Washington D.C. jobs: Ground zero for budget cuts

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Washington is no longer growing federal jobs.

Come March 1, if Congress fails to act, the so-called "sequestration" would slash $85 billion from federal budgets through Sept. 30, part of some $1.2 trillion dollars in cuts expected over the next decade.

The cuts would force federal agencies to cut up to 10% from their budgets. The Defense Department has said that means furloughs for its 800,000 workforce starting in April, with employees staying home without pay one day each week. Other agencies, including the Federal Aviation Administration and National Parks Service are talking about furloughs for tens of thousands of their employees.

It's no surprise that private companies in the Washington area that serve the government are also expected to cut jobs.

As the furloughs, lost wages and purchasing power start to kick in later this year, the Washington economy will start feeling the impact, said Stephen Fuller, director of the Center for Regional Analysis at George Mason University.

"It's going to feel like a bad hangover for a while," Fuller said.

The cuts had been scheduled to take place Jan. 2, but Congress delayed them by two months as part of a deal to avert the fiscal cliff. President Obama this week called for another short-term delay.

It will be a setback for the Washington metropolitan area, which had been enjoying a surge in job and economic growth since 2002 due to a big ramp-up in federal spending and procurement, buoyed by the Bush Administration's war on terror and the creation of the Department of Homeland Security.

The area grew faster than any major U.S. city, including New York, according to Fuller. Federal payroll doubled from $23 billion in 2002 to $42 billion in 2010.

"It was as if we discovered diamonds here, but it was all taxpayer dollars," Fuller said.

Washington's growth continued even during the Great Recession, thanks to federal spending. Stimulus dollars helped, as did the addition of workers to deal with the financial crisis and the formation of new agencies like the Consumer Financial Protection Bureau and the Office of Financial Research.

By 2011, the bubble had burst. That year, federal dollars spent on both defense and non-defense contracts fell for the first time in 31 years. Over the past 20 months, the Washington D.C. area has lost 8,900 federal jobs from its peak in 2010.

Related: CBO: Spending cuts and tax increases slowing growth

The economies of the Washington and suburban Virginia and Maryland economies now rank middle-of-the-pack (58th out of 100), compared to other cities nationwide, according to the Brookings Institution Metropolitan Policy Program. In the middle of the recession, the metro area ranked 11th strongest.

That's not to say that all is doom and gloom for the area. The city of Washington D.C. last week reported a budget surplus of more than $400 million, thanks in part to more tax dollars flowing into city coffers from an influx of new residents.

In northern Virginia, traditionally home to large federal contractors like General Dynamics (GD, Fortune 500), has also attracted companies that have little to due with government like Intel (INTC, Fortune 500) and Hilton Worldwide.

But a slowdown is already apparent. Gerald Gordon, president and CEO of the Fairfax County Economic Development Authority, is seeing companies leasing less office space and hiring fewer employees.

He said that the biggest problem is nobody really knows if the sequester is definitely going to happen and how it will fall. Local businesses are worried about seeing an unexpected wave of lost contracts as the federal agencies handle projects on their own.

"Some employees will get laid off, some will get retained or go work for the federal government, but then companies are sitting on obligations for office space and equipment and there's no recourse for that," Gordon said.

First Published: February 7, 2013: 2:58 PM ET

Finance; Investment; Business; Economics

Finance; Investment; Business; Economics

Calendar of fiscal crazy: Congress and the budget

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It's chock full of cliffhanger deadlines and budget proposals that could drive the country's finances for the foreseeable future.

Just where exactly? Even seasoned budget wonks can't say.

"The same people who typically analyze what's ahead on the budget with remarkable precision [have] basically admitted that the current situation is as complex, hard to read, and even harder to predict than any they've ever seen," veteran budget expert Stan Collender noted recently in his blog, Capital Gains and Games.

Looking at the upcoming calendar, it's easy to see why.

March 1: Automatic spending cuts take effect, unless ...

The so-called "sequester" will slash how much federal agencies are allowed to spend by $85 billion over seven months.

The reductions would come primarily from discretionary spending -- both defense and nondefense. Entitlements such as Medicare, Medicaid and Social Security, which fall under mandatory spending, would be largely protected.

If the sequester takes effect, economic growth will slow. By some estimates up to 1 million jobs will be lost. Federal workers will be furloughed and a bevy of programs and services across the government will be curtailed. Just which ones haven't been announced yet.

House Republicans want to replace the defense cuts with more nondefense cuts, something Democrats reject.

Democrats want to replace the cuts with a mix of more targeted cuts and tax increases, the latter of which Republicans reject.

Though lawmakers agree the sequester is a terrible idea, many think it might be preferable to cutting a new deal they like even less.

Mid-March: President Obama to release budget proposal

The White House hasn't announced a date, but budget experts expect that the president's 2014 proposal will be released in mid-March, about a month later than usual.

The president's proposal is a blueprint of where he'd like Congress to spend money, cut funding and raise tax revenue over the next decade.

If history is any guide, lawmakers won't take up most of his ideas. But his proposal is supposed to tee-up the budget debate.

Related: Washington D.C. jobs: Ground zero for budget cuts

March 25 to April 7: Lawmakers go home

Just because the budget process will be a crazed mess doesn't mean the House and Senate won't take at least part of their scheduled two-week break for Passover and Easter.

March 27: Government shutdown threat

Funding for the federal government is set to expire on March 27, unless Congress acts.

Since lawmakers will not agree to a real budget by this date, they will have to agree on temporarily funding the government for a few weeks or a few months.

If they fail, the federal government will shut down on March 28. A shutdown occurs if lawmakers fail to appropriate funds for federal agencies and programs. Without that funding, government operations would cease, except for essential services.

End of March: House Republicans counter with balanced budget

House Budget Chairman Paul Ryan's office has said he likely will put out his proposed 2014 budget late in the month.

House Republicans have promised to lay out a path to a balanced budget within a decade, something Democrats will reject out of hand and which independent deficit hawks say is hard to achieve realistically.

For the Democrats, Senate Budget Chairman Patty Murray will put out her proposal by the end of March, if not sooner.

The proposal will almost certainly include new ways to raise revenue by taxing the rich in addition to spending cuts.

April 15: House and Senate must deliver ... sorta

Thanks to the No Budget, No Pay Act, the House and Senate are each obligated to pass their own budget resolution by tax day. A budget resolution sets the top-line amounts for spending and revenue for the next fiscal year, which starts Oct. 1.

If either chamber misses that deadline, members of that chamber will have their pay withheld.

So does that mean the country finally gets a real budget?

Nope. Both chambers still have to reconcile the differences between their budget resolutions. And there's no deadline to do that. Plus, even if they pass a joint resolution, then comes the much harder work of deciding how to allocate funds among government departments and programs.

May 18 to Aug. 1: Debt ceiling must be raised

The No Budget, No Pay Act suspended the debt ceiling until May 18, letting Treasury continue to borrow to make payments due during the suspension period. But on May 19, the debt ceiling would be restored at its current level of $16.394 trillion plus however much Treasury borrowed during the suspension period.

Ideally Congress will have decided by then to raise the debt ceiling enough to get the country through the next year or two. But if it hasn't, Treasury could use "extraordinary measures" to stave off the prospect of default until early August by some estimates.

First Published: February 8, 2013: 5:14 AM ET

Finance; Investment; Business; Economics

Finance; Investment; Business; Economics

Big taxes + big spending cuts = California budget surplus

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Big spending cuts and a tax increase on the wealthy are helping California balance its books.

After multi-billion dollar shortfalls in recent years, the state's budget has finally straightened out. California expects to take in $2.4 billion more in revenue than it will spend this fiscal year, which ends June 30. After paying off a shortfall from last year and setting aside funds for upcoming obligations, it's on track to end the year with a $36 million surplus.

If the legislature approves Governor Jerry Brown's 2013-14 budget proposal, California should have enough money next year to increase funding for education and pay down debt, while setting aside $1 billion in a reserve fund.

"For the next four years, we're talking about a balanced budget. We're talking about living within our means," Brown said last month when he unveiled his budget. "This is new. This is a breakthrough."

What prompted the turnaround?

Three things: Major spending cuts over the last few years, big tax increases approved by voters in November and general improvement in the economy.

When Brown took office in 2011, the state faced a $26.6 billion budget gap. To close it, the state slashed spending for schools, the correctional system, health and human services and higher education.

California's general fund spending dropped to $93 billion this fiscal year, down from a peak of $103 billion in 2007-08. The state workforce contracted by more than 30,000 positions. Spending on schools plummeted to $47.3 billion last year, down from $56.6 billion four years earlier. The state limited the time adults could receive welfare cash assistance to as little as 24 months, down from 60 months.

The new budget for next year increases spending in certain areas, particularly education. The general fund is projected to grow by 5%, to $97.7 billion.

"It's been a long time since California has had a budget that didn't consider significant cuts in health, social services and other programs," said Jason Sisney, director of state finance for the Legislative Analyst's Office. "We have a relative degree of stability for the first time in half a decade."

Another major contributor is the state's new revenue stream.

California is on track to take in $95.4 billion this year, including nearly $6 billion from the passage of major, temporary tax increases in November. Millionaires will pay a top rate of 13.3% through 2018, while the state's sales tax rate will be a quarter point higher through 2016. Corporations will also pay higher levies.

Meanwhile, California's finances are improving as the general economy gains ground. The state has been creating jobs faster than the nation for a year -- its unemployment rate is now around 9.8%, down from 12.4% in October 2010 -- and its housing market is rebounding more swiftly, according to Gabriel Petek, analyst with Standard & Poor's. The rating agency rewarded the state by upgrading its credit rating last week. (It is now the second lowest-rated state, behind Illinois.)

Don't break out the bubbly just yet, though. California's new balancing act is as fragile as a Jenga tower.

The state is still highly dependent on income tax revenue from the wealthy, a notoriously fickle source. The tax increases prompted grumblings from wealthy residents like golf star Phil Mickelson, and spurred other states, such as Texas, to encourage businesses to move.

Related: Texas to California businesses: Move here!

"Millionaires don't make a million dollars every year," said Mike Genest, a consultant and former state finance director under Republican Governor Arnold Schwarzenegger. "The idea that we have emerged from our historic budget shortfalls in a sustainable way is very questionable."

All of the state's budget figures and forecasts for the year are still guesswork. California will have a better idea of exactly how much revenue it will collect this year -- and whether it will still have a surplus -- when it issues its revised forecast in May.

Another risk is that lawmakers will want to restore many of the services and funding that were slashed during the Great Recession and its brutal aftermath. Brown has pledged continued fiscal constraint, but that can be difficult to accomplish politically.

If legislators don't approve certain measures in Brown's budget proposal, such as the continuation of some fees and taxes, the state could dip back into the red at the end of its 2013-14 fiscal year. It would run a tiny $7 million deficit, according to projections from Brown's finance office.

And like many states, California has yet to deal with its longer-term problems. The big whammies there include unfunded liabilities associated with the teachers' retirement system and state retiree health benefits.

California officials will also have to keep a close eye on decisions emanating from Washington, D.C. Federal spending cuts could slow California's economy.

"There are still risks out there that are out of the state's control," said H.D. Palmer, a spokesman for the state Department of Finance.

Federal policy makers are now facing many of the same issues -- spending cuts, tax increases, safety net reforms -- that plagued California for years. Perhaps they can take a lesson about making those tough choices -- and the payoff you get when you do.

Are you looking to leave California because of the recent tax increase? If so, email tami.luhby@turner.com. You could be profiled in an upcoming story. First Published: February 7, 2013: 5:10 AM ET

Finance; Investment; Business; Economics

Finance; Investment; Business; Economics