In the News

Andy Cohen

Sequestration deal agreed to in 2011 could have devastating effects on the San Diego economy.

Representative Scott Peters is back home in San Diego. A rather irritated Scott Peters. “I love being here in San Diego, and by the way it’s 20 some degrees in Washington, D.C. This is a nice place to be. But I really ought to be at work as we get two weeks away from the sequester,” he said, expressing his frustration that the Republican leadership in the House had declared a recess for this week.

As of March 1st, the sequestration deal that was struck at the end of 2011 between President Obama and the Republicans will kick in—a deal that was never intended to be actually implemented.

Back in December, 2011, the federal government was coming up against the debt ceiling. It’s usually a routine matter to raise it in order to allow the government to borrow money in to be able to meet its financial obligations. It’s important to note that we’re not talking about borrowing for new spending, but to repay debts already incurred.

In the estimation of just about every credible economist in the world, failing to raise the debt ceiling would have been catastrophic for the economy, particularly at a time when it was still extremely fragile in its recovery from the Great Recession.

So in exchange for allowing a raise in the debt ceiling, and to make sure that both Democrats and Republicans negotiated on the deficit and spending in good faith, Congress approved a plan that was so completely onerous to both sides that they could not possibly allow it to come to pass. They put in a poison pill. It entailed $1.2 trillion in across the board, indiscriminate spending cuts, half of which would come from the defense budget. This way both sides had some major skin in the game and, theoretically at least, had major incentive to make sure it didn’t happen.

And so here we are, just over a year later, staring down the precipice of what will be a very long, hard, economic fall. It doesn’t have to be this way. It’s not supposed to be this way.

“Unfortunately and unbelievably our (Congressional) leadership has declared a recess while the threat of the sequester is literally just over a week away,” said Congressman Peters.

You thought the Great Recession was bad? You ain’t seen nothin’ yet.

San Diego stands to get hit especially hard by the sequester deal according to Peters and Port Commissioners Ann Moore and Bob Nelson.

“The Port of San Diego is one of 17 commercial ports designated by the Department of Defense as a strategic port to load and unload military cargo when needed,” noted Nelson, the Port Commission Vice Chair. “Arbitrary cuts in military spending will have a ripple effect across this bay and to the communities beyond.”

“Since 2001, the Port has received $22 million in federal funding assistance for infrastructure through a program that is also at risk from sequestration,” said Ann Moore, the Port Commission Chairwoman. “We need to protect federal funding opportunities that will help modernize our terminals with necessary engineering enhancements. Now is not the time to pull back on investing in our infrastructure.”

Some facts and figures from the Port Commissioners on the economic activity that is generated by the Port of San Diego:

  • 1 out of every 10 imported cars on American roads today came in through San Diego.
  • The Port of San Diego is the main import hub for Dole Fresh Fruits, which distributes products brought in through San Diego to the entire West Coast and Canada.
  • There are over 800 businesses located along the tidelands of the Port of San Diego.
  • San Diego is the key import point for wind energy components and construction material.
  • The sequester could cost the San Diego economy upwards of 25 thousand jobs.
  • The Port of San Diego is one of only 17 ports nationwide authorized as a strategic port by the U.S. military, allowing the loading and unloading of military personnel and equipment that could not happen without that strategic port designation.
  • San Diego is the fourth largest of the 11 publicly owned ports in California.

“In D.C. I’ve drawn attention to the sequester and specifically what it means for San Diego because I believe that Congress isn’t talking about the sequester enough and taking it seriously enough,” said Peters.

“The Port is a main driver of the San Diego economy,” he said. “The American Society of Engineers found that with an additional investment of $15.8 billion between now and 2020, the United States port system could provide $270 billion in United States exports and $697 million in GDP.”

“China invests 9% of its Gross Domestic Product every year on infrastructure. Europe is investing about 5%,” Peters noted. “In America we only invest 2.5%, and the sequester threatens even that meager amount.”

“Our national strategic port network is subject to a 9.4% cut” as a part of the sequester deal, Peters said. “This is more than just a jobs issue, it’s a national security issue” since those port operations support U.S. military operations abroad, he said.

Publicly owned commercial ports received over $1 billion from the Harbor Maintenance Trust Fund in 2011, and 32% of the trust fund recipients are California’s 11 publicly owned ports. This is government spending that creates jobs, both in the public sector and especially in the private sector.

Clearly the sequestration cuts have the potential to do real damage to the San Diego economy, particularly since the military is such an enormous part of the local economy.

That’s not to say that San Diego should be shielded completely from cuts to the military budget that are going to come by necessity as the country draws down from two wars. There’s money there that no longer needs to be spent. And Peters acknowledges that San Diego will have to be a part of those budget reductions as the military remakes itself.

“We are willing to accept on behalf of the country that we have to cut military spending. That’s fine. I’m happy to let San Diego compete for our share of the business,” Peters said, noting that the Navy is in the process of turning a greater amount of its attention to the Far East, efforts in which he expects San Diego to play a significant role. There’s also a growing emphasis on cyber-security. China in particular seems intent on conducting cyber-warfare against U.S. government and corporate interests. San Diego is uniquely positioned to be a part of those high-tech efforts.

San Diego is also at the forefront in the efforts to develop the medical and clean energy technologies of the future, research that is being conducted by both private companies and public institutions such as UCSD and SDSU, and is what will make the region the Silicon Valley of the biotech and cleantech world. Not coincidentally, those efforts also depend largely on federal grants. According to Peters, in a typical year only about 20% of grant applications overall are funded. In a typical year.

But in this most atypical of years, he says that only about 7% of those grants are being funded. “They are funding so few grants now that a kid who is thinking about where he or she is going to do science is looking at the United States and thinking, you know, if there’s not adequate or consistent funding, I’ll go where the government is making those investments, whether it’s China, Brazil, or Europe. Our competitors are making those investments, and if we don’t make them we’re going to lose our place in science,” Peters said.

“That means that the next Google or the next cure for a disease that might be developed by someone who went to UCSD, but instead has moved to China because they’re actually funding those types of efforts and we’re not.”

There’s a way to do this, to make some cuts, but to do it in a responsible way that won’t crash the economy he says, and that it is his impression that there are many Republicans that feel the same way. The sequester is irresponsible, and members of both parties recognize it.

It’s simply a matter of sitting down and working together to get a deal, he says. “What is it that the other folks need to make a compromise? What is it that we need them to give us to make a compromise?” And that’s a very good question. But there’s a major problem: Democrats have been open to cutting spending further than the $1.6 trillion that’s already been cut from the budget in the last few years. But Democrats also insist that we cannot address the debt and the deficit by spending cuts alone. Revenue increases must be a part of the equation.

The Republican leadership, however, has announced that they will not consider any deal that includes any revenues whatsoever. Revenues are off the table. Instead, according to Senator Lindsey Graham (R-SC), we should consider getting rid of Obamacare and the health insurance it would provide for more than 30 million Americans who otherwise would not have it. That will surely solve the problem of the sequester, according to him.

In fact, publicly, at least, Republicans seem perfectly fine allowing the sequester to happen. They actually want it to happen, as if it was the plan all along.

It’s hard to imagine that there’s any hope of getting a reasonable deal done with a group that seems adamantly intent on deliberately sabotaging the American economy, all because of a blind, irrational hatred of the current occupant of the White House.

“I’m hopeful of the ability to work with people to get things done,” Peters said. “The freshmen all feel the same way about working together. I’ve become friends with Republicans who seem pretty conservative but I think are of the mind that we ought to make progress.”

“I think that there’s some progress on that front.”

We’d better all hope he’s right.