Feb. 25 (Bloomberg) -- President Barack Obama urged the nation’s governors to pressure Congress for a deal to avoid automatic spending cuts scheduled to begin March 1, telling them the impact would be felt in every state.
With the National Governors Association meeting in Washington, the White House distributed a state-by-state list of programs, including defense, education and public health, that would be affected by the across-the-board reduction of $85 billion in this fiscal year.
“These impacts will not be all felt on day one, but rest assured the uncertainty is already having an effect,” Obama told the governors gathered at the White House as part of their annual meeting. “While you are in town I hope that you speak with your congressional delegation and remind them in no uncertain terms exactly what is at stake.”
The solution can be found with “just a little bit of compromise,” he said.
The across-the-board cuts, known as sequestration, would shrink federal spending by $85 billion for fiscal 2013, which ends Sept. 30, and total $1.2 trillion over nine years, out of an annual federal budget of about $4 trillion. Congress mandated the reductions as part of a 2011 deal to increase the U.S. debt limit. They would be split almost evenly between defense and non-defense spending.
The White House and congressional Republicans are trading blame for the impasse on the automatic cuts. Obama’s advisers said yesterday they don’t expect to head off the reductions before the deadline.
“Our hope is that we’ll be able to come to a solution,” Dan Pfeiffer, a senior Obama adviser, said yesterday in a conference call with reporters. “But there seems to be nothing the Republicans are saying right now on Sunday to suggest that by Friday they’re going to change their position.”
House Speaker John Boehner’s spokesman, Michael Steel, put the blame on the administration. “The White House needs to spend less time explaining to the press how bad the sequester will be and more time actually working to stop it,” the Republican said.
For all the concern in Washington, investors are signaling that the $15.8 trillion U.S. economy is strong enough to weather the reductions in federal spending. Home sales, consumer confidence and employment are rebounding. Economists at FTN Financial said in a report last week that, while being characterized as a recession risk, sequestration cuts are less than a third of the size of the tax increases on Jan. 1.
The Standard & Poor’s 500 Index is up about 5.6 percent this year. The benchmark was down 0.6 percent at 1,506.33 at 2:33 p.m. in New York after gaining as much as 0.7 percent in the first hour of trading.
Treasuries rose, pushing the 10-year yield to a one-month low on concern that Italy, the euro area’s third-largest economy, may be at a political impasse, stoking demand for U.S. debt as a refuge. The U.S. Dollar Index, which tracks the currency against six of America’s biggest trading partners, reached 81.916, its highest level since Aug. 20.
“The politicians are beginning to sound like Chicken Little claiming the sky is falling” after Washington’s repeated budget crises, said Brian Jacobsen, who helps oversee about $217 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “Maybe the sky is falling, but they’ve exhausted us to the point of apathy.”
If the impasse drags on, the Congressional Budget Office has warned that reduced federal spending may lower the gross domestic product and cost 750,000 jobs by the end of 2013. The U.S. economy shrank in the fourth quarter, its worst performance since the 2009 second quarter, when the world’s largest economy was in recession, according to Commerce Department figures.
To emphasize the damage of the cuts, the White House released a list of programs in each state that would be reduced this year and has dispatched Cabinet secretaries with warnings.
Ohio would lose about $25.1 million in funding for primary and secondary education, which may jeopardize about 350 teacher and aide jobs, according to the White House. In New Jersey, the Obama administration estimates that 1,300 children would be eliminated from Head Start and Early Head Start services.
Transportation Secretary Ray LaHood already has warned of delays at major airports as the Federal Aviation Administration makes air traffic controllers take unpaid time off. Towers at some smaller airports may be closed.
Homeland Secretary Janet Napolitano said today the wait at security-screening checkpoints may lengthen to four hours at major airports and trucks and ships would be delayed at U.S. ports, disrupting international trade. She said the department’s various security functions would be diminished.
“I’m not here to scare people, I’m here to inform,” Napolitano said at the daily White House briefing. “I don’t think we can maintain the same level of security at all places around the country with sequester.”
The automatic spending cuts “will have macroeconomic consequences, cost hundreds of thousands of jobs across the country and jobs throughout the private sector,” said Jason Furman, the principal deputy director on the president’s National Economic Council.
The impact would be especially visible in states where federal spending is higher, including Maryland and Virginia, which have numerous federal facilities. In a Feb. 18 letter to Obama, Virginia Governor Robert McDonnell, a Republican, said the reductions may force his state into a recession.
Senator John McCain, an Arizona Republican, called on Obama to initiate talks with lawmakers.
“I won’t put all the blame on the president,” McCain said yesterday on CNN’s “State of the Union” program. “But the president leads. The president should be calling us over somewhere, Camp David, the White House, somewhere, and sitting down and trying to avert these cuts.”
Republicans have faulted the president and the Democratic-controlled Senate for not acting on an alternative to replace the cuts, while continuing to needle the White House for originally suggesting the concept of sequestration in a deal to raise the debt ceiling in 2011.
“Considering the House has twice passed legislation to avoid the sequester, you would think White House would be focused on getting the Senate to pass a plan that would do the same instead of creating more PR stunts,” Republican National Committee spokesman Sean Spicer said in an e-mailed statement.
Over the weekend, both Republican and Democratic governors said that while the federal government must reduce its budget deficit, the across-the-board spending cuts would deal an unnecessary blow to still-recovering state economies.
Mississippi Governor Phil Bryant, a Republican, said he was most concerned about how the defense cuts could affect his state, from the aerospace industry to shipyards. About 9,000 civilians who work for the Defense Department in Mississippi may be forced to take unpaid time off, ship purchases may be delayed, and a planned demolition at Mississippi’s Naval Air Station Meridian could be scrapped, according to the White House.
“These are real jobs and real families,” Bryant said in an interview. “The president needs to stop holding campaign rallies and get this thing done.”
Vermont Governor Peter Shumlin, chairman of the Democratic Governors Association, said in his state it will force furloughs in the National Guard, create delays at Canadian border crossings, and cut into food and home heating aid for the poor.
“We’re finally seeing some prosperity, we’re finally seeing some job growth, people are feeling better about the future -- and this just absolutely kicks you in the knees,” he said in an interview. “If this thing isn’t resolved, the states can’t make up the difference.”
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