A new study shows Maryland’s unemployment rate would nearly double — erasing more than a decade’s worth of job expansion — if federal spending is cut by 22 percent as recommended by President Obama’s deficit commission.
Maryland would suffer a loss of 150,000 out of roughly 3 million jobs under the commission’s recommendations to cut procurements, grants, salaries and wages, according to an economic model built by the Baltimore consulting firm Sage Policy Group. The state’s unemployment rate would rise to nearly 12 percent from 7 percent.
The cuts would disproportionately hurt the Washington suburbs of Montgomery, Howard and Anne Arundel counties, where federal per-capita spending is the highest, the study found.
| Feeling the pinch | ||||
| Economic impact of 22 percent decrease in federal government spending in procurement, grants, and salaries and wages: | ||||
| Jobs: -148,489 | ||||
| Labor income: -$10.6 million | ||||
| Business sales: -$20.8 million | ||||
| Federal government employment as a percent of total employment, 2010 | ||||
| Rank | State | Percent | ||
| 1 | District of Columbia | 29.4% | ||
| 2 | Hawaii | 5.9% | ||
| 3 | Maryland | 5.6% | ||
| 4 | Alaska | 5.4% | ||
| 5 | Virginia | 4.8% | ||
“Were these counties to encounter substantial federal downsizing, the trajectory of economic affairs would be fundamentally altered,” the report says. Top federal contractors in the counties include Lockheed Martin, Northrop Grumman and IBM.
The reductions also would hit Maryland’s highest-paid workers the hardest, reducing the state’s average annual income by roughly $6,300, from $49,025 to $42,725.
The loss in tax revenue to the state would amount to $1.2 billion, or about one month’s worth of funding, according to figures provided by state Comptroller Peter Franchot.
Gov. Martin O’Malley’s office is reviewing the report and was not prepared to comment on it Monday, O’Malley spokeswoman Raquel Guillory said.
A spokesman for Franchot, who noted that he hasn’t read the report, said, “While we are happy to have a federal presence in the state, we also have to be sure to foster a climate that promotes private-sector job creation and growth.”
Maryland’s heavy reliance on the federal government makes the state especially vulnerable to reductions in federal spending. For that reason, Moody’s Investor Services says it plans to re-examine the triple-A bond rating it assigned Maryland as Congress continues wrestling over the national debt. Maryland’s economy “continues to be proportionately more affected by the activities of the federal government than any other state,” the agency reported.
Maryland ranks second in the nation for per-capita federal spending on procurement, and fourth for per-capita federal spending on salaries and wages, according to the Labor Department.
“The loss of the federal government as a primary generator of economic activity would cause various aspects of the state’s quality of life to fall apart,” the Sage report says.
Federal spending also comprises a large percentage of the economies in Virginia and the District of Columbia, but the report does not provide a breakdown of how spending cuts would affect those states.
Sage based its study on recommendations made by the National Commission on Fiscal Responsibility and Reform, which proposed nearly $4 trillion in deficit cuts over the next decade and a reduction in the national debt to 60 percent of the gross domestic product by 2023. Federal debt is currently more than 95 percent of GDP.
The Sage computer model did not adjust its projections for fewer or additional cuts in federal spending, which are still being debated as Congress and Obama work to raise the federal debt ceiling by Aug. 2.
