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Report: Arizona could lose 49,000 jobs if federal budget cuts take effect

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Tuesday, July 17, 2012
By Christopher Leone
Cronkite News

WASHINGTON – Arizona could lose more than 49,000 jobs if automatic federal budget cuts are allowed to take effect in January, according to a report released Tuesday.

The report for the Aerospace Industries Association said that direct and indirect job losses resulting from spending cuts mandated in the Budget Control Act of 2011 could top 2 million jobs nationally.

That would boost the national unemployment rate by 1.5 percentage points and lead to a $215 billion reduction in gross domestic product, according to the report by Stephen S. Fuller, a professor at George Mason University’s School of Public Policy.

“We are just a few short months away from economic Armageddon,” said Phoenix Mayor Greg Stanton, who attended the meeting in Washington where the report was unveiled.

The bulk of job losses in Arizona would be defense-related, according to Fuller, who estimated that planned cuts to the federal defense budget could cost the state 35,000 jobs.

Almost 14,000 more jobs in Arizona could be lost from budget cuts to other government agencies, such as the Department of Agriculture, that have operations in the state, the report said.

Both figures include direct and indirect job losses. Direct job losses would come from federal agencies, military bases and prime federal contractors in Arizona that would lose employees or contracts under the cuts.

Indirect job losses would come from the suppliers and vendors that do business with those agencies, bases and prime contractors, and would see that business go away.

“It could be the security guard at the office building rented by GSA (General Services Administration) that is no longer needed because the building is no longer fully leased,” Fuller said in an email.

Stanton said the direct job losses would include some of the highest-paying jobs in Arizona.

“These are the best jobs that we have in our community,” he said.

The cuts were mandated by the Budget Control Act of 2011. That law created a bipartisan “super committee” that was supposed to come up with a long-term solution to the nation’s budget deficit and debt.

In an attempt to push the committee to a deal, the law called for harsh automatic budget cuts to take effect on Jan. 2, 2013, if no deal was reached. At least half the cuts would come from defense and half would come from domestic programs.

The super committee disbanded nearly a year ago, admitting in a joint statement that it could not reach an agreement on the budget. The stalemate set in motion the automatic cuts, also called budget sequestration.

“No one ever thought it (sequestration) was going to actually be implemented. Nobody paid that much attention to it,” Stanton said. “The assumption was the super committee was going to resolve it.”

If Congress doesn’t reach some kind of budget compromise by the end of the year, the sequestration cuts to both defense and non-defense will kick in. But the threat of cuts is already having an effect.

“People don’t take risks … during times of uncertainty,” said Fuller. Uncertainty reduces investment, he said, and innovation stops as a result.

Stanton said he meets regularly with companies in the aerospace industry and he agreed that those businesses are already holding off on hiring and procurement.

“Back in Arizona many of them have significant operations. And so, yes, it is affecting their corporate behavior now, absolutely,” Stanton said.