But in state capitals, where legislatures are bound by requirements to balance budgets, the committee’s failure cocked a trigger on $1.2 trillion in cuts that must, by law, be built into spending plans that governors will begin releasing within weeks.
Lawmakers in Annapolis and in Richmond began meeting in recent days to grapple with the potential effects: State budgets that are required to be approved next spring, and that will take effect in July, will overlap with the federal budget that is scheduled to contain the deep cuts. In Virginia, which budgets over a two-year cycle, the full effect of future cuts could be spread out and felt next summer.
What’s more, lawmakers in Maryland and Virginia say they fear preemptive action to slow or cancel contracts or reduce staff by the Department of Defense, which must account for more than half of the prospective cuts, will add an untold drag on the two states’ economies, holding back wages, employment and therefore state tax revenue to fund everything else.
“We’re an unusual state in that we certainly, no matter how you look at the numbers, we’re first, second or third as far as military funding,” said Virginia House Majority Leader Kirk Cox (R-Colonial Heights) . “If the automatic cuts go into place, they’re 50 percent defense. That certainly affects Virginia dramatically.”
The situation also prompted a heated reaction from Gov. Robert F. McDonnell (R) on Tuesday, after the committee gave up.
“We are mortgaging the future generations of this country by failing to realize we have to balance our budget and make ends meet,” McDonnell said in Richmond after a meeting with economic advisers. “We do it in Virginia and 48 other states do it as well. . . . The day of reckoning is here. The bill is due.”
At a briefing last week in Annapolis, Warren Deschenaux, the Maryland legislature’s chief budget analyst, warned that the state was similarly exposed when it comes to defense spending.
Maryland has more than 42,600 direct federal defense jobs, and the Defense Department paid nearly $1.9 billion in wages to employees residing in Maryland last year.
Robert Kurtter, managing director in public finance at Moody’s Investors Services in New York, said it was too soon to determine whether Maryland or Virginia would suffer disproportionately because of the supercommittee’s failure, or if the cuts could affect the states’ credit ratings.
But Kurtter said the two are certainly among a small group of states that could be most harmed by defense-related cuts. Moody’s placed Maryland and Virginia on watch for a possible credit downgrade in July, saying that if the rating agency downgrades the U.S. government’s debt, the two states’ long-held, top-flight credit ratings would also likely be downgraded.