By Darren Goode and Darren Samuelsohn
Popular energy and environmental programs should prepare for a decade of spending cuts under the debt deal reached late Sunday between the White House and congressional leaders.
Less clear, however, is the effect that the landmark agreement will have on popular tax incentives for the oil, gas, renewable and other energy industries.
Constituencies fighting in the trenches for every dollar insist that their programs are small relative to other big-ticket items in the annual appropriations process. But there's still plenty of concern that everything from wastewater grants to air pollution monitoring and biofuels research and development will face the scalpel as lawmakers start cutting about $2.7 trillion in spending over the next decade.
"The numbers are just too vague, but obviously we don't feel we're in a good place," said Scott Slesinger, legislative director at the Natural Resources Defense Council.
“These guys are looking at 20 percent real cuts in the next two or three or four years,” said GOP strategist Mike McKenna said. “That’s a big, big hit for an agency to take.”
Under the agreement set for House and Senate votes as early as Monday, Congress will make the dramatic discretionary spending cuts in exchange for raising the debt ceiling by $2.4 trillion.
Those spending cuts will come in waves.
For starters, there's $917 billion in discretionary reductions over 10 years. Also, a new joint congressional committee will be charged with coming up with $1.5 trillion in additional deficit reduction starting in fiscal year 2013.
Budget experts said they expect the spending cuts to really start kicking in after Congress finishes up its fiscal 2012 spending bills.
"The next appropriations cycle is when they would start to feel the pain," said James Walsh, a former New York Republican congressman and chairman of the House Appropriations subcommittee that handled the EPA's budget.
Walsh predicted spending cuts for Energy Department programs dealing with fuel cells, biofuels, synthetic fuels, wind and nuclear power, as well as Army Corps of Engineers's dredging, sea wall barriers and flood mitigation. The EPA's regulatory arm probably will "take a whack” while across-the-board cuts in agency salaries would "shrink the overall footprint of the department,” he added.
Another clear target will be EPA grants that go out to wastewater, drinking water and pollution monitoring programs. "With infrastructure, we're already in a big hole," Walsh said. "But this isn't going to help."
Groups already on the defensive against EPA budget cuts said the debt deal doesn’t bode well for their future.
"Considering what they're doing to the environment and water-related issues now, even before this deal was struck, it can't be good," said Ken Kirk, executive director of the National Association of Clean Water Agencies.
Kirk's group keeps close tabs on the EPA's Clean Water State Revolving Loan Fund, a program that he expects will have a giant bull’s eye on it considering it currently hovers around $800 million a year.
"It's there and available to cut," he said.
Bill Becker, executive director of the National Association of Clean Air Agencies, said state air pollution officials will be bracing for spending cuts despite already operating at their lowest level in more than a decade.
"Almost without exception, agencies across the country are laying off staff in their air programs," he said. "To the extent these additional cuts carve further into the air program, we can predict with certainty that we will be unable to perform many of these important tasks and public health and welfare will be adversely affected."
John Scofield, a former House GOP Appropriations Committee aide, said he wouldn’t start writing specific spending cuts in stone. Much will rely on the priorities of top Senate and House leaders, including the chairmen of the Interior-Environment and Energy-Water appropriations subcommittees.
"I'd assume Sen. [Jack] Reed and Chairman [Mike] Simpson, they're going to have different proposals," he said. "The allocation of resources is still up to the relevant chairman and full committee chairman."
But Scofield said he also expected grant programs would take large hits because lawmakers tend to not expect them to result in direct layoffs: “They have constituencies and they're popular, but it's a place you're going to have to go if you're looking to make some tough cuts.”
The deal also opens the door to cutting spending on mandatory programs, including agriculture items under the farm bill and parts of the transportation budget. "You can't really make a dent in the deficit without putting that on the table," Scofield said.
In exchange for the spending cuts, the White House is touting the bipartisan, bicameral committee for its wide-ranging scope in "putting all the priorities of both parties on the table — including both entitlement reform and revenue-raising tax reform.”
The committee is required to report legislation by Nov. 23 and receive an up or down vote in both the House and Senate one month later.
Hill aides insist that the panel hasn't made any decisions.
“Nothing was pre-litigated,” a senior Senate GOP aide said.
But a summary from House Speaker John Boehner to fellow House Republicans emphasizes that the deal won't increase taxes.
The deal “requires baseline to be current law, effectively making it impossible for Joint Committee to increase taxes," according to a section in the GOP leader's document that trumpets “No Tax Hikes.”
Everything from the membership of the panel, the state of the economy and perhaps gas prices may affect whether tax incentives for oil and gas, renewable energy and other areas may be reduced or repealed. The committee would need seven votes to advance a recommendation, meaning one Republican would have to agree to raise taxes.
“There’s so many different variables that have to play themselves out,” the Senate GOP aide said. “I don’t think anybody has a reason to be confident or concerned at this stage.”
But GOP strategist McKenna suggests otherwise.
“They’ve set up a structure in which the Republicans are going to have maximum incentive to blow up loopholes and credits because the other choice is to cut defense,” he said. “So this is where all the mayhem on energy tax credits is going to get done.”
This, he said, could include wind, solar and other renewable energy production and investment tax incentives, as well as oil and gas tax incentives that include the section 199 domestic manufacturing tax credit and a “dual capacity” foreign tax credit.
Senate Democrats in May introduced a bill to repeal $21 billion in oil and gas industry incentives over 10 years, largely hitting on the section 199 and dual capacity incentives.
The oil and gas industry for now appears to be keeping its powder dry.
“I think that we will wait and see what the parameters are” for the bipartisan committee, said Stephen Comstock, manager of tax policy at the American Petroleum Institute. “I guess anything that the commission develops would have to be acceptable to House Republicans and clearly they’re more focused on spending than revenue.”
Comstock acknowledges that the choice for Republicans may end up being tougher cuts on Defense spending with two wars still occurring and looking into some industry-specific tax incentives. “We would just have to see,” he said. At least for now, “we appreciate that the debate seems to be away from targeted tax revenue raisers.”
The ethanol industry is gearing up to not only seeing its tax credit for blending the corn-based additive in gasoline expire on schedule at the end of the year but also the lack of any continuing federal help for blender pumps and other types of infrastructure.
“We’ll try for the infrastructure portion but obviously that’s an incredibly hard sell,” one corn ethanol industry official said.
The industry has said it no longer needs the blender credit but “if we do not have the infrastructure, we’ve got no room to grow,” the official said.