Budget Impasse May Cost 300,000 U.S. Non-Defense Jobs

At least 300,000 jobs in industries including computer services, tourism, package delivery and meat processing may be lost if Congress fails to avert $1.2 trillion in automatic federal spending cuts starting next year. 

Across-the-board reductions in non-defense spending will have a ripple effect over the next two years on companies that aren’t government contractors, according to the Bipartisan Policy Center in Washington, which made the forecast. Hundreds of thousands more jobs are at risk from additional Defense Department reductions, amid an 8.2 percent jobless rate in May.

“You are going to see reductions, frankly, in every area of the American economy,” Dov Zakheim, a former Defense Department comptroller who worked with the policy center, said in an interview.

The cuts are part of $1.2 trillion in reductions to domestic and defense programs that will start in 2013 if Congress doesn’t act. They were required after talks failed last year on a bipartisan plan to curb the U.S. deficit. The Defense Department will bear half of the reductions and other government agencies will share the rest, starting with about $55 billion in 2013.

About $16.2 billion of that would come from mandatory programs such as Medicare and farm subsidies, according to the Center on Budget and Policy Priorities, a Washington group that advocates for programs that help lower-income and middle-class Americans.
“I don’t like across-the-board meat-ax cuts,” Senator Susan Collins, a Maine Republican, said in an interview. “We should be making decisions.”

‘Time Bomb’

The reductions are a “swiftly ticking time bomb,” Scott Lilly, a senior fellow at the Center for American Progress, wrote on the Washington group’s website that says it promotes “progressive ideas.”

The Federal Aviation Administration may close air traffic towers in smaller communities or reduce the number of air traffic controllers as the result of a potential $1.5 billion spending decline, Lilly said in a telephone interview. That may force package-delivery services, such as FedEx Corp. (FDX) (FDX) and United Parcel Service Inc. (UPS) (UPS), to reduce flights, he said.

“FAA cuts would have deleterious impacts on operations,” Danny Werfel, the controller at the Office of Management and Budget, told the House Budget Committee in April. He also said about 300 national parks would be fully or partially closed.

Cuts to the National Park Service budget may delay the start of the summer season at Yellowstone National Park in Wyoming for weeks, leaving hotels and restaurants without the business tourists would bring, Lilly said.

Keeping Quiet

While officials at Lockheed Martin Corp. (LMT) (LMT), the world’s largest defense contractor, say it and other companies will stop hiring and investing as the automatic changes loom, many non- defense companies are keeping quiet publicly.

“It would be premature to discuss specific impacts on our business from any change in federal spending, given that options are still being discussed by all sides,” Maury Donahue, manager of regulatory and public affairs communications at Memphis, Tennessee-based FedEx, said in an e-mailed statement. Kara Ross, spokeswoman for Atlanta-based UPS, said the company had no immediate comment.

Companies have so many questions about the automatic cuts “that the uncertainty is the only certainty right now for everybody,” Stan Soloway, president of the Professional Services Council, said in a telephone interview. The trade group, located outside Washington in Arlington, Virginia, represents the government professional and technical services industry.

1 Million Jobs

The spending reductions may lead to a loss of 1 million defense and non-defense jobs in 2013 and 2014 through fewer hirings, attrition and layoffs, said Steve Bell, senior director of the Bipartisan Policy Center’s economic policy project. Of that number, at least 300,000 are unrelated to defense, according to Bell and Zakheim. The group was created in 2007 by four Republican and Democratic former Senate majority leaders.

The White House Office of Management and Budget hasn’t issued guidance to federal agencies on how to put the automatic cuts in place. The Senate voted in June to seek reports from the OMB on the reductions’ effect, and from President Barack Obama on how the government would implement them. The House hasn’t adopted similar measures.

‘High Risk’

To the extent that government agencies can decide what to eliminate, “anything expendable will be at high risk,” said Daniel Gordon, associate dean for government procurement law at George Washington University Law School in Washington. “That would include, in particular, professional services and consultants, but also anything that involves investing in the future,” such as information-technology improvements.

Hewlett-Packard Co. (HPQ) (HPQ), with $3.1 billion in government contracts in 2011, and Dell Inc. (DELL) (DELL) with $1.4 billion, are among the government’s top 50 contractors, according to a ranking of 200 federal industry leaders by Bloomberg Government. Neither company responded to requests for comment.

via bloomberg