A report released Tuesday suggests that several hundred thousand federal jobs at civilian agencies would be on the chopping block within the next year if Congress lets the automatic budget cutting process known as sequestration go into effect.
The study, authored by George Mason University professor Stephen Fuller, adds a new dimension to a budget debate that’s so far been centered on sequestration’s effects on the military. At least that’s the hope of the Aerospace Industries Association, which commissioned the research.
AIA, which represents defense companies and other manufacturers, has frequently used Fuller’s earlier research to rail against sequestration because of the effects the budget cuts would have on the defense industry. The defense industry could shed more than a million jobs, the earlier report said. The trade association emphasized Tuesday that sequestration was not just about defense.
“We now know that the nondefense portion of these cuts will destroy an additional 1 million jobs,” said Marion Blakey, AIA’s president, of the follow-on study.
The full tally of 2.1 million job losses in the Fuller study includes “indirect” and “induced” employment reductions that he projected would result from economic ripple effects. But the direct cuts to the federal workforce would also be substantial, the study found.
It projects next year’s share of the 10-year across-the-board cuts would mean the direct loss of 229,000 federal jobs in civilian agencies. In DoD, the federal civilian job losses would total just 48,000. The disproportionately high workforce reductions in civilian agencies are a result of the fact that their budgets are much less dominated by expensive procurement programs than are the Pentagon’s, Fuller said.
“They’re predominantly payroll,” he said in an interview with Federal News Radio. “As they look for opportunities to reduce spending, they can’t put it all on procurement, because what they buy are office supplies and training for their employees. Their biggest line item is payroll, so the payroll effect is enormous.”
In all, federal payrolls would be cut by $40 billion. On top of that, Fuller projects the direct job losses in the private sector in the first year of sequestration would add up to 191,000 jobs in civilian agencies and another 278,000 in DoD. The professional and business services sectors of the contracting industry would be the hardest hit.
Analysis has its doubters
Fuller’s analysis makes several assumptions about the way sequestration would work, partly because the Office of Management and Budget has not yet released guidance about how the automatic cuts would be implemented. Among his assumptions are that President Obama would exercise a legal option to exempt military personnel funding from sequestration.
The rest of the presumed 2.1 million job losses would be caused by secondary economic effects of the decline in federal spending, Fuller said.
But the “indirect” and “induced” job losses are anything but certain, according to Gordon Adams, a professor of international relations at American University and former Office of Management and Budget official. “In the Fuller analysis, nothing else happens in the economy when defense dollars go away, just that sector of federal spending gets cut,” Adams wrote in response to the AIA announcement. “In reality, defense spending changes take place in a dynamic context of overall federal spending, revenues, and especially non-governmental economic activity. In other words, something else happens to the foregone resources, the $1 trillion that would go away from the current DOD forecast over the next 10 years.”
“It’s good for AIA’s political purposes. It’s not very good analysis of the labor market.” Adams said.
But Fuller said he based his dire forecast on the fact that the most precipitous cuts would happen in 2013, before the private economy had time to adjust. The analysis, he said, is based on a Congressional Research Service report finding that next year’s discretionary budget would have to be automatically cut by 12 percent compared with this year’s spending, followed by eight years of year-over-year spending growth of less than a percentage point.
“If we go by the book, this all happens in three quarters. Not in 12 months but in nine months,” he said. “This is very immediate, not something that’s going to happen over the course of many years. It’s going to happen over the course of months.”
One-year delay is possible
In addition, Fuller said his study doesn’t even account for other negative economic effects of sequestration.
“Another collateral impact would be the loss of competitiveness,” he said. “Innovation stops. And then there’s just the broad disruption in the economy. Federal facilities won’t be open. Federal employees won’t be there to process approvals. The economy will slow down just because of the friction of less government and probably very un-careful decisions about where the cuts come from. They have to happen very quickly. Closed facilities and lost services in the federal system will have a consequence, and we haven’t measured those.”
Congress set up sequestration in last summer’s Budget Control Act, intentionally designing it to be so horrific that it would force lawmakers to come up with a reasoned way to cut the deficit by the January 2013 deadline. The supercommittee of lawmakers assigned to find those answers ended in gridlock. Sen. Jeanne Shaheen (D-N.H.) voted for the Budget Control Act, but she said Tuesday sequestration can’t be allowed to happen.
“Look, we need to solve this problem. I don’t know how many ways we can say it,” she said. “It’s not a Democratic issue, it’s not a Republican issue. Whoever gets elected president is going to want to solve this problem, because it’s having a huge impact on our economy.”
Sen. Kelly Ayotte (R-N.H.) opposed the Budget Control Act. She said she thought it was a bad idea for Congress to kick the can down the road on a major deficit cutting deal, but that with the Jan. 2 deadline now so close, Congress may have to do so again. In a presidential election year, she said a one-year delay to sequestration is the most likely solution.
“We do need to do a large agreement that deals with our debt, but I don’t see that happening before the election,” she said. “It would take a lot of planning to handle it the right way when you think about something like tax reform and entitlement reform, which is where we need to get to. But what I do think is responsible is to come up with a proposal to give us some room to get to that big deal after the election’s over.”
But even when it comes to a one-year delay, Ayotte said the furthest lawmakers have gotten is to discuss the prospect of conducting talks. She said she and fellow senators are currently discussing how to form a bipartisan working group to undo sequestration.
Hearings on sequestration to begin
The report comes amid a cacophony of election-year demands and partisan backbiting over how to avert the impending cuts that will only grow louder in the coming weeks.
Former Vice President and onetime Defense Secretary Dick Cheney met with Senate and House Republicans Tuesday to discuss the cuts. The House is scheduled to vote this week on legislation forcing the Obama administration to explain how it will impose the automatic cuts. Top officials from major defense contractors such as Lockheed Martin, EADS, Pratt and Whitney and Williams-Pyro are slated to testify before the House Armed Services Committee on Wednesday as they clamor for Congress to avoid the cuts.
Then, on Aug. 1, Jeffrey Zients, acting head of the Office of Management and Budget, and Deputy Defense Secretary Ashton Carter will testify before the same panel on how the administration plans to make $55 billion in defense cuts next year.
Unless Obama and congressional Republicans and Democrats can agree on a plan to stave off the cuts, the military will face a reduction of $492 billion over a decade, with a $55 billion cut beginning in January, three months into the fiscal year. Domestic programs also would be reduced by $492 billion over 10 years.