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April 19, 2013
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White House Releases FY 2014 Budget Proposal

On April 10, 2013, President Obama released his budget proposal for federal Fiscal Year (FY) 2014. Over the next ten years, the budget would increase revenues by about $1.1 trillion and cut ten-year spending by $265 billion, thereby reducing the federal deficit by $1.3 trillion compared to the Office of Management and Budget's (OMB) baseline projections. CMAP is monitoring the development of the FY 2014 budget because federal investments and policy in transportation, economic development, and housing play a vital role in the implementation of GO TO 2040.

Transportation
The requested U.S. Department of Transportation (U.S. DOT) budget is $77 billion, with an additional upfront request of $50 billion in immediate investments to support economic growth. Of the immediate requested investments, $40 billion would fund a "fix-it-first" maintenance program for highways, transit, rail, and airports. The remaining $10 billion would fund competitive grant programs. The budget proposal emphasizes infrastructure financing, calling for a national infrastructure bank and an America Fast Forward bond program. Unlike traditional grant-funded programs, these low-cost financing tools would be repaid by local jurisdictions. U.S. DOT and the OMB have additional information on FY 2014 budget estimates by transportation agency on-line.

The ten-year budget fully implements Moving Ahead for Progress in the 21st Century (MAP-21) and assumes a six-year successor bill to MAP-21 starting in FY 2015; such a bill would add a total of $88.5 billion in additional spending above the baseline estimates. The ten-year budget also plans for a robust Amtrak reauthorization bill, with over $40 billion for railroads between FY 2014-18. However, the budget does not continue that level of rail investment after FY 2018, nor does it provide for a second successor bill to MAP-21 after FY 2020. As such, the total expenditures for surface transportation drop from about $81 billion in FY 2020 to about $55 billion in FY 2021.

Workforce and Economic Development
The requested U.S. Department of Commerce (DOC) budget is $8.6 billion. Within DOC, the Economic Development Authority (EDA) has been charged with strengthening manufacturing through a multifaceted initiative that includes investing in economic development and spurring technological innovation. A new program in the proposed budget, modeled after Germany's Fraunhofer Institutes, would invest $1 billion to expand research and development (R&D) through regional manufacturing institutes. While R&D investment as a share of the regional economy increased in other U.S. metropolitan areas over the past decade, it declined in northeastern Illinois during the same time period.

The federal budget would also allocate $113 million to create an "Investing in Manufacturing Communities" fund, which would support regional strategies that build on specializations and leverage private-sector resources. The proposed budget also includes numerous other programs to support manufacturing, such as export assistance and cyber security to protect intellectual property.

The budget also proposes targeted investments for workforce development through numerous programs administered by the U.S. Department of Labor (DOL) and U.S. Department of Education (DOE). The budget proposes an $80 million increase for Workforce Investment Act formula grants, with an additional $25 million to support evidence-informed efforts to improve employment outcomes for older Americans. DOL and DOE have also requested $8 billion to jointly administer a Community College to Career fund. This fund would build partnerships between community colleges and industries to address the current skills gap between available jobs and the abilities of the existing labor force.

In addition to direct programmatic investments, the budget also proposes tax credits to spur economic development. The proposed budget would make some tax credits permanent, such as the research tax credit. The budget would also make the New Markets Tax Credit (NMTC) permanent. Created in 2000, the NMTC is used to attract capital to economically distressed rural and urban communities. The program has been used in the Chicago region to spur investment in manufacturing and industrial areas.

Housing
The requested U.S. Department of Housing and Urban Development (HUD) budget is $47.6 billion, representing a 9.7-percent increase above the level enacted in 2012. HUD estimates that over 90 percent of the increase will maintain the existing levels of assistance to rental housing and homeless families. As part of a newly-created created Promise Zones program, the budget would substantially increase funding to the Choice Neighborhoods program, which provides assistance to neighborhoods with distressed public or public-assisted housing. Building on the Neighborhood Stabilization Program, a proposed Neighborhood Stabilization Initiative would provide $200 million to help communities address vacant and/or foreclosed properties. In turn, the budget would reduce funding available for Community Development Block Grants (CDBG) and the HOME Investment Partnerships program. The CDBG program provides formula-based assistance for eligible communities to spend on neighborhood revitalization, economic development, and improved services. The HOME program provides funds for affordable housing development.

The proposed HUD budget also represents a significant restructuring or rebranding of key programs. The expiring Partnership for Sustainable Communities grant program would be replaced, pending approval of the budget, by a partnership between U.S. DOT, the U.S. Environmental Protection Agency, and HUD via a new Office of Economic Resilience. This partnership would be responsible for administering $75 million in Integrated Planning and Investment Grants. These grants would assist communities in developing and implementing comprehensive housing and transportation plans through initiatives such as building code updates and land use and zoning ordinances that result in more resilient economic development. Additionally, the new Promise Zones program would link existing initiatives, creating a new partnership between HUD, the U.S. Department of Justice (DOJ), and DOE to provide targeted assistance to high-poverty communities. In addition to HUD's proposed $400 million in Choice Neighborhoods grants, DOJ and DOE would receive $35 million and $300 million for companion Promise Zone initiatives, respectively. The program would provide targeted assistance to 20 competitively-selected communities.

FY 2014 Budget Proposals and GO TO 2040
Overall, the President's budget proposal is consistent with the policy direction of GO TO 2040. Many of its proposals would help to ensure an adequate level of investment in our transportation system, support the maintenance and modernization of the existing system, and promote competitive, merit-based funding programs. The proposal takes a regional, cluster-based approach to support economic development that aligns well with several of GO TO 2040's recommendations. These recommendations seek to foster innovation through the nurturing of industry clusters, creating a culture of innovation, and increasing commercialization of research. The budget proposal's heavy emphasis on manufacturing could support the region's economic development given that metropolitan Chicago is home to the nation's second largest manufacturing cluster. The proposal would also expand small firms' access to R&D, a need identified in CMAP's manufacturing cluster drill-down report.

The proposed budget continues to emphasize cross-agency collaboration to address the often inter-connected problems and solutions found when creating sustainable, livable communities. Both the Office of Economic Resilience and the Promise Zones program would encourage federal agencies to work in a coordinated manner to implement plans or assist communities in meeting critical sustainability and revitalization goals. Additionally, the implementation focus of the Office of Economic Resilience aligns directly with GO TO 2040 recommendations to link investments to comprehensive planning.

Despite these positive aspects of the President's budget proposal, CMAP is concerned that the budget does not provide an adequate funding source for the level of transportation investment it proposes. GO TO 2040 calls on policymakers to increase the federal motor fuel tax and index it to inflation, as well as to pursue a long-term replacement for the gas tax. The President's budget proposal makes no progress on either of these recommendations, and instead relies on the so-called "peace dividend" from winding down military spending in Iraq and Afghanistan to finance its transportation proposals. Additionally, the budget reduces funding for affordable housing development (HOMES) and community revitalization and economic development (CDBG) funds. GO TO 2040 calls for communities throughout the region to provide housing options for all residents, and reductions in these funding sources exacerbates already-limited resources for affordable housing development.

CMAP encourages federal policymakers to consider its federal agenda for 2013 as they craft a budget for the new fiscal year beginning this October.


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