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Insight: Largely out of sight, U.S. budget sequester still cuts deep

Fourth grade teacher Alicia Schoenborn works with a student at Mahnomen Elementary School in Mahnomen, Minnesota September 26, 2013. REUTERS
Fourth grade teacher Alicia Schoenborn works with a student at Mahnomen Elementary School in Mahnomen, Minnesota September 26, 2013. REUTERS

By Andy Sullivan

WASHINGTON (Reuters) - Airports have not ground to a halt. Fresh meat has not disappeared from supermarkets and the economy has not slipped back into recession.

The U.S. government may have headed off some of the most dire predictions about the "sequester," but over seven months, the across-the-board spending cut has thrown sand into the gears of the economic recovery.

The sequester has pulled some teachers from classrooms and police from the streets. It has grounded Air Force planes and docked Navy ships. The Forest Service had 500 fewer "hot shots" to battle summer wildfires. And as many as 140,000 low-income families may not get housing assistance that was once available.

The sequester wasn't supposed to happen. Congress set up the automatic cuts in 2011, with the burden falling equally on military and domestic programs, in an effort to force negotiators to agree on more targeted budget savings.

But they failed to find common ground over the next year and a half as Democrats protected Social Security and other benefits and Republicans rejected tax hikes.

So on March 1, automatic cuts kicked in totaling $85 billion, or roughly 2 percent of the federal $3.5 trillion budget. Social Security payments and the Medicaid health program for the poor were spared, but many other programs, from military to housing, took a 5 percent hit.

Congress eased the pain somewhat by giving agencies greater budget flexibility: the Federal Aviation Administration avoided furloughing air-traffic controllers by cancelling $247 million in construction; the Agriculture Department averted a food price spike when it kept meatpacking inspectors on the job by making other cuts; and civilian Pentagon employees, originally facing 11 unpaid days, ended up taking only six.

The Justice Department was able to keep FBI agents on the job by tapping unused funds from prior years. But cuts to its community-policing fund mean that cities like Oakland, California, now have fewer police on the streets, according to Chuck Loveless of the American Federation of State, County and Municipal Employees.

If the sequester hasn't generated many sensational headlines, some economists say it is playing out largely as they predicted by slowing economic recovery and job creation.

The nonpartisan Congressional Budget Office estimated in July that based on data up to that point, the cuts would cost 900,000 jobs within a year. Goldman Sachs said earlier this month that the federal furloughs had slowed personal income growth over the summer.

"People are looking around and saying, 'Gee, the economy hasn't imploded, life isn't so bad,'" said Stephen Fuller, an economist at George Mason University who has tracked the impact. "But they're clearly becoming more apparent, and I think we'll see this in much slower growth for the rest of the year."

MORE WASTE, FRAUD, ABUSE

Democrats and many Republicans say the sequester is bad policy but some conservatives say it has provided a welcome check on a federal government that has grown too large.

"This restraint is helping to heal our economy by reducing the debt - and deferred taxes - on future generations," Republican Senator Tom Coburn said on Friday.

In some parts of government, the sequester has prompted the kind of belt-tightening that budget hawks say will be needed to keep U.S. debt manageable. For example, it could spur the Pentagon to open up its satellite program to competition more quickly.

"It provides an impetus to go ahead and get you there faster because you have to save money," said Douglas Loverro, the Pentagon's point man on space policy.

In other areas, however, the sequester has increased wasteful spending.

Some federal courts now hire expensive private-sector lawyers to represent poor defendants because public defenders have been forced to take up to 20 unpaid days off this year.

Deferred repairs to Agriculture Department buildings in Washington that were damaged by a 2011 earthquake will cost more to fix in the future, the department says.

Government watchdogs say the sequester has hurt their ability to monitor fraud and abuse, according to a survey by the Association of Government Accountants.

And tax cheats may face less scrutiny. The Internal Revenue Service now employs 10,000 fewer people than it did two years ago and it shut down for three days this summer to save money.

"For every one dollar not invested in the IRS, the general treasury's losing four dollars," said Colleen Kelley, president of the National Treasury Employees Union, which represents 150,000 federal workers.

The U.S. Navy says it had to mothball the USS Miami, an arson-damaged nuclear submarine, when a manpower shortage drove up repair costs. Another 11 ships have been kept in port.

Thirty-three Air Force squadrons grounded this year to save money will need to boost their flying hours by 10 percent next year to return to fighting shape.

To find immediate savings, the Pentagon has backed off on energy efficiency efforts that could bring long-term savings, according to construction-industry officials, who say some Pentagon contracts no longer ask bidders to include energy-efficient windows and other components.

"The sequester is creating a short-term solution that is going to have long-term impacts on their energy-reduction goals," said Tom Mertz, a senior vice president at Sundt Construction in Phoenix.

BACK TO SCHOOL

For schools, the impact is just now hitting home.

The sequester means 57,000 fewer poor children will participate in the Head Start preschool program this year.

That translates into 15 fewer kids, one less teacher, and one less assistant in Fremont, Nebraska, where the program already had 40 children on a waiting list.

Program director Stephanie Knust argues that those 15 Fremont kids will start kindergarten with fewer academic and social skills than their peers.

Their older siblings might also feel the impact.

"The money that's supposed to be going to help our neediest students is slowly disappearing for us," said Jeff Bisek, school district superintendent for the White Earth Indian reservation in Minnesota, where most students qualify for subsidized lunches.

Federally funded school programs for poor communities and mentally and physically handicapped children have been disproportionately hit by the sequester. The amount of federal funds to local school budgets averages 8 percent but rises to above 50 percent in some areas.

Bisek said he plugged a $250,000 shortfall this year partly by scaling back tutoring and a program for teenage mothers. He used a rainy-day fund and state aid to cover the difference.

Other schools don't have as much of a cushion.

On the Cheyenne River Indian reservation in South Dakota, class sizes have risen and struggling students are less likely to get individual help, said superintendent Carol Viet.

DROPPING OUT OF SCIENCE

As in education, cutbacks to scientific research may take years to play out.

The National Institutes of Health canceled 700 grants, and the Agriculture Department slashed 100 research projects. The Army cut its research budget by half.

Scientists worry that, aside from thwarting potential breakthroughs, the cuts could prompt young researchers to abandon the field.

University of New England professor Ian Meng said he couldn't hire assistants this summer to help him research headaches and "dry eye" syndrome. Next year, Meng may have to lay off some lab workers.

"The people I've invested in, have mentored, they certainly are seeing that research is maybe not a priority for our government," he said.

THE RENT COMES DUE

The sequester means Tamara Caston, a Houston-area school bus driver, will face a $300 a month rent increase in July or have to move to a smaller apartment with her 17-year-old son.

Faced with a $7 million federal aid cut, Houston's public-housing authority is scaling back rent support.

The extra rent equals one week's take-home pay for Caston, who says she may need a third job to cover her bills.

Across the country, many housing authorities have frozen their client lists, though few people seem to have actually been thrown out on the street. The Center on Budget and Policy Priorities, a liberal think tank, estimates that by next January 140,000 fewer families will receive housing help.

Housing advocates say the cuts are likely to be worse if Congress extends the sequester, as expected.

"I'm worried about the future," said Nan Roman of the National Alliance to End Homelessness. "We're getting pretty close to the bone."

(Additional reporting by Andrea Shalal-Esa; Editing by Marilyn W. Thompson and Claudia Parsons)

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