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February 25, 2013

Getting a grip on sequestration

E.J. McMahon

The White House says that if an automatic budget sequester is triggered in Washington later this week, New York ultimately will lose $275 million in federal aid.

To put that in context, based on the latest available government finance and economic data, $275 million represents:

  • about 0.093 percent of total spending by New York’s state and local governments as of 2010;
  • about 0.027 percent of New Yorkers’ personal income as of 2012; and
  • about 0.024 percent of New York State’s Gross Domestic Product as of 2011.

Those amounts reflect small fractions – one-hundredths — of a single percentage point.

The amount at stake in the automatic sequester would barely qualify as negotiable “move money” in a New York State budget-negotiation context. Even in austere times by Albany standards, $275 million is less than half of Governor Cuomo’s proposed 2013-14 school year state aid hike alone. And while the sequester has been designed to exclude federal Medicaid grants to states, $275 million is barely one-quarter of the amount by which the feds are already beginning to reduce New York’s annual Medicaid reimbursements, as a way of recovering for past over-payments.

This story, a classic illustration of the age-old Washington Monument Strategy in action, quotes the Obama administration as predicting, among other things, that a sequester will result in the furloughs of 12,000 federal civilian defense workers in New York, and that “some 70,000 young children would lose access to the Head Start program.” But those furloughs (i.e., temporary unpaid leaves), while certainly devastating stress-inducing for the workers involved, would be equivalent to a statistical rounding error in a state economy where 8.9 million people are employed. And an immediate federal budget cut of a few percentage points, if it actually happens, need not cause a complete shutdown of Head Start, which is what that 70,000 number implies.

Across-the-board cuts are not a smart way to reduce spending, but the across-the-board automatic sequester is something the President himself proposed and signed into law in 2011 as a form of deliberate brinksmanship — a way of ensuring that Republicans would negotiate it with him now.  Obama says the problem is Republicans are unwilling to increase taxes on the wealthy — on top of the tax hikes they just passed, that is. Republicans say the President is not putting any specifics on the table.

In the past, both the President and leading House Republicans have expressed a willingness to more tightly cap if not eliminate itemized income tax deductions for the wealthiest taxpayers. If they can reach agreement on that, it will take a disproportionate bite out of the tax base of … New York State.

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