No way to know how bad (or not so bad) looming budget cuts will be

sequester.jpgBut NY Mayor Michael Bloomberg promises that come Monday "we'll be able to police the streets. There will be a fire engine that responds, an ambulance, our teachers will be in front of the classroom." Same thing in L.A. Matter of fact, L.A. County says that only a tiny amount of funding it receives from the federal government would be affected by sequestration. Even the White House, which has been the most gloomy and doomy, estimates that California could lose $500 million in federal money, which really isn't that horrible. From this week's Business Update on KPCC:

Steve Julian: As we head toward Friday's deadline on federal sequestration, we get an idea of how it'll affect Southern California's economy. Mark, do we even know the answer?

Mark Lacter: You know, Washington can't even stage a full-blown fiscal emergency without there being mass confusion, Steve. Obviously, this is not going to be good for the economy (they're throwing around all kinds of scary numbers), although it's hard to know how bad it'll actually turn out to be. It's important to look at these numbers in the context of the overall state economy, which is huge. We talk about all the Californians who are involved in the defense business (and that's more than 200,000 at last count), but when Pew Research added everything up it was just 2.8 percent of California's gross domestic product - not all that much.

Julian: Who's really behind the sabre rattling?

Lacter: Well, all sides, in various ways. The White House has been trying to shake everybody up with concern about government programs and services that would be cut because of the sequestration, and in California it seems like a sizable list: funding for primary and secondary education, federal grants for law enforcement, job training, clean air programs, public health programs, and so on. But, keep in mind that much of the federal funding that California receives is through programs that are exempt from sequestration. L.A. County says that the cuts involve less than 1 percent of the federal revenue it receives.

Companies that do business with the government could be among the most vulnerable - everything from defense contractors to furniture vendors to wholesale gas suppliers. As the nation's largest customer, Washington has a huge influence on the overall economy and so cutbacks of any duration could become a bigger deal than many analysts are expecting. Government spending represents 8 percent of the gross domestic product. Small business, in particular, might bear the brunt of the cuts. From the NYT:

"So many of these small businesses don't realize how dependent they are to the federal government because they're not the contractors -- they are suppliers and vendors to the contractors," said [Stephen Fuller, a professor at George Mason University's School of Public Policy]. "They're the ones who water the plants and secure the buildings." Small businesses will suffer from the reduced federal and private sector payroll because of the important role they play in the consumer economy, as retailers and restaurants. "However you allocate the consumer budget across the economy, there's a large number of small businesses," Mr. Fuller said.

For what it's worth (and I wouldn't hold my breath), President Obama is scheduled to meet with Congressional leaders on Friday - the day the cuts are scheduled to take effect. This lack of urgency, part of each side's cynical political calculations, is breathtaking.

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Business Update on KPCC stories:
Naysaying emerges in wake of LAX shootings*
Holiday shopping: On your marks, get set... spend!
What to do with all that bad chicken?
Why it's hard to gauge progress of health care programs
Why L.A. isn't being hit too hard by shutdown - for now

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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