The Education and the Health Departments will see funding cuts if Congress fails to pass legislation avoiding automatic, across-the-board spending cuts starting in January, Delegate to Congress Donna Christensen said Thursday.
In a conference call with reporters, Christensen spoke about the impacts on the territory if Congress hits what many are calling the "Fiscal Cliff," when the tax cuts enacted under President George W. Bush expire Dec. 31 and automatic spending cuts enacted during congressional budget negotiations in 2011 take effect in January.
The phrase "Fiscal Cliff" is a misnomer of sorts, as both these events will actually improve the fiscal situation of the federal government and reduce the deficit. Rather, economists and analysts at the Congressional Budget Office have warned that sharp austerity in the form of abrupt spending decreases and tax increases is likely to lessen economic growth and increase unemployment in the short term. (See: Congressional Budget Office Report on Fiscal Cliff in Related Links below.)
A negotiated agreement about the spending cuts is very likely, Christensen said, as all sides want to avoid cuts to their preferred areas of spending. But if there is no agreement, or if the agreement retains cuts to education and social programs, the territory will see cuts in funding, she said.
"The House, the Senate and White House all agree we must avoid sequestration. But the devil is in the details," Christensen said.
Citing a report from the U.S. Office of Management and Budget, Christensen said the automatic budget cuts would result in a 9.4 percent reduction in non-exempt defense spending and an 8.2 percent reduction in all other non-exempt discretionary spending. Medicare would be cut by up to 2 percent, and some nondiscretionary spending would be cut as well.
Education and Health would be hit more than anything else locally, she said.
Christensen said nationwide, education would be hit with a loss of 20,000 jobs, “which I’m sure would trickle down to us." There may be layoffs in special education too, she added.
Grant funding to help fix up the territory’s wastewater and sewer systems would dry up, as would some funding to the Department of Planning and Natural Resources. "These are across-the-board cuts and we don’t know how much they would affect the Virgin Islands per se.”
“But in my experience with this Congress,” she added, “the territories are likely to be at the top of the list to be cut and we will have to fight really hard to make sure that doesn’t happen."
Military budget cuts would indirectly affect the territory, by reducing the money available for construction at V.I. National Guard facilities, she said.
Federal funding for the Department of Justice and Bureau of Corrections would also be impacted. And the Federal Aviation Administration may lose more than $800 million, which could affect air travel.
"For a territory dependant on tourism, that could be very hard for us," she said.
Some programs are exempt from the cuts, including the Children’s Health Insurance Program, Supplementary Nutritional Assistance Program, Medicaid and Pell Grants, she said.
Christensen said some in the administration, including Treasury Secretary Tim Geithner, are calling for budget cuts alongside tax increases, but she is opposed to any more spending cuts at the present, because she said the territory is hurting and because the cuts would be bad for the economy as a whole.
"Ben Bernanke (Federal Reserve Chairman) agrees we need more spending, not less, right now because what we need to do most right now is fuel the recovery," she said.
The impact on the territory if the Bush tax cuts expire is less clear-cut. President Barack Obama has proposed extending tax cuts for income under $250,000 and letting the cuts for very high incomes expire.
Ending the Bush tax cuts for those who make more than $250,000 would “not slow down the recovery as much as if we allowed all the tax cuts to expire or if we allowed the government to go into sequestration," she said.
But letting all the tax breaks expire "does hurt Democratic priorities," she said, because it would reduce the child tax credit for college students from $1,000 back to its former $500, and middle-class taxpayers would have to pay more at a time when many are struggling.
"Letting all the tax cuts expire does hurt the middle class and certainly doesn’t do anything to help the poor," she said.
"But there is a good side," she said. “If they expire, we would realize more tax revenue in the Virgin Islands.”
Negotiations are difficult and Democrats are pushing to have the debt ceiling raised to avoid having to negotiate yet another fiscal impasse just a few months down the road, and to continue funding up to 99 weeks of unemployment benefits, she said.
"And Republican leadership is still strongly rejecting tax increases, which may mean we go right to, and possibly over, the cliff," she said. If that happens, it may not have much impact if an agreement is reached in January, "but that is not the preferred scenario," she said.
"Right now everyone is waiting for the other side to blink. My best guess is we will see some cuts and some tax breaks extended for incomes up to $250,000," Christensen said.
