Post Fiscal Cliff - Impact on Local Governments

Resource Government
February 14, 2013 — 976 views  
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A fiscal cliff is a sharp fall in budget deficit, due to the increase in taxes and reduction in spending as enacted by the previous tax laws. This situation will arise if the Budget Control Act of 2011 is put into action. This plan aims at reducing the federal deficit in the US. The deficit is defined as the total amount by which the spending of the government exceeds its revenue. But leading economists predict that this change can affect the local administration of the country in a serious manner. 

According to economists, by enacting this new economic reform, the country can go back into a recession mode as there will be an increase in the unemployment rates, a reduction in household incomes, and a sharp undermining of consumer and investor confidence. The impact of this economic change on the local governments is discussed below.

The Impact on Local Economy

The local governments which are yet to recover completely from the recession of 2008 will be highly affected when the proposed budget cuts comes into effect. A reduction in federal spending due to the economic change can directly influence the federal grant allocation to the local governments, which will in turn affect the economy. The economic activity will also be depressed, which will in turn lead to a decrease in sales tax and income tax revenues.

The Impact on Public Health Sector

The local governments in the United States have initiated many public health programs for the well-being of the citizens. The drastic change in the fiscal status of the county can take its toll on these programs. If the cuts that were proposed in the budget of 2012 come to play, then there will be extra 20 percent reduction in the public heath funds. The reduction in federal aid to the public health sector in the states over the past 2 years, have already led to an elimination of around 35,000 jobs in the field. The condition can worsen with the increased cuts in the budget.

Under the laws of federal health care reforms, many states receive funds to carry out health insurance programs. If the proposed budget cuts take place, then around 66 million dollars will be taken back from this funding program, which will affect the health insurance programs in a grave manner.

The Impact on Public Employees

It is estimated that around 40,000 jobs will be lost in the education sector, with the enforcement of the fiscal cliff. The local government’s special education grants which provide funds for the salaries, wages, and benefits of the employees, will also face serious issues.

The local law enforcement officers are also not free from the effects of this budget changes. The officers will be facing program closures and layoffs, if the changes in budget come to effect. The proposed cuts to the federal criminal justice funds will imply that programs like the drug task forces, victim’s advocates, and substance abuse programs could be eliminated very soon, thus leading to a huge layoff.

The Impact on Domestic Welfare Programs

The sequestration which is proposed to take place will directly affect many domestic welfare programs that are run by the authorities. The housing programs of the states will face a huge cut in the allocated budget. The Section 8 rental assistance programs and HUD’s public housing programs will face a huge hit, due to the cut-offs in federal funding. This will affect the citizens in an adverse manner as hundreds of families face the risk of being put out.

Other domestic programs like rural development schemes, funding for waste water infrastructure, and transportation will face a huge loss with the advent of the fiscal cliff.

Resource Government