Job losses. A crash in the stock market leading to declines in retirement savings portfolios. Businesses putting off plans to expand.
All of those scenarios could become a reality in Washington County and the rest of Maryland if the federal government fails to avoid the so-called fiscal cliff, resulting in tax increases and spending cuts, said Del. Andrew A. Serafini, chairman of the county’s delegation to the Maryland General Assembly.
Maryland is in a precarious situation because it is heavily dependent on federal jobs and employment through defense contractors, said Serafini, R-Washington.
“The world is not going to end, but this is going to affect the markets negatively and hurt the economy,” said Serafini, who also works as a financial analyst. “And there might be scenarios where businesses might pull back on spending or put off hiring people.”
Serafini said although Washington County has been fiscally prudent, it might be hit hard because the defense sector and real estate market might be affected, which, in turn, would have an effect on other sectors of the local economy.
He pointed to an October Spending Affordability Briefing from the state’s Department of Legislative Services that predicted the state would lose 53,500 jobs by the end of the 2013 fiscal year, which ends June 30, 2013, if the federal government did not take steps to avert the fiscal cliff. Another 60,200 jobs would be lost by the end of fiscal year 2014, the report stated.
The federal cuts would lead to a reduction of revenue in the state budget amounting to $268 million in the 2013 fiscal year, according to the briefing.
Serafini said the longer term solution would be to change “who we are as an economy and not rely on government jobs. Instead, we should create jobs in the private sector.”
Sarah Lankford Sprecher, director of public relations and community affairs for Washington County, said the series of tax increases and expenditure cuts that could result if federal legislators did not come to an agreement might affect businesses, health care and disposable income.
Unemployment might go up by as much as 1 percent, Sprecher said, and the economy likely would move back to a “recessionary phase.”
“While it will certainly have an impact on business and residents, which is our primary concern, fiscally we have not increased our recessionary revenues nor have we increased our expenditures from the past recessionary period, so that we are again able to ride out the downturn this may cause,” Sprecher said in an email.
Richard Wright, communications officer for Washington County Public Schools, said the school district might have to make $3 million to $4 million in cuts over the next 18 months if the tax increases and expenditure cuts become a reality.
Wright said the district might have to make $1.5 million in budget cuts before June 30.
“It is possible, but we do not have any answers at this point as to where the cuts will come from” Wright said. “The Board of Education will have to approve any budget adjustments to make up for the missing dollars. We will have a better idea once we know what the fiscal outlook is.”
Anirban Basu, chairman and chief executive officer of Sage Policy Group Inc., a Baltimore economic and policy consulting firm, said in an email that many Washington County residents commute to the Washington, D.C., metropolitan area for work.
“The Washington area, which has been until now among the nation’s best and most stable economic performers, stands to be more impacted by a full dive off the fiscal cliff than any other major metropolitan community,” Basu said.
According to the Tax Policy Center, a nonprofit that analyzes tax issues, middle-income households would see an average increase in their taxes of $2,000 per year if the tax cuts were to expire.
“The two percentage point cut in the payroll tax rate would lapse, raising taxes on more than 120 million households with workers,” according to a study from the center called “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”