Rocky Barker reports Idaho will be a poorer state if the federal government’s deep budget cuts dramatically reduce spending and employment here.
Economists say Idaho’s private economy would have to boom to make up for the 10 to 20 percent federal budget cuts that Gov. Butch Otter has state agencies analyzing.
No one, of course, knows for sure what will happen with federal aid to the states. In June, the Statesman reported that Otter had asked state departments to prepare for cuts of up to 20 percent in federal assistance — which supports a third of all state spending — because of uncertainty over federal budgets, expiring tax breaks and the possibility of “sequestration” mandating $1.2 trillion in cuts over nine years beginning next year under a deficit-reduction deal.
Otter’s contingency planning focuses on how Idaho’s state government will keep crucial services like schools, prisons, health and environmental protection funded if federal assistance is reduced significantly.
But that’s not the only place where Idaho would feel the pain if the feds have to slash.
IDAHO’S FEDERAL WINDFALL
Idaho has long received far more federal dollars than its citizens have to pay in federal taxes.
In 2011, The Economist magazine analyzed how much different states benefit from federal spending compared to how much they pay in taxes.
From 1990 to 2009, the federal government spent $148.4 billion in Idaho. That was money for roads, schools, Mountain Home Air Force Base, the Idaho National Laboratory, the Forest Service, the Bureau of Land Management, Social Security payments, farm subsidies, food stamps, Medicaid, Medicare, federal housing grants, economic development grants, fish and wildlife management, tribal health programs, federal employee salaries and benefits, and more.
During the same 20 years, the federal government collected $124.3 billion in taxes from Idahoans. That left the state with a $24.1 billion windfall that contributed to its $53.7 billion gross domestic product in 2009.
Deep cuts in federal spending inevitably will mean fewer dollars flowing into Idaho, and the economy will suffer unless the private sector is able to make up the difference, said Mike Ferguson, director of the Idaho Center for Fiscal Policy and a former state economist.
BIGGEST BUDGETS, BIGGEST HITS
Payments to the state for Social Security, Medicare, Medicaid and tribal health programs don’t count in the GDP — that is simply money transferred from the government to recipients, said Peter Crabb, an economics professor at Northwest Nazarene College in Nampa. Any cuts to those programs, he expects, will not be as severe as those to non-entitlement spending for such things as energy, education and even defense.
“The biggest impact would be at Mountain Home Air Force Base or the Idaho National Laboratory,” Crabb said. “If they have fewer people there, that will have an effect.”
The Idaho National Laboratory creates more than 24,000 Idaho jobs and generates $3.5 billion in economic impact, according to a 2010 report by Boise State University economists.
INL, the Department of Energy nuclear research facility in eastern Idaho, had more than 8,000 people working directly for the government or its contractors in Idaho, making it the second-largest employer in the state. The largest is Idaho state government, the BSU study said.
An additional 16,133 people had jobs because of the INL. The “multiplier effect” means that spending ripples through the wider economy, benefiting restaurants, real estate agents and repair shops and creating new jobs, new spending and new businesses.
“Although state government is Idaho’s largest employer, it is important to keep in mind that most of its funding comes from sources within the state,” said Geoffrey Black, chairman of the Department of Economics at Boise State and a researcher on the project. “INL is not only the second-largest source of jobs in the state, but nearly all of its funding comes from outside Idaho.
“This provides a huge shot in the arm to the state’s economy, particularly in the eastern part of the state,” Black said. “Nothing else comes close.”
The Air Force estimated the economic impact of the Mountain Home base at just over $1 billion annually in 2010. It estimated its 5,300 military and private workers create another 1,700 indirect jobs in the community, not counting retirees.
Crabb doesn’t expect dramatic cuts in the staff or agencies that manage Idaho’s federal lands, which account for 62 percent of the state land mass.
“We’re still going to fight fires,” Crabb said. “The agencies that manage public lands already run lean staffs.”
But Ferguson points out that rural areas already are the most dependent on federal dollars and would be hurt most when those are reduced.
“The rural parts of the state are going to take disproportional hits,” Ferguson said.
What it comes down to is lost income, Crabb said. During the recession, Idaho benefited from increased crop and precious-metal prices, and the farmers and miners enjoying favorable markets have helped cushion the state’s economy from a more severe downturn. What also would help Idaho is a rebound in the housing market, which would boost the state’s building and forest products industry.
If Idaho doesn’t get such boosts, it won’t be able to make up the income gap, and Idaho as a state will be poorer, Crabb said.
New jobs and profits could come from existing businesses or new companies attracted to Idaho, such as Chobani Yogurt in Twin Falls. Commerce Secretary Jeff Sayer said he’s focused on filling the gap that would be left by reduced federal spending.
INDUSTRY, BUSINESS MAY FILL GAP
Cutting the federal budget will have varying impacts across the nation because the states’ net contributions vary dramatically, The Economist reported. For instance, New York got $2.3 trillion from 1990 to 2009, but its taxpayers still gave the rest of us a net $956 billion.
Delaware got a measly $86 billion in federal spending while paying $211 billion in taxes, a transfer of $124 billion out of the state — or more than twice its 2009 GDP of $60 billion.
About a third of all federal spending that comes to Idaho comes through the state government, Ferguson said, and state decisions will play some role in how much federal cuts hurt.
Take Medicaid, for instance. The federal government pays about 70 percent of the costs today, and the expansion envisioned in the new health care act would pay for 100 percent in the first phase and 90 percent later. Taking that money could ease the economic impact of some federal cuts elsewhere, Ferguson said, while letting Idaho provide health service to people who need it most.
TOUGH POLICY CHOICES
Policy decisions will be driven by state politics. With less federal money to go around, said Crabb, “we’ll be poorer.”
“If people choose to fund those same services, (money) will have to come from somewhere else or higher taxes,” he said.
Ferguson sees it differently. If the state doesn’t keep up its services, he said, it will be less attractive to businesses looking to expand or relocate. He points to the state’s ranking at 50th in spending for education among the 50 states and the District of Columbia.
“You have to have the infrastructure to handle it, and part of that is an educated workforce,” Ferguson said. “We’re forsaking that part.”
Rocky Barker: 377-6484
Rocky Barker has been covering federal issues in Idaho for more than a quarter-century. His Statesman beats also include energy and the environment.