State and local government budgets in the Washington, D.C., area are feeling the brunt of the sequester, according to an article in yesterday’s Washington Post. For years, BPC and others have been voicing concern over the sequester’s widespread adverse impacts, but some of the broad effects – slower national economic growth, reduced military readiness – have been tough to prove. As the cuts make their way through local economies, however, the consequences are becoming apparent, as lower availability of well-paying jobs drives lower tax revenues that drill large holes into government budgets.
For those who have forgotten, the sequester was a set of across-the-board spending cuts that went into effect beginning in Fiscal Year (FY) 2013 after the Joint Select Committee on Deficit Reduction (aka, the “Supercommittee”) failed to agree on a deficit reduction package. The cuts primarily hit defense and domestic discretionary (annually appropriated) programs. In fiscal years since 2013, the sequester has primarily taken the form of austere spending caps on both of those categories of spending.
In 2013, we predicted that the sequester would have serious impacts on the economy and that those effects would take several years to materialize. We were right on both counts – but we did not anticipate that the impact would so concentrated on state and local governments in the D.C. metropolitan area. As the Post article details, Maryland and Virginia continue to have multibillion dollar budget shortfalls despite improvement in the national economy.
Notably, all of these impacts are happening despite the fact that sequester’s impact was somewhat ameliorated by both the American Taxpayer Relief Act of 2012 (often called the “fiscal cliff” deal), and the Bipartisan Budget Act of 2013 (“Murray-Ryan”). Murray-Ryan’s lessening of the sequester’s impact remains in effect through FY 2015, but the full sequester squeeze is scheduled to return in FY 2016.
Even with the sequester’s impact somewhat blunted, its economic impact has been obvious near Washington, D.C. If left unchecked, the sequester’s adverse impact on the region will only grow, and the damage to other localities and broader economic and national security priorities will become increasingly apparent. Over the coming months, policymakers should agree on a way to permanently repeal the sequester and also deal with the drivers of our long-term fiscal issues, which involve our inefficient tax code and large entitlement programs, not discretionary spending.
Alex Gold served as a policy analyst for BPC’s Economic Policy Project.