Kelly CunninghamEconomist, Senior Fellowwww.nusinstitute.org

Sequestration Impacts on San DiegoMarch 2013

• Annual family income: $27,000 • Money the family spent: $35,500 • New credit card debt: $8,500 • Outstanding balance

on credit: $129,000 • Proposed spending cut: $420

U.S. Federal budget comparedto a Household/Family Budget

(trillions) %GDPRevenues $ 2,708 16.9%Total Outlays $ 3,553 22.2 Mandatory 2,116 13.2 Discretionary 1,213 7.6 Net interest 224 1.4Deficit $ -845 -5.3Sequester -42 -.27

Debt held by Public $12,937 76.3

GDP $16,034Source: Congressional Budget Office

Federal Budget Projections, FY 2013

Dr. Thomas SowellSenior fellow at the Hoover InstitutionAuthor of "Applied Economics“.

Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do?

The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.

Medicare/ Medicaid

21%

Non-Defense Discretionary

17%

Defense Discretionary

19%

Interest7%

Other Mandatory

15%

Social Security

21%

Sequester Savings Breakdown (2013-2012, in Billions of $s)

Defense Discretionary $461Non-Defense Discretionary 294Interest Payments 169Medicare 92Other Mandatory 48Sequester Total $1,064

Sequester Impacts 2.4% of Federal Budget

Excluded from the Sequester

Defense• All military personnel

accounts (upon the president’s request)

• Overseas Combat Operations –only 2013

• Foreign Military Sales Trust Fund

• Military Retirement Fund

Domestic• Social Security• Medicare (limited to 2% cut in

provider payments)• All low-income program,

including:– Medicaid– Refundable income tax

credits– Food stamps

Summary of Annual FederalSpending in San Diego, FY 2010

Direct Expenditures or Obligations ($billions)% of Total

Retirement/Disability Payments for Individuals $8.2 18% Other Direct Payment for Individuals 5.4 12% Direct Payments other than for Individuals 0.3 1% Grants (Block, Formula, Project, and Cooperative Agreements) 5.8 13% Procurement Contracts 12.9 29% Salaries and Wages 4.8 11%Total Direct Expenditures or Obligations $37.3 83% Defense 16.0 36% Non-defense 21.3 48%Other Federal Assistance $7.4 17% Direct Loans 0.7 2% Guaranteed/Insured Loans 4.6 10% Insurance 2.1 5%Total Federal $44.8 100% Direct Percent of San Diego GDP 27%San Diego GDP, 2010 Annual $165.9Source: Census Bureau, Consolidated Federal Funds Report. FY2010.

                    

BusinessSan Diego Defense Spending by Sector

2006 2007 2008 2009 2010 2011$0.0

$2,000.0

$4,000.0

$6,000.0

$8,000.0

$10,000.0

$12,000.0

Defense Contracts

Military Income/ Compensation

Retirement/ Disability Pay-ments

2006 2007 2008 2009 2010 2011 Annual Change$millions 07/06 08/07 09/08 10/09 11/10

DEPT OF DEFENSE TOTAL $15,413.0 $17,535.6 $20,211.8 $22,651.0 $23,955.8 $23,697.2 13.8% 15.3% 12.1% 5.8% -1.1%Defense Contracts 6,071.9 7,503.6 9,237.9 10,883.5 11,577.4 10,952.2 23.6% 23.1% 17.8% 6.4% -5.4%Military Income/Compensation 8,189.3 8,981.2 9,894.8 10,681.8 11,287.3 11,645.0 9.7% 10.2% 8.0% 5.7% 3.2%Retirement/Disability Payments 1,141.5 1,017.9 984.5 1,048.8 1,057.7 1,068.3 -10.8% -3.3% 6.5% 0.9% 1.0%Grants* 10.3 32.9 94.6 36.9 33.4 31.7 219.4% 187.1% -60.9% -9.6% -5.0%*Block, Formula, Project, Cooperative Agreements awarded by the U.S. Department of Defense.Sources: U.S. Department of Commerce, Bureau of Economic Analysis; U.S. Census Bureau, Consolidated Federal Funds Report; National UniversitySystem Institute for Policy Research.

• Reduced Domestic Spending: $481-$761 million • Reduced Defense Spending: $1.1-$1.7

billionTotal Annual Sequestration Impacts $1.6-$2.46 billionWith multiplier (indirect/induced)

the total impact approaches $5 billion

Forecast of 2013 San Diego GDP $187.6 billionPotential loss from sequestration in 2013 -2.7%http://www.nusinstitute.org/assets/resources/pageResources/FiscalCliffBrief.pdf

Annual Sequestration Impactsin San Diego

Reduction of non-defense $300-400 million• Non-exempt programs -8.4%• Health centers and Indian health -2.0%

Reduction of defense programs $700-800 million (other than military personnel funding) -7.5% Total Sequestration $1.0-1.2 billion

Sequestration Impacts in San Diegoduring FY2013 (over next six months)

                    

BusinessSequestration Impacts on San Diego

San Diego is a federal hotspotThe region experienced spike in size of U.S. budget, now will see cutsBy Matt Clark and Jeff MacDonald, Thursday February 28, 2013

“We’ve benefitted more from the run-up in federal spending, so we will be more affected by the cuts,” said Kelly Cunningham of the Institute for Policy research at National University.The county has about 1 percent of the nation’s population and receives three times that portion of federal spending, Cunningham said. Federal spending has grown from about 17 percent of the county’s economy at the start of the last decade to 22 percent at the end.

Budget Cuts to Defense Will Sting, But S.D. Has Seen WorseExperts: Great Recession, aerospace slowdown in ’90s hit harder than sequestrationBy Jonathan Horn, Sunday March 3, 2013

‘Disproportionate impact’“For San Diego, it’s a disproportionate impact because we have so much federal spending here,” said Kelly Cunningham, economist at the National University System Institute for Policy Research. “The easiest way to think about it is our population is 1 percent of the nation, so if everything was equitably done we’d lose 1 percent of whatever this cutback is, but because our defense industry is so massive, we are seeing 3 percent of federal government spending cut.”

San Diego Metropolitan AreaGross Domestic Product

GDP Percent of Constant Dollars* compared to:Year (Billions) Calif. U.S. S.D. Cal. U.S.2001 $114.472 8.54% 1.11% 1.3% 0.1% 1.1%2002 $123.271 8.89% 1.16% 5.2% 1.9% 1.8%2003 $131.025 8.97% 1.18% 3.9% 3.1% 2.5%2004 $141.495 9.01% 1.19% 5.1% 4.6% 3.5%2005 $151.388 8.96% 1.20% 3.8% 4.2% 3.1%2006 $159.582 8.87% 1.19% 2.2% 3.3% 2.7%2007 $166.019 8.87% 1.18% 1.1% 1.0% 1.9%2008 $167.732 8.83% 1.17% -0.8% -0.4% -0.3%2009 $164.948 9.02% 1.18% -3.8% -4.7% -3.1%2010 $165.912 8.84% 1.14% 0.2% 1.7% 2.4%2011 $172.583 8.81% 1.14% 2.3% 2.0% 1.8%2012e $180.059 8.82% 1.15% 2.2% 2.3% 2.2%2013f $187.644 8.83% 1.14% 1.5% 1.6% 2.0%

*Adjusted by GDP implicit price deflator.

Source: Bureau of Economic Analysis, U.S.Department of Commerce;

e: estimate f: forecast by National University System Institute for Policy Research.

“San Diego Economic Momentum Slowing in 2013”, San Diego Economic Ledger, January 2013, http://www.nusinstitute.org/assets/resources/pageResources/EconomicLedger-SanDiegoForecast2013.pdf