By: Robert Koenig
St. Louis Beacon
WASHINGTON – The University of Missouri system could lose $25 million in federal research, student aid and health care funds.
The state’s big military bases – Fort Leonard Wood and Whiteman AFB – would face cutbacks, and the Missouri operations of defense contractors could end up with $1 billion less Pentagon funding than projected, costing thousands of jobs.
Missouri would lose some state tax revenue (but perhaps gain others) if federal taxes rise, and the state government might receive $126 million less in federal money in this fiscal year for federally subsidized programs such as public-school aid, food subsidies and special education.
Those are just a few of the projections – made in reports by research and interest groups – of the potential impact of the combination of federal tax hikes and the across-the-board “sequestration” cutbacks in federal spending that would result if Congress fails to act and the nation’s economy plummets over the “fiscal cliff” on Jan. 1.
But there is a big caveat to such projections: Most lawmakers predict that at least a temporary deal will be reached to avoid at least some of the automatic cuts and tax hikes, either at the end of this month or early in January. And, at this point, no one knows how the deal’s taxes and spending cuts will play out.
Even if the projections are merely the result of data-crunching with incomplete data, they give a sense of what’s at stake in the current talks between President Barack Obama and House Speaker John Boehner, R-Ohio, to try to reach an agreement that the House and Senate would consider this month.
Those talks, while seemingly stuck at the moment, aim to avoid the dual fiscal cliff threats of the expiration of all Bush-era tax cuts and the implementation of “sequester” spending cuts totaling $109.3 billion in this fiscal year.
Those would hit defense programs with a 7.5 percent across-the-board reduction; slashing non-defense discretionary programs by 8.4 percent; and a 2 percent cut in payments to Medicare providers.) Cuts after FY 2013 would be determined through the annual appropriations process and would not be across-the-board.
Here are quick summaries of a few of the reports of how elements of the “fiscal cliff” – which, in reality, would be more of a terraced slope, as cuts are phased in – would impact Missouri:
* A report by the Pew Center on the States (“The Impact of the Fiscal Cliff on the States”) says federal spending cuts and tax hikes would have a widespread impact on budgets and spending in Missouri, Illinois and other states.
As one of six states that allow federal income tax to be deducted on state tax returns, the report said, Missouri “would see a reduction in their tax revenues as a result of higher federal taxes.” However, other state tax revenue would likely rise, officials say.
Defense spending – which would take a disproportionate hit under sequestration cuts – would hit hard in Missouri, where defense spending (on procurement and wages) represents 5.9 percent of the stateGDP(versus 1.5 percent of Illinois’GDP). Also, federal grants subject to the sequester represent 7.2 percent of Missouri state revenue and 8.5 percent of Illinois state revenue.
* Federal Funds Information for the States – a state database that requires a subscription – estimates that Missouri could lose about $126 million in FY2013 federal funding for programs that include aid to low-income public school districts, food subsidies for low-income women and children, and special education funding, according to an Associated Press report.
Also, Missouri’s share of cutbacks in defense spending (including across-the-board reductions at Whiteman and Fort Leonard Wood) is estimated by FFIS at more than $1 billion. That would represent the 10th highest defense spending reduction among the states but is far less than Maryland, Virginia, California and other states with huge bases and large numbers of defense contractors.
* A “Sequestration Analysis,” prepared by the University of Missouri’s government relations office, estimated that in the current fiscal year sequestration would reduce the university’s funding by more than $25 million.
Those cutbacks would come from “key areas at the University of Missouri system, including federally supported research, student aid and health care,” the report said.
The analysis concluded that, for research, that cut would mean “a direct reduction in the number of grants available, smaller awards sizes, or that only existing but not new awards would be funded. For student aid, it will result in less work-study funding. For our hospitals and physicians, it means lower Medicare reimbursement rates.”
* A report by the pro-defense Center for Security Policy asserted earlier this year that possible revenue losses by Missouri’s defense contractors – led by Boeing’s warplane operations in Hazelwood – could amount to $1.63 billion a year, assuming an 18 percent cut. The Illinois loss was estimated at about $1.2 billion a year.
An addendum to the report, issued in October, broke down the contracts at stake by congressional district. According to its figures, firms in Missouri’s 1st District — which includes Boeing and St. Louis — have received 285 defense contracts worth a total of $3.2 billion. That’s the most of the state’s current nine congressional districts.
The St. Louis region’s 2nd and 3rd District have companies that have obtained $749.6 million and $454.3 million, respectively, in contracts, the report said.
While calculating possible job losses from sequestration is a stretch, the center’s speculative analysis suggested that across-the-board cuts could lead to the loss of 2,988 active-duty military and 2,496 civilian defense jobs in Missouri over nine years. In Illinois, the report predicted a loss of 1,685 active duty and 3,943 civilian defense jobs.
“The sequester was never intended to pass through Congress but was used to light a fire under our congressional leaders, who needed to act in order to preserve a manageable national debt,” wrote Ray McCarty, president of Associated Industries of Missouri, last month. So far, however, that “fire” threat hasn’t led to action by Congress.
McCarty warned that “defense contractors and their smaller suppliers are now facing a measure that would be equivalent to General Motors and Ford going bankrupt.”
* The White House Office of Management and Budget, in an October report that was required by Congress, warned that sequestration would lead to cutbacks in defense spending, curtailed medical research, fewer FBI agents and trimmed services for some military families.
The report estimated some effects of automatic, across-the-board budget cuts – amounting to $1.2 trillion over a decade but including some exemptions – resulting from last year’s deficit-reduction law.
Calling sequestration “a blunt and indiscriminate instrument” to cut budgets, the OMB said in the report’s introduction that the Obama administration “strongly believes that sequestration is bad policy, and that Congress can and should take action to avoid it by passing a comprehensive and balanced deficit reduction package.”
Of special concern in the St. Louis region – where the Boeing Co. fighter aircraft production lines and many military equipment subcontractors are located – are the Pentagon cutbacks, which the report said “would result in a reduction in readiness of many nondeployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts and reductions in-base services for military families.”
Specifically, according to the report, Air Force and Navy aircraft procurement would be trimmed by more than $4.2 billion; Defense Department operations and maintenance would lose $3.9 billion next year; and military health care would be cut by $3.3 billion.
But many domestic programs also would be hit, including the loss of $2.5 billion by the National Institutes of Health and a decline of $2.3 billion in rental assistance for the needy. Overall, the food stamp program would be cut by $543 million.
While sequestration would not have a direct impact on Medicare benefits, it calls for a 2 percent cutback in the $554 billion that Medicare estimates it will spend on providers and insurance plans next year. A major chunk of that reduction would come from the Federal Hospital Insurance Trust Fund, the report said.
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