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ECONOMY Budget impasse may cost 300,000 US non-defence jobs

computer services, tourism, package delivery and meat processing industries may be hit

Bloomberg
July 6, 2012
Image Credit: Bloomberg

 

Washington

At least 300,000 jobs in industries including computer services, tourism, package delivery and meat processing may be lost if Congress fails to avert $1.2 trillion (Dh4.4 trillion) in automatic federal spending cuts starting next year.

Across-the-board reductions in non-defence spending will have a ripple effect over the next two years on companies that aren't government contractors, according to the Bipartisan Policy Center in Washington, which made the forecast. Hundreds of thousands more jobs are at risk from additional Defence Department reductions, amid an 8.2 per cent jobless rate in May.

"You are going to see reductions, frankly, in every area of the American economy," Dov Zakheim, a former Defence Department comptroller who worked with the policy centre, said in an interview.

The cuts are part of $1.2 trillion in reductions to domestic and defence programmes that will start in 2013 if Congress doesn't act. They were required after talks failed last year on a bipartisan plan to curb the US deficit. The Defence Department will bear half of the reductions and other government agencies will share the rest, starting with about $55 billion in 2013.

About $16.2 billion of that would come from mandatory programmes such as Medicare and farm subsidies, according to the Center on Budget and Policy Priorities, a Washington group that advocates for programmes that help lower-income and middle-class Americans.

"I don't like across-the-board meat-ax cuts," Senator Susan Collins, a Maine Republican, said in an interview. "We should be making decisions."

 

'Time bomb'

The reductions are a "swiftly ticking time bomb," Scott Lilly, a senior fellow at the Center for American Progress, wrote on the Washington group's website that says it promotes "progressive ideas".

The Federal Aviation Administration may close air traffic towers in smaller communities or reduce the number of air traffic controllers as the result of a potential $1.5 billion spending decline, Lilly said in a telephone interview. That may force package-delivery services, such as FedEx Corp and United Parcel Service Inc, to reduce flights, he said.

"FAA cuts would have deleterious impacts on operations," Danny Werfel, the controller at the Office of Management and Budget, told the House Budget Committee in April. He also said about 300 national parks would be fully or partially closed.

Cuts to the National Park Service budget may delay the start of the summer season at Yellowstone National Park in Wyoming for weeks, leaving hotels and restaurants without the business tourists would bring, Lilly said.

 

Keeping quiet

While officials at Lockheed Martin Corp, the world's largest defence contractor, say it and other companies will stop hiring and investing as the automatic changes loom, many non-defence companies are keeping quiet publicly.

"It would be premature to discuss specific impacts on our business from any change in federal spending, given that options are still being discussed by all sides," Maury Donahue, manager of regulatory and public affairs communications at Memphis, Tennessee-based FedEx, said in an emailed statement. Kara Ross, spokeswoman for Atlanta-based UPS, said the company had no immediate comment.

 

 

1m jobs

The spending reductions may lead to a loss of one million defence and non-defence jobs in 2013 and 2014 through fewer hirings, attrition and layoffs, said Steve Bell, senior director of the Bipartisan Policy Center's economic policy project. Of that number, at least 300,000 are unrelated to defence, according to Bell and Zakheim. The group was created in 2007 by four Republican and Democratic former Senate majority leaders.

The White House Office of Management and Budget hasn't issued guidance to federal agencies on how to put the automatic cuts in place. The Senate voted in June to seek reports from the OMB on the reductions' effect, and from President Barack Obama on how the government would implement them. The House hasn't adopted similar measures.

 

To the extent that government agencies can decide what to eliminate, "anything expendable will be at high risk," said Daniel Gordon, associate dean for government procurement law at George Washington University Law School in Washington. "That would include, in particular, professional services and consultants, but also anything that involves investing in the future," such as information-technology improvements.

 

New commitments

"Both the government and its contractors will be reluctant to make new commitments in the months leading up to" January when the automatic cuts start taking effect, Gordon said in an email. "I'd expect the government and contractors to do less hiring than normal in October, November and December. I'd also expect the federal agencies to delay decisions that commit them to spend money, whether by hiring, contracts, or grants."

The spending reductions will affect "everything you can imagine," Senator Mark Begich, an Alaska Democrat, said in an interview.

The FAA may have to trim $900 million in salaries for air traffic controllers, for a 10 per cent to 12 per cent loss of their working hours, forcing some reductions in takeoffs and landings, Lilly wrote on the Center for American Progress website on June 18.

 

Major hubs

"The FAA is going to do everything to avoid cutting back services to the major hubs — if they do that then they will devastate the rest of the country," Lilly said in a telephone interview. "I am from Springfield, Missouri — if they decide to do that, it basically loses its airport."

Commercial airlines may raise fares to make up for fewer flights, passing on the hurt to travelers, Lilly said.

The US Occupational Safety and Health Administration, as part of the Labour Department, would conduct fewer workplace inspections, "leading to diminished protection for workers," said Werfel, the federal controller.

 

 

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