Yesterday one of our local public radio stations here in the District (WAMU) broadcast a story on the potential local impact of sequestration, the across-the-board federal spending cuts that are set to go into effect in January—unless Congress passes some kind of legislation to avoid it. Right now these cuts are required by a law that this same Congress passed last summer, the Budget Control Act (BCA).
Stephen Fuller, director of George Mason University’s Center for Regional Analysis, told WAMU that federal spending accounts for roughly 40% of the D.C. metro area’s economy. Federal employees and contractors spend their paychecks here, and so businesses that rely on those dollars (and the housing market) are likely to suffer if that spending is cut back significantly:
“Federal payroll supports a lot of jobs at Giant and Safeway and CVS and other retail establishments,” he says, citing some examples. “There will be fewer high-income households that can afford big houses. So we could see a rollback on housing values.”
In D.C. itself, the District’s chief financial officer, Natwar Gandhi, told WAMU that federal spending accounts for 60% (!) of the city’s annual economic output. He said that cuts to federal spending would likely result in reduced local tax revenue, which could lead to reductions in services for the city’s most vulnerable residents.
(Fun fact: the legislation that created sequestration was enacted by a Congress in which we do not have a vote, yet it sound like the pain associated with these cuts will likely be more painful here in this city than it will be in other parts of the country.)
Alternatives to sequestration may still include federal workforce reductions and pay freezes, so even if sequestration is scrapped, it’s replacement might not be so great for the local economy either. I recently attended a meeting with some Republican staffers who were still enthusiastically pitching S. 2065, a Senate bill that was introduced in February that would delay the first installment of the sequestration cuts by extending the current federal employee pay freeze though June 2014, and restricting federal hiring to only two employees for every three who leave. While I don’t think this specific bill is going anywhere at the moment, elements of this proposal could make their way into a sequestration-scrapping plan somewhere down the road.
Fuller told WAMU that federal contracting “has been a welfare program for the Washington metropolitan area. Taxpayers around the country send us their money, and we’ve been living well off of this, and now we have to face the music.” Sequestration alternatives that protect this long-standing corporate welfare program via reductions in federal hiring and pay freezes will likely have the same kind of depressive effects on the local economy as the across-the-board cuts required by sequestration.