Sequestration: Putting Our States and Nation at Risk

By Karla Jones

No organization is more committed to limited government, lower taxes and balancing the federal budget than the American Legislative Exchange Council (ALEC). We have long championed fiscal responsibility at all levels of government and promoted a Balanced Budget Amendment to the U.S. Constitution.  But fiscal responsibility involves making wise choices with limited resources.  Sequestration is the antithesis of sober decision-making, temporarily displaces workers at a time of high unemployment, and will burden states financially. Cuts should be reprioritized at federal spending that contributes the least to economic growth and the most to the federal deficit, such as entitlements or waste, fraud, and abuse.

Sequestration is the Budget Control Act (BCA) enforcement mechanism designed to be so universally devastating  that Congress would be compelled to reach a deal in order to avoid the sequester’s Department of Defense (DoD) and non-DoD cuts mainly in discretionary spending. A bipartisan compromise, the summer 2011 BCA raised the debt ceiling with the promise of $1.2 trillion in budget cuts by December 31, 2012. This deadline was extended to March 1, 2013 unless lawmakers vote to override it.

Sequestration’s economic consequences are significant with numerous studies predicting that it could slow an already anemic recovery. Lending credibility to these forecasts the U.S. economy grew at an unexpectedly anemic rate of .1 percent during fourth quarter 2012 – attributed in large measure to earlier cuts in defense spending. Reversal of America’s trend toward economic expansion will result in higher unemployment. The Congressional Budget Office projects that the sequester will cause 750,000 jobs to be eliminated over the coming year. Reductions in defense contracts have already resulted in layoffs.

Both DoD and non-DoD sequestration cuts indiscriminately hit sectors regardless of their contribution to GDP and employment. DoD sequestration will weaken the aerospace and defense industry, which contributes 2.23 percent to U.S. GDP – more than double the U.S. auto contribution. The defense/aerospace sector directly employs one million workers and indirectly supports 2.53 million additional jobs in all 50 states. Subcontractors, often small businesses, will be disproportionately affected, and the sequester will force the cancelation of contracts and the termination of multi-year procurements wasting billions of dollars.

The sequestration cuts are in discretionary spending categories that provide that most benefit to the public and are the least responsible for the federal deficit, which is driven by mandatory entitlement spending. The Office of Management and Budget observes that non-DoD sequestration cuts are concentrated in medical and scientific research, higher and primary education, job training, transportation and law enforcement – including border security and customs enforcement, and federal funds pledged for these programs are contemplated in state budgets. However, sequestration has rendered these funds unreliable making the creation of meaningful budgets nearly impossible for cash-strapped states. Eliminating or scaling back programs is not always an option. Spending for education, for example, is often dictated by state constitutions or court decisions compelling states to backfill sequestration reductions. States will be forced to reduce or eliminate programs when feasible or might even shortsightedly resort to raising taxes.

The speed of sequestration cuts will affect public safety and national security by forcing rapid changes to strategic commitments. Cuts to the National Guard and FEMA’s disaster relief budget are part of the sequester prompting the Chief of the National Guard Bureau to question his organization’s ability to respond to future natural disasters. It will undermine national security readiness at a time of growing global instability and erode the defense industrial base jeopardizing our aerospace competitiveness and ability to counter adversaries for years to come.

Economic growth and strategic cuts to both discretionary and mandatory spending provide the surest path to deficit reduction, but sequestration accomplishes neither and creates the very uncertainty that discourages businesses to invest. ALEC Congressional Alumnus Senator James Inhofe put it best: “Our men and women in uniform, the American people, and our friends around the world deserve better than sequestration and it is our shared responsibility – both the President and the Congress – to ensure that it does not take place.” The states deserve better too! We challenge Congress to avoid the sequester and eschew political brinksmanship in favor of constructive dialogue to address the deficit in a meaningful way.

In Depth: Federalism

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