Federal cuts pinch Marylanders' income

$390 million reduction in civilian federal earnings, ripple effects put state's income growth near bottom

March 30, 2014|By Jamie Smith Hopkins, The Baltimore Sun

Tammy Woodard lost pay and paid time off last year to federal budget tightening, which meant she had to tighten her family's budget — and continues to do so now in fear of future cuts.

For the Aberdeen Proving Ground employee, it is a personal hit. But her situation is so common that it's a statewide issue, too.

Maryland's personal income growth was among the lowest nationwide last year as federal budget cuts rippled through the region, affecting Virginia and the District of Columbia as well, the U.S. Department of Commerce estimated last week.

The collective earnings of people working in civilian federal government jobs in those three jurisdictions fell more than $1 billion last year, with a roughly $390 million drop in Maryland, the agency said.

The loss was so big in Maryland that it eclipsed earnings gains in the real estate, finance, insurance, arts, entertainment and recreation sectors put together.

Showing up in the broader slowdown but not in the government earnings figure were layoffs in Maryland's substantial federal contractor base, restaurants seeing fewer customers and other ripple effects of federal cuts.

Andy Bauer, senior regional economist for the Federal Reserve Bank of Richmond's Baltimore office, said the effect has been significant and will continue.

"We're still working through these cutbacks in overall spending and how that's going to play through the economy, not only in the public sector and in defense contractors, but throughout the private sector," he said. "Employment growth in Maryland now is remarkably weak relative to where it was earlier in the recovery and where it would be traditionally. A lot of that has to do with the slowdown in federal spending."

Personal income in Maryland, which includes earnings on the job, interest, dividends and other payments, grew a paltry 1.6 percent last year, the Commerce Department said. That is less than half the growth the previous year, and it ranked the state second from the bottom nationwide.

Only West Virginia saw a smaller increase. And other than West Virginia, every state in the bottom five — Virginia, Alaska and New Mexico as well as Maryland — has major concentrations of both federal contracting and federal employment.

"What you are seeing in this study is repeated attacks on federal employees harming state economies and wage growth," said Drew Halunen, a spokesman for the National Federation of Federal Employees, via email.

States that did well last year include No. 1 North Dakota, where oil and natural gas extraction — and the attendant population boom — pushed personal income up 7.6 percent.

But in general, the word for last year nationwide was "slowdown," said David G. Lenze, an economist at the Bureau of Economic Analysis, the Commerce arm that analyzed the figures. U.S. personal income rose 2.6 percent in 2013, compared with 4.2 percent the year before.

One contributor to the downshift was the end last year of a two-year reduction in payroll taxes, Lenze said.

"That's less take-home pay," he said.

Then there were the economic effects.

Woodard, who lives in Perryville, said one-day-a-week furloughs dropped her pay 20 percent for a month and a half last summer. Some expenses she could cut, such as eating out on Friday nights. But she wasn't able to reduce day care costs for her twin boys, despite being home on furlough days, because she would have lost their full-time slot by temporarily going part time.

The furloughs also reduced the rate at which she earned paid vacation and sick leave. As a result, she said, she had to take unpaid time off later when her sons — now 3 years old — needed to see doctors.

She remains hunkered down, holding back on spending, because she fears further effects this year. Her family has decided not to take the out-of-state vacation they were planning for the fall.

"With the budgets coming down for [fiscal year 2015] and the cuts they're talking about, I don't see how they're not going to furlough," Woodard said.

The partial government shutdown in October isn't responsible for the drop in federal employees' earnings, because the workers were reimbursed afterward. But federal contractors had no such luck. And some lost their jobs last year amid cutbacks.

Maryland's professional, scientific and technical services field — a sector with many federal contractors — saw earnings growth plummet more than 60 percent last year. Because that's a collective number, not an average per worker, the slowdown in job creation in that sector was one factor.

Federal employees and contractors weren't the only ones feeling budget pressure last year. Most fields saw either smaller earnings growth or outright drops.

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