Looming federal sequestration could have local impact

By Trey Mewes and Matt Peterson

The upcoming forced federal budget cuts, known as sequestration, will affect people across the nation; and local residents won’t be left out.

The planned cuts, created under the Budget Control Act of 2011 as a last-ditch solution to the “fiscal cliff” budget battles over the debt ceiling, calls for a 3 to 4 percent reduction in the federal budget through cuts over the next 10 years. Federal officials say $85 million in cuts will take place from March to September if legislators can’t come to an agreement over balancing the federal budget by the end of the month, with military and defense programs bearing most of the cuts over the next 10 years.

Education cuts

Local schools will be impacted by the upcoming cuts. Austin Public Schools would lose $100,000 or more in special education funding.

“It’s all federal dollars,” said Mark Stotts, district finance and operations director.

Districts must provide special education services based on need, so there’s no programs to cut in response to the federal funding loss. The district would make up that loss by using unreserved general education funds.

Austin schools is planning to run an unreserved general fund deficit next year to decrease the $8 million or so already in that fund. Stotts said while the district had planned to decrease the unreserved fund by about $2 million, the district’s conservative budgeting policies would more likely translate to about a $500,000 decrease based on previous years’ spending and revenue patterns. Stotts said district officials aren’t changing the planned deficit yet to account for the sequester.

According to an Obama administration report issued last Sunday, Minnesota would lose about $7 million for primary and secondary education, putting the equivalent of about 100 teacher and aide jobs at risk. About $9.2 million would be cut in special education funding as well. Federal funding for head start programs and childcare assistance initiatives will also be affected, though many programs to help the poor are exempt from sequestration.

The majority of the federal budget is in fact walled off from the cuts. Social Security and veterans’ programs are exempt, and cuts to Medicare are generally limited to a 2 percent, $10 billion reduction in payments to hospitals and doctors. Most programs that help the poor, like Medicaid, food stamps, subsidized school lunches, Pell Grants and supplemental security income payments are also exempt.

Local impact of military cuts hard to determine

The U.S. Military will be hit hard, as the cuts will be split down the middle between defense and domestic expenses. Minnesota and local soldiers potentially could be affected.

“The Minnesota National Guard operates in 63 communities throughout our state,” said Capt. John Hobot, spokesman for the Minnesota National Guard. “Furloughs for federal military technicians and civilian employees due to sequestration has the potential to influence the readiness of our service members, equipment, facilities and training. Federal military technician and civilian employee furloughs would adversely affect 1,169 employees or 54 percent of the Minnesota National Guard’s full-time workforce.”

Hobot couldn’t speculate about local employees or the future of a recently approved $3 million upgrade to the Austin Armory. The National Guard announced in December it would upgrade Austin’s facility starting in fall 2013, including upgrades in parking, lighting, air conditioning, the kitchen, the locker room and more. In December, Staff Sgt. David Gansen said much of the funding would come from federal funding and various state grants. An armory in Chisholm is also set for $2 million in upgrades.

Hobot said there are “too many moving parts” to the federal sequester to know what the immediate effect will be on National Guard projects.

“We cannot speculate on what will happen with already approved construction projects at this point. We have to see what happens at the Federal level before making any adjustments at our level,” he said in an email.

Future effects

If nothing is done, federal legislators will allow sequestration to cut about $1.1 trillion from the federal budget over the next 10 years under current legislation. Yet there could be far-flung ramifications to government entities under the sequestration.

If the sequestration happens, it could be more difficult for cities and government entities to pay for major projects in the future. The city of Austin and Austin Utilities recently wrote a letter to U.S. Sen. Al Franken to protest the end to a deduction on interest paid on municipal bonds, which cities commonly use for large projects. While the city won’t have to bond for many future projects — non-state aid road projects and treatment plant projects aside — the city could have to bond for future infrastructure projects at a higher rate of interest, which ultimately means more costs to taxpayers.

Cuts to federal programs could affect future grants for the city, according to Tom Dankert, city finance director.

“It might take us a little longer to access grant funds in order to get future projects done,” he said.

But Dankert doesn’t expect the sequestration to affect the Austin Police and Fire departments, as neither get federal funding.

Unknown costs

The largest problem to come out of the sequestration debate is the overall effects sequestration will have. While Minnesota won’t feel these budget cuts as severely as other states — only 5 percent of Minnesota’s revenue comes from federal sources — there is still uncertainty over how the cuts will be divided on local and state levels.

“What is Minnesota’s share? We don’t know,” said Julie Stevermer, director of Mower County Public Health and Human Services.

Stevermer said county officials received estimates about six months ago to determine what to expect if federal cuts did happen. Yet those figures have changed, and while Stevermer knows cuts could come to programs like Women, Infant and Children initiatives and low-income home energy assistance, it remains unknown exactly what cuts Mower County could sustain. Stevermer said a recent report determined up to 500 vulnerable or disabled children could lose child care assistance, but she and officials across the state won’t know where those children are until sequestration takes place.

“We know we’re going to lose some funding, we just don’t know who and how much,” she said.

Hormel Foods Corp. also faces uncertainty, as USDA inspectors are required on site. While the company said in a statement that it agrees with the American Meat Institute’s position that the USDA can cut discretionary spending before it reduces the number of inspectors, it’s unclear what will happen there, either.

—The Associated Press contributed to this report.