Hagerstown breakfast discussion 12.5.12 for public
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Hagerstown breakfast discussion 12.5.12 for public Hagerstown breakfast discussion 12.5.12 for public Presentation Transcript

  • The “Fiscal Cliff” – Impacts on Western Maryland Working Together: The Path Forward December 5, 2012 1
  • Summary• Maryland - The Products of our Partnership• Our “Skin in the Game”• Urgent Need for Fiscal Order• Elements of the “Fiscal Cliff”• Downsides to Alternatives to the “Fiscal Cliff”• Helpful Strategy and Advocacy 2
  • Where We Are Today… Creating Jobs is Our #1 Priority  30,300 new jobs in 2011  Unemployment rate driven down to lowest level in three years Expanding Skills & Opportunity  #1 Best Public Schools in America in 2011 – 4th Year in a Row A Safer Maryland for Families  Lowest Crime Level Since 1975 Smart, Green and Growing  Achieved 2-Year Milestone Targets for Reducing Pollutants into the Chesapeake Bay A Healthier Maryland  Expanded Health Care to 309,000 Previously Uninsured Marylanders Since 2007 “…Progress on one of these fronts requires progress on all....” 3
  • Making Government Work Fiscal Responsibility  Meeting Spending Affordability Committee Guidelines for 6 years  A balanced approach to budgeting that includes $7.5 billion in cuts (including proposed FY2013 budget)  An improved fiscal climate that led to higher fund balances at the end of FY2011  A Triple A bond rating certified by all three rating agencies  Maryland is one of only 8 states; ratings re-affirmed in 2012"The rating reflects what we view as the states diverse, broad-based economy,which has historically outperformed the national economy...The stable outlookreflects what we view as Marylands economic strength and historically strongfinancial and debt management policies. We believe the state has proactivelyresponded to recent structural budget imbalance and we would expect it tocontinue to focus on achieving balance" - Standard and Poor’s, upon reaffirming MD’s AAA bond rating, February 2012 4
  • Jobs, Jobs, Jobs Post-Recession Jobs Recovery 5
  • INNOVATION: ASSETS#1 in Federal R&D Obligations (per capita)#1 concentration of PHD Scientists and Engineers#2 in Technology and Science#2 U.S. Chamber of Commerce Innovation Ranking#3 Kauffman New Economy Index 7
  • JOBS CREATED BY PROCUREMENT CONTRACT SPENDING, 2010 Direct Indirect Induced Total Non-Defense 98,212 30,315 51,692 180,219 Defense 73,086 28,095 33,913 135,074 Total 171,298 58,410 85,605 315,293The 315,293 jobs created or supported by Federal procurement contractspending in Maryland in 2010 represented 9.4 percent of all jobs in that year. Source: IMPLAN Analysis of USASpending.gov data by DBED 9
  • Employment Impacts of Federal Spending in Maryland, 2010Spending Type Resident Direct Indirect Induced Total Jobs Employees Jobs Jobs Jobs CreatedMD Federal 218,416 - - 218,416Government JobsFed-Employed 314,296 - - 149,202 149,202MD ResidentsContractor Jobs 171,298 58,410 85,605 315,293Grant-Funded 79,648 18,307 40,177 138,131JobsTotal Jobs 314,296 469,362 76,717 274,984 821,042Note: To avoid double-counting, resident employees are not counted in the jobs total. 10
  • CONCLUSIONS• Federal spending was responsible for an estimated 821,000 jobs in Maryland in 2010. – These represented 24% of all jobs – But note that numbers are estimates based on a model• By all measures, Maryland is a major R&D center for the Federal government.• Maryland ranks 4th in total federal procurement expenditures, although it ranks 19th in population. – Federal contracts are an important source of jobs in MD (almost 10% in 2010) 11
  • Federal Highly Skilled Federal Research &Assets Workforce Procurement Development 17 286,422 $26B $1.57B Federal workers Military $24.2B Procurement $$ Federal R&D Grants installations Wages 77 171,994 4th $9.7M Non-military Employed in MD installations $22.6B Total Procurement SBIR/STTR Funding State GDP [7.6%] 60 140,417 180,219 21,455 Federal Labs Jobs supported by Jobs created by Jobs created R&D MD-based federal procurement $$ Grant Spending workersSource: Maryland Department of Business and Economic Development 12
  • How Urgent is the Need for Deficit Reduction? 13
  • Long-Term Debt is Unsustainable 14
  • Current Policies Are Not SustainableSource: Projections based on CBO data. 15
  • Under Current Policy Projections, Debt Climbs to Nearly 200% of GDP in the Next 25 Years 1987-2011 2012 2022 2037 AverageSpending Medicare 2.5 3.7 4.5 6.7 Medicaid 1.2 1.7 3.0 3.7 Social Security 4.4 5.0 5.4 6.2 Discretionary & Other Mandatory Spending 10.3 11.6 7.8 9.6 Nondefense (3.7) (4.1) (2.8) * Defense (4.2) (4.3) (3.2) * Other Mandatory (2.4) (3.2) (1.8) * Interest 2.4 1.4 3.7 9.5 Total Spending 20.8 23.4 24.3 35.7Revenues 17.9 15.7 18.5 18.5Deficits -2.9 -7.7 -5.9 -17.2Debt 44 73 93 199Source: CBO. Other Mandatory consists of: federal civilian and military retirement payments; unemployment compensation; programs for the poor;veterans’ benefits; and other spending. CBO does not separately forecast Nondefense, Defense, and Other Mandatory for 2037. 16
  • Unprecedented Uncertainty: The Elements of the Fiscal Cliff• Sequester• Expiration of tax cuts• Expiration of payroll tax holiday• Expiration of extended unemployment benefits• AMT increases• “Doc Fix”• Continuing Resolution (CR)• TANF expiration• Debt Limit 17
  • Budget Control Act and Cuts• Round 1 of BCA is already in effect – to reduce spending by $900 billion over 10 years.• If sequester hits, Round 2 would take effect - $109 billion in defense and non-defense spending of about $55 billion from each.• About 18% of federal grants to states subject to across-the-board cuts in FY 2013 if sequester isn’t avoided.Source: Pew Center on the States, “The Impact of the Fiscal Cliff on States (Nov. 2012) 18
  • Fiscal Cliff Would Hit Northeast & Midwest Hardest (Total employment, % change from baseline forecast, 2014) -1.4 to -1.9 -1.9 to -2.1 -2.1 to -2.6 U.S.= -2%Sources: Census Bureau, Moody’s Analytics 19
  • 20
  • Downside Risks of Alternatives to the Fiscal Cliff• The current rate of growth in spending is likely unsustainable for federal & state governments & will be cut in any grand budget agreement.• There is broad agreement of the need for tax reform that lowers rates to make us more competitive & reduces tax expenditures but any review of tax expenditures will involve those provisions that are most beneficial to states.• There are likely to be further cuts to the discretionary grant programs on which states depend as the savings from limiting entitlement growth & reforming the tax system are unlikely to be big enough to hit debt targets.• Infrastructure spending by the federal government will decline, especially transportation. 21
  • Top 10 Tax Expenditures (2013, in billions of dollars)Rank Tax Expenditure Cost 1 Exclusion of employer payments for health insurance 181 2 Provisions that benefit states 105 Deductibility of state & local income, sales & property taxes (69) Exclusion of interest on public purpose state & local bonds (36) 3 Deductibility of mortgage interest on owner occupied homes 101 4 Treatment of 401(k)-type retirement plans 73 5 Treatment of capital gains 62 6 Treatment of employer pension plans 52 7 Exclusion of imputed rental income 51 8 Deductibility of charitable contributions 49 9 Deferral of income from controlled foreign corporations 42 10 Accelerated depreciation of machinery & equipment 33Source: Fiscal Year 2013 Budget of the U.S. Government, Analytical Perspectives, Table 17-3. 22
  • Keeping $200B in the Economy• Critically important for Congress to extend middle class tax cuts for 98 percent of Americans and 97 percent of small businesses.• A typical middle class family of four could see its taxes rise by $2,200.• We need as much certainty in the economy as possible to maintain continuous activity – which translates to continued job creation in Western Maryland.• If Congress acts quickly, we can prevent a hit to consumer spending which is roughly 70% of the U.S. economy. 23
  • 2013 2014 2015 2016 2017 2018 2019 2020 2021 TOTALDefense 8 11 14 17 20 23 28 32 36 189NDD -38 -115 -118 -120 -120 -124 -127 -130 -135 -1,026Total -30 -104 -104 -102 -101 -100 -99 -98 -98 -837 24
  • Other Contributors to Downside Risks • The current CR & the TANF authorization expire March 27 • Next year the following programs will need to be reauthorized: – Elementary & Secondary Education Act – Workforce Investment Act – Defense programs – Farm programs25
  • Actions to Avoid or Mitigate Downside Risks• Track & influence proposals & legislation that avoid the fiscal cliff – See, for example, Framework for a Grand Bargain to Avoid the Fiscal Cliff• Using must-pass legislation as a vehicle for priorities that will generate state revenue, such as Marketplace Fairness• Establishing a Tax Reform Task Force (Governors) 26
  • Framework for a Grand Bargain to Avoid the Fiscal Cliff• Require new Congress to produce a debt reduction package that would reduce federal debt by $4 trillion over a decade.• Turn off the fiscal cliff & impose a legislative “backstop” that would automatically become law if the new Congress failed to pass the package.• Enact a 2013 down payment of tax & spending changes in the lame duck to offset some of the fiscal cliff & as part of the larger package.• Deficit reduction should not further reduce funding for “non- defense discretionary programs,” which is already slated for deep cuts in the years ahead in order to meet the austere “caps” (or ceilings on the total amount of funding) the Budget Control Act placed on funding for these programs. 27