As the deadline for steep budget cuts nears, an Iowa economist is warning they could stunt Iowa’s already sluggish recovery.
Iowa will lose 3,570 jobs in a year if sequestration takes effect, according to a study by Dave Swenson, an associate scientist at Iowa State University’s economics department.
That loss amounts to about a quarter of all the jobs created in Iowa in 2012.
“A further loss in employment is really bad news; it’s the kind of bad news Iowa’s economy currently can’t absorb,” Swenson said. “If we reduce federal spending too much, we will force the economy into a recession, unemployment will go up, and average household well being will go down.”
The cuts, referred to as sequestration, were set in motion by a 2011 debt ceiling agreement between President Barack Obama and congressional Republicans.
The cuts were supposed to take effect only if the parties couldn’t agree on a debt-reduction package. But those talks failed, and after some delays, the day of reckoning is near.
Both sides have blamed the other for the impasse. But the stakes for federal employees and, as Swenson warns, the wider economy, are more than just political.
Iowa’s jobless rate has steadily fallen over the past year. In December, it was 4.9 percent. But job creation has been slow. In 2012, only about 14,000 non-farm jobs were created in the state, and the sequestration-related losses Swenson projects would cut substantially into that.
His study said 2,471 jobs supported by defense spending would be lost in Iowa, along with 965 positions linked to other federal outlays. The study says the cut in direct federal spending would amount to $292 million, with the figure climbing to $429 million when a multiplier effect is used.
In the Quad-Cities, much of the impact of the sequester will be the furloughing of Rock Island Arsenal workers. But a White House official stressed on a conference call Monday that the impact on the overall economy would be felt mostly in the private sector.
“The bulk of the jobs lost would be private jobs because of the reduced economic activity associated with the sequester,” said Jason Furman, principal deputy director of the National Economic Council and an adviser to the president.
The White House, which is trying to pressure congressional Republicans on the sequester, released state-by-state figures over the weekend projecting the impact.
Republicans have argued that the across-the-board budget cuts are the president’s idea and that the House has passed a bill to replace the sequester. The bill would have transferred the defense cuts to the non-defense budget, however, and has been rejected by the Obama administration and the Democratic-controlled Senate.
The White House’s state-by-state analysis said $12 million in education funding would be cut in Iowa this year because of the sequester, with almost half coming from accounts used to educate children with disabilities. The jobs of 160 teachers and aides would be affected.
In addition, 500 Iowa kids wouldn’t get into Head Start. How that might be felt at the local level is not clear. Roger Pavey, executive director of Community Action of Eastern Iowa, said Monday he’s not received any word of how that would affect the funding it receives to operate Head Start classes in the Quad-City area.
“No one wants to quantify anything,” Pavey said. “We hear Friday’s the magic date, but then you hear some of that would be phased in.”
He said his agency generally receives about 10 percent of Iowa’s Head Start funding, meaning possibly the loss of 50 slots. But he said no decisions have been made which classes might be cut. Actually, if the budget is cut, he said, the agency will try to locate other funds or use reserves to tide it over to the end of the school year, so kids don’t lose their spots in the middle of the year.
In Illinois, 2,700 kids would lose access to Head Start, the White House estimated, while more than $58 million in education funding would be cut.
Also, money would be cut from job search assistance. That would affect more than 12,000 Iowans and 50,000 Illinoisans looking for work
White House officials said some of the most immediate cuts would be in unemployment checks going to people out of work.
The $85 billion in overall reductions this year are a fraction of the $3.6 trillion annual federal budget. But because large parts of the budget are excluded — including Social Security, Medicaid and most of Medicare — the impact on other programs is heavier. The White House says the reduction in non-defense accounts would equal 9 percent. It would be 13 percent in defense spending.
The cuts would be the first in what would be 10 years worth of reductions totalling $1.2 trillion.
Iowa could lose $12 million in education funding to sequestration
Ed Tibbetts at 9:17 a.m.
With a week remaining before automatic budget cuts take place, the White House is projecting the loss to Iowa schools will top $12 million this year. Also, 500 kids won’t be able to get into Head Start, it says.
The Obama administration has been trying to raise the pressure on Congress to head off the budget cuts, which were set in motion by a 2011 debt ceiling agreement between the president and Republicans.
There appears to be little movement toward heading off what is called sequestration, which would begin Friday. But in its latest attempt to pressure Congress, the White House released what it projects the impact will be in each of the states.
In Iowa, the lost education funding will be roughly divided between reductions in primary and general education and funding for kids with disabilities. That would have the potential to affect the jobs of 160 teachers and aides statewide, the White House says.
The administration says another $2.4 million will be lost this year in environmental funding to maintain water and air quality.
In Illinois, meanwhile, the cuts to education total more than $58 million, affecting 760 staff. There, 2,700 kids would lose access to Head Start, the White House says.
It also says 14,000 civilian Department of Defense employees would be furloughed in Illinois. Another 2,000 in Iowa would be furloughed. That includes all branches of the military. The Army released estimates last week saying 7,000 civilians employed by the Army would be furloughed in Illinois. The furloughs, which would amount to about one day per week through the end of September, could begin in April.