Teetering on the fiscal cliff
When backed against a cliff, there are numerous thoughts that might go through one’s mind: “How did I get into this situation? Could I survive the fall? Could I recover if I were to tumble over the edge?”
Those questions, and many others, are undoubtedly being asked by members of Congress and the president as the financial precipice that is the fiscal cliff approaches.
In Chisago County, county staff and elected officials have a vested interest in how Congress and the president deal with the cliff.
The consequences of going over the fiscal cliff would have a myriad of adverse impacts for counties and municipalities nationwide.
Explaining the cliff
During the Nov. 7 county board meeting, Chisago County Administrator Bruce Messelt relayed information from the National Association of Counties to the board that explains the specifics of the fiscal cliff.
First, Messelt brought up the term “sequestration,” which is the essence of the fiscal cliff.
“Sequestration is the process of automatic, across-the-board spending reductions,” he said. “In our particular case, at the federal level they’re talking about two areas: security and non-security cuts.”
He added, “The key is we’re in this situation because a federal super committee did not reach an agreement on a new federal budget. In terms of sequestration, most folks are saying it’s going to be a very destructive process because it puts into place significant spending cuts without any management of those particular cuts.”
Messelt noted the country is facing these automatic cuts – that would go into effect at the end of this year unless Congress and the president come to an agreement on how to pare down the national debt – because the nation is nearing its debt ceiling.
He noted the national debt is “currently ticking up to about $16 trillion,” and about a third of federal spending goes to pay the interest on that debt.
“The federal budget picture starts skyrocketing here in the next couple of years, as the debt starts to accumulate more and more of the national budget,” Messelt said. “At some point, it is projected sometime in the 2020s, we could actually reach a tipping point where debt will be more than 100 percent of the Gross Domestic Product of the nation.
Tom Stinson, Minnesota’s state economist, drafted an economic outlook in October that further details how the nation has been brought to the brink of sequestration.
In that document, Stinson notes the expiration of the Bush tax cuts is the not the only reason for the fiscal cliff.
The payroll tax cut also expires, which would equate to a $110 billion spike in taxes nationwide.
Alternative Minimum Tax indexing ends, which is another $125 billion.
Other changing tax provisions ending leads to a further increase of $146 billion.
Messelt also noted two other drivers of the national debt: the Affordable Healthcare Act and the American Recovery and Reinvestment Act of 2009 that used over $800 billion in federal funds to aid in job creation.
“Over the next couple of years mandatory programs – Social Security and discretional spending – will be very flat, with health care spending being the driver,” Messelt said.
He said if Congress and the president do come to an agreement to avoid the fiscal cliff and start paying down the national debt, it would undoubtedly be a painful process, but putting off addressing the issuing by simply raising the debt ceiling could have very negative effects in the not-too-distant future.
“NACo said the deficit is manageable, but we’re going to have to pay the piper in the next five to 10 years,” Messelt said. “We could deal with it now, or deal with it in 10 years when it becomes more of a crisis.”
Impacts on Chisago County
The overarching impact of the fiscal cliff could be hard for some to digest, but Messelt was able to convey what could happen in Chisago County if members of the federal government do not come to an agreement on how to pay down the national debt come January.
He asked Nancy Hoffman, the county’s HRA/EDA director, to explain how economic development in the county could be impacted.
“There are a couple of HUD programs – (one likely to be cut) would be the small cities development program, which cities like Chisago have taken advantage of,” she said. “Minnesota Investment Fund funding, which is mostly HUD funding, would also probably be cut. There would be a couple strong tools for community development that we wouldn’t have any longer.”
Messelt then went down a laundry list of programs used by Chisago County and the state that would see cuts in the fiscal cliff scenario.
He noted AIDS drug assistance programs, breast and cervical cancer screening, childhood immunization grants, substance abuse prevention and treatment programs, dislocated worker state grants and many other government programs many rely upon would face significant cuts.
Going to the next level
Messelt and other top county officials said they plan to relay their concern about the fiscal cliff to Minnesota’s representatives in Congress.
Nancy Dahlin, Chisago County’s Health and Human Services director, said Minnesota Sen. Al Franken will be visiting her office soon, and she plans to talk to him about how sequestration could affect her department.
County Commissioner George McMahon noted Congress could simply vote to raise the debt ceiling again and deal with the substantial national debt after Dec. 31 when new Congress members have taken their seats.
“That doesn’t change anything, but we wouldn’t be falling off the fiscal cliff next year,” he said.
He added that he’d like to have newly-elected 8th District Congressman Rick Nolan come before the county board to talk with the commissioners about the debt facing the nation and the state.
Messelt acknowledged raising the debt ceiling is a possibility, but noted that strategy isn’t the way to solve the problem.
“You’d probably end up with a series of herky-jerky moves, as opposed to seeing a comprehensive discussion,” he said.
Messelt also said the national debt isn’t going to be fixed with one action.
“It’s going to be a series of small moves,” he said. “It’s not going to be a grand strategy.”