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Automatic Federal Budget Cuts Will Hurt North Carolina’s Economy and Fiscal Bottom Line

Just a month after this year’s budget-cutting General Assembling left town, North Carolinians are facing a new round of spending reductions on top of the state budget cuts enacted since 2011 [1].  This time, spending cuts are coming from Washington, DC and promise to shrink funding for non-defense-related public investments in education, research, and healthcare.  Coupled with cuts to the Pentagon budget, sequestration will reduce Federal spending by$1.2 trillion over the next decade.

Although policy makers have [2] mostly [3] focused [4] on the negative consequences of the defense portion of these cuts for North Carolina’s economy (with estimates as high as $1.5 billion in lost defense contracts and 11,000 in lost jobs), it is also clear that the targeted reductions in non-defense programs will have an even greater negative impact on both the state’s economic health and its budgetary bottom line, as WRAL [5]reports:


Birthed out of the deal [6] reached between Congressional leaders and President Obama to raise the Federal debt limit last summer—known as the Budget Control Act—these so-called “sequestration” cuts were designed to go partially into effect in 2013 unless a specially created congressional “super-committee” could agree to find another way to reduce the Federal budget deficit by $1.2 trillion.  Perhaps unsurprisingly given unprecedented gridlock in Congress, the super-committee failed to reach an agreement last year, and as a result, these across-the-board automatic sequestration cuts are set to take effect in the coming years, the first $120 billion in just a few months, evenly divided between Pentagon and non-defense spending.

In terms of economic consequences, one recent study [7] suggests that the non-defense cuts will reduce Gross State Product by almost twice the amount lost to Pentagon cuts, for a combined loss of $2.95 billion to the state’s economy.  The study estimates that the jobs impact for both defense and non-defense cuts would be cause over 1 million job losses nationwide.

And the economic impact would be magnified by the negative fiscal impacts on the state budget.  According to the US Senate Appropriations Committee report [8] referenced in the clip, the non-defense cuts will reduce the state’s Department of Health and Human Services budget by $35 million and education spending by $84 million—reductions that come on top of the steep cuts to state funding enacted by the General Assembly. As a result, If the current levels of sequestration takes effect, 447 Head Start jobs across the state will be lost, leaving 2,146 fewer children served at a time when the legislature has already cut pre-K programs by 40%; 4,000 parents will lose child-care subsidies, putting their jobs at risk; 6,000 teachers will lose their jobs and 51,000 fewer students will be served.

As Congress considers addressing sequestration cuts, legislators should remain mindful that while the defense cuts will certainly harm North Carolina’s economy, the non-defense cuts will prove even more damaging.