Issues & AdvocacyFederal

2012 Election Results: Progress or More of the Same?

By Andrew Goldberg, Managing Director, Government Relations & Outreach

After two years of campaigning, scores of debates, and billions of dollars in advertising, the 2012 election left the balance of power in Washington pretty much unchanged.

President Barack Obama won re-election over former Massachusetts Governor Mitt Romney, carrying every state he won in 2008 except Indiana and North Carolina (Florida had not been called as of Wednesday, but Obama led there). Democrats not only held onto the Senate but picked up at least two additional seats. And Republicans maintained control of the House, losing only a small number of seats.

With no change in the partisan makeup of the executive and legislative branches, it is unclear whether the gridlock that has stymied action in Washington will be broken, or whether policymakers will heed the message that the voters apparently want the parties to work together. Either way, Congress and the President face numerous major policy challenges in the coming year, many of which will affect architects and how they do business.

Here is a preliminary look to how these policy battles will shape up now that the electorate has spoken.

The “Fiscal Cliff”

Even before the new Congress is sworn in and President Obama starts his second term, lawmakers will have to grapple with the fiscal cliff, the combination of tax increases and spending cuts that are scheduled to kick in automatically at the end of 2012. Both parties have pledged to avoid going off the cliff, particularly wanting to forestall the first round of automatic spending cuts (also known as “sequestration”) forced by the failure of the parties to agree on a deficit reduction plan last year. The impact of the sequestration is huge; an October AIA study found that the cuts would reduce design and construction spending by more than $2 billion. In addition, the expiration of the 2001 and 2003 Bush tax cuts would mean taxes will rise on nearly all Americans.

But can the parties agree on a deficit reduction deal now when they failed in the past? On taxes, Congressional Republicans support extending all the Bush tax cuts, while President Obama has pledged to end them for higher-wage earners. On Election Day, House Speaker John Boehner (R) reiterated his party’s opposition to raising any taxes.

There is some hope that President Obama and Congressional Republicans can strike a “grand bargain” in November, which would delay some of the tax increases and spending cuts long enough for the parties to agree on a long-term deficit reduction plan. But with both sides digging in on whether to end the tax cuts for higher earners, it is not clear such an agreement can be forged.

Tax Reform

Once the short-term issue of the Bush tax cuts is resolved, Congress and the White House want to reform the U.S. tax code, which has not been overhauled since 1986. Although both candidates were vague about their plans for tax reform during the election, both sides have expressed some degree of support for reducing marginal tax rates in exchange for limiting or eliminating incentives, deductions and credits. Some of the incentives that may be on the chopping block include ones that the design and construction industry frequently use, such as green building tax deductions, the historic preservation tax credit, and the low income housing tax credit. Since the largest incentives, such as the home mortgage interest deduction and the charitable deduction, are extremely popular it is not clear that policymakers will be able to find enough incentives to eliminate to make up for the lost revenue from lowering rates.

Another question facing lawmakers is whether to reform just the corporate tax code, which President Obama proposed in his first term, or addressing both the corporate and individual rates. This has particular significance for the architecture profession because more than 80 percent of design firms are pass-through entities, which are taxed at the individual rate. A tax reform plan that only reduces corporate rates, but eliminates the incentives that firms rely on for business, could leave pass-through firms in a double bind.

Congressional Republicans have vowed to bring tax reform legislation before the House in the spring, so both sides will be ramping up their policy ideas and arguments. The AIA has been working with its allies in the design, construction and real estate industry to identify tax reform principles to bring to policymakers.

Federal Design and Construction Budgets

One outcome of the election is that the leadership of key federal agencies that build and operate facilities, like the GSA and the Defense Department, will not change drastically (although it is not clear if Acting GSA Administrator Dan Tangherlini will stay on in a second Obama term).

One consequence of the fiscal cliff debate, however, is that both parties will likely look to federal facility budgets as a place to find savings. Already the GSA’s budget for new construction has been decimated. In addition, a second Obama administration will be less likely to push for increased defense spending than a Romney administration would have, which could lead to reductions in DoD facility budgets.

Energy and the Environment

During the campaign, most of the discussion on energy revolved around which candidate would support more drilling for oil and natural gas. Renewable energy received little attention, energy efficiency even less.

Most observers expect that in a second Obama term, numerous rules and regulations to protect the environment will emerge from federal agencies, including ones that impact buildings and their energy use. Congressional Republicans are gearing up to block many of those, and may use the budget deficit negotiations as an opportunity to reduce funding for agencies like the Energy Department and EPA.

Advocates for action on climate change were disheartened that the issue was ignored during the campaign. Hurricane Sandy pushed the issue back to the front burner, and in his victory speech, President Obama stated “We want our children to live in an America that … isn’t threatened by the destructive power of a warming planet.” However, strong Republican opposition to the 2009 cap-and-trade proposal means that far reaching action on global warming is unlikely.

In its place there may be action on smaller, but still important, policy ideas to promote energy efficiency in the built environment. These efforts were hurt on Election day, though, when the chief Republican sponsor of energy efficiency legislation in the House, Rep. Charles Bass (R-NH), was defeated.

Transportation and Infrastructure

Infrastructure was another issue that was barely mentioned during the campaign, but which Hurricane Sandy abruptly reminded voters was a pressing concern.

In 2012 Congress passed a two-year transportation bill that maintains current funding levels for roads, bridges and rail, but reduces investments in projects like bike and pedestrians paths that make communities more livable. The bill will expire in 2014, right before the midterm Congressional elections, giving policymakers another chance to address it. Hoverer, without any agreement on how to pay for infrastructure upgrades, it is not clear the next two years will see any progress on this issue.

One program that is likely to continue now that President Obama has won a second term is his livability initiative between the Departments of Housing and Urban Development and Transportation and the EPA, which works to coordinate federal spending on projects to promote livable, sustainable community planning. However, the program is not likely to receive significant new funding.

Health Care

President Obama’s re-election and the Democrats’ continued majority in the Senate mean that the Affordable Care Act (a.k.a. “Obamacare”) will not be repealed. The key provisions of the Act, including the requirement that individuals carry insurance or pay a tax and that companies with more than 50 employees provide insurance, are slated to go into effect in 2014. However, it is possible that Congressional Republicans will seek to make changes in the law and may ask for changes as part of negotiations over the fiscal cliff. In addition, efforts to block implementation of the law at the state level may continue into 2013 and beyond. On Election Day, voters in Alabama, Montana and Wyoming passed ballot measures to block health care mandates, although it is not clear whether these will have any impact.

The AIA will soon launch a series of webinars to help architects and their firms understand the new law and how it impacts them.

Housing

The mortgage meltdown that led to the economic crisis has not gone away, but it is far from clear that policymakers have any new ideas to fix it. In his first term, President Obama’s administration tried several measures to help homeowners who were under water or facing foreclosure refinance their loans; few seemed to work.

Republicans, and to a lesser extent Democrats, have pushed for reform of Fannie Mae and Freddie Mac, but there is little progress on that. While some Republicans have advocated getting rid of the mortgage giants completely, others have argued that there needs to be a federal backstop to the private loan industry.

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