There’s an air of resignation in Washington about the deep cuts in federal spending scheduled for March 1.
If sequestration happens, the cuts could affect $1.2 trillion in discretionary and defense spending. Highway safety and construction programs would be spared, for the most part, because their money comes through the Highway Trust Fund.
Congressional leaders and others are pessimistic about preventing the automatic, across-the-board cuts.
“We think these sequesters will happen,” Rep. Paul Ryan, R-Wisc., chair of the House Budget Committee, said on Meet the Press a week ago.
Ryan was politicking, blaming Democrats for the situation, but he is not the only one who is concerned. Sen. Lindsey Graham, R-S.C., told The Washington Post he thinks the cuts are more likely. And Sen. Carl Levin, D-Mich., told the Post that odds probably are even that the cuts will occur.
Steve Bell of the Bipartisan Policy Center, the former staff director of the Senate Budget Committee, thinks the risk of sequester is high.
“Our estimate, based a wide survey of senior congressional staff and some members, indicates that the odds of at least a partial sequester are very high and that a full sequester is a better than 50-50 proposition,” he said in a commentary posted on the BPC website.
The situation arises from a deal cut by Congress in 2011 to impose automatic, draconian cuts in federal programs if legislators could not agree on a plan to reduce the deficit by $1.2 trillion.
The theory was that the cuts would be so painful, particularly to defense, that Congress would be forced to act.
With the deadline approaching, however, there is no deal in sight.
Trucking Programs Mostly Exempt
According to an analysis prepared by the Congressional Research Service, the core motor carrier safety programs run by the Federal Motor Carrier Safety Administration are exempt from sequestration.
The same applies to programs administered through the Federal Highway Administration, and to operations and research at the National Highway Traffic Safety Administration, which regulates truck safety equipment.
These are not 100% exemptions, however. For instance, about 3% of FMCSA’s budget does not come through the Highway Trust Fund. This sparks concern in the safety enforcement community.
Steve Keppler, executive director of the Commercial Vehicle Safety Alliance, said sequester could create risk of furloughs among FMCSA staff, which might limit the agency’s ability to process safety grants.
Duane DeBruyne, a spokesman for the agency, acknowledged that the sequester exemption is not complete but said the shortfall would be slight and the agency is prepared.
“There is a fractional amount – less than $1 million from an overall agency budget of slightly more than $570 million – that potentially could be exposed should sequestration occur,” he said.
“The agency is confident that it has contingency plans in place to ensure that normal work-flow of services, functions and daily activities would not be disrupted.”
While these specific federal programs are protected, trucking shares the general economic risks arising from sequestration.
Bell of the Bipartisan Policy Center noted that the slowdown in business in the fourth quarter of 2012 is attributable in part to workforce reductions among defense contractors and sub-contractors in anticipation of sequestration.
That period saw the largest defense spending cut since 1972, said Bob Costello, chief economist for American Trucking Associations.
John Larkin, managing director of transportation equity research at Stifel, Nicolaus, also noted that defense-related shipments softened in the fourth quarter as contractors prepared for sequestration.
“It is not clear, though, that defense cuts would have a big, direct impact on carriers serving defense contractors,” he added.
Bill Wanamaker, director of government traffic and security operations at ATA, confirmed the point.
He said most of the defense cutbacks would be in new programs having to do with weapons and vehicles.
“If DOD wants to move freight, and there is a considerable amount of ‘retrograde’ freight, returning from battle theaters, then they have to pay for it,” he said.
“There may be some discretionary freight that could be postponed, but frankly, if a warrior needs it, we’ve got to move it, and DOD has got to pay for it.”
There still is a risk that sequestration would negatively impact the overall economy, according to Bell.
He said the Congressional Budget Office forecasts a 0.7% drop in GDP growth in 2013 due to the sequester’s effect on small businesses and government personnel.
He forecasts the loss of a million jobs if full sequestration occurs.
Larkin offered additional perspective.
“While sequestration may bring GDP growth down 100 to 200 basis points in 2013, the Sandy recovery and rebuilding effort, the rebounding housing market, and the recovering auto industry will combine to create a mediocre to lackluster demand environment in 2013, much like we have seen the past couple of years,” he said.
Supply and demand for trucking will remain more or less in balance this year, he said.
“This is frustrating to truckers because just a normal recovery would have created a raging bull trucking market by now. It is within reach, but the seemingly perpetual, pathetically slow economic growth prevents the Golden Age for trucking from fully developing.”
Costello of ATA said that while there’s a significant risk to the economy from sequestration, it pales compared to the risk of not raising the debt ceiling.
“If they don’t raise the debt ceiling it means that the government can only spend what it brings in on any given day,” he said. “We think it would be the equivalent of a 40% cut in government spending almost overnight.”
That would send the economy over a cliff, which is why he’s been spending a lot more time on the debt ceiling than on sequestration, he said.
The deadline for raising the debt ceiling is mid-May.