The White House and Congress face a Friday deadline to cut a deal to avoid "sequestration," the big, automatic federal spending cuts designed two years ago to be so harsh that they would force Democrats and Republicans to compromise on an alternative.
That didn't happen, at least not as of last week, and Maui County Council Chairwoman Gladys Baisa said that she's been in contact with Hawaii's members of Congress who report that "warring factions" were not even talking.
"It is a big, fat mess," Baisa said. "How big and how fat I can't tell you."
Article Photos
A Hawaiian Airlines jet lands during a rainstorm Thursday at Kahului Airport. U.S. Transportation Secretary Ray LaHood said air traffic would be reduced across the country, delaying or canceling flights during the critical summer travel season, if widespread federal budget cuts, known as “sequestration,” go into effect beginning Friday.
The Maui News / MATTHEW THAYER photo
Alarm and uncertainty underscore the concerns of county, state, nonprofit and Hawaii congressional leaders asked last week to foresee what the likely impact of the across-the-board federal cuts would have on Maui County.
At best, there are guesses on statewide impacts. With its heavy economic dependence on military spending, particularly on Oahu, Hawaii is at the top of a list of 10 states that would feel the most pain as a percentage of the state's economy. Other states on the list are: Virginia, Connecticut, Alabama, Arizona, Maryland, Alaska, Wisconsin, Massachusetts and Missouri, according to Heather Fluit, press secretary for U.S. Rep. Tulsi Gabbard.
"The across-the-board, arbitrary cuts imposed by sequestration will be devastating, and unfortunately it appears more likely every day that it will occur on March 1," Gabbard said in a statement last week.
She pointed out that the Defense Department employs 21,000 civilians in Hawaii, many of whom "could face unpaid furlough days in an already tough economy." Defense contractor BAE Systems Inc. has announced it may lose its ship maintenance contract with the Navy, resulting in the furlough of more than 350 employees in Hawaii, Gabbard said.
Sequestration is being characterized as a government slowdown, not shutdown. So, the general public may not notice the impact of federal cuts immediately.
When asked about possible impacts on air traffic controllers in Maui County, FAA spokesman Ian Gregor responded via email that "we're not talking about location-specific impacts." But he did refer to a Dec. 11 letter from Transportation Secretary Ray LaHood to U.S. Senate Appropriations Committee Chairwoman Barbara Mikulski.
In the letter, LaHood reports that if sequestration is ordered Friday, the U.S. Department of Transportation would be cut by nearly $1 billion, requiring "indiscriminate spending reductions."
"This will have serious impacts on transportation services that are critical to the traveling public," he said.
LaHood said it will be impossible to avoid significant employee furloughs and reductions in contracted services.
"On average, this means a vast majority of the FAA's nearly 47,000 employees will be furloughed for approximately one day per pay period until the end of the fiscal year in September, with a maximum of two days per pay period," he said. "The furlough of a large number of air traffic controllers and technicians will require a reduction in air traffic to a level that can be safely managed by the remaining staff. The result will be felt across the country, as the volume of travel must be decreased. Sequestration could slow air traffic levels in major cities, which will result in delays and disruptions across the country during the critical summer travel season.
"Aviation safety employees also could experience significant furloughs that will affect airlines, aviation manufacturers and individual pilots, all of which need FAA safety approvals and certifications," LaHood said.
The transportation secretary and former moderate Republican congressman from Illinois assured Mikulski that aviation safety would remain his department's highest priority, but he was alarmed at the impact a slowdown of the country's aviation system would have on the economy.
"Civil aviation contributes 10 million jobs and $1.3 trillion annually to the U.S. economy, and sequestration places this contribution in jeopardy," he said.
LaHood's comments caught the attention of Terryl Vencl, who keeps her finger on the pulse of Maui County's visitor industry as executive director of the Maui Visitors & Convention Bureau.
"If sequestration happens and if it affects either the Department of Transportation or consumer confidence (by layoffs, hours cut, etc.) that could certainly trigger a tightening of spending where our leisure and business travelers are concerned," she said in an email. "As we have worked hard to come back to this point, nearly back to record numbers, we would not like to see the economy fall backward. As always, we remain fluid with our plans to do what is necessary and within our ability to protect and enhance Maui's visitor industry."
An Associated Press report on the sequestration threat said that people could see longer lines at security checkpoints at airports.
When asked what would happen if federal cuts were imposed on Transportation Security Administration officers at Kahului Airport, Richard Wiles, federal security director at Kahului and Hilo airports, said the impact would be "minimal."
"The federal security operations at the airport are mission critical," he said. "I can assure you, we will keep Maui County flying."
Lyn McNeff, chief executive officer of Maui Economic Opportunity Inc., which administers Community Services Block Grant and Low Income Home Energy Assistance funding, among other programs, said she worries that sequestration cuts will cut away at the safety net of Hawaii's low-income, most-vulnerable residents.
She said she was unable to determine how the estimates of cuts to the state would effect programs in Maui County because, as of last week, she had not received a percentage of the cut that would come.
Social service providers have been watching what's been happening in Washington with politicians battling over what to do about the federal deficit, but "it doesn't seem like they want to work together," McNeff said. And that leaves people hanging in uncertainty.
"We're ever vigilant about what's going on," she said, adding she has some ideas for contingency plans, but she declined to discuss them because "I don't want the community to panic."
"I don't think anybody knows what's going to happen," she said Friday. "I don't think anybody knows the extent" of the cuts.
"You want to prepare, but you don't really know what you're preparing for," McNeff said.
Maui County Budget Director Sandy Baz said the county receives approximately $55 million in federal funding annually, either directly or through the state.
"If all of it would be subject to the sequestration, then it could be a direct reduction of around $4.5 million in grant revenue," he said in an email Saturday. "The two largest impacts would be in our road projects that receive federal matching funds. These would be reduced by about $1.3 million."
Also, Baz said, U.S. Housing and Urban Development Section 8 voucher program funding would be decreased by $1.4 million, which also could mean the loss of two county positions.
State Department of Budget & Finance Director Kalbert Young said that the state has been preparing at least since September for the potential impact of federal sequestration, with the administration of Gov. Neil Abercrombie reserving as much as $25 million in the state's financial plan "as a contingency to provide limited funding to keep any range of state programs that would be impacted going into the next fiscal biennium should sequestration materialize."
At risk is as much as $45 million in direct federal funding grants to state department and agencies, Young said.
"Federal sequestration impact remains difficult to predict or quantify, because reduced direct federal contribution to state programs still needs to be specifically identified," he said. "The (previously identified "Under Threat") potential impacts . . . are some indication on the range of programs that could be affected, but until federal departments and agencies identify the specific funding stream amount and program, the state needs to continue to be prepared that it may need to provide state taxpayer dollars to make up for loss of federal funding."
Aside from federal funding for state programs, there's also the impact on tax revenue within the economy, federal funding to nongovernment entities or reductions in federal programs, Young said.
It's even more difficult to gauge the economic impact of reduced federal spending, he pointed out. The state Council on Revenues has so far not quantified an impact on Hawaii's economy, he added.
If sequestration is ordered Friday, then the council would likely need to take that into account when it meets next on March 13, Young said.
Under a 2011 law, the March 1 deadline triggers automatic cuts of $85 billion from a $3.6 trillion federal budget in the seven months from March through September. It includes cutbacks of 8 percent at the Department of Defense and 5 percent to domestic agency spending. Unemployment benefits could be reduced for 3.8 million Americans who've been without jobs for six months or more.
The background of what has led to the sequestration goes back to 2011 when House Speaker John Boehner, R-Ohio, demanded that the debt limit increase be matched dollar for dollar with cuts in federal spending. When "grand bargain" talks between Boehner and President Barack Obama broke down, the White House proposed the sequester idea as a way to guarantee large enough deficit cuts to offset enough new borrowing to make sure Washington didn't need to return to the debt limit issue until after the 2012 elections.
Last year, House Republicans passed legislation to replace the cuts with larger savings taken from programs like food stamps and federal employee pensions. Democrats did not respond with an alternative and relied instead on postelection negotiations to avert the "fiscal cliff."
That confrontation between Republicans and Democrats led to a victory for Obama to raise taxes on the rich and get a two-month respite in the sequester deadline. Now, House Republicans say their concession on taxes for the wealthy is the last they'll make.
Obama has responded with an offer of a mix of budget cuts and tax increases.
When asked his opinion on the impact of sequester on Maui County's economy, Hawaii economist Paul Brewbaker, principal of TZ Economics, laid blame with the Republican Party.
"You mean, what do I think other than Republicans are willing to spread economic carnage to preserve the wealth of the people who fund them?" he asked in an email.
Before the eight years of lower taxes and higher defense spending under Republican President George W. Bush from 2001 through 2008, there as a mix of higher tax rates and lower defense and nondefense outlays as a percentage of the gross domestic product, Brewbaker said, and that was "associated with the longest economic expansion in U.S. history (10 years)."
"Because of the Tea Party wing, Republicans who make the government of Greece look like masters of fiscal responsibility refuse to compromise from a position that is the cause of the present structural federal budget deficit," he said. "The Neighbor Islands are in the same sinking ship as the rest of the country. There are many paths to federal fiscal balance, but this is the dumbest."
* Brian Perry can be reached at bperry@mauinews.com.
