part 1

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While we all know President Obama is excellent at paying lip service to the US manufacturing community, and has indeed signed several substantial acts trying to revitalize domestic job and export growth, we’ll have to wait and see if his initiatives in the federal budget proposal for the 2012 fiscal year 1) get approved and implemented, and 2) spur a sustainable and effective growth pattern in American manufacturing. For now, let’s take a deeper look into the reportedly “slimmed down budget as it relates to industry and manufacturing.

The largest proposal in the new budget is the $556 billion transport plan, to be spread over six years. Reuters reports that the plan is intended to repair the nation’s existing and crumbling infrastructure, while laying the groundwork for a transnational high-speed rail network. Although the administration touts the infrastructure plans as sure-fire ways to create jobs, it’s still unclear how it’ll be paid for. Obama calls for $53 billion for the rail projects alone, and intends to spend 17 percent of the overall $556 billion transportation plan the first year, according to Reuters. The Republican-controlled Congress chafes at this, especially since the initial proposal claims the price tag will be taken care of by a “Transportation Trust Fund (which will swallow up smaller “Highway Trust Funds); aside from Ëœcompetitive grants,’ the revenue stream isn’t clear, much less definitively viable.

Essentially, it’s a more extensive version of an expired act:   the plan’s costs “would be more than 60 percent above the inflation-adjusted levels of SAFETEA-LU (The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users), which expired on September 30, 2009, and has been kept afloat at the same funding level by a series of continuing resolutions since expiring, writes Jeff Berman in the Supply Chain Management Review.

So the overarching question becomes: is more spending to promote potential jobs and future infrastructure investment more important than attacking near term trade imbalances and drastically reducing the current budget deficit? Is it a “chicken-or-the-egg argument?

The pro of spending now: it helps get the ball rolling on contracting the companies and manufacturers that would be building these rail networks, roads and bridges the Caterpillars, Vulcan Materials, Parsons, steelmakers and prefab materials makers of the world (the American Society of Civil Engineers estimates a price tag of $2 trillion to bring overall US infrastructure up to speed, and a lot of that would go to contracting these companies). The con: the creation of new institutions (with new workers, new management, etc., new budgets, etc.) such as the “Infrastructure Bank that would come out of this plan, described in the Reuters report, in which states and private investment would pour money into the bank to match federal funds, solely to finance transportation.

More on metal-specific manufacturing areas of the budget in Part 2.

–Taras Berezowsky

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