SACRAMENTO, Calif. (AP) — Looming federal spending cuts are expected to dampen California's economic recovery at a time when a housing rebound and job growth are gaining traction, but come Friday the immediate effect may not prove to be the fiscal doomsday that President Barack Obama has predicted.
The White House estimates that in California, 64,000 civilian defense workers would be furloughed and 1,200 teaching and teacher aide jobs would be put at risk from the mandatory budget reductions known as the "sequester." Obama administration officials also said the state will see program cuts in children's vaccines, senior nutrition, student work-study jobs and assistance for victims of domestic violence.
While a bigger concern is what might happen in the long term, most of the effects will not be felt right away. Even if the $85 billion in across-the-board reductions happen nationally, the amount cut in California will be just a fraction of the state's $2 trillion gross domestic product, which according to 2012 estimates would be the world's eighth largest economy.
Federal furloughs won't start for a month due to notification requirements, giving negotiators some breathing room to work on a deal. And while Obama said there is no smart way to let the cuts kick in, members of Congress are considering taking action to give agencies flexibility over what to cut.
Meanwhile, some of the biggest drivers of federal spending such as Social Security and Medicaid are exempt from the automatic reductions.
"You always have to assume that nothing will happen for a month, and by then they may have resolved it," said Stephen Levy, director and senior economist at the Palo Alto-based Center for Continuing Study of the California Economy. "Who knows who's playing chicken?"
Most state economic forecasts already have accounted for some kind of federal budget cuts, meaning that California can expect tepid growth of about 2 percent for this year.
The biggest fear economists and state officials have is any long-term impacts on California's recovery.
"If sequestration results in a broader decline in consumer or business confidence or the stock market, the slowdown could be more pronounced," said Jason Sisney of the state's nonpartisan Legislative Analyst's Office.
Robert A. Kleinhenz, chief economist at the Los Angeles County Economic Development Corporation, said federal cuts eventually could put about 175,000 non-defense jobs in California at stake because of their duration — $1.2 trillion over 10 years.
He said the fallout from the political impasse is hard to quantify because it creates so much uncertainty for the private sector. Employers may not hire, or they could put off expansion plans. Employees, meanwhile, face lower wages and potential job losses.
The cuts come at a time when California's economy is recovering from the recession and is adding more jobs than any other state. Political leaders are hoping California's own budget remains balanced.
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