Looming federal budget cuts the nation faces in January could strike a body blow to Maryland's economy, taking $2.5 billion in personal income out of residents' pockets and crimping social programs in health and human services, education, and workforce development, according to a recent state report and interviews with regional economists.
In a memo to Gov.
"Those defense agency people, when they cut back their spending, the first thing they cut back is going out to dinner," said Daraius Irani, director of the Regional Economic Studies Institute at
While much of the attention has been focused on the impact of spending cuts on defense contractors, myriad social services for the poor, for education and for workforce development also would be affected.
Most federal agencies would face an automatic budget reduction of 10 percent.
A broad range of agencies and groups — from
While some lawmakers are trying to rescind the cuts, other observers call the sequestration a wake-up call for Maryland, with its heavy reliance on federal spending.
Maryland is expected to receive $9.3 billion in federal funding in the next fiscal year, making the $150 million worth of cuts only about 2 percent of the total.
But the cuts would have an impact on the poor and sick, young children, and the under-employed or unemployed.
For instance, $7 million from the state's
Nadine Owens Burton, acting executive director of the Maryland Head Start Association, said in
"The impact of sequestration would be powerful," Burton said in an email. "Their funded enrollment would be significantly reduced and thus even [fewer] children would be served."
Other cuts would include:
•$4.3 million from the low-income home energy assistance program.
•$2.5 million from
•$15.4 million in education grants to local schools, with 212 jobs lost and 13,000 fewer students served.
•$3.2 million to Job Corps, with 102 fewer at-risk youth served.
The region — spanning from Maryland through Washington to Virginia — is particularly reliant on the federal government. It accounts for 21 percent of federal spending on civilian payrolls and procurement, but has 9 percent of the U.S. population, said Stephen Fuller, director of George Mason University's Center for Regional Analysis in Alexandria, Va.
Fuller called the threat of sequestration a "reality check" for the Maryland economy, which has grown to depend on federal spending over the last decade and needs to diversify.
"Maryland is in a good position to reposition its economy for the future," said Fuller, who issued a report in July documenting the potential impact of the cuts on the U.S. economy. "The handwriting is on the wall; it needs to do this."
In Fuller's report, he found that the sequester would reduce the nation's gross domestic product by $215 billion, decrease personal earnings of the workforce by $109.4 billion and cost the U.S. economy 2.14 million jobs. Maryland would be the fifth-hardest-hit state, losing as many as 114,000 defense and civilian jobs, according to Fuller's analysis.
The back story on the sequester can be found on Capitol Hill.
The sequestration measure was included in last year's Budget Control Act to compel the president and Congress to act to resolve the budget crisis by the end of this year. Congress approved the sequester last year to pressure the so-called supercommittee created by the act to reach a budget deal.
But the panel never came close to an agreement, and now
The deal called for $1.2 trillion in cuts that would apply to mandatory and discretionary spending from next year through 2021, with exceptions or limited reductions for Social Security, Medicaid, federal and military employee pay, and veterans and Medicare benefits.
But with a presidential election in early November, many worry that Congress and President
Towson's Irani said uncertainty and brinksmanship are slowing down the U.S. economy. Already, he said, defense contractors have slowed or stopped hiring in Maryland because they are unsure of what might happen on Jan. 2, when the cuts are supposed to take effect.
Richard Clinch, director of economic research for the Jacob France Institute at the
"This thing that has protected the Maryland economy for 20 years now is coming back to bite us," Clinch said. "This whole idea of federal downsizing, which is inevitable, will have a much bigger impact on Maryland in the future."
Effect on Md.
The potential impact on Maryland if automatic federal budget cuts go into effect in January:
•$2.5 billion losses in wages and salaries from defense, civilian and contractor workforce
•12,600 lost jobs and potentially more than 100,000 in coming years
•$200 million annual revenue losses for state government from lower tax receipts
•$150 million reduction in federal funding to state and local governments.
Source: Maryland Department of Budget and Management