Minnesota could feel fury of federal budget cuts

WASHINGTON – Massive federal spending cuts slated to begin Friday could cost Minnesota $117 million in grants and aid, wipe out hundreds of millions more in lost business and contracts, and put an estimated 16,000 Minnesotans out of work, with the loss of $821 million in personal income.

Flight towers at regional airports in Anoka, St. Cloud, Eden Prairie and Crystal could be forced to close. Furloughs of meat and poultry inspectors could slow production at meatpacking plants in such places as Austin and Albert Lea, possibly triggering shortages of beef and chicken.

Congress still has time to avoid the sequester when it returns from recess on Monday, but time is running short. The March 1 deadline is looming and the two sides appear no nearer to reaching a deal.

The good news: Even if the sequester hits, Minnesota ranks 49th in per capita federal spending, so there's simply less to cut here than in most states.

Not that it would be ­painless. As political forces in Washington continue their high-stakes staredown, local and state government officials are being bombarded with binders of scary numbers, each one carrying a personal story: More than 1,000 Minnesota children would be forced off Head Start; 13,698 fewer disadvantaged students would be helped by Title I grants; 14,239 fewer mothers and young children would get critical health care; more than 280 veterans in Minnesota would lose access to job training.

Local officials say that while the federal dollars may shrink, the problems will not.

"We already have an excessive suicide rate with returning combat veterans," said Carver County Commissioner Randy Maluchnik, past president of the Association of Minnesota Counties. "You don't think this is going to add to the problem?"

U.S. Transportation Secretary Ray LaHood told Congress in a Feb. 11 letter that sequestration will make it "impossible to avoid significant employee furloughs" in the Federal Aviation Administration, causing "a serious impact on transportation services that are critical to the traveling public."

Widespread furloughs, or leaves without pay, would mean fewer air traffic controllers at the Minneapolis-St. Paul International Airport, potentially curtailing flights at a major ­airline hub that generates $10 billion a year for the Twin Cities ­economy.

"It's obviously a very important factor in keeping the business community thriving here," said airport spokesman Patrick Hogan. "So any impact on air service could have a ripple effect throughout the economy. It's something that really impacts everybody."

"The potential for flight delays and cancellations due to sequestration is a very real concern," said Douglas Kidd, executive director of the National Association of Airline Passengers. "It is especially troubling as passengers already pay most of the costs of FAA operations."

It wasn't supposed to be like this. Once considered too grim to even contemplate, this year's $85 billion sequester now appears all but certain to start Friday, barring an unforeseen budget deal by a badly divided Congress that spent the last week in recess while its leaders cast blame on one another.

Republicans have balked at raising new revenues through tax reform, and most Democrats object to cuts in federal retirement and health programs, which are largely exempt from the sequester. That leaves untouched the main drivers of long-term debt, while nearly everything else in the federal budget gets the meat-ax approach of indiscriminate cuts. To many in Washington, that's the worst of both worlds.

"It's a horrible way to reduce spending, which I firmly believe we need to do," said U.S. Rep. John Kline, R-Minn.

Even the few who believe there is no politically feasible alternative are bracing for the unknown. "A lot of people ­figure, well, the government is bloated and they can make these cuts and nothing will happen," said U.S. Rep. Collin Peterson, a fiscally conservative Minnesota Democrat. "But I think there will be some real effects."

Complicating life for local government officials is the near total lack of certainty about how long Washington's fiscal crash-diet might last. The result of a failed 2011 budget deal, sequestration is supposed to "trigger" $1.2 trillion in automatic savings over the next decade, split roughly 50-50 between defense and non-defense spending. But Congress could strike a deal at any time to ease, postpone or better target the coming across-the-board cuts.

If there's a silver lining for Minnesota, it's that the state has little in the way of a federal workforce or a defense industry. The state gets back 71 cents in services for every dollar its taxpayers send to Washington. In relative terms, that translates into little to cut.

But the economic drain could still be significant.

A George Mason University study of the sequester and its related budget cuts since 2011 estimates that Minnesota's economy could shrink by $1.6 billion, resulting in the loss of 16,033 jobs, more than a quarter of them in the defense sector.

Minnesota defense contractors, who earned nearly $2 ­billion in 2011, could face revenue losses of $349 million each year of the sequester, according to an analysis by the Center for Security Policy in Washington.

The impact is already being felt, said Chip Laingen, who heads the Defense Alliance of Minnesota. A defense industry networking event in Minneapolis next month likely won't see any of the usual Defense Department representatives. Pentagon officials cited the need to cut back on travel, he said.

Meanwhile, a recent Minnesota Management and Budget report estimated a potential $117 million reduction in grants and programs subject to the sequester, though that figure could be slightly diminished by the Jan. 1 fiscal cliff deal that delayed the sequester budget cuts for two months.

Among the major targeted programs in Minnesota this year: $14 million from special education; $12 million from the Title I education program; $10 million from low-income energy assistance grants; and $2.5 million from the Job Corps.

But even if Minnesota has less to worry about than other states, the biggest impact could come from the predicted slowdown in the national economy. "That's going to ripple into Minnesota's economy," said state budget director Margaret Kelly. "That may show up in future revenue forecasts."

And even if the sky doesn't fall for everyone, it certainly will for some. "To the individual who loses his or her job," Kline said, "that sky is falling."

Kevin Diaz • 202-383-6120