Baltimore Business Journal: Proposed federal budget threatens economic growth

Editor’s note: This commentary appeared on www.bizjournals.com on March 28, 2017.

It has taken Baltimore City and Maryland longer to recover from the Great Recession of 2007 to 2009 than much of the nation, but jobs and economic growth are looking bright again. Employment in much of the state has bounced back, housing sales in Greater Baltimore for 2016 were strong and business investment in new projects or expansion is robust in Baltimore City and elsewhere in Maryland.

But a shadow has crept up on the horizon that bears close scrutiny by state and local elected officials. Maryland residents, especially the thousands whose jobs and businesses are tied to the federal government and spending, also should be aware of what may lie ahead.

On March 16, President Trump released a partial outline of his proposed 2018 budget. It lays out billions of dollars in spending cuts to many government agencies, while increasing spending for the military and homeland security.

With a number of military installations in the state, major defense-related institutions, such as the National Security Agency, in the Baltimore region, and a strong base of defense and cybersecurity contractors throughout Maryland, there is good news in this proposed boost.

But our economy also has a heavy reliance on non-defense related spending and federal jobs. So there in lies some potential bad news.

Many argue that the Trump budget proposal is “dead on arrival” in Congress. In all likelihood that may hold true. But these are different times in Washington. Republicans hold majorities in the House and Senate and there is a desire for trimming federal spending. And so it seems hard to predict where this austere proposal may lead.

One thing is clear. If passed as submitted, it would have a significant effect on job growth and Maryland’s economy, not to mention the budgets of Baltimore City and the state.

State and local government rely on federal dollars to fund programs ranging from housing for the poor to support for the unemployed and more. But these and other programs are slated for drastic cuts, if not elimination, in the Trump budget proposal.

A brief look at where some of the proposed cuts would fall and you get a sense of just how ominous this budget could be for the state and region.

The Trump budget proposes a $5.8 billion cut to the National Institutes of Health in Bethesda. This reduction would put thousands of jobs at risk, stifle innovation, and cripple medical research. Globally recognized Johns Hopkins Health System and Johns Hopkins University in Baltimore are top recipients of NIH research awards, receiving a combined $651 million in 2016. The University of Maryland, Baltimore received nearly $150 million in NIH grants. The NIH cuts would significantly impact those two anchor institutions in Baltimore City.

The Environmental Protection Agency would sustain a 31 percent cut to $5.7 billion, including the elimination of the Chesapeake Bay restoration program. The EPA budget provides Maryland $9 million per year for projects and staff, according to The Washington Post.

Trump’s budget also would eliminate the following economic development related programs: Economic Development Administration, Minority Business Development Agency (MBDA), Community Development Financial Institution (CDFI) Grants, Transportation Investment Generating Economic Recovery (TIGER) Grants, and the National Endowment for the Arts (NEA).

The average citizen may not be familiar with these programs. But these programs benefit the economic growth efforts of our state and region in many ways.

For example, grants from the NEA support Baltimore’s Artscape festival, which generates $25 million of economic impact to the local economy. Grants from the Economic Development Administration and funding from MBDA spur minority business job creation and jobs in biotechnology. CDFI grants support local affordable housing.

The proposed deep budget cuts and total elimination of important economic development programs would send shockwaves with ripples extending far and wide.

Richard Clinch, executive director of the Jacob France Institute at the University of Baltimore, has extensively studied how Maryland’s economy is tied to federal spending. He is among the experts who believe the proposed budget should be deeply concerning to those who live and work in the Baltimore region and the Washington-Northern Virginia area.

Here are some statistics that Clinch has compiled that highlight the point:

  • There are an estimated 223,467 federal jobs based in Maryland, placing the state No. 5 in the U.S. for the number of federal jobs by location.
  • An estimated 298,557 federal workers live in Maryland, placing the state No. 3 for federal employment based on workers place of residents.
  • An estimated $28.4 billion is spent on procurement in Maryland, placing the state No. 4 in government spending.

When the federal government gets a cold, Maryland gets the flu,” Clinch simply states.

Architects and supporters of the Trump budget argue that states and cities should assume the payment of those program targeted for cuts in the 2018 proposal.

The conundrum for Baltimore and the state, notes Clinch, is that both have budgets that are currently facing deficits, despite an improved economy.

Even Howard County – one of the wealthiest counties in the U.S. – has budget issues, notes Clinch. If a financially stable county doesn’t have wiggle room in its finances, no one does, he argues. A reduction in federal jobs and spending would slow economic growth throughout the state, Clinch predicts.

“This seems the perfect storm for bad things to happen,” he said.

Maryland taxpayers and state and local elected officials need to join together and emphasize the economic setback this poorly thought out budget proposal can have on our state’s economy. It is important that we speak up forcefully to ensure this is one storm that is contained before it gains any strength.

Donald C. Fry is President and CEO of the Greater Baltimore Committee. He is a contributor to the Baltimore Business Journal.

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