Road Construction, Wind Turbines Among Winners in Obama Plan

(Bloomberg) — Makers of wind turbines such as Siemens AG

and warships including Austal Ltd. would be among the winners in

President Barack Obama’s budget plan, which would boost defense

spending and extend tax credits for renewable energy.

Oil companies including Exxon Mobil Corp. would take a hit

from increased public-land lease costs, and drugmakers such as

Gilead Sciences Inc. would probably receive lower revenue from

Medicare.

The $4 trillion budget Obama sent to Congress Monday

outlines his goals for agency spending and tax policy for the

fiscal year that begins Oct. 1. Republicans, who control the

U.S. House and Senate, will work on their own blueprint and are

already rejecting major elements of the president’s plan.

The winners, if Obama’s approach prevailed:

Construction machinery makers — including Caterpillar

Inc., Deere & Co. and Terex Corp. — would benefit from highway

funding in Obama’s six-year, $478 billion infrastructure

program, said Bloomberg Intelligence senior analyst Karen Ubelhart and analyst Brian Friel.

The program would be funded in part by a 14 percent one-time tax on about $2 trillion in U.S. companies’ profits that

are stockpiled overseas. Lawmakers in Congress have instead

proposed a one-time tax incentive to pay for infrastructure

spending.

‘Significant Repair’

About 65 percent of the country’s major roads are rated in

less than good condition, said a report in July by the White

House Council of Economic Advisers and National Economic

Council. About 25 percent of bridges require “significant

repair.”

New York, New Jersey and Connecticut are among the states

with the most roads rated in poor condition, the report said.

Wind turbine manufacturers including General Electric Co.,

Gamesa Corp. Tecnologica SA, Nordex SE, and Vestas Wind Systems

A/S would benefit from the extension of production tax credits

for the industry, according to a Bloomberg Intelligence note.

“All of these renewable energy credits have been on-again,

off-again,” Rob Barnett, an analyst with Bloomberg Intelligence

in Washington. “Absent comprehensive tax reform, there is an

argument that since the oil and gas industry have these

benefits, why can’t renewable energy companies enjoy them?”

Defense Spending

Military contractors would gain from Obama’s push to

bolster defense funding. The Defense Department seeks $534.3

billion for fiscal 2016, exceeding existing budget caps by $36

billion.

Lockheed Martin Corp., based in Bethesda, Maryland, is the

No. 1 military contractor and top vendor across federal

agencies, according to a Bloomberg Government ranking last year.

The Air Force plans to spend $13.8 billion from fiscal 2016

through 2020 to develop a new long-range strike bomber. Falls

Church, Virginia-based Northrop Grumman Corp. is competing

against a team of Lockheed and Chicago-based Boeing Co. for the

program. The Air Force plans to select a winner this year.

For the Navy, the five-year defense budget calls for

building 48 vessels, including 14 Littoral Combat Ships built in

different versions by Lockheed and Henderson, Australia-based

Austal.

Adding defense funds after five years of decline would

require a compromise between Obama, who wants to raise spending

caps on domestic programs, and Republicans who oppose more

domestic funding.

Information Technology

Information technology companies that perform work for the

federal government, such as NCI Inc., Booz Allen Hamilton

Holding Corp. and CACI International Inc., would be poised for

slight gains under Obama’s plans, according to a review by

Friel, the analyst.

Federal agency spending on information technology services

would increase by about 3 percent to $86 billion in fiscal 2016

from an estimated $84 billion this year.

The administration seeks to let federal agencies use a

streamlined process for purchases of as much as $500,000 in

goods and services. Currently, federal agencies can buy certain

items valued as high as $150,000 without following the same

paperwork requirements as for larger purchases.

Telecommunications and information technology companies,

such as Verizon Communications Inc. or Insight Enterprises Inc.,

would be among the main beneficiaries from the change, Friel

said.

The losers, under Obama’s proposal:

Obama’s plan would boost royalty rates on oil and gas

leases on public lands, raising $2.5 billion over the next 10

years, according to the budget.

It’s unlikely to happen with Republicans controlling both

chambers of Congress, Barnett said. Regarding the oil and gas

companies, Barnett said, “I think they’re very safe.”

Oil and gas companies also would lose some tax preferences,

including the expensing of intangible drilling costs.

Drugmakers, including Foster City, California-based Gilead

Sciences and North Chicago, Illinois-based AbbVie Inc., would

suffer under a revision in the way Medicare prescription drug

prices are determined.

The Department of Health and Human Services would be

allowed to negotiate drug prices directly with manufacturers of

certain high-cost drugs. Currently, insurance plans negotiate

with drug manufacturers and the government can’t intervene.

Gilead Sciences and AbbVie produce hepatitis C treatments,

which can cost $1,000 a day and do away with less effective

drugs for the liver infection.

Pharmaceutical Industry

Because letting the government negotiate with drug

manufacturers would lower the cost of the drugs, “the

pharmaceutical industry would suffer,” said Brian Rye, a

Bloomberg Intelligence analyst.

Many college sports fans would lose a tax deduction for

money they donate to get seats at college sporting events.

Currently they can deduct 80 percent of such donations.

Eliminating that tax break would raise about $2.5 billion over

the next decade.

Obama’s budget also would repeal tax-exempt bond financing

for professional sports facilities. The proposal would raise

$542 million over 10 years.

To contact the reporters on this story:

Kathleen Miller in Washington at

kmiller01@bloomberg.net;

Heidi Przybyla in Washington at

hprzybyla@bloomberg.net

To contact the editors responsible for this story:

Jodi Schneider at

jschneider50@bloomberg.net

Laurie Asseo

About BloombergNEF

BloombergNEF (BNEF), Bloomberg’s primary research service, covers clean energy, advanced transport, digital industry, innovative materials and commodities. We help corporate strategy, finance and policy professionals navigate change and generate opportunities.

Available online, on mobile and on the Terminal, BNEF is powered by Bloomberg’s global network of 19,000 employees in 176 locations, reporting 5,000 news stories a day.
 
Sign up for our free weekly newsletter →

Want to learn how we help our clients put it all together? Contact us