Deficit cuts would hit state hard

June 28, 1995|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

CLARIFICATION

In a front-page article in its June 28 editions, The Sun reporte on a study in which the WEFA Group, an economics consultancy, said that Maryland stands to lose about 100,000 jobs over the next 10 years under federal budget-cutting plans now moving through Congress. The Sun has since learned that the study was conducted under contract with a public employees union, the American Federation of State, County and Municipal Employees. The union's sponsorship of the study should have been made clear in the article. Had the editors known of the sponsorship, the article would not have been given such prominent display in the newspaper.

Maryland stands to be one of the hardest-hit states and would lose about 100,000 jobs in the next 10 years under deficit-cutting plans now moving through Congress, a national economic forecasting firm estimated yesterday.

Not only would tens of thousands of Marylanders lose jobs in government offices and with federal contractors, but many more would lose work in service businesses that feed them, said the WEFA Group of Bala Cynwyd, Pa.

The budget-cutting could push Maryland's unemployment rate up as much as 3.3 percentage points, the group said, putting it in the top 10 among states affected by the plans.

Economists who study the state agreed yesterday that Maryland, already reeling from eight years of Pentagon cutbacks, will be pummeled by the effort to erase the federal deficit by 2002.

"The country is going to lose a lot of jobs from this belt-tightening, and Maryland is going to lose a lot more jobs than most states," said Charles McMillion, president of MBG Associates, a Washington economic consulting firm.

"Even people in Maryland who do not lose jobs will still feel the pinch, because it's going to affect our lives all across the board -- things like the value of your house," Mr. McMillion added.

The hits Maryland will take from federal spending cuts only make more essential that the state wean itself from its long dependence on the federal government for both defense and civilian jobs, officials said yesterday. "It isn't going to pay to try to fight the inevitable, and federal budget cuts on a big scale are inevitable, and they will hurt Maryland more than most states," said James T. Brady, the state's economic development secretary.

"The only long-term solution is to build a truly vibrant private economy, and that is where our efforts are going," Mr. Brady said.

Both the Senate and the House of Representatives have passed resolutions aimed at balancing the federal budget by 2002, pursuant to Republican campaign pledges.

The two resolutions differ on several key issues. Unlike the House version, the Senate plan does not include tax cuts, and the Senate cuts would take effect more quickly than the House plan contemplates.

Republican leaders of the two houses have worked out a compromise proposal that is closer to the House plan.

The House plan would slash employment in the United States by 3 million jobs at its peak impact in 2002, the WEFA study says. The Senate plan, by cutting spending faster, though less deeply, would cost 4 million jobs at its peak in 2001, the WEFA study estimates.

By 2005, Maryland would have 101,600 fewer jobs under the House plan than it would have if federal budgeting went on for the next decade as it has in recent years, the WEFA study estimates. The state would have 93,200 fewer jobs under the Senate plan than under current budget practices, the study says.

The state would be the seventh-hardest hit under the House plan and the eighth-hardest hit under the Senate plan, WEFA said.

The biggest loser would be the District of Columbia, which would lose up to 69,000 jobs and see its employment rate rise 20 to 25 percentage points higher by 2005 than if current budgeting continued.

Nevada would be second-hardest hit, with unemployment soaring more than four percentage points over what it would be by 2005 under past budgeting practices.

By far the biggest total job losses would be in the state of New York, which would lose more than 350,000 jobs under either plan. Also among the 10 hardest-hit states would be Hawaii, Massachusetts, North Dakota, Connecticut, Florida and South Dakota, WEFA said.

Maryland will be hurt not only by direct cuts of federal payrolls and government contracts and grants, which employ disproportionate numbers of Marylanders, but also by the way the belt-tightening will play out in the economy, said Ross DeVol, the WEFA regional economist who headed the computer study.

Maryland's dependence on service businesses, far higher than most states, also will hurt, because that sector will recover slowly from the impact of the budget cuts even after lower interest rates begin to restimulate the national economy, he said.

"The major sector that would recover the quickest would be manufacturing, which would benefit the most and the soonest as tighter fiscal policy brought interest rates down and made investment more attractive," Mr. DeVol said.

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