The Massachusetts economy took a significant hit because of the federal budget cuts known as sequestration. A study released this week estimated the impact the $1 trillion in automatic across-the-board spending cuts had in the Bay State.
Massachusetts took a federal funding hit of $1.3 billion in the fiscal year that ended on September 30th with the consequences being an employment impact of over 14,000 jobs, an estimated $1.4 billion reduction in economic output and a decrease of $63 million in state tax revenue, according to the results of a study by the Donahue Institute at the University of Massachusetts.
Sequestration cuts to defense contracts, research grants, a myriad of state and local agencies, Medicare reimbursements and military base operations were found to be a significant drag on the Massachusetts economy, according to Daniel Hodge, director of economic and public policy research at the Donahue Institute.
"The industry sector impact is pretty widespread across educataion,healthcare, government workers, manufacturing and professional and scientific research organizations."
Because of the large number of universities, research institutions and high- tech defense contractors in Massachusetts it was widely believed the state would suffer a disproportionate impact from sequestration. Hodge said few layoffs were directly linked to sequestration, but the study estimates about 14,000 jobs were not created as a result of cuts in research grants, government contracts and payments to doctors and hospitals.
" That's not to say the impacts we estimated are not very significant. Anything over 10,000 jobs is quite significant to the state's economy given that over the past ten years we have typically gained somewhere between 10,000 and 55,000 jobs in a given year."
Hodge points to L-3 KEO as an example of a company directly impacted by sequestration. The supplier of high- tech equipment to the military—with roughly 300 employees in Massachusetts, Vermont, and Connecticut—recently cut 19 positions at its Northampton facility.
An annual report by the military calculating the local economic impact of Westover Air Force Reserve Base in Chicopee said it decreased by 5 percent from 2012. The report blamed furloughs ordered because of sequestration, a hiring freeze, and a decrease in construction on the base.
The monthly unemployment rate in Massachusetts increased by .4 percent over the last 12 months. Despite a slight drop in November to 7.1 percent, the Massachusetts unemployment rate is now higher than the national rate for the first time since May 2007. Hodge said that is troubling.
The bipartisan budget deal approved by Congress this week reduces the automatic spending cuts by $63 billion, but does not repeal sequestration. Jo Comerford, executive director of the National Priorities Project said while the impacts from sequestration should soften overall federal spending will remain on the decline.
" This deal does not bring us back to 2007 levels. We are still in this small government slide where members of congress are really talking about deficit reduction only in the form of spending cuts."
U.S. Senator Ed Markey and the other members of the Massachusetts Congressional delegation have longed called for an end to sequestration.
"I think as each month goes by it is becoming clear it is a nonsensical plan and has to be undone," Markey said recently.
Massachusetts Congressman Richard Neal, in a written statement, called the automatic budget cuts an “ill-considered way to administer the federal government.”