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May 2013:

Cardin Discusses Impacts of Sequestration on Small Businesses

By George Berkheimer,

May 6, 2013

Posted in: News

United States Sen. Ben Cardin (D-Md.) held a roundtable forum in Columbia last month to address the automatic, across-the-board spending cuts known as sequestration that took effect on March 1.

Speaking before a crowd of about 30 small business owners and elected Howard County officials, Cardin provided an update on the latest congressional budgetary impasse and the effect it could have in Maryland.

“We certainly want to have it over with by October 1, when the [next] fiscal year begins,” Cardin said. “For the agencies that are affected, they’ve already gone through three rounds of budget cuts, basically frozen budgets for the last three years, and now they have a cut on top of that equivalent to 8% to 10% of their budget. That hits low.”

Sequestration will mean civilian layoffs within the Department of Defense agencies and a stark reduction in the amount of grants awarded by the National Institutes of Health (NIH) and similar federally funded research centers, he said.

And speaking of budgets, Cardin acknowledged that it’s been 12 years since the United States had one that was balanced. Not that it’s the only solution to the nation’s economic problems; manageable debt is, after all, still manageable, and still a target of the Simpson-Bowles plan. That strategy seeks $4 trillion in deficit reduction during a 10-year period, reduction of the nation’s debt to 70% of the economy and an annual deficit of less than 3% of the economy.

To date, Congress has managed to come up with $2.5 trillion in reductions, but still has a long way to go. To achieve a balanced budget in the short term would require sacrifices that few are willing to make and which could potentially trigger another recession, Cardin said.

“The other issue is, how much can you cut national defense in this world,” he said, “and still feel that you’re safe?”

Unintended Consequences

For many observers who think it’s a good idea to have a sense of predictability for future planning, the latest example of Congress holding itself hostage and coming out on the losing end would be simply exasperating, were it not so painful.

CEO John Skipper of Columbia-based National Conference Services (NCS) said his 16-year-old company has been stranded by a new federal government policy that inadvertently undermines the benefits NCS creates.

Skipper’s product — no-cost conferences and trade shows for the Department of Defense intelligence community and federal government — generates income through attendee revenues and the sale of exhibit space. The government actually makes money from tax revenues generated by these events, he said.

When an executive board convened by President Obama in November 2011 suggested that agencies reduce their travel and conference spending, however, the contracts stopped coming.

“[W]e’ve been grouped with all the other inappropriate spending,” Skipper said, which has reduced the average number of annual conferences in the NCS pipeline from eight to zero. “As a result, we’ve had to immediately lay off more than 25% of our staff, and we’re figuring out how we’re going to have enough revenue to get through the year.”

Take into account the 12 Baltimore hotels that lost guaranteed bookings, 500 exhibitors who missed sales and networking opportunities and the loss of a multiple-day booking for the Baltimore Convention Center, and the negative economic impact from the loss of just one event becomes even greater.

Adam Joss of Vertical Connection, a family-owned carpet and flooring business in Columbia, added that federal workers become overly cautious and stop spending whenever there’s a budgetary battle in Congress, creating a hardship for small businesses like his.

“Some of these battles can go on for weeks and months,” Joss said.

Local Government Uncertainty

Sequestration likely will affect Maryland more than most states.

“We have 5.6% of our workforce working for the federal government,” Cardin noted. “The national average is 2.2%.”

There are also 60 federal facilities located in Maryland, including the National Institutes of Health, the Food & Drug Administration and the National Institute of Standards & Technology, in addition to 17 military installations.

“Each of these agencies and military installations do business with the private sector,” Cardin said, adding that the state has estimated it could lose up to 13,000 jobs as a result of sequestration.

On the local government side of the issue, Howard County Executive Ken Ulman said his frustration lies in the fact that sequestration hits across the board.

“It doesn’t allow intelligent discussion of decisions to be made,” Ulman said. “When it comes to the local piece of this, I’m putting forward a budget … with a big unknown.”

What is known, he said, is that Howard County is home to a specific number of federal workers.

“We’ve done a lot of research to know which ones are going to be furloughed, for how much, and we know how many folks work for federal contractors that do work at Fort Meade,” he said. “We don’t know exactly what the impact for each of their companies is going to be.”

Contracts related to The Johns Hopkins University’s Applied Physics Lab in North Laurel might also be affected, he said as may other contracts related to NASA and the Department of Defense.

“Forty percent of the Howard County budget comes from local income tax,” Ulman said. “I need to make some tough decisions to reduce my budget so it balances. That’s the level of uncertainty that’s been created, which I find to be the most unfortunate aspect of this.”

Adjustments Requested

Community services are also bracing for impact. “We manage the Head Start program in Howard County and the cuts for us meant $100,000, which means potentially closing our schools much earlier than anticipated,” said Bita Dayhoff, president of the Community Action Council of Howard County.

The result for her: fewer slots for an already waitlisted Head Start program, lack of early childhood education for children who need it and the potential loss of income or employment for parents who weren’t planning on having to stay home to take care of their children.

“The public needs to be informed,” Cardin agreed. “There’s no source that’s going to fill that void.”

In the interim, Cardin suggested that now, more than ever, is the time to explore partnerships between the government and the private sector that could save taxpayers money. “We’ve got to be aggressive in these areas, and you get a better value product because you know exactly what the market is,” he said, citing the organization of health care as a prime example.

“Healthy Howard has been a model we’ve been looking at as to how you can have sensible public-private partnerships [in health care],” he said.

Predictions

If there’s any good news to be found, it’s in last month’s announcement that President Obama signed the latest Continuing Resolution approved by Congress to keep the federal government operating through the end of September.

“The bad news is it’s at sequestration levels,” Cardin said.

The next opportunity for adjustment comes on Oct. 1, the beginning of the next fiscal year.

“I think at a minimum we’ll have [fiscal 2014] appropriation bills, rather than [another] continuing resolution. I’m optimistic about that,” Cardin said.

But he’s less certain whether Congress will be dealing with a continuation of sequestration level appropriations or the president’s budget, which is basically a freeze of fiscal 2012 spending — or perhaps a compromise between the two.

“What we don’t want to see happen is just a continuing resolution at sequestration levels; that would be the worst-case scenario,” Cardin said. “We’ll do everything we can to avoid that.”

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