Published: August 14, 2012
The Aerospace Industries Association held a news conference Monday to release a new report documenting the costs of sequestration, the automatic and draconian budget cuts required by the Budget Control Act of 2011. While defense takes the greatest proportional hit from the cuts, sequestration will have much broader impact. We've written at length about the huge tax increases involved in the looming "fiscal cliff" but have not given the just-as-threatening sequestration element as much attention, and AIA's work provides a welcome opportunity to broaden the topic. From the news release, "New Report: Sequestration Will Ground Air Travelers, Cargo and the U.S. Economy ."
Arlington, Va. — A study released today by the Aerospace Industries Association and Econsult Corporation estimates that budget cuts to Federal Aviation Administration operations as a result of sequestration could cost up to 132,000 aviation jobs, sap $80 billion a year from the nation’s gross domestic product and strip almost two billion pounds of freight capacity out of an air cargo system that is already buckling at the seams.
According to the study, annual economic losses could amount to $80 billion annually by 2035, an annual decrease of 37 to 73 million in passenger enplanements and annual reductions of 1 to 2 billion pounds of transported air freight. The forecasted loss in output to the U.S. economy is estimated to reach $9.2 to $18.4 billion, with $2.7 to $5.4 billion lost in wages and salaries. “If sequestration is not stopped, it will be by far the most devastating budget cut to the FAA in its 54 years,” said former Secretary of Transportation and Congressman Norman Mineta. “The FAA is a critical safety organization that regulates our national air transportation system. Putting it at risk is folly beyond comparison.” Mineta is currently vice chair of public policies at Hill + Knowlton Strategies
AIA's latest report follows an analysis released last month, " The Economic Impact of the Budget Control Act of 2011 on DOD and Non-DOD Agencies." (News release) The author was Dr. Stephen S. Fuller of George Mason University.
“The results are bleak but clear-cut,” said Fuller. “The unemployment rate will climb above 9 percent, pushing the economy toward recession and reducing projected growth in 2013 by two-thirds. An already weak economy will be undercut as the paychecks of thousands of workers across the economy will be affected from teachers, nurses, construction workers to key federal employees such as border patrol and FBI agents, food inspectors and others.”
News coverage ...
And a very good column, "The WARN Act dilemma," by Diana Furchtgott Roth of The Manhattan Institute, former chief economist at the Department of Labor. She examines the legal obligations of defense contractors to send out letters required by the WARN Act, notifying employees 60 days in advance of anticipated layoffs (which will certainly occur if sequestration goes into effect). The Department of Labor recently issued guidance to companies saying the state of affairs was too uncertain to warrant issuing the letters, but failure to send them could raise serious legal liability for the companies. See also Commentary, "Ex-NLRB Counsel: Ignore WARN Act at Your Own Peril."