Local governments cope with uncertainties caused by federal spending cuts

During a news conference at the White House on Tuesday, President Barack Obama urged Congress to put forth a short-term plan to avoid automatic budget cuts that will hit next Friday. (The Washington Post)
February 19, 2013

Local governments in the Washington region are struggling to cope with huge economic uncertainties posed by the massive federal spending cuts known as sequestration, which could place nearly 450,000 public- and private-sector jobs at risk, according to one study.

The biggest challenge, officials said Tuesday, is attempting to make financial plans while the national debate over the unprecedented across-the-board cuts could head in either direction: a negotiated deal that averts the worst consequences or an impasse that allows the ax to fall.

Federal agency employment and contracting are the economic lifeblood in Northern Virginia, Maryland and the District. If the worst is realized and jobs disappear by the thousands, the flow of money through the local economy could be choked off, leading to more foreclosures, slower growth among businesses and less spending among households.

All of that would greatly affect local governments, where budgets are inextricably linked to the health of the economy.

“There’s this dark cloud looming,” said Fairfax County Executive Edward Long, who will present a first draft of his 2014 budget to the Board of Supervisors next week. In closing out the last fiscal year in September, supervisors set aside about $8 million as a buffer against federal reductions. But that may not be enough.

States and localities hit hard by cuts could have their bond ratings lowered, making it more expensive to borrow money for capital projects. Metro could lose millions of dollars in passenger fares if the federal workforce is reduced through furloughs or layoffs. Efforts to rebuild the crumbling system could be slowed by a loss of federal funding. In Virginia, cuts to Navy spending could mean $1.4 billion in losses, including cancellation of about $270 million in maintenance work on ships, according to a letter that Gov. Robert F. McDonnell (R) sent to President Obama on Monday.

“The hardest thing we had to deal with in putting together this budget was all of the unknowns,” Long said. “It starts a whole list of dominos.”

Economist Stephen Fuller, director of George Mason University’s Center for Regional Analysis, who derived the estimated regional job loss in a study, told Fairfax County Supervisors in October that Fairfax could lose more than 86,000 jobs — 13 percent of total employment — and face an 8 percent decrease in the gross county product, considerably more than what was lost during the downturn and recession.

“We’re already seeing the chill,” Fuller said at the time. “And it will get worse.”

Although Fairfax receives only 1 percent of its general-fund money from Washington, federal contracts with employers such as SAIC, Northrop Grumman and Booz Allen Hamilton totaled more than $26 billion in 2011, the most of any jurisdiction in the country.

It’s not only the big players feeling the pinch. Just the possibility of sequestration — cuts totaling $1.2 trillion over a decade that would go into effect March 1 — has created issues for smaller businesses as well.

In Rockville on Tuesday, three Maryland county executives who represent tens of thousands of federal workers across more than two dozen agencies — Rushern L. Baker III of Prince George’s, Isiah Leggett of Montgomery and Kenneth Ulman of Howard — appeared jointly to sound the alarm about the impending cuts. They called on Congress to reach agreement immediately.

“What we can’t survive is the uncertainty,” Baker said.

Within Montgomery’s borders, there are about 47,000 workers with federal jobs; in Prince George’s, about 70,000; and in Howard, about 50,000. They all commute around the region and spend their money in neighboring jurisdictions.

“This is about the moms and dads who will wake up in a couple of months and not have a job,” said Ulman, whose county is home to thousands of workers employed by defense contractors, NASA, the Johns Hopkins Applied Physics Laboratory and Fort Meade in nearby Anne Arundel County.

Noting the specialized intelligence work performed at Fort Meade, Ulman said, “What planet are we living on that it would make sense to reduce the workforce of people who are working to prevent cyber-hacking?”

Even the threat of sequestration has chilled local business. Frances Craig, who heads Unanet Technologies, a Dulles firm that makes commercial software and sells the bulk of it to government contractors, said finding new customers and selling new products to existing customers has become markedly harder. As a result, Unanet, which has about 50 employees, is looking to new markets that it considers more stable.

“They just don’t know what is happening, so of course they’re hesitant to spend money,” Craig said of federal contractors. “The uncertainty has been terrible. It’s ridiculous that there hasn’t been a resolution.”

In Virginia, McDonnell wrote Obama to warn that “these reductions will have a potentially devastating impact on the Commonwealth, with Northern Virginia and Hampton Roads at the greatest risk.”

Despite the sense of regional urgency, the president and congressional leaders remain on their own timetable. Obama took a long holiday weekend in Florida to play golf, and lawmakers are in the midst of a nine-day break.

Laura Vozzella, Jeremy Peters and Caitlin Gibson contributed to this report.

Bill Turque, who covers Montgomery County government and politics, has spent more than thirty years as a reporter and editor for The Washington Post, Newsweek, the Dallas Times Herald and The Kansas City Star.
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