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Heading toward a fiscal cliff

Friday, November 30, 2012 - Updated: 6:50 PM

As President Obama opens talks with congressional leaders on a deal on revenue and spending, the Pew Center on the States provided another perspective as further incentive for Washington to reach agreement by the end of the year.

Data on the impact of $100 billion in spending cuts and $400 billion in tax increases have focused broadly on the federal budget. However, a Pew Center report warns of the fiscal threat to states that have over the past half century become more and more dependent on federal aid for highways, education, health, nutrition and other programs.

Along with the potential loss of direct federal aid, states could take a financial hit from hundreds of billions of dollars in cuts to the military budget in the coming years. Civilian jobs are at risk, as is spending on contractors and suppliers to support military installations.

Without some agreement, sequestration will mean $100 billion in automatic spending cuts at the end of the year, half of that in defense.

"While states would be affected in different ways, the one clear thing is that almost all states will be affected in some way by the different elements of the fiscal cliff," said Anne Stauffer, project director at Pew Center on the States, which authored the report.

According to the report, about 18 percent of federal grants to states would be subject to across-the-board cuts that could total about $7.5 billion.

The District of Columbia, Maryland and Virginia could be hardest hit. About 20 percent of the region's economy depends on federal procurement, wages and salaries.

Economists say going over the fiscal cliff could increase unemployment. The job losses would send more people into government safety nets such as unemployment insurance and Medicaid funded by states. Federal spending cuts could also force states to hike their spending to make up for reduced school aid or highway funds.

Many states are just recently seeing a return to prerecession levels of revenue as they close their deficits. President Obama and Congress could make that more difficult if they take the nation over the fiscal cliff.

-- The Batavia Daily News


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