Supercommittee inaction could hurt state

Marylanders from nearly every walk of life could be affected by across-the-board budget cuts starting in 2013 as a result of the congressional supercommittee's failure to reach an agreement to trim the nation's spiraling budget deficits.

After months of secret talks, the 12-member panel formally pulled the plug Monday on its mission to identify $1.2 trillion in deficit cuts over 10 years. Unless changed by Congress, the outcome will cause automatic reductions that would be particularly painful for Maryland, where the federal government spent $96 billion last year.

Federal employee salaries and benefits — a driver of the state's economy — are potentially in jeopardy, as is the state's robust defense industry. Seniors on Medicare, commuters who rely on highways and rail systems, and scientists whose work is funded by the National Institutes of Health could all be affected. Maryland's gold-plated credit rating could be threatened.

"This was a huge missed opportunity," said Rep. Chris Van Hollen, the Montgomery County Democrat who served on the panel. "This is a sad day for the nation."

But even as lawmakers blamed colleagues across the aisle for the breakdown, they were preparing to continue the fight next year. Because automatic budget cuts will not take place until 2013, the ongoing debate over spending and taxes is headed toward a showdown in the middle of next year's presidential election.

"I think there is a majority in both houses that does not believe that the [automatic cuts] from a policy standpoint is what they would choose," said Rep. Steny Hoyer of Southern Maryland, who is the second-highest-ranking House Democrat. "But I don't think there are the votes to put them aside unless you have an alternative.

"So the trick," he said, "is getting to an alternative."

The deficit panel was created in August as part of the agreement to raise the nation's debt ceiling. But the six Democrats and six Republicans on the committee never cleared the hurdle that also has stymied past efforts on the deficit. Democrats insisted that new taxes are needed along with cuts to entitlement programs, and Republicans remained largely opposed to those tax hikes.

If the across-the-board cuts stand, roughly half would hit defense spending and the rest would fall on nondefense programs and agencies. Some entitlement programs, such as Medicaid and Social Security, are shielded. Medicare cuts are capped at 2 percent.

Exactly where the cuts would be made is not yet clear. For the first year, President Barack Obama's administration would have broad latitude to decide which programs would take a hit. Reacting to the committee's failure Monday, Obama vowed to veto any congressional efforts to wiggle out of the automatic cuts.

Maryland lawmakers said they are concerned about the possibility of broad cuts, which could include $454 billion nationally in defense spending. Fort Meade, Aberdeen Proving Ground, Walter Reed National Military Medical Center and other military installations account for 7.5 percent of Maryland's economic activity, according to the state Department of Business and Economic Development.

Defense contractors Lockheed Martin and Northrop Grumman are among Maryland's 10 largest private employers.

"I am worried about the disproportionate impact [cuts] will have on our national security and our local economy, which relies heavily on federal defense spending," Rep. C.A. Dutch Ruppersberger, a Baltimore County Democrat, said in a statement. "The jobs of many civilian personnel and contractors in Maryland are at stake."

Defense Secretary Leon Panetta said the scheduled military cuts would "tear a seam in the nation's defense" and "lead to a hollow force incapable of sustaining the missions it is assigned."

Retired Marine Brig. Gen. J. Michael Hayes, director of Maryland's office of military and federal affairs, said the state already is seeing the effects of cuts in defense spending.

"If you are involved in weapons system development or component development — you know, the Lockheed Martins, the Northrop Grummans and so forth — there is concern," he said. "Cutbacks are clearly going to impact procurement."

Northrop announced plans last month to cut as many as 800 jobs from its Linthicum-based Electronic Systems division, most of them in Maryland. That came on top of the 500 jobs the division announced it was eliminating in May.

Electronic Systems makes airborne radar, navigation systems and other military equipment. In the October announcement, a spokesman said the reductions were based on "the current business outlook … and the anticipation of further defense spending reductions."

A spokesman for Northrop declined to comment on Monday. A spokesman for Lockheed Martin did not respond to a request for comment.

Another $465 billion in automatic cuts would come from domestic spending.

Federal employee unions for months have pressured Congress to forgo additional cuts to the workforce, despite a bevy of proposals on Capitol Hill to reduce benefits or pay. Asked if the panel's failure guarantees that a two-year pay freeze in effect for federal workers will be extended, Hoyer said: "I don't think so, but it makes it more likely."

Maryland is home to 286,810 federal workers. Social Security, the NIH, and the National Security Agency are among the many agencies based in the state. Private government contractors in the state, meanwhile, were awarded about $27 billion in work last year.

Citing the state's close ties to the federal government, bond rating agencies threatened to downgrade Maryland's credit rating during the deficit fight in July. Such a move would have a major impact on budget making in Annapolis by making it harder for officials to borrow money or refinance current debt.

Standard & Poor's, the agency that downgraded the U.S. government's rating in August, released a report Monday focused on how the supercommittee inaction might affect state credit scores. Though it did not offer a definite prognosis, the report noted federal spending represents a larger share of the economy in Maryland than all but five states.

A spokesman for Standard & Poor's declined to comment on Maryland's rating.

Gov. Martin O'Malley blamed the lack of progress on congressional Republicans who he said "have shown that they will put tax cuts for millionaires and billionaires above what is best for our nation."

Republicans such as Rep. Andy Harris viewed the situation differently.

Democrats "refused to cut spending and instead tried to increase taxes on American job creators by one trillion dollars," said the Baltimore County lawmaker who also represents the Eastern Shore. "Their unwillingness to compromise on tax increases will put us on a one-way path to a European-style debt crisis."

The panel technically had until Wednesday to strike a deal. However, its members were also required to publicize their agreement by Monday.

Despite concern about the impact on Maryland, there are a few factors working to the state's advantage. For instance, the automatic cuts will not affect Medicaid — a major share of the state's federal dollars. And although defense contractors could be cut, the focus of Maryland's military installations may provide some insulation.

Fort Meade — the state's largest employer, with more than 56,000 workers in the fiscal year that ended in June — is home to the NSA, the Defense Information Systems Agency and U.S. Cyber Command. In a post-9/11 world, military leaders may be reluctant to let the intelligence agencies face more cuts. The new Walter Reed in Bethesda has been identified as the nation's lead institution for military medical research.

Clarence Bacon, a former national commander of the American Legion, met with Van Hollen last month and urged him to preserve spending on defense and veterans. The Bethesda man, a veteran of World War II and the Korean War, said he remains concerned over what could be cut.

If the government slashes spending on veterans, he said, "it seems to me to be giving an impression to young Americans, 'Why should I join the military when our country doesn't want to take care of them when they come back?'"

Hayes expressed confidence that the reductions would be targeted.

"The balance between the inevitable need to cut and continuing to maintain our national security interests is something that both parties understand," he said.

"Now, how they're going to come to an agreement as to where those lines can be drawn has to play itself out."