Rachel E. Stassen-Berger

Star Tribune

Minnesota has few military bases and no traditional guns-and-planes defense plants, but that doesn’t mean the state won’t take a big hit if Congress fails to halt automatic spending cuts later this year in dealing with the so-called fiscal cliff.

Under some estimates, the state could lose more than 4,000 defense-related jobs and nearly $350 million in revenue for each of the next nine years.

The hits could come in the unlikeliest places: Farley’s & Sathers Candy Co. in Round Lake, Minn., has sold millions of dollars’ worth of Chuckles, Red Hots, gummies and chocolates to the U.S. Department of Defense in the past few years; the sweets are stocked in military commissaries. Minnetonka-based United Heathcare is on track to scoop up billions in defense cash to oversee military and family care in coming years.

And it’s not just defense spending at risk. The Minnesota Management and Budget agency says if the plan known as “sequestration” moves forward, Minnesota could lose $129 million in federal funding and job cuts to some of the 3,000 state employees whose salaries are paid with federal dollars. Those cuts could filter into low-income housing subsidies, special-education funding, clean drinking water grants and elsewhere.

“We are talking about real cuts,” said Chip Laingen, executive director of the Minnesota-based Defense Alliance. Although Minnesota ranks low in states getting defense dollars, defense contracts still mean billions each year to the state’s businesses, he said.

The plan for automatic cuts was born in 2011 as a means of settling the debt limit fight, with lawmakers and President Obama jointly agreeing to hang a sword of sharp cuts over sacrosanct defense and domestic spending, in the hopes that it would goad both sides toward a more responsible budget plan.

But the two sides have remained at odds and the January deadline for the dreaded “sequestration” cuts is edging closer. They would include $109 billion in across-the-board reductions in the growth of spending that could create a fiscal drag and dent the state’s still fragile recovery.

“This election is just stifling … constructive debate,” said Michael Bird, senior federal affairs counsel at the National Conference of State Legislatures.

Millions at risk

Surprisingly, every congressional district in Minnesota holds some kind of defense contract, and the pro-defense spending Center for Security Policy says every one of them could see those contracts whacked. The center’s most dire prediction: A full 18 percent hit to the defense budget could result in more than $349 million in Minnesota business revenue loss for each of the next nine years. George Mason University, in a study for the Aerospace Industries Association, said the state could lose 4,619 defense-related jobs if reductions go forward.

From the presidential race down to congressional battles, candidates are using the looming cuts to bash the bipartisan majority in Congress that approved the plan.

“It will devastate the economy. It will devastate the national economy,” said Republican U.S. Senate candidate Kurt Bills this week. He wants to cut the federal government, he said, but favors targeted trims, not the “hatchet” of automatic cuts. He has heavily criticized his Democratic opponent, U.S. Sen. Amy Klobuchar, for voting in favor of the Budget Control Act that set the cuts in motion.

Klobuchar says she wants to find a solution to rework the cuts.

“We’d be much better off negotiating a way to do this,” she said. Her preferred solution? Let the tax cuts for the wealthy expire, adopt strategic cuts before the end of the year and continue working to find more cuts over time.

Benefit of low federal dollars

Others hope a lame-duck Congress will be able to come back after the election and push through an alternative before the year ends.

If they don’t, there’s a chance that Minnesota’s comparatively low share of federal funds will blunt the impact on the state. According to Minnesota Management and Budget, “Minnesota ranks 49th among states in per capita federal expenditures.”

Some businesses are already bracing for what may be inevitable.

“Our slice of the pie is relatively smaller and I think we have smarter businesses,” Laingen said. “I don’t think there’s a panic setting in. I think there’s just kind of a realization that it is probably going to happen. We’ll adjust.”

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