No matter the outcome of Tuesday’s election, the nation’s attention soon will return to the looming onslaught of federal spending cuts.
Observers say the so-called “fiscal cliff,” which could be triggered by the federal Budget Control Act in January if Congress doesn’t act, will have a severe impact on Maryland’s economy.
The act requires nearly $1 trillion in cuts over the next several years — a process known as sequestration — and is set to reduce federal funding to the state by more than $117 million in fiscal year 2013, according to the state Department of Legislative Services.
While that’s only a fraction of the state’s budget, the overall cuts could push the U.S. economy back into recession, resulting in a loss of 60,000 Maryland jobs and $635 million in personal income and sales tax revenue, according to DLS.
“It will be devastating,"said Neil Bergsman, director of the nonprofit, nonpartisan Maryland Budget & Tax Policy Institute. “Maryland has to maintain a balanced budget and can’t conceivably replace the federal funds,” he said.
About two-thirds of the $9.3 billion in federal funds the state is expected to receive in 2013 are exempt from sequestration cuts. These programs include Medicaid, food stamps, highway funding and Temporary Assistance for Needy Families, according to the state Department of Budget and Management.
But federal employees make up 5.6 percent of Maryland’s workforce, well above the national average of 2.2 percent, making the state particularly vulnerable to changes in federal spending, according to the budget department.
Many businesses, particularly in Prince George’s and Montgomery counties, rely heavily on federal contracting, said Christopher Summers, president of the conservative Maryland Public Policy Institute.
If there’s a sudden drop in federal spending, “there’s no fallback industry in Maryland to absorb it,” Summers said.
U.S. Rep Christopher Van Hollen Jr. (D-Dist. 8) of Kensington, who was part of a congressional “supercommittee” that tried — and failed — to agree on a deficit-reduction plan in 2011, said he was “focused 100 percent” on making sure the cuts didn’t kick in.
“It would not be good for the country, and certainly would not be good for Maryland,” Van Hollen said, explaining that he’d put forward a proposal to reduce spending by eliminating certain agricultural subsidies and tax breaks for big oil companies as well as applying the so-called “Buffet rule.”
Named for investor Warren Buffet, the rule would put a minimum tax rate of 30 percent on anyone making more than $1 million a year.
Bergsman said he’s confident that Congress and the president would take some action to mitigate the effects of the act, but conceded that “then again, no one thought it would get this far, either.”
Summers put the chances of sequestration taking effect at 50-50, but suggested that it could prompt lawmakers in Annapolis to work to make the state’s business climate more competitive.
“It may be a starting point to change the conversation,” he said.