New York state comptroller report outlines sequestration impact

Saturday, February 23, 2013
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— The Schenectady Community Action Program is preparing for deep funding cuts, even though there’s a good chance those cuts might not happen.

But if they do, the nonprofit organization will be forced to reduce the number of families served by its Head Start program and figure out how to run its housing programs for homeless and low-income women and children with far less money.

“We’re talking worst-case scenario,” said Deb Schimpf, the executive director of SCAP, which runs a variety of programs that assist the needy. “We’re talking direct cuts to services.”

The cuts to SCAP’s funding would be the result of the sequester — federal budget cuts that would impose $85 billion in across-the-board spending cuts to domestic and military spending this fiscal year, starting on March 1. According to the Congressional Budget Office, defense spending would be cut by about 8 percent, and nondefense spending would be cut between 5 percent and 6 percent.

Schimpf said SCAP estimates that its Head Start funding would be cut by about $300,000 if the sequester goes into effect. Right now, SCAP’s Head Start program serves 321 families in 19 classrooms and two home-based programs; the federal spending reductions would cut approximately 30 families from the program and force the organization to close two or three classrooms. SCAP also receives funding from the U.S. Department of Agriculture to provide meals for the children in Head Start, and that funding would be cut by about $200,000.

In addition, SCAP receives about $500,000 from the U.S. Department of Housing and Urban Development to run Sojourn House, which provides transitional housing for homeless women and children, and 24 apartments for low-income people. If the sequester goes into effect, SCAP would probably lose about $50,000 in HUD funding, Schimpf said. Other programs, such as the employment assistance programs that SCAP provides, might also be affected by the sequester, she said.

SCAP’s entire budget is about $7 million.

In December, New York state Comptroller Thomas DiNapoli released a report outlining the impact of the fiscal cliff on New York. The report includes a section on the impact of sequestration.

According to the report, the state spent $40.3 billion in federal funds on health care, education, transportation and other programs in fiscal year 2011-2012, and the sequestration cuts would reduce federal support for the state budget by more than $600 million, “with additional cuts directly hitting local governments and individuals across the state.”

At the beginning of March, federal agencies are required to tell contractors, grant recipients and governors how much money they will lose as a result of the sequester.

Among the programs and agencies that would be effected by the sequester are:

u Medicare — The health program would face a 2 percent cut in payments to providers and insurance plans.

u The military — Last week, the U.S. Department of Defense announced that it will furlough almost 800,000 civilian employees beginning in late April if the budget cuts go into effect. Officials said employees would likely be furloughed for one day per week for the rest of the fiscal year.

u The Transportation Security Administration — Airport security screeners, customs agents and air traffic controllers would also face furloughs.

u U.S. Customs and Border Control — Furloughs of employees would be likely.

A report by Sen. Tom Harkin, D-Iowa, who chairs the Senate Appropriations Subcommittee on Labor, Health and Human Services, and Education and Related Agencies, outlines the cuts to non-military spending that each state is facing.

New York would lose millions of dollars for a wide range of programs, including HIV prevention and testing, Head Start, public health emergency preparedness grants, substance abuse and treatment funding, the low-income Home Energy Assistance Program, programs that train workers and education funding.

Richard Ianuzzi, president of New York State United Teachers, said the state stands to lose $102.2 million in aid to schools affected by Hurricane Sandy as a result of the sequester. The loss of the federal aid, combined with the state’s cap on annual increases in local property taxes, would result in fewer teachers and larger classes, he said.

“We’re lobbying our Congressional delegation to [resolve] this in a fair manner,” Ianuzzi said. He said the funding uncertainty is making it harder for school districts to develop their budgets for the next fiscal year.

James Fossett, an associate professor at the Rockefeller College of Public Affairs and Policy at the University at Albany, said the impact of the cuts, at least in the short term, was unclear.

“The New York state government is very heavily invested in all domestic programs,” he said. “We have really gone after every federal buck that we could, and we have been pretty successful at it. But it’s hard to get a fix on what the cuts translate to in the short term.” In all likelihood, the cuts will take a while to work through the system, he said. For example, summer youth programs that receive federal funding wouldn’t see an immediate impact, but the impact, when it is finally felt, would be significant.

Fossett said some agencies, such as the state Department of Transportation, don’t spend their federal appropriations right away, and would still have some money for projects that are already in the pipeline. But he said researchers who have been awarded federal grants might not receive the money.

“The National Institutes of Health has been telling people that their project got approved, but that they don’t know if they’re going to be able to fund it,” Fossett said. “My colleagues who get NIH money probably just wouldn’t get it.”

Reductions in National Institutes of Health spending would cut funding for New York researchers by $153 million in 2013, according to the comptroller’s report.

Experts said the cuts would have a negative effect on the fragile economy, but stopped short of saying it would cause a second recession.

“It is going to slow things up,” Fossett said.

Aaron Pacitti, an assistant professor of economics at Siena College, said Macroeconomics Advisers, a website that provides economic analysis and commentary, is forecasting that the sequester cuts would reduce the national growth rate by at least 2.6 percent, and result in 700,000 lost jobs throughout the U.S.

“It’s going to have negative economic impacts,” Pacitti said. “It’s cutting too much too soon.” He said if the federal government fails to act, March 1 marks “the beginning of a gradual slope,” and that the country will see “slightly lower growth rates going forward. I’ve seen some people argue that [the cuts] will lead to a recession, but I have a hard time believing that. We’ll continue to limp along, as we’ve been limping along since 2009.”

Pacitti said he expected Republicans and Democrats to cut a deal at the last minute.

“These cuts are politically unpopular,” he said.

The sequester’s origins date back to the debt ceiling fight of 2011, when Republicans in the House of Representatives refused to raise the debt ceiling without a promise to significantly reduce the deficit. As a result, the parties agreed to the Budget Control Act, which required Congress to reduce domestic spending over the next decade by about $1 trillion. This legislation came with a threat: If Republicans and Democrats failed to develop a concrete plan for cutting the deficit, steep cuts would begin to go into effect this year. The idea was that these cuts would be so painful, to so many people, that Congress would be forced to do something to prevent them.

But that hasn’t happened — yet.

Area experts are mixed on whether the sequestration cuts will be averted, noting that previous battles over the fiscal cliff — the combination of tax hikes and spending cuts that would have gone into effect early this year, had Congress not cut a deal — and raising the debt ceiling were resolved at the 11th hour.

Fossett said this battle might be different, and it was looking increasingly unlikely that Congress would reach a deal by the Friday deadline. He noted that Congress had adjourned, and that Democrats and Republicans are still far apart on the issue.

“Everyone seems resigned to this happening,” Fossett said. “Typically what happens is that you get a fix at the last minute. But I’m beginning to think there might not be a fix.”

Fossett said the cuts are damaging, but allowing them to go into effect will carry few political consequences. In fact, Congress and President Barack Obama might see some political advantage to the cuts, which would allow both sides to blame the other for failing to prevent them.

Ron Seyb, an associate professor of government at Skidmore College, agreed.

“There’s a view in Washington that the public has become really complacent about this,” he said.

Seyb said battles over the deficit and spending have been occurring for decades, but they have always been resolved.

“Congress has always found a way to make automatic cuts less than automatic,” Seyb said. “They’ve always used linguistic and accounting tricks to get around it.” One such trick would be to postpone a pay increase until the next fiscal year, he said.

Pacitti said big spending cuts are not the only way to reduce the deficit. Another way, he said, would involve raising taxes on the rich.

 

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