The failure of the “supercommittee” — a bipartisan group of U.S. senators and representatives — to reach an agreement this week on cutting $1.2 trillion from projected federal budget deficits over the next decade could affect area businesses if automatic spending cuts kick in, particularly in defense, according to local leaders.
“Locally our economy is so dependent on the national economy, and the lack of an agreement can’t be good for the nation’s economy” or its prospects for growth, said Rob Ferree, deputy director of the Hagerstown-Washington County Economic Development Commission.
A number of manufacturing and technology companies rely heavily on defense contracts, including Sierra Nevada and other businesses at the Hagerstown Regional Airport, and Electromet Corp. in Hagerstown, Ferree said.
The so-called sequestration plan calls for reducing increases in federal spending by $1.2 trillion over 10 years, beginning in 2013. Ferree said $600 billion of that is supposed to come out of the Pentagon’s budget.
Those cuts would be in addition to other proposed cuts in defense spending, Ferree said.
Franklin County, Pa., also has a significant defense presence at Letterkenny Army Depot. Downsized in the 1990s, the depot has rebounded since 2001 and now employs about 3,800 people.
“I think this has dramatic ramifications for Franklin County and South Central Pennsylvania due to the potential cuts in the Department of Defense,” said L. Michael Ross, president of the Franklin County Area Development Corp. That includes the depot and military installations in Carlisle, Mechanicsburg and Fort Indiantown Gap.
“This really goes to the heart of the ideological divide in this country and the incredible lack of leadership in the Congress and the executive branch,” Ross said.
“Every private-sector business and, for the most part, every local and state government, has had to make very painful cuts for their own survival,” Ross said. “Few businesses could survive on the business model of the United States government.”
The 167th Airlift Wing of the West Virginia Air National Guard, the Veterans Affairs Medical Center in Martinsburg and U.S. Coast Guard support facilities are some of the federal entities in Berkeley County, W.Va., that could be affected by cuts in military spending, said Stephen L. Christian, executive director of the Berkeley County Economic Development Authority.
“It doesn’t inspire confidence in the international community, the business community, the financial community or the public,” Christian said of the stalemate. It also contributes to the climate of uncertainty.
“Uncertainty is the death of business investment and risk taking, and it is having a profound effect on our ability to work our way through this recession,” he said.
“I’m certainly an amateur economist, but much of what happens with the economy has to do with the confidence people have in their legislators and leaders, local, state and federal,” Washington County Commissioner William McKinley said.
That the committee could not reach an agreement will not encourage investment in either new businesses or the expansion of existing ones, McKinley said.
“It says to the country we’re in some kind of a gridlock,” and that politicians are “thinking about what’s good for their party and not the country,” McKinley said.
Another recession looms?
Franklin County Treasurer David Secor suggested that President Obama go back to the plan recommended by the National Commission on Fiscal Responsibility and Reform, better known as the Simpson-Bowles Commission, named for co-chairmen Alan Simpson and Erskine Bowles.
“It should have begun and ended there,” Secor said of the 2010 plan, which offered a combination of tax reform and new taxes with cuts in entitlements to control future deficits. The commission members voted 11-7 for the plan, but that fell short of the 14 votes needed for a formal endorsement.
Cutting more than $1 trillion in federal spending sounds like a lot, but that would be accomplished over a decade, Secor said.
“Politicians throw out these big numbers, and then their voice starts to trail off ... ‘over 10 years,’” Secor said.
The Congressional Budget Office projects federal spending at more than $46 trillion from 2012 to 2021. That does not mean that the committee’s failure won’t hurt financial markets and individuals’ portfolios, Secor said.
“Markets are based on the emotions of investors,” Secor said. The failure of the supercommittee is just one more indication to investors that the government cannot rise to the occasion.
“Long term, it could have a significant impact on the markets,” Secor said. “It’s going to bring us closer to the brink of another recession.”
Secor noted another crisis is looming in January when Congress once again is faced with raising the national debt limit, an issue that had Congress and the White House at odds in the summer.