California News

Sequester cuts would slow California's recovery

Wednesday, February 27, 2013

Parts of California are seeing a bit of a housing boom with sales and prices on the up and unemployment finally below 10 percent.

But the automatic budget cuts in Washington, known as sequestration, could put a damper on the state's economy in the long run.

"Sequestration likely will slow the economic recovery we're seeing, which is already pretty slow," said Jason Sisney with the California Legislative Analyst Office.

The slowdown could all start on Wall Street. The government must show things are fine. Investors look for bad signs.

"One of them is to signal dysfunction, gridlock and instability that shakes the confidence of private investors, and that starts the ball rolling," said Jim Mayer with California Forward.

The nervousness of investors could trickle down.

"Individuals and businesses, how do they react to sequestration? Does it make them more cautious about spending and hiring?" Sisney said.

As we saw in the great recession, spending and hiring were cut back dramatically. Sequestration could revive some of that timid behavior.

In the defense sector, which is big in the golden state, there's talk of furloughs, reducing the number of hours for its employees.

State workers were furloughed during California's own budget crisis. Local businesses suffered because employees got smaller paychecks, making them spend less.

The Assembly just passed a resolution urging Congress to do whatever it takes to avoid the sequester, set to take effect March 1. Not everyone voted for it because spending cuts are exactly what the federal government needs.

"We're talking about tax money that we sent to Washington that we get scraps back. That's what we're really talking about. In this case, the scraps are 2 1/2 cents of the dollar we sent there," said state Assm. Tim Donnelly (R-Twin Peaks).

Sequestration cuts were designed to be so awful, that compromise was a better alternative.

"Apparently the willingness to inflict that pain on the public, rather than govern, is higher than we thought," Mayer said.

(Copyright ©2014 KABC-TV/DT. All Rights Reserved.)

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Tags:
sequester, budget, economy, washington d.c., california news, nannette miranda
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