Wednesday, January 02, 2013
On January 1, 2013, the U.S. House of Representatives approved a bill to avert a fiscal cliff, preventing widespread tax increases and delaying a series of automatic cuts in federal spending. President Obama will sign the bill into law. While the bill addresses major tax issues, it leaves major spending cut issues unresolved. The vote delayed “sequestration” cuts for two months. These cuts would reduce the budgets of most agencies and programs by 8% to 10%. The two-month delay of the sequester ends March 3rd.
On December 30, 2012, The Baltimore Sun published the following Op-Ed authored by Dean Reece, warning that the spending cuts, if enacted, would be a threat to the U.S. and Maryland economies.
By Dean E. Albert Reece, MD, PhD, MBA
The spending cuts associated with the impending fiscal cliff — known more technically as sequestration — hold potentially ominous consequences for the U.S. economy, and for Maryland in particular, if the White House and Congress cannot strike a deal soon to avert them.
The "sequestration" clause of the Budget Control Act of 2011 triggers an approximately 8 percent across-the-board cut in federal discretionary spending. Although all states in the U.S. are likely to be harmed, perhaps no state will be more adversely affected than Maryland, with its high concentration of bioscience and federal employees. Indeed, our economy faces the likelihood of a major recession with long-lasting economic consequences for the state, which stands to lose about $5.4 billion over the next four years in federal research funding under sequestration.
According to Office of Management and Budget, sequestration will reduce funding for federal research agencies by approximately $3.6 billion in 2013 alone. By far, the single largest cut will be to the budget of the National Institutes of Health, which would lose almost $2.5 billion. Such drastic cuts to the NIH budget will seriously damage Maryland's bioscience sector, which is among the nation's largest, generating $29 billion in economic output annually. Overall, Maryland's life-science sector supports 120,000 total jobs, $11 billion in income, and nearly $600 million in state government taxes annually. In other words, the sector supports nearly 5 percent of Maryland's total employment, more than 8 percent of its wage/salary income, and over 11 percent of gross state product.
The American Association for the Advancement of Science predicts severe, even catastrophic, consequences for the life-science industry under sequestration. Indeed, two of Maryland's largest life-science job creators — the Johns Hopkins University School of Medicine and its hospital system (Johns Hopkins Medicine) and the University of Maryland School of Medicine and its hospital system (University of Maryland Medicine) — also are two of largest recipients of federal research dollars in Maryland.
A drastic cut to the NIH budget means that many of the ongoing research activities of these two major medical systems will be adversely impacted, and new research programs and initiatives will be delayed or cancelled. More importantly, however, it will curtail their ability to innovate and create spinoff companies. Indeed, Johns Hopkins and the University of Maryland have spurred a growing commercial life-sciences hub in Baltimore by building two biotechnology parks near each of their two campuses. Thanks largely to these two bioparks, Baltimore is home to almost one-quarter of the state's biotechnology companies and almost one-half of it private life-sciences jobs.
In addition to the immediate impact of sequestration on Maryland's economy, there will be broader ramifications, as the U.S. government's impact on Maryland's economy goes far beyond supporting the life-sciences industry. In 2010, for example, federal operations and spending supported an estimated 821,000 jobs in Maryland, or 24 percent of the total jobs in the state. In addition, businesses and institutions in the state would receive $2.5 billion less in health-related spending and $2.1 billion less in defense spending from 2013 through 2017.
Maryland's Board of Revenue Estimates projects that sequestration could reduce Maryland's wage and salary base by about $2.5 billion and reduce employment by more than 12,600 jobs. However, a report from the Center for Regional Analysis at George Mason University more ominously suggests that direct, indirect, and induced job losses could be much more severe, approaching 100,000 lost jobs — which would send Maryland spiraling into a deep, protracted recession.
Our national debt is real, and the federal government needs to take steps to address it in the long term. However, cutting federal research and development funding by so much and so quickly not only will stifle the ability of academic health centers such as ours to innovate, create jobs, and grow the economy; it will hurt employment in many other economic sectors in Maryland as well, including tax revenues. The life-sciences sector is the one proven powerful economic engine in the state. Hampering it at a time when the economic recovery is still so fragile would only add insult to injury.