Automatic cuts in defense spending mandated by the Budget Control Act of 2011 will take effect Jan. 1, if Congress does not act during the upcoming session. Local politicians and business leaders fear the cuts and uncertainty in defense contracts will result in more job losses in El Paso County.Some defense contract jobs have already been eliminated because of the concern about contract renewals.The BCA bill was the outcome of negotiations between Congress and President Obama during the 2011 federal debt-ceiling debate. The compromise allowed the statutory limit on the federal debt to be raised by $2.1 trillion, in exchange for the establishment of the Joint Committee on Deficit Reduction, also known as the ìsuper committee.î If the joint committee failed to pass deficit reductions of more than $1.2 trillion, automatic cuts of that amount would be applied to defense and non-defense spending over nine years. The cuts would start Jan. 1 and continue for the nine-year period of the agreement ñ or until Congress passes a budget that equals the same amount of budget cuts.Of note, this is a bipartisan issue. The ìsuper committeeî is comprised of equal Democrats and Republicans.In November 2011, the joint committee issued a statement: ìIt will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.î By not putting a bill to vote by the full Congress, the automatic cuts known as ìsequestersî were triggered. Other cuts and taxes are also going into effect Jan. 1 without further congressional action. Those cuts are collectively referred to as the ìfiscal cliff,î a term coined by Ben Bernanke, chairman of the Federal Reserve Board, in his February testimony to Congress on the issue.In addition to the automatic BCA cuts, according to the Congressional Budget Office, certain tax cuts for businesses will expire as well as the 2 percent payroll tax holiday. The income tax cuts from 2001 and 2003 that were extended in 2010 also will sunset. The result is an increase in taxes and cuts in spending totaling $606 billion in 2013, according to a research report published by Fidelity Investments. ìIf they all hit at once, the impact could amount to as much as 4 to 5 percent of the gross domestic product Ö (the economy would) experience a significant slowdown and there would be major consequences for financial markets.îIn El Paso County, some of the effects have already been felt, as defense firms plan for the impending cuts. Dan Lanotte of Falcon is a former defense contractor whose contract wasnít renewed because of the potential cuts. ìI’m not an economist, but as a former defense contractor Ö I can tell you for sure people in this area are going to suffer,î Lanotte said. He now owns a firearms instruction business. ìYou can’t take away existing benefits; you have to keep feeding the troops and giving them the weapons they need,î Lanotte said. ìSo the cuts have to come out of research, out of civilian contracts. The civilian contractor population in Colorado is huge, and all the people who support them on top of it.îBusiness owners agree they are feeling the budget cuts. ìPeople are refinancing now while they still know they have a job and can qualify,î said Chris Courtland, Colorado Springs mortgage broker. He said some people are concerned that if their employer’s defense contracts are cut, then their human resource departments might not be willing to sign employment verification letters that some lenders require.National level politicians have been citing southern Colorado and especially the Pikes Peak region as an area that will be hit hard by the January cuts and tax increases. U.S. Senators John McCain, Kelly Ayotte and Lindsey Graham spoke at a September town hall meeting in Colorado Springs about the effects of sequestration and the fiscal cliff. ìIf the Congress allows defense sequestration to go forward, it will be devastating to the economy of this area,î Graham said. According to a study (cited at the town hall meeting) by George Mason University, Colorado would lose an estimated 42,500 jobs from the direct and indirect effects of sequestration.County Commissioner Amy Lathen attended the Falcon Lions Club meeting in September to address the cuts. She said many people in the eastern part of the county depend on defense contracts with the local bases, and almost all small businesses in the area serve the residents who work for those employers. ìI have a bad feeling about this,î Lathen said. ìPeople need to know about this. This is going to be a big deal for this area.îCongressman Doug Lamborn co-sponsored the Sequestration Prevention Act in response to concerns about the economic impact in Colorado. ìWe must not stand on the sidelines while our nation is increasingly vulnerable to threats from abroad and is in economic decline here at home,î Lamborn said.The clock is ticking for Congress to negotiate and pass changes to sequestration or the fiscal cliff, according to congressional calendars. Congressional incumbents return Nov. 13 in the so-called ìlame duckî session shortened by the Thanksgiving and Christmas holidays. The newly elected Congress is sworn in Jan. 3.
