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How The Fiscal Cliff Could Impact Long Beach

By Joshua H. Silavent
Staff Writer

December 4th, 2012 – The U.S. Conference of Mayors recently urged Congress to deal with the pending fiscal cliff in a responsible, bipartisan manner. Long Beach Mayor Bob Foster signed on to a letter that addresses the concerns of municipalities across the country about how a mix of tax increases and spending cuts poses significant challenges to the economic and social livelihood of cities.

“We are particularly concerned with deep reductions in non-defense discretionary spending, one-third of which is directed to state and local programs: 36 percent is directed to education; 28 percent to housing and community development; 18 percent to health and the environment; 10 percent to workforce; and five percent to public safety and disaster response,” the letter reads in part.

The fiscal cliff entails the end of the Bush-era tax cuts, the loss of the payroll tax cut for workers, $100 billion in spending cuts next year alone (known as sequestration), a reduction of unemployment benefits and the elimination of some deductions, such as the mortgage debt tax relief, all of which spell a volatile fiscal mix that could send the American economy reeling.

HCVT - Certified Public Accountants

Rather than an across-the-board approach to spending cuts, municipal leaders are asking for a less austere approach even while acknowledging that steps must be taken to address the nation’s growing debt.

“So the question is: Can Democrats and Republicans work together to fashion a compromise to put our country back on track?” asked Long Beach Councilmember James Johnson.

The City of Long Beach receives federal funding for a number of programs that could be impacted by sequestration, according to Tom Modica, director of government affairs and strategic initiatives. “The majority of our federal funds are Department of Housing and Urban Development,” he said. These include homeless services grants and section 8 housing vouchers. Funding for Community Development Block Grants might also be impacted.

Modica said the next largest pot of federal funding the city receives involves job training programs and workforce investment grants. The Long Beach Health Department also receives some federal funds for public health emergency preparedness and HIV prevention programs.

Federal funds for social services programs that some Long Beach residents rely on also come through the county and state, rather than directly to the city, which means the impact on residents could be exacerbated to an as yet unknown degree.

The fiscal cliff also could impact the city’s ability to receive federal reimbursements under the Build America Bonds program, which supported infrastructure projects.

“That’s a good example, I think, of an unintended consequence,” Modica said.

A large chunk of mandated spending cuts are aimed at the defense sector, which includes the Federal Aviation Administration (FAA).

“They’re going to hit the FAA extremely hard,” Mario Rodriguez, director of the Long Beach Airport, told the Business Journal in October. According to an August report from the Aerospace Industries Association, cuts to the FAA budget could total $1 billion annually and cost upward of 132,000 jobs, such as air traffic controllers and security screening personnel, at airports across the nation.

Rodriguez said he has been tracking potential cuts to the FAA closely and taking precautions. “To some degree, I’m paid to be paranoid,” he said. “We’re prepared here. We have an extremely large (cash) reserve. We’re going to weather the storm, because it is a storm.”

Rodriguez, however, is concerned about how cuts to the FAA might negatively impact federal support for maintenance projects on the tarmac and runway, for example. That’s because the Long Beach Airport receives between $8 and $10 million annually in federal funding to support these kinds of improvements.

“Congress does need to get toward a balanced budget, however, sequestration probably is not the best solution,” Councilmember Gary DeLong told the Business Journal.

Councilmember Johnson said now is the time for elected officials to get serious about compromise. “I think we really need the American people to stand up and just demand” a solution, he added.

DeLong agrees. “This Congress has a responsibility to solve the mess they’ve created,” he said.