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Deficit Fight

Copyright © 2012 Albuquerque Journal

Federal budget cuts mandated by the failure of Congress last year to rein in federal spending could cost New Mexico 20,000 jobs by 2014, a permanent 0.5 percent reduction in employment, according to the University of New Mexico Bureau of Business and Economic Research.

New Mexico is expected to lose $1.354 billion in federal money in 2013 and $1.928 billion each year from 2014 through 2021 under what federal budget writers call the sequestration process.

BBER forecasts employment will continue to grow in New Mexico, but at a rate 1.6 percentage points lower than it would grow absent the loss of jobs due to sequestration.

Federal spending is projected to grow nationally as well, despite sequestration.

The nonpartisan Congressional Budget Office projects annual federal spending before sequestration would grow from $3.6 trillion in 2012 to $5.4 trillion in 2021. After sequestration, spending would grow from $3.6 trillion in 2012 to $5.26 trillion.

The Census Bureau reports that federal spending in New Mexico was almost $28 billion in the 2010 federal fiscal year, the last year for which complete data are available. New Mexico is the sixth largest recipient of federal dollars per capita among the states and the District of Columbia, according to BBER.

The bureau expects 5,420 professional and business services will be lost, primarily because of cuts to national laboratories. Cuts to Medicare and other health programs will cost 4,260 jobs in the health care sector. Other cuts, including cuts in military spending, mean 1,810 jobs lost.

Real consequences

The effect of lost jobs directly tied to federal spending ripples across the economy in the BBER’s forecasting models, said BBER director Lee Reynis.

A hospital that relies on Medicare spending might have to cut staff in the face of lower federal reimbursement. Hospital workers who bought groceries and gasoline, paid for their kids’ ballet lessons, went to the movies and local restaurants suddenly don’t have the income to spend as freely. That costs waiters and retail clerks and ballet teachers their jobs as well, Reynis said.

She acknowledged that the economic modeling BBER does cannot be precise. It is impossible to know, for example, how a program manager will cut spending at Los Alamos National Laboratory in 2014. “These numbers are pretty crude,” Reynis said. “We put this on the table so people could realize that numbers of this magnitude could have very real consequences.”

The cuts are required by the Budget Control Act, passed last year after Congress balked at raising the federal debt ceiling. Congress finally agreed to raise the debt ceiling, but demanded budget cuts in return. The act appointed a Joint Select Committee on Deficit Reduction, known as the supercommittee, and charged it with finding $1.5 trillion in spending cuts or revenue increases to be implemented over the next 10 years.

Automatic cuts

The supercommittee failed, so by law beginning in 2013 automatic budget cuts are to be implemented to reduce federal spending by $1.2 trillion through 2021, according to the Bipartisan Policy Center, a Washington, D.C., think tank.

The center says the sequester is an across-the-board cut to all budget items, excluding those specifically exempt.

Among the exemptions are Social Security and veterans’ benefits, Medicaid, unemployment insurance, temporary assistance for needy families, food stamps and some other programs that, for the most part, help low-income individuals.

A portion of the federal dollars coming into New Mexico are, therefore, not subject to cuts, including $4.4 billion in Social Security program spending, $2.9 billion for Medicaid and $493 million for veterans and their survivors.

Medicare program cuts are capped at 2 percent.

Sequestration requires that discretionary defense spending be cut 10 percent, or about $55 billion annually for 10 years. Another $55 billion a year is to come from everything else the federal government spends money on except for those exempt budget items.

That leaves hundreds of agencies and programs to cut in New Mexico, Reynis said.

“We have a myriad of programs,” she said. “There are programs geared to Native American issues, programs for community development. There are dozens and dozens and dozens of types of programs that bring money into New Mexico. There’s the Forest Service, Bureau of Land Management, the Department of Labor, education programs, housing programs, block grants, applied grants.”

Substantial fed payroll

According to the Census Bureau, the Defense Department paid wages in 2010 to active military, inactive military and civilian personnel working for the military totaling $1.25 billion in New Mexico. Civilian employees, other than Defense and Postal Service employees, were paid $1.2 billion in the state.

New Mexico received $120 million in crop insurance payments in 2010. The Defense Department also procured goods and services in New Mexico worth $1.5 billion. All other federal agencies, other than the Postal Service, procured $5.9 billion worth.

Federal government spending on Medicare in 2010 here amounted to almost $2 billion.

Grants to help rural communities dispose of waste and wastewater paid $16.5 million.

Section 8 housing vouchers, which help low-income households pay their rent, totaled $77 million.

The federal government spent $468 million on highway planning and construction in New Mexico in 2010.

Grants for special education totaled $182.5 million.

Rural electrification loans and loan guarantees brought in $135 million.

Though the impact of lost federal revenue could be severe, Reynis does not argue that federal spending is the answer to New Mexico’s problems.

“If the federal government is so good, how come we’re so poor?” she asked.

This could be a chance for New Mexico to do some soul-searching, pull together as a community and reinvent itself as a more vibrant economy that depends less on federal dollars for survival, Reynis said.

Roswell is the model. Reynis said that southeastern New Mexico community has had to reinvent itself multiple times, once when it lost Walker Air Force Base and again when a bus manufacturing plant shut down. Today, it is home to oil and gas companies, regional financial institutions and a growing medical industry.
— This article appeared on page A1 of the Albuquerque Journal

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