State Net--In Our View: In Sequester, Truth Is the First Casualty

Left in place, the $85 billion in automatic federal spending cuts that went into effect on March 1 - a.k.a. "the sequester" - will set criminals free, delay flights, lock kids out of day care and send thousands of teachers and police to the unemployment line. Or perhaps those reductions will have minimal impact, and are a long-overdue first step in tackling the nation's $16 trillion budget deficit that will actually spur economic growth.
 
Which of these scenarios you believe may depend on your political leanings. Both could have elements of the truth, or maybe just what comedian Stephen Colbert famously dubbed "truthiness" - the overwhelming belief that "What I say is right, and [nothing] anyone else says could possibly be true." 
 
Truthiness has unfortunately dominated the sequestration debate, much as it dominated the "fiscal cliff" discussion that preceded it at the beginning of the year. And while passionate pontification from opposing ends of the political spectrum may appeal to the most devoutly partisan among us, it has done nothing to move the White House and Congress toward a solution that avoids sequestration's worst case scenarios. 
 
Neither political party has been above the fray: The White House has been in full campaign mode, with President Obama spending copious time and energy lobbying the public to lean on their Congressional representatives to devise a plan to avoid the cuts. To wit, his administration released a state-by-state breakdown that showed devastating job losses and threats to public health and safety. He shared the same message with the nation's governors last weekend at the winter meeting of the National Governors Association in Washington D.C. The president acknowledged that the worst of the impacts "will not all be felt on day one," but insisted they would surely come. 
 
Republicans, meanwhile, scoff at it all, essentially trivializing the cuts and accusing the president of, as Rep. Jon Cornyn (R-Texas) told Fox News, of dramatizing the impact of the sequester "to scare people in order to grow the size of government." 
 
While this is all so much of what has become business as usual in Washington, the "new normal" so to speak, the sequester is nowhere near as cut and dry. 
 
When folks woke up this morning, virtually none of the worst case scenarios - delayed flights, kids being kicked out of government-run day care, cops and teachers being cut loose - had come to be. Nor will they come tomorrow, or the next day or the day after that. In fact, over 80 percent of federal aid to states is exempt from sequester cuts. As the National Association of State Budget Officers (NASBO) notes, Medicaid, the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) are in fact all exempt from the sequester. 
 
Public agencies and private companies that rely on government dollars have also been preparing for cutbacks for months. That preparation will undoubtedly limit the initial hit. Cuts will be implemented over months, some bigger than others, creating what Homeland Security Director Janet Napolitano called "a rolling ball" that keeps slowly growing. 
 
Some people, however, will feel the pain right away. While most schools will not absorb cuts until next year, so-called "impact aid" districts - those on federal property, predominantly on military bases and Indian reservations - will take their cuts right away. The Department of Education says there are about 1,200 such districts facing a total of $60 million in spending cuts, effective March 1. 
 
Not that the hurt won't eventually get everywhere else as well. Under current conditions, it most certainly will. The sequester is a 10-year process designed to cut $1.1 trillion out of the federal budget, with cuts of almost 8 percent to defense spending and 5 percent on the domestic front. In a statement released last week, the National Conference of State Legislatures said states will lose $5.8 billion in federal aid in FY 2013 alone. 
 
Worse, NCSL notes, is the ongoing "uncertainty" this all creates for the states. This includes not only the March 1 cuts, but "the second sequester coming March 27 [when the federal government must either pass a budget or adopt a resolution to fund government operations], the FY 2013 continuing resolution and the 2014 federal budget." Federal dollars comprise 34 percent of overall state spending, and since most state budgets are finalized in the spring, this uncertainty leaves them to "face the near-impossible challenge of balancing their budgets without knowing how much federal funding to expect." 
 
States with a big military presence - bases, large numbers of civilian Department of Defense employees or both - could eventually face the biggest hits. According to the the White House, in California, 64,000 civilian Defense Dept workers could face furloughs; Virginia could furlough up to 90,000. Maryland could furlough 46,000; Washington 29,000, North Carolina 22,000 and Hawaii 20,000. Texas could lose $233 million in base operations funding, while South Carolina could lose $81 million. 
 
A bigger question is what all this will do to the nation's already slow economic recovery. In spite of many predictions of Wall Street panic and a return to recession, markets have so far remained calm. The Dow Jones Industrial Average in fact hit a near-record high last week, climbing to 14,075 on Wednesday. But economist Dean Baker, co-director of the Center for Economic and Policy Research in Washington DC, says it is unreasonable to expect the cuts won't become a drag on the economy. 
 
"This is pulling money out of an economy that is already growing very slowly, which is a further hit to growth," he says. "At best, this economy is growing at about 2 percent right now, which is not even enough to keep up with the growth in the labor force. That means we're going to end up with an increase in unemployment." 
 
Whether any of these more dire predictions come true remains to be determined. As SNCJ columnist Lou Cannon wrote in last Thursday's RealClearPolitics, "the sky is not falling - yet." That is a key qualifier. With most of the worst sequestration impacts not due in the short term, all eyes now are on the next line in the sand, March 27. Since no actual budget deal is expected, Congress must either approve a new concurrent funding resolution or shut the government down. Baker calls the latter scenario "unlikely," saying lawmakers will likely use this as an opportunity to reconfigure this round of sequestration cuts, dropping the meat cleaver in favor of more precise cuts that spare effective government programs and target bloated ones. 
 
"How March 27 works out depends on how March 1 works out," he says. "If there are bad results, the public may well pressure the government to act." 
 
We'll see. My colleague Lou Cannon, noted above, is considered by many to be the finest of former president Ronald Reagan's many biographers. As Cannon notes, Reagan once told him that the most overlooked accomplishment on his resume was his time as president of the Screen Actors Guild, Hollywood's most powerful union. When asked what he learned there that was so important, Reagan replied, "That the purpose of a negotiation is to get an agreement." 
 
It is a lesson seemingly lost on the White House and Congress these days.

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