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As Washington Eyes Budget Cuts, How Would Local Economies Be Affected?

The annual arrival of the president’s proposed federal budget is always more of a show than a real news event – a starting point for congressional additions and subtractions – but that is especially true this year with the new Republican House.

With federal deficits mounting, the battle lines were quickly drawn on this year’s proposal. Republicans immediately raised concerns that it doesn’t recommend enough cuts, while some liberals argued that it went too far. President Obama says he knows that times are more austere, but the budget walks the fine line of asking Washington “to live within its means, while at the same time investing in our future.”

The White House tagline is “cut and invest.”

There is good reason for concern about rising federal budget deficits. Spending during the recession and wars in Iraq and Afghanistan has pushed the national debt to more than $14 trillion. At some point – some say now – steep cuts will have to be made.

But look around Patchwork Nation at the state of the economy and you understand just how difficult finding the cuts will be. That’s not to say any of those cuts are wrong, but they are coming at a precarious economic moment.

In the short- and long-term, cuts pose real challenges for an economy and a country that is not only emerging from a recession but retooling in the face of a changed global environment.

Not Well Yet

In the simplest term, the U.S. economy is still not yet a picture of health. On Monday, as Washington was debating the new budget, William Dudley president of the New York Federal Reserve Bank warned troubles may yet be ahead. He said the U.S. economy was entering a period of “convalescence” that will go on for some time.

Cutting the federal budget steeply means pulling hundreds of billions of dollars out of the U.S. economy and doing that in a time of a wobbly economy presents challenges. Add in the complexities of what these different places feel and you have a monumental task.
For instance, what’s more important, stabilizing the housing mess or cutting unemployment? It depends on where you live.

In the book “Our Patchwork Nation,” we note that the 12 community types we follow experience very different economic realities. That’s especially true now coming out of the recession.

Areas of the United States are still suffering through especially bad times, like many of the socially conservative Evangelical Epicenter counties are still suffering. In other locales – the big city Industrial Metropolis counties, Latino-heavy Immigration Nation counties and Minority Central counties with large black populations – the unemployment rate remains in the double digits. Cutting programs that aid those places, such as help for heating bills in the winter, will have real impacts.

In other places, unemployment is dropping, but foreclosures remain a big problem. That’s particularly true in some communities that drive consumer spending and are critical to overall health of the economy – such as the Monied Burbs as we noted last week, as well as the formerly growing Boom Towns and the Industrial Metros. Some changes in the rules around government-backed FHA loans may hurt homes sales in some of those places.

The Long Haul

That’s only a small sampling of the short-term concerns about getting over the recession. Over the long-term, cuts present more complicated problems.

Simply put, some of our communities have educated and skilled populations may do well in the new global economy – one less dominated by the United States – and some will likely need major help. Jobs and entire ways of life have disappeared in some communities in the past few decades, particularly places like the small-town Service Worker Centers and the aging Emptying Nests that have seen small manufacturing disappear.

The lack of good education and good jobs looks as though it may end up creating not just people who are losers, but communities that are losers. We are entering a period, in other words, that will almost certainly require more spending than less on things like education and job retraining.

It is perfectly reasonable to argue that fixing those communities is not the federal government’s job, but that doesn’t make the problems in those places any less deep. And none of this even addresses changes that will inevitably have to be made in entitlement programs like Medicare, Medicaid and Social Security. Those programs were not discussed in this budget.

The point? This budget is not just about a year of hard choices and cuts. Regardless of who is in the White House or the Congress two diametrically opposed challenges lay in wait for at least the next few years – the need to cut spending while preparing some communities for hard changes to come.

And that means the 2012 budget fight may be more than just a knock-down-drag-out brawl, it may be a preview of what’s to come.

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