Does Obama Mean Business?

A second term for the President will bring some certainty to a business community longing for more of it. What's unknown is whether that will be enough to jump-start a real recovery.

 

 

The better part of a century ago, the caustic pen of H.L. Mencken famously declared that democracy is the theory that the common people know what they want—and deserve to get it, good and hard. We’ll find out over the next four years whether the pH factor on his acid wit was calibrated for the 21st century, as well.

Barack Obama has secured his second term as president. The Democrats have a slightly firmer grip—though not a filibuster-proof hold—on the U.S. Senate. Republicans have a somewhat diminished but still firm hold on the House. Throughout much of Obama’s first term, the small and mid-size business community has criticized Washington for the air of uncertainty stemming from policy decisions. Do any of those control dynamics suggest a recipe for change that will benefit business?

Most of the criticism leveled against Obama was grounded in developments from the first half of his first term. That’s when, with absolute majorities in each chamber of Congress, he was able to secure the Dodd-Frank banking reforms as well as his signature achievement, the health-care reform act. For a business community seeking certainty, this much is certain: Neither of those is going away.

The next battle over policy is already shaping up as each chamber in Congress stakes out positions for resolving the dreaded fiscal cliff, now just weeks away. Expiration of the Bush income tax cuts, tax increases under the health-care reforms, higher capital gains taxes, automatic cuts scheduled after the debt-ceiling negotiations—combined, they could create enough economic drag to overwhelm already-weak GDP growth of recent years and cast the nation back into recession.

One other near-certainty: If your household income tops $250,000 a year, you’re going to feel it at tax time.

As for impact on various types of businesses, Ingram’s invited executives from differing perspectives to share their thoughts on the way a second Obama administration might affect their sectors. Here’s what they had to say.

Health Care and Insurance

Obamacare stands. “We have direction; there’s no question in anybody’s mind—it’s clear where the Accountable Care Act is headed,” said David Gentile, CEO of Blue Cross Blue Shield Kansas City. Politically agnostic as an organization, Blue KC was well along the way to implementing changes to fit the new law. “But for implementing the law, hold onto your seats,” Gentile said. “There is a lot coming at us in a short window. There is an onslaught of regulation that is more than any industry can reasonably absorb, but we’ll do our best.”

One pressing concern is the looming October 2013 enrollment period, bearing down even while regulators are still writing the documents from a massive bill passed two years ago. “We don’t even know what the change is going to look like,” Gentile said. “With all the regulations coming at us, we’re running a marathon to get regulations in place before that enrollment period, and a significant education process has to occur in the marketplace. Ten months is a tall task.”

The Great Lost Opportunity of the 2012 election was that neither candidate addressed health-care costs as part of the campaign. Mitt Romney didn’t want to be tarred with his history of state-directed insurance while governor of Massachusetts; Obama didn’t want the issue raised after the Supreme Court allowed Obamacare to stand as a tax, rather than a mandate. Given that, there was no forum for raising what Gentile sees as a critical missing piece of health-care policy: personal responsibility.

They “didn’t zero in on how consumers have to play more significant role in their own well-being,” Gentile said. “That’s the thing that employers are starting to focus in on.” Health-care costs, he said, must be checked with a two-prong approach of providers focusing on outcomes and individuals taking responsibility to improve and maintain their health.

For any business owner who deferred action hoping for a Romney victory and repeal of Obamacare, Gentile advises that it’s time to get on the stick. “They need to be working toward the end of this quarter and into 2013 to assess what their needs and expectations are, working with their brokers to get a full orientation on the best approach, consider how an internal, private exchange process like we offer can help them stay in the game and create a benefit design that’s a significant contribution to their employees.”

Construction

When it comes to presidential politics, about the best you can say for the construction industry’s pain over the past half-decade is that it’s been bipartisan: It started under George Bush, and the slide continued during much of Barack Obama’s first term. General contractors, home builders, subcontractors, materials suppliers—all have engaged in severe belt-tightening.

Does the fact that we have a winner break quell the building blues? “We’ve had a tendency, not just within our industry, but a lot of others, where a lot of people wait to see what shakes out, continuing to sit on the sidelines,” said Randy Bredar, senior vice president of development at J.E. Dunn Construction. Did Nov. 6 change that? “It’s hard to tell,” he said. “From a psychological standpoint, we now know the path we’re going down.”

Some builders, however, won’t be on that path for long. “Our sureties are telling us they believe there will be some continued washout, thinning of the ranks of both contractor and subs; that’s their belief,” Bredar said. “I do think there will be some of that. A lot of us have done what needed to be done to get through the economy of the past few years, but how long can you continue to make that sacrifice, and is it a short-term bridge to get across or long-term? Clearly, it’s long-term.”

In J.E. Dunn’s case, financial stability has been the key to pushing through the downturn, he said. That, plus the diversity of clients served—some niche contractors have done well; some have failed. The final piece was the ability to do more with less, both in terms of leaner operating principles and an embrace of technology.

For business owners contemplating capital improvements, the coming year still promises some of the best deals they might ever realize from a contractor: “I don’t see that changing,” said Bredar. “The competition [for work] has been fierce and it’s going to continue to be. Not just regionally, but nationally.”

Real Estate

Obama’s victory could have an impact on commercial real estate for those who were considering holding onto property only if Romney had prevailed, but the impact is likely to be limited, said Pat McGannon, managing principal for Kessinger-Hunter & Co., headquartered in Kansas City.

“An Obama win could accelerate people willing to sell by the end of 2013 because of the fear of the increase in taxes,” he said. “We could see a quick run, but there’s not a whole lot of time” before year-end. In any case, he said, the party affiliations of presidents aren’t likely to impact the market locally.

“Kansas City is made up of small business tenants, primarily,” he said. “If they could get a clear idea of what the rules will be going forward, I think everybody can adjust. But people seem to be very nervous—they don’t understand Obamacare or the potential changes in tax laws, so they take short-term decision-making. If everybody could understand the long-term rules, I think you could see a return to long-term decisions, which should make the market that much better” for commercial realty.

Difficult as it has been, it’s a different level than it was in 2009, just a year after the real-estate market triggered the financial meltdown that helped Obama in 2008. “There’s a decent amount of activity out there; some industries are really doing well,” he said, citing oil and gas, engineering firms like Black & Veatch or Burns & McDonnell, and companies in the food sector. “But if you’re really tied to home-building, that is still not very good at all.”

Higher Education

The headlines early Nov. 7 surely came as a relief to administrators of area universities, many of whom were holding their breath at the prospect of a Romney victory. The GOP candidate had argued that the primary source of federal grants for higher education—the Pell Grant—had grown faster than federal resources could accommodate, and called for reductions.

Nick Prewett, director of student financial aid for the University of Missouri believes the status quo will hold, for now. “I think we see the continuation of federal student aid policy, devoting substantial efforts and resources to protect the Pell Grant program,” he said. “The issue over the next four years is how to fund those and what additional steps take place to maintain that funding.”

When you talk about federal aid, he said, the federal government provides an element through self-help aid—student loans and loan guarantees. Pell Grants fill the need-based portion. “They are the marquee program in the federal aid package,” Prewett said. “For this upcoming year, the 2013–14 aid year, there had been a projected shortfall of $1.6 billion in it, but they found ways to close that gap by putting some maximum amounts of time—six years’ worth of Pell Grant funding before cutoff.”

That, he said, plus elimination of funding for graduate students kept Pell funding on track. “For the next year, though, there is a $5 billion shortfall for appropriations that Congress has laid out for Pell Grants. That could have dramatic impact on ability of funding for the program.

Highway Funding

With the federal transportation bill MAP-21 already approved by Congress earlier this year, the election is likely to have little impact on highway spending in the immediate future, transportation officials in each state say. That’s not to suggest that neither Missouri nor Kansas is in the clear on highway funding.

Missouri’s overall highway funding has been reduced from $1.2 billion just a few years ago to $700 million this coming year, said Daniel Niec of the Missouri Department of Transportation. That reduction of nearly 50 percent has compelled administrators to perform an additional level of triage on their project list, but the one certainty to emerge from it is that motorists’ expectations from years past will have to be adjusted to a new service paradigm.

Jerry Younger, deputy secretary for the Kansas Department of Transportation, said the flip side of lower energy costs being realized through additional exploration and recovery would come with a price.

One of the fastest-growing transportation concerns in Kansas, he said, involved the increased use of hydraulic fracturing, or fracking. “Certainly, the Kansas economy has benefited from this growth, but it has placed a higher number of heavy loads on the state highways and local road systems, forcing KDOT and locals to expend funds for repairs and rehabilitation that haven’t been planned for,” he said.

The state is in the third year of a 10-year, $7.8 billion transportation program, so any funds needed to address the added wear will have to be assessed within the context of that program’s commitments. Younger said that, should the planned revenue mechanisms remain in place, the 10-year plan was on track to deliver as promise.

Business Law: The Supreme Court

Perhaps the greatest long-term consequence of this election will be felt in an area where almost no attention was paid by the candidates during the campaign: The Supreme Court. The high court’s importance to the business community might never have been more visible than it was in June, when Chief Justice John Roberts reversed his original position on Obama’s health-care reforms. That 5–4 vote upheld them on the basis that Congress indeed had the authority to impose them—as a tax.

Three members of the court—Reagan appointees Antonin Scalia and Anthony Kennedy, and Clinton appointees Ruth Bader-Ginsberg—will turn 80 before the end of Obama’s second term. That’s one solid conservative, one unwavering liberal and one consistent swing voter. A fourth justice, Clinton appointee Stephen Breyer, will turn 78 in 2016. Obama, who already has accounted for two seats with the appointments of Sonia Sotomayor and Elena Kagan, could leave office having named six of the court’s nine members—something no president has done since Franklin Roosevelt, who needed four terms to put eight on the court.

Nancy Kenner of the Kenner Schmitt Nygaard law firm, incoming president of the Kansas City Metropolitan Bar Association, called the depth of the potential court changes amazing. “A huge amount of really significant things are at stake,” she said, but even in the run-up to the vote, she felt that “the American public just doesn’t seem to be interested in that issue.”

With a potential for four seats in play, and perhaps more, she said, we could be looking at “a radical, radical difference in so many things. And with the ability to put new, younger faces on the court, that could have a very profound effect for a long, long time.”

 

 

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