How Would EPA Cuts Impact Contractors?

money
Cutting the EPA’s budget significantly risks cutting the funding states rely on to finance infrastructure projects.

The utility and excavation construction industry and the Environmental Protection Agency (EPA) have a complex relationship, to put it mildly. On one hand, the EPA creates, administers and enforces rules and regulations that add significant burdens and costs to doing business. On the other hand, the EPA is responsible for infrastructure projects through the State Revolving Funds (SRFs), which finance the construction of water and wastewater infrastructure, and water quality standards, which generate demand for water cleaning or treating projects. This dichotomy came into focus recently when news organizations began reporting that President Trump’s proposed budget would cut the EPA by 25 percent and reduce its workforce by 3,000 employees. Many in the utility and excavation construction industry initially rejoiced at the prospect of a smaller EPA. Fewer EPA officials would mean fewer inspections, fewer new regulations and fewer new costly hoops for businesses to jump through to comply with regulations that most in the industry disagree with or find ineffective. Many in our industry rightfully see EPA’s regulations as barriers preventing entry into the industry and higher operating costs, as well as view the EPA more as an adversary than a colleague in the pursuit of improving America’s infrastructure. The EPA’s regulations add significant costs to businesses, both operationally and administratively, and when these incredibly complex and onerous reporting requirements are not well understood or implemented, it can spell disaster for a business. Couple the cost burden with the perception that regulations are ineffective at achieving their stated outcome, and it is not hard to understand why the construction industry has such a negative, if not adversarial, view of the EPA.

The initial news reports, as they tend to be, were scant on details about from where, specifically, these cuts would come. Herein lies the dichotomy. Nearly 40 percent of the EPA’s budget consists of direct-to-states infrastructure financing — by far the largest portion of EPA’s budget. Cutting EPA’s budget significantly risks cutting the funding states rely on to finance infrastructure projects. Cuts may help businesses on the regulatory side but hurt on the infrastructure financing side.

To illustrate the impact of cuts to the SRFs, here is a hypothetical example using the state of Michigan. Remember when Michigan was in the news for some water infrastructure failures? Assuming the SRF appropriations are cut by 10 percent, the Clean Water SRF (CWSRF) total state allotment would decrease from $1,335,470,000 to $1,201,923,000 and the Drinking Water SRF (DWSRF) would decrease from $831,243,000 to $748,118,700. As a result, the state of Michigan, which receives 4.3 percent of CWSRF funds and 3.1 percent of DWSRF, would receive $8.45 million less infrastructure financing from the SRFs. However, this does not account for the total loss because states are required to match 20 percent of their allocation. If the match is accounted for, Michigan would miss out on $10.1 million in infrastructure project financing leverage.

Over the past several appropriation cycles, the House of Representatives, in its appropriations legislation, has proposed cutting CWSRF by an average 27 percent and DWSRF by an average 17 percent. These are significantly larger than the hypothetical 10 percent cuts in the above example. So far, the water infrastructure community has been able to stave off significant cuts, but that’s becoming increasingly difficult. Nevertheless, deeper cuts mean fewer dollars for projects.

For many states, the lost financing capability would not be able to be made up with state funds. States would either have to find private financing, which is more expensive, or not undertake the infrastructure projects. Neither scenario is good for excavation and utility contractors.

When President Trump released his proposed budget on March 16, 2017, our industry got to see exactly where these cuts would be taken. Preliminary news reports underreported the proposed budget cuts, which turned out to be 31 percent, or $2.5 billion. However, in a surprising but celebrated turn of events, the SRFs were completely spared from cuts and were actually increased by $4 million. This does not mean the industry is out of the woods as the President’s budget is only a proposal, or wish list, for Congress. The enacted funding levels will be up to Congress, which has, as mentioned previously, proposed significant cuts to the SRFs over the past three years, as you can see in the chart.

SRF Table
* Continuing Resolution through April 2017 

In previous years, proponents of SRF funding have actually been saved by Congressional dysfunction. Congress’ inability to pass legislation, including appropriations legislation, has led to last minute budget deals that simply extended current funding levels. While both the House and Senate have proposed deep cuts to the SRFs, Congress’ inability to enact those bills has kept the SRF from the chopping block but has also perpetuated the regulatory process which creates harmful rules and enforced detrimental provisions on the construction industry. It cuts both ways.

So, the utility and excavation contracting industry remains in a balancing act between wanting infrastructure financing for states to increase and regulations and enforcement that hurt businesses to decline — if not go away entirely.

Will Brown is NUCA’s director of Government Affairs.

For more on SRFs, click here.

Written By