San Diego Business Journal

‘Fiscal Cliff’ Called an Economic Peril

By Mike Allen Friday, August 24, 2012

San Diego’s economy could suffer an $11 billion hit, essentially being pushed off a fiscal cliff, if Congress and the White House fail to act by the end of the year when tax cuts and automatic cuts to federal spending take effect, according to a recent report from the National University System Institute for Policy Research.

The nonprofit think tank said the looming expiration of tax cuts put in place during the Bush Administration coupled with planned $60 billion reductions in federal spending on both defense and non-defense discretionary programs would translate to the removal of total federal spending in the region from $4.3 billion to $5.9 billion.

Using multipliers developed by the Committee for a Responsible Budget, the total impact on San Diego could be as high as $11 billion, the report said.

Should this happen, San Diego would be in a fiscal black hole, far worse than the economic downturn of 2008-09, the report stated.

“Given our county’s relatively high incomes, NUSIPR estimates that federal taxes would rise between $2.8 billion and $3.5 billion,” the report states. “That is roughly equal to the total payroll of the construction industry in San Diego County in 2012.”

The automatic cuts planned to occur in the defense budget, called “sequestration,” will result in reduced federal spending of $1.1 billion to $1.7 billion, the report said.

For non-defense programs, federal spending will be reduced by $481 million to $761 million, the report estimates.

The entire NUSIPR report can be found at www.nusinstitute.org/Policybriefs.html