February 26, 2013

Cuts to sting jobless, local governments

Obama says forced budget cuts won’t be felt soon, but the uncertainty undermines the economy.

The Associated Press

WASHINGTON – Who'll be the first to feel the sting?

John Boehner
click image to enlarge

Speaker of the House John Boehner

AP

Jobless Americans who have been out of work for a long time and local governments that are paying off loans to fix roads and schools are in tough spots when it comes to the automatic federal budget cuts that are scheduled to kick in Friday.

About 2 million long-term unemployed people could see checks now averaging $300 a week reduced by about $30. There could also be reductions in federal payments that subsidize clean energy, school construction and state and local public works projects. Low-income Americans seeking heating assistance or housing or other aid might encounter longer waits.

Government employees could get furlough notices as early as next week, although cuts in their work hours won't occur until April.

The timing of the spending cuts known as the "sequester" has real consequences for Americans, but it also has political ramifications. How quickly and fiercely the public feels the cuts could determine whether President Obama and lawmakers seek to replace them with a different deficit-reduction plan.

Eager to put pressure on Republican lawmakers to accept his blend of targeted cuts and tax increases, Obama has been highlighting the impact of the automatic cuts in grim terms. He did it again Monday, declaring the threat of the cuts is already harming the national economy.

Republicans say he is exaggerating and point to rates of spending, even after the cuts, that would be higher than in 2008 when adjusted for inflation. All Obama has to do to avoid the damage, House Speaker John Boehner said at the Capitol, is agree to Republicans' recommended spending cuts – with no tax increases.

By all accounts, most of the pain of the $85 billion in spending reductions to this year's federal budget would be slow in coming. The dire consequences that Obama officials say Americans will encounter – from airport delays and weakened borders to reduced parks programs and shuttered meatpacking plants – would unfold over time as furloughs kick in and agencies adjust to spending reductions.

"These impacts will not all be felt on Day One," Obama acknowledged in a meeting with governors at the White House. "But rest assured the uncertainty is already having an effect."

Homeland Security Secretary Janet Napolitano warned that the government would be unable to "maintain the same level of security at all places around the country" once the automatic cuts began to take effect.

The majority of the federal budget is walled off from the cuts. Social Security and veterans' programs are exempt, and cuts to Medicare are generally limited to a 2-percent, $10 billion reduction in payments to hospitals and doctors.

Most programs that help the poor, such as Medicaid, food stamps, subsidized school lunches, Pell Grants and supplemental security income payments are also exempt.

Still, the Pentagon will feel the brunt of half the cuts. Pay for active military is off-limits for cuts, so the rest of the defense budget must absorb the hit.

The Obama administration says defense contractors have already scaled back work, contributing to a dip in economic activity in the fourth quarter of last year.

Elsewhere, the White House's budget office says long-term unemployed Americans would lose an average of more than $400 in benefits over the year. The cuts do not affect state unemployment benefits, which jobless workers typically get soon after their loss of work.

The federal reductions could begin immediately, although some analysts say the government could delay them for a short period to avoid a harmful hit on the economy.

Administration officials also say the Treasury Department is prepared to begin reducing subsidies that cover interest payments by state and local governments on public works, school and renewable energy projects. That means those governments will have to find money in their budgets to make up the difference in bond interest payments, and while that might not affect projects already under way, it could delay new construction.

Many federal programs, such as heating aid for the poor, already have many more people seeking assistance than the program budgets can cover. Funding for the Low Income Home Energy Assistance Program, for instance, has fluctuated greatly in recent years, with the administration proposing to cut it by 13 percent this year. In such cases, it may be impossible for people denied aid to know whether it's because of the sequester because they might have been denied help anyway.

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