The two-year budget deal that cleared the Senate Wednesday may roll back sequestration’s cuts but not before they sliced $2.2 billion and more than 14,000 jobs from the Massachusetts economy, a new report finds.
Though the negative effects of the spending reductions have been much discussed, the 43-page analysis explores the impact of the blunt cuts in a level of detail unavailable for most states. Massachusetts’s total economic output was about 0.3 percent lower under sequestration in the 2013 fiscal year, according to the report, which was prepared for the state by the University of Massachusetts Donahue Institute’s Economic and Public Policy Research group.
Despite the new two-year budget agreement, sequestration will continue to take a toll, the report’s authors find. Taking the deal into account, they estimate that federal funds will still shrink by $1.2 billion in the 2014 fiscal year, compared to $1.3 billion in the year prior. The state is estimated to lose or fail to create 12,607 jobs in the 2014 fiscal year as well.
Massachusetts may be in an unusual position, though, as its economy is more connected than many others to the federal government.
“Although sequestration impacts all states in the US, the industrial mix of Massachusetts suggests that the cuts could result in particularly large effects related to defense contractors, health care, and life sciences research & development among other industries,” the authors note.
Massachusetts received $11.3 billion in 2012 in Defense Department contracts. That amounts to roughly 50 percent more than the national average, per resident, and ranks it 10th among states. The state’s $2.5 billion in National Institutes of Health grants was second in size only to California’s. The size of the NIH grants were five times the national average.
Federal spending acts as “a kind of ‘seed corn’ for the innovation economy,” the authors write. Estimates may vary, but research supports that idea. Investment in research can yield big economic gains from spillover effects, studies have found.
“Federal spending in support of basic research over the years has, on average, had a significantly positive return, according to the best available research,” the nonpartisan Congressional Budget Office reported in a 2007 report.
As with any estimate, the report’s calculations of sequestration’s impact falls within a likely range. The decline in federal funds during the 2013 fiscal year could be as low as $1 billion or as high as $1.6 billion, the authors found. The jobs that were lost — or that failed to be added — range from 11,085 to 17,365.