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D.C. region may be panicking too soon over federal budget cuts

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Photo - Knife cut paper with budget
Knife cut paper with budget
Local,DC,Virginia,Steve Contorno

As a Northern Virginia defense contractor, Amit Kapoor is closely watching as Congress approaches a March 1 deadline to avert more than $1 trillion in federal spending cuts.

Kapoor heard the dire warnings pouring out of the White House and Congress about how devastating those cuts would be to the national economy, the federal workforce and a slew of Washington-area defense contractors like him. But he won't panic if nothing happens on Feb. 28.

"There's a lot of hype about the date. But it's not doomsday like Dec. 12 [the day ancient Mayans expected the world to end]," said Kapoor, president of First Line Technology in Chantilly. "It's going to take time for things to happen."

President Obama and congressional Democrats have marked March 1 as a day of reckoning. If the White House and Congress can't reach a deal to reduce the budget deficit, a series of automatic, across-the-board budget cuts known as the "sequester" would kick in, reducing federal spending by $1.2 trillion over the next decade, half of it from the Pentagon budget.

But what's actually going to happen in the Washington area when the calendar turns in a matter of days?

Not much, said Mark Vitner, a senior economist with Wells Fargo.

"Technically, there shouldn't be an impact on March 1," Vitner said. "Spending doesn't just go away on March 1. The thinking is that before we even see much of a reduction, there will be a fix put in place once Congress gets around to it."

Furloughs, layoffs and service reductions are likely, but most of the cuts won't even be felt until April. Hundreds of thousands of federal workers could be ordered in April to take one-day furloughs every week through September.

Defense Secretary Leon Panetta said Wednesday that most of the Pentagon's 800,000 civilian workers also face furloughs that could reduce spending by $46 billion this year. In Virginia, Maryland and the District alone, combined payrolls would be cut by $1.1 billion, the Pentagon said.

Private defense contractors, big and small, also are reacting. About 1,600 Norfolk-area shipbuilders received 60-day notices from BAE Systems warning that widespread cutbacks and layoffs are on the horizon. At First Line Technology, Kapoor said he has held off on plans to expand and hire more workers.

"I am not in any way minimizing sequestration or the damage that it will cause, but this is not a tornado that hits in the middle of the night and you're totally disoriented," said Rep. Scott Rigell, R-Va. "You're tracking it and watching it come up."

George Mason University economist Stephen Fuller estimates the Washington area would lose 465,000 jobs to the automatic cuts. Waits at airports will be longer, access to national parks will diminish, and employees who depend on the government will see their income fall, he said.

"It's going to put a serious chill on the economy if it lasts beyond a symbolic shutdown," Fuller said.

But Fuller isn't buying the White House's dire warnings that the automatic cuts would put teachers, cops and firefighters out of a job.

"Part of this is grandstanding," Fuller said. "But the disruption to everyday life and the flow of business will become noticeable."

scontorno@washingtonexaminer.com

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