Local governments cope with uncertainties caused by federal spending cuts

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.

Gallery

The sequester and the debt ceiling, explained: President Obama and lawmakers are facing several important fiscal deadlines. One is to avoid the $1.2 trillion in spending cuts included in sequestration and another is raising the country’s debt ceiling. Here is a look at some of the issues involved in these two fiscal challenges.

Sequester is just over a week away, but blame game has already begun

Zachary A. Goldfarb

President Obama and congressional Republicans position themselves as automatic spending cuts approach.

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.