Road Construction, Wind Turbines Among Winners in Obama Plan

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.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE