Daily Updates

February 27, 2013

State braces for federal cuts, but effect unknown

ATLANTA — Amid heated national rhetoric over widespread federal budget cuts that could begin Friday, Georgia political and business leaders say they’re bracing for the so-called sequester but don’t know exactly what the consequences would be.

Federal authorities have not finalized how they would apply the mandatory $85 billion reduction for the rest of the budget year. But Georgia’s share would be widespread. Big-ticket federal programs like Medicaid and Social Security are largely exempt, but that leaves everything from civilian and military employees at multiple defense outposts to education grants like Head Start and Medicare payments to hospitals and physicians.

Echoing many Republican governors around the country, Georgia’s Nathan Deal has taken a relatively muted approach, saying he and his agencies are assessing the situation and watching the gamesmanship as President Barack Obama pressures Republicans for a deal that would avert or modify cuts established by a temporary agreement in the last round of “fiscal cliff” negotiations.

There are two avenues of primary consequences: Federal offices and programs operating in Georgia, such as military bases and the Centers for Disease Control and Prevention; and federal appropriations that support programs run by state and local governments.

Indirect consequences flow from there. State and local government might initially have to choose whether to curtail services now paid for with federal money or find locally generated revenue to cover the losses. Federal employees who are furloughed and contractors who are let go lose income and, thus, buying power. That affects both private business that lose sales and government coffers that lose income and sales tax revenue.

In addition, personnel reductions — through furloughs or layoffs — at an agency like the Transportation Security Administration would lengthen airport check-in waits and eventually discourage business and personal travel.

According to a White House outline of state-by-state cuts for the remainder of the fiscal year, some of Georgia’s high-profile losses would include $233 million in Army base operations; $190 million in lost pay to furloughed Department of Defense employees; $28.6 million in primary and secondary education support, including Head Start and Title I grants; $3.5 million for environmental management; $1.3 million for feeding older residents; and more than $1.2 million in public health programs, including $286,000 for vaccinations. Cuts would also be applied to the Women, Infants and Children program, usually referred to as WIC, and extended unemployment benefits.

Besides Social Security and Medicaid, other exempt programs include Pell Grants, federal highway construction and school nutrition aid.

Georgia House budget Chairman Terry England says most state lawmakers believe Friday will arrive without a deal, but that the reality of cuts will force an agreement not long after. The Obama administration intended the prospect of cuts as leverage for a compromise that includes spending cuts and tax hikes. Republicans say the tax hikes they allowed in the January fiscal cliff deal are all the revenues that Obama will get.

In the meantime, England, a Republican, said, “We’re looking at a lot of different scenarios in Georgia.”

Some of the complication comes because of varying ways that federal money flows out of Washington. First, while departments can’t spend what Congress hasn’t appropriated, Cabinet secretaries and agency heads have considerable latitude in managing their budgets, meaning they might shield some priorities from the cuts.

Another factor is how state-run programs get their federal money. Some get it in large chunks, while others get smaller infusions at regular intervals.

Matt Cardoza of the Georgia Department of Education said the state already has Title I and special education grant money for fiscal 2013 in hand. So any losses, he said, wouldn’t be realized until the start of the next fiscal year in July.  When Congress and the president first raised the possibility of a sequester last year, Cardoza said, the state urged local school systems to plan for a 9 percent cut in federal financing for the remainder of fiscal 2013. The cuts are likely to be about 5 percent, he said, though he added that the losses still would affect services.

Alan Essig, executive director of the Georgia Budget and Policy Institute, said effects would not be immediate. “Needless to say, the world is not going to come to an end,” he said. “But if it’s not rescinded, there will be significant negative impacts.” He cited both safety net programs for the poor and routine market-support agencies like TSA, saying, “It will reach individuals and the broader economy.”

With the budget details still outstanding, some observers say the biggest long-term impact will be economic uncertainty that goes beyond public budgets to curtail business investment and individual consumer spending as politicians lurch from one fiscal stalemate to the next.

“The heightened rhetoric and the increased pressure, it makes people a little more worried about their finances,” said John Fleming of the Georgia Retail Association. “Before sequestration even starts, you’ll see a dip in consumer spending.”

Essig noted that sequestration is just the first in a series of bouts between Obama and Republicans. In the next few months, Congress will debate resolutions to keep financing government operations and, again, must vote on whether to raise the U.S. debt limit.

“This is just the first of three crises they have made,” he said. “If there’s fear of economic downturn, people are just more conservative in their spending.”

 

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