Sequester Update

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Three months into sequestration, effects have started surfacing from the first round of remarkable and random federal cuts to discretionary outlays. According to a poll this week by ABC New/Washington Post, the sequester now directly affects the lives of almost forty percent of Americans to some degree, and half of those affected claim substantial personal injury from this $85 billion slash in spending.  How this expenditure reduction will specifically affect Maryland’s residents remains uncertain, but a report released Wednesday by the Economic Policy Institute (EPI) that analyzes the net change to states’ federal grants sheds some light on possible consequences for the state’s budget.

According to the issue brief, while sequestration reduced total federal grants to states by $5.1 billion overall in 2013, Maryland fared better than average, receiving a $44 million increase in its federal aid (which represents a 0.5 percent increase relative to the 2012 funding level). The report provides state residents some reason for optimism, but this analysis does not suggest that Maryland as a whole has dodged the fiscal bullet. While the net effect on federal aid to the state may show an increase, some support for programs such as housing assistance, Meals on Wheels, and Head Start has waned. The state has also seen a $3.4 million decrease in federal support to administer unemployment insurance, according to a study by Pew. Many nonprofits in the state face grant reductions, with some shedding staff as a result; others yet to be hurt by the sequester see their own cuts looming next year. Additionally, a full seven percent of Maryland’s workforce is employed by the federal government, and many major agencies have issued furlough orders.  The economic effects of these lost wages will inevitably ripple through the economy.

Results for other states were mixed. Virginia likewise saw its grants grow (up $271 million, or 2.7 percent from last year), while others in the region like the District of Columbia, Pennsylvania, and Delaware suffered millions of dollars in federal revenue losses. EPI attributes the difference in states' outcomes to the mechanics of the sequester— it only reduces spending on discretionary programs, so states with increases in beneficiaries under mandatory spending formulas saw grants expand amidst this great spending contraction. Overall, 25 states experienced reductions in federal grant funding that will decrease their ability to provide public goods such as infrastructure, education, and social services for elderly and low-income residents.

Sequestration and its effects are far from over, as Evan Soltas of Bloomberg News points out in his blog post this week, reminding Americans that another $92 billion in cuts await us in 2014, and a portion of the spending reductions from this year have yet to go into effect.