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Rhyan Kronzer/MEDILL

Democrats warn that sequester cuts could have dire economic consequences at national and state levels.

Severe federal spending cuts to hit Friday

by Rhyan Kronzer and Tanya Basu
Feb 26, 2013

Tanya Basu/MEDILL

Confused by all this talk about the sequester? Here's a brief breakdown of what the sequester is - and what it means for you.

Federal spending lingo

Debt ceiling - the maximum amount of money the United States can borrow through bond issuance. The ceiling was raised to $16.4 trillion in January 2013.

Fiscal Cliff - a combination of expiring Bush tax cuts and across-the-board federal spending cuts that were scheduled to take place Dec. 31. If the federal government had let both changes come into affect at the same time, the U.S. economy could have plunged back into recession. Hence, the federal spending cuts were delayed until March 1.

Sequester - the federal spending cuts created in the 2011 Budget Control Act. These are harsh cuts to both defense and domestic programs created to motivate Congress to work together. However, a collaborative plan has not been reached and the sequester seems unavoidable.    

Across-the-board federal spending cuts are set to take effect in three days. Unless Congress can create a better plan, these cuts known as the sequester could hamper U.S. economic growth and negatively affect states such as Illinois, which are already on dangerous fiscal footing.

“If Congress allows this meat-cleaver approach to take place, it will jeopardize our military readiness; it will eviscerate job-creating investments in education and energy and medical research,” said President Barack Obama in a speech last week.

Cuts will slash defense and domestic spending by $85.4 billion in 2013 and $1.2 trillion during the next 10 years.

These cuts could mean increases in airport delays due to fewer air traffic controllers manning towers at O’Hare International and other major airports. Food production could slow as a result of fewer inspections and the risk of food-borne illness could rise. The Federal Emergency Management Agency may need to reduce funding for state and local grants that support first responders in natural disasters such as Hurricane Sandy.

Democrats argue that allowing the cuts to continue would have a dire effect on the national economy and state budgets. They are pushing a new plan with some targeted cuts that also calls for closing tax loopholes for wealthier Americans.

“We must act to protect the most vulnerable in our society and demand fairness in budget cuts,” said Illinois Sen. Dick Durbin in an email Monday.

Republicans insist that budget cuts are a necessity and refuse to allow any more tax increases after agreeing to the expiration of the Bush tax cuts in January.

With Congress unable to collaborate in an effective way, experts are now considering what the sequester cuts will look like for the nation and individual states.

Illinois could lose a vast amount of funding ranging from severe cuts in student aid to large decreases in public health funding, according to a White House statement last week.

About 3,280 college students would receive less federal aid to pay their tuition.

And Illinois could lose roughly $3.5 million in funds for the treatment and prevention of substance abuse and nearly $1 million to fight infectious disease and deal with natural disasters.

The state also could lose roughly $33.4 million in funding for both primary and secondary education in 2013.

Nearly $1.4 million in funding for job assistance and placement could be cut, resulting in higher Illinois unemployment, the administration said.

However, not everyone is buying the dismal picture being painted by the administration.

“The sun will come up,” said University of Chicago economics professor Allen Sanderson Tuesday. “The $85 billion sequester figure is accurate, but these cuts are spread out over the next seven months. I’m not particularly proud of the way the administration has handled this…It’s disingenuous.”

Economist David Merriman of the University of Illinois at Chicago doesn’t think Illinois is going to suffer greatly in the near future.

“Illinois is actually in relatively good shape, ironically,” Merriman said, referring to the state’s fiscal crisis. “Compared to a lot of other states, we aren’t a big location for federal spending, relative to the size of our economy. So the cutbacks in federal spending will probably hurt us a little less than the average state.”

The main effect here could be a trickle down in the long term, Merriman warned. “The result of the political gridlock is [that] the economy slows. Illinois will feel that because we export our goods to lots of other states. If there’s less of a demand for goods and services, we’ll have more unemployment here.

“The real risk to Illinois is that the sequester could hurt the national economy. We could feel the backlash from that.”

While specific cuts to state programs may not be set in stone, the dysfunction in Washington continues to erode confidence in the political system and the U.S. economy.

The National Association for Business Economics surveyed 49 economic professionals about their outlook for 2013 and 2014 in light of the impending sequestration.

Nearly 60 percent of panelists expect the sequestration to occur either in partial or full form March 1.

In the survey published Monday, forecasters predict the economy will grow by 2.4 percent in 2013 and 3 percent in 2014. However, one-third of those surveyed believe the political battles in Washington over fiscal policy may stifle growth by half a percentage point or more.

“Over 95 percent of the panelists believe that growth in real GDP in 2013 is likely to be negatively affected by uncertainty surrounding the U.S. fiscal imbalances and issues linked to the continuing resolution, sequestration, and the debt ceiling,” said Nayantara Hensel, a business professor who chairs the association’s outlook survey committee.

The sequester was a part of the Budget Control Act passed in August 2011. These cuts were designed as a last resort measure with such severe slashes to both domestic and defense programs that Congress would be forced to collaborate and cut the deficit. The sequester was originally scheduled to take place Jan. 2 but Congress pushed the deadline back until March 1.