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D.C. Braces for Post-Sequester Fallout

D.C., Virginia and Maryland are more frustrated by the sequester budget cuts than Detroit is, rest assured. That’s because these three states combined earn 10 percent of their economy from defense spending annually. This is according to a late February report by Mark Vitner and Michael Brown, both Wells Fargo economists.

“Cuts in nondefense outlays would likely trigger significant furloughs, layoffs at civilian contractors and generally less business for supporting services, including law firms, caterers, airlines and hotels,” the report stated.

The law does afford a full fiscal year for states to put the budget cuts into place. However, many states and defense contractors have already started tightening their belts in anticipation for what’s looking to be a grueling defense cutback. The Defense Department has also followed suit, notifying nearly 800,000 employees that salary cuts, layoffs and furloughs are certain to follow.

Virginia will be sorely impacted. More than 174,000 federal workers reside here. The state hosts 19 military installations, inclusive of Norfolk, the largest naval base, and the Pentagon. Virginia is also host to 90 federal offices, 550 leased federal spaces and more than 25,000 federal contractors.

On the heels of this sequester, Republican Gov. Robert McDonnell even wrote a letter to U.S. President Barack Obama. The letter outlined the severity of the impact of these looming federal budget cuts to his state. In the letter, it warned that Virginia stood to lose $2.6 billion in revenue over the next five years, or 0.6 its gross domestic product, should the cuts go into place.

“In the event that you and the Congress take no action and allow sequestration to proceed, we are estimated to lose approximately 82,000 direct jobs at federal agencies and contractors, and an additional 82,000 indirect jobs supported by business and personal spending that will be impacted by the cuts,” McDonnell wrote.

Virginia is in line with two other states that stand to lose big time defense dollars from the cuts. Texas and California, which each received more than $30 billion over the past fiscal year in defense funds.

Alaska is not immune, either.

“In addition, Alaska with its Air Force, Army and Naval operations would also be disproportionately impacted from defense cuts,” the Wells Fargo report said.

The sequester is being fomented by the 2011 Budget Control Act.

According to a report that was published by NBC News, this Act entails:

The 2011 Budget Control Act – which created the sequester time bomb when enacted in August 2011 – has cut federal funding for a wide range of state and local services, including education, water treatment, law enforcement, and others, to the lowest level in four decades as a share of the economy. If the full impact of the sequester cuts take effect, states will lose another $6 billion in federal funding, according to the CBPP.

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