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Where will federal budget cuts fall?

Congress faces March 1 deadline to stop ‘sequestration,’ across-the-board spending reductions

POSTED: February 24, 2013 12:30 a.m.

Many Americans are learning a new word, “sequestration,” while Congress abides by an old one, “gridlock.”

And meanwhile, automatic spending cuts set to kick in March 1 have many observers, including those in government and business, scratching their heads, not sure how to put in words just what their potential impact may be.

“We don’t have a military base on top of Gainesville or an agency like the (Centers for Disease Control and Prevention) ... in our community, and yet we have so many areas where federal spending shows up in our local economy,” said Tim Evans, the Greater Hall Chamber of Commerce’s vice president of economic development.

“Those dollars do circulate in Gainesville-Hall County’s economy, so there are lots of unknowns. We may be indirectly impacted in ways we can’t see just yet.”

Alan Essig, executive director of the Atlanta-based Georgia Budget and Policy Institute, said he believes each federal agency will plan differently to address funding cuts.

The full impact “may not take effect for two, three or four months,” he said. “In some cases, it will take effect immediately.”

Such uncertainty “makes it hard to project out exactly when and what the impact’s going to be,” Essig said. “I don’t think people are withholding information. I don’t think people know.”

In the coming week, don’t expect to turn on TV news without seeing something about sequestration, the start of some $85 billion in cuts that are part of an overall $1.2 trillion, 10-year trim-down of federal spending.

About half the total cuts will affect defense and the other half will hit nondefense areas, such as food inspection, education and small business loan guarantees.

President Barack Obama has called on House and Senate leaders to break a congressional stalemate over the issue. And he has  embarked on a public campaign to portray the cuts as damaging to national security and to other government services.

“Unless Congress acts by March 1, (the cuts) threaten thousands of jobs and the economic security of the middle class,” according to a Feb. 8 White House statement.

“There is no question that we need to cut the deficit, but the president believes it should be done in a balanced way that protects investments that the middle class relies on.”

U.S. Sen. Saxby Chambliss, R-Georgia, said in an email last week that he believes “America’s leaders have a duty to examine all options to bring our $16 trillion-and-growing debt under control.

“We must reform entitlements, simplify the tax code and cut both discretionary and mandatory spending. While there is widespread agreement that the government needs to cut spending, the cuts should be done in a logical and judicious manner.

“Americans need to understand that reductions in spending under sequestration will impact every single government program in an across-the-board manner.”

Sequestration was part of a 2011 plan to reduce the nation’s deficit and was initially slated to kick in Jan. 1, but it was delayed as part of a last-minute congressional agreement over tax credits and relief set to expire Dec. 31 in what had been dubbed as the “fiscal cliff.”

State and local governments have spent the past two months straining to understand the full impact of cuts and bracing for the worst.

“The governor’s budget office is going through the same drill as it did back in December, trying to (nail) down on how severe cuts would affect certain agencies,” said Brian Robinson, Gov. Nathan Deal’s spokesman.

“The state would look to backfill spending for critical need programs, such as those where lives are at stake. But the state would be unable to (do that for) the vast majority of the cuts. A sequestration would severely reduce some programs.”

Jeff Humphreys, director of the Selig Center for Economic Growth at the University Center of Georgia in Athens, said across the board cuts will hurt but won’t send the state into recession.

He estimates the gross domestic product growth in Georgia in 2013 to run about 2.1 percent, “if we get a more thoughtful package of budget cuts that go more to the heart of the problem.”

On the other hand, if across-the-board cuts go into effect, the GDP could be 1.6 percent.

Georgia has about 3.1 percent of the nation’s population and receives about 2.8 percent of federal spending, “so we’re not overly exposed to this,” Humphreys said.

“What does push us into recession is the debt ceiling, and that’s a bigger threat to the economy,” Humphreys said.

“If the debt ceiling (is not raised), you have much sharper cuts because the federal government will only be able to spend what it takes in, in terms of revenue.”

Humphreys believes that “rational thinking will prevail in the end” and that the full extent of automatic cuts won’t happen. As for the debt ceiling, “we’re going to raise it — it’s just a matter of when.”

 


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