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HomeNewsArchivesFederal Sequestration May Cost V.I. More Than $10 Million This Year

Federal Sequestration May Cost V.I. More Than $10 Million This Year

The territory may lose more than $10 million in federal funding this fiscal year if Congress fails to prevent automatic budget cuts scheduled to take effect March 1, according to V.I. Bureau of Economic Research Director Wharton Berger, speaking Thursday in a telephone press conference.

The cuts, also known as a budget sequestration, are part of the Budget Control Act of 2011 that mandated automatic, uniform cuts as a way of pressuring Republicans and Democrats to reach an agreement on deficit reduction.

If the two sides cannot reach an agreement on deficit reductions this week, $85 billion dollars of money appropriated for spending will be set aside, or "sequestered," and will need to be cut from the federal budgets. Cuts will be across the board, affecting both domestic and defense spending.

Earlier this year, the sequestration plan was modified as part of the American Taxpayer Relief Act of 2012 and now the cuts are set to go into effect March 1.

Berger said that with the cuts looming, Gov. John deJongh Jr. directed him to prepare an analysis of the local impact, should Congress do nothing. [BER-Sequestration Impact Analysis]

Talking about the report with reporters Thursday, Berger said the cuts could result in reductions of over $13 million from the territory’s Fiscal Year 2013 federal funding of about $162 million.

Once federal exemptions are taken into account, the total spending reductions affecting the territory come to more than $10 million this year and more than $100 million by 2021, Berger said.

The cuts would affect nearly every department, but to wildly varying degrees. They would reduce federal grant funding to the Department of Education by $2.6 million, the Department of Human Services by $1.7 million – including Head Start by over more 700,000 – and the Public Works Department by more than $1.6 million.

The cuts will harm the already hurting territorial economy, Berger said. With V.I. unemployment standing at 13.3 percent – and St. Croix unemployment at 17 percent as of December – "it is safe to say fiscal and economic concerns related to the legislated federal spending cuts will hamper economic growth efforts."

Some of the cuts will take time to have an impact, he said. The most obvious initial impact is likely to be at the territory’s airports, where staffing may have to be cut almost immediately, he said.

DeJongh issued a statement Thursday saying Berger’s analysis gives more evidence that sequestration should be averted.

“Sequestration is a blunt approach to deficit reduction that will cause unnecessary economic harm across the country just as we emerge from a severe recession," deJongh said. "This plan is not an effective means to reduce the federal deficit because it threatens our country’s and our territory’s fragile economic recoveries,” he continued.

The reduced public sector spending will also lower potential consumption and investment needed to sustain the current economic recovery, according to Government House.

“No one denies the critical importance of reducing the federal deficit, which currently hovers at around 73 percent of our nation’s gross domestic product, and without substantial spending, cuts will continue to rise,” deJongh said. But until the U.S. economy returns to a stronger growth path, simply sustaining the automatic reductions is not a viable deficit reduction strategy, deJongh said.

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