The sequester would do real damage to New England
As originally appearing in The Union Leader

By James T. Brett & Ross Gittell

For the last 18 months, Washington policymakers seem to have lurched from crisis to crisis, and the concept of fiscal “cliff” has become a popular metaphor. In the summer of 2011, the debt-ceiling standoff made the nation’s financial standing vulnerable and resulted in the downgrade of the United States’ credit rating for the first time in the nation’s history. The last-minute resolution of that crisis simply laid the groundwork for the next – the fiscal cliff experienced at the end 2012.

Pulled back from the edge in the wee hours of New Year’s Day, Congress passed a “deal” that merely delayed many decisions, leaving key spending questions hanging and the economy uncertain and vulnerable. The new session of Congress, which began in early January, faces a series of deadlines, each promising cliff-hanger drama as partisan lines are drawn yet again. Even the recent resolution of the immediate debt ceiling deadline only delayed the inevitable – another debt ceiling fight is expected just months from now.

Fiscal cliffs, and the chaos leading up to them, are not good for the economy, particularly a regional economy struggling to find its footing after the worst financial crisis since the Great Depression. Indeed, according to New England Economic Partnership (NEEP) forecast data, at best the region will experience annual employment growth averaging only 1.5 percent, and the overall regional gross product is expected to grow at only 3.3 percent for the next several years.

For New England to make a significant dent in the stubborn unemployment plaguing the region, the overall employment growth would need to be closer to 2 percent. This means that even in a best-case scenario, overall New England unemployment is likely to remain above 6 percent for the next few years.

All the states in the region are expected to have employment growth below the national average for the next three years. Demographic factors, including lower labor force growth than the U.S. average, contribute to slower employment growth than the national average. There will continue to be significant variation in economic performance across the region as well. Massachusetts, New Hampshire and Vermont are expected to have the strongest economies in the region over the forecast period. Rhode Island is expected to continue to have the highest unemployment rate in the region as the state continues its slow recovery from the most significant percentage employment decline in the region.

Given the economic outlook in New England, we cannot afford to find ourselves at “cliff’s edge” yet again. The region needs thoughtful, constructive decision-making in Washington that provides some degree of economic certainty. Without it, businesses are reluctant to expand and consumers are hesitant to spend. Alone, that very predictable behavior could easily derail the slow economic recovery of our region. However, the looming 8-10 percent cut in federal spending mandated through the sequestration process could have an even greater impact.

Federal spending on research and development, defense and other areas is interwoven throughout New England’s economic fabric. Not only would sequestration affect key business sectors across the region, it would also affect household spending levels if jobs are shed with federal funding cut backs. Given the underlying economic outlook, such blunt policy action could set the New England economy back months, if not years.

Good policy decisions are rarely made in crisis. Last-minute, cliff-hanger approaches to the upcoming federal spending decisions could have serious long-term consequences for New England. We need the best thinking from our policymakers to develop a thoughtful, balanced plan to return to fiscal health, that avoids the run up to yet another “cliff.”

James T. Brett is president and CEO of The New England Council, the nation’s oldest regional business association. Ross Gittell is vice president and New England forecast manager for the New England Economic Partnership and the chancellor of the Community College System of New Hampshire.

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