'Sequester' scare tactics? White House details 'devastating' 50-state impact. (+video)

A White House report stresses the huge impact the sequester spending cuts would have on states. For some states, that might be true. But for others, the cuts might just be a blip.

By , Staff writer

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    Republican Gov. Bob McDonnell of Virginia (l.) and Democratic Gov. Martin O'Malley of Maryland speak on CBS's 'Face the Nation' in Washington Sunday. McDonnell joined with O'Malley to call for Congress to prevent impending defense cuts that would hit their states hard.
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A White House report released Sunday is designed to send a clear message: If automatic spending cuts take effect, your state will be affected.

The report on the "sequester" includes 50 state documents – plus one more for the District of Columbia – to show “the devastating impact the sequester will have on jobs and middle class families across the country if Congressional Republicans fail to compromise to avert the sequester by March 1st.”

But, rather than making the case that the cuts will be devastating, the 51 reports suggest the sequester’s impact would vary widely by state, depending largely on the degree of activity related to the US military. And in many states, defense plays a small role in the economy.

Recommended: Sequester 101: What happens if $85 billion in cuts hit on March 1

Consider one large Midwestern state, Ohio. The White House report for this state finds that 26,000 civilian employees of the Defense Department would be furloughed, with a new work schedule that reduces their gross pay by $161.4 million during the fiscal year that ends in September.

That sounds large. But, when coupled with $5 million in expected cuts to Army and Air Force operations in Ohio, that amounts to about $14 for each of Ohio’s 11.5 million residents, spread over half a year. Ohio would take an additional hit from a decline in defense contractor work, but that industry (not analyzed in the White House estimates) makes up only about 2 percent of the state’s economy.

By contrast, some states would see much larger defense-related impact from the sequester, either because they have lots of civilian defense workers (Virginia, Maryland) or lots of military operations (Hawaii, Alaska) or lots of defense contractors (Washington, Connecticut) relative to their overall population.

The sequester would also affect a host of non-defense federal activities across the 50 states. Those, also, would be somewhat unevenly dispersed among states. But only in Maryland, Virginia, and New Mexico does non-defense federal spending account for more than 5 percent of economic output, according to research by forecasters at the banking firm Wells Fargo.

What that means: For the vast majority of states, an expected 5 percent cut in non-defense federal spending would represent only a minor setback, equal to about one tenth of 1 percent or less of the state's economic activity.

"The process of budget sequestration will harm certain states disproportionally," the economists at Wells Fargo concluded in their analysis, released last week. "In general, the greater Washington, D.C., area and southern states will be the hardest hit, while states in the Midwest and along the West Coast will likely be impacted to a lesser extent."

The spending cuts would have significant effects on people and employers who are directly affected. If the sequester kicks in, that would include everyone from defense contractors to university scientists and the poor.

The White House report estimated that, across the whole nation, 100,000 formerly homeless people would lose access to shelter, 373,000 people diagnosed with mental health problems would lose services, and 4 million fewer meals on wheels would be served during the current fiscal year. The sequester would also slow the pace of activities such as air-traffic control, food-safety inspections, oil-drilling permits, and getting national parks ready for summer visitors.

Under the spending cuts, which stem from the 2011 Budget Control Act, half the impact falls on the defense side of the federal budget.

As broad and indiscriminate as the cuts are (and many budget analysts would add "senseless" to describe the process), the White House report jibes with private-sector forecasters, who generally say the automatic spending cuts would modestly slow the economy, but not send it plunging into recession.

No doubt the blow could be large in Virginia and Maryland. In those states, federal defense and non-defense spending together total about 20 percent of economic activity, according to the Wells Fargo research.

Meanwhile, in four states defense contracting accounts for more than 5 percent of state output: Kansas, Washington, Arizona, and Connecticut. That’s according to private-sector research by Deloitte.

And on a human level, “devastating” might be the right word for the spending cuts if you’re a low-income worker who loses child-care subsidies (the White House estimates that would affect 30,000 children), or a person turned away from a homeless shelter.

For the overall economy, the cuts wouldn’t be an enormous blow. But if the sequester happens, it would symbolize a dysfunctional Washington, where two sides couldn’t get together on a more sensible plan.

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