This document is an excerpt from BBER\u27s 3rd quarter 2012  FOR-UNM--a quarterly forecast of the New Mexico economy  report, a  section discussing the potential impact of federal budget cuts in New Mexico as a result of the Debt Control Act\u27s sequestering process. Using IMPLAN software, the FOR-UNM forecast model projected the effects of sequestration cuts on employment.  Includes a table showing job losses out to 2017 by industrial sector

Mitchell, Jeffrey

O\u27Donnell, Michael

Reynis, Lee A.

English

University of New Mexico

University of New Mexico
UNM Digital Repository
BBER Publications Bureau of Business and Economic Research
11-1-2012
Impacts of the Debt Control Act of 2011
Lee A. Reynis
Jeffrey Mitchell
Michael O'Donnell
Follow this and additional works at: https://digitalrepository.unm.edu/bber
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Recommended Citation
Reynis, Lee A.; Jeffrey Mitchell; and Michael O'Donnell. "Impacts of the Debt Control Act of 2011." (2012).
https://digitalrepository.unm.edu/bber/8
For-unm economic forecasting service, bureau of business and economic research, university of new Mexico 
IMPACTS OF THE DEBT CONTROL ACT OF 2011 
The Debt Control Act, negotiated by 
Congress and the President in August 2011, 
calls for at least a $2.2 trillion reduction in 
federal government spending through 2021. 
Although the details have been left resolved 
pending negotiations to be concluded in 
November, the Act does necessitate cuts of 
$917 billion in the first tranche and additional 
cuts of at least $1.2 trillion to follow. In this brief 
section, we estimate the potential impacts of 
these cuts on New Mexico’s economy, using 
assumptions based on the general terms of a 
sequestering process that is to go into effect if 
negotiations fail to offer alternative budgetary 
outcomes3.
Existing Terms of the Debt Control Act
- First tranche of cuts includes cuts of $21 
billion in FY 2012; $42 billion in FY2013; 
and cuts of $107 billion per year until 
FY2021. Cuts are to be in discretionary 
spending, excluding Medicare.  
- Second tranche sequestered funds will 
include $133 billion per year until FY2021. 
Half of the funds will be drawn from each 
security and non-security discretionary 
spending, including Medicare.   
                                           
3 In its baseline forecast, IHS Global Insight 
assumes that second tranche sequestering will be 
avoided through negotiations that will broader cuts in 
nondiscretionary spending as well as new revenues. 
This analysis considers the alternative. 
Additional Assumptions 
- First tranche cuts will affect New Mexico in 
proportion to the state’s share of federal 
discretionary spending, excluding Medicare 
– 0.89 percent ($6.8 billion of $766 billion). 
- Second tranche cuts in security spending 
will be taken in equal proportion from all 
categories of discretionary security 
spending, including Defense, Homeland 
Security, Defense procurement and other 
procurements (which include Energy 
Department procurements that fund much 
of the activities at New Mexico’s national 
laboratories). A cut of $600 billion (half of 
$1.2 trillion) will require a reduction in 
security spending of 10.1 percent for each 
year of the period FY2013-FY2021. Thus, 
all categories of security-related funding in 
New Mexico will be cut by 10.1 percent, 
totaling $499 million per year (10.1 percent 
of $4.93 billion per year). 
- Second tranche cuts in non-security 
spending will be taken in equal proportion 
from all categories of discretionary 
spending and Medicare as received by 
New Mexico. Thus, non-security cuts in the 
second tranche will include: Medicare (22 
percent); federal employee wages, salaries 
and other labor income (20 percent); 
highway planning and construction (6 
percent); and ‘other discretionary direct 
payments and grants’ (52 percent). In total, 
non-security funding in New Mexico will be 
cut by $482 million per year during the 
period FY2013-FY2021. 
39
For-unm economic forecasting service, bureau of business and economic research, university of new Mexico 
Methodology 
All data on federal funding was collected from 
the Consolidated Federal Funds Report. Cuts in 
federal funding categories were converted into 
IMPLAN industrial sectors and analyzed to 
estimate the total employment impacts in New 
Mexico by 2-digit NAICS sector.  
Findings
- Total cuts in federal funding to New Mexico 
will increase from $186 million in federal 
FY2012, to $1.354 billion in FY2013, to 
$1.928 billion per year for the period 
FY2014 through FY2021.
- Long-term cuts to federal payments to New 
Mexico are proportionately less than overall 
cut in federal spending. Cuts in payments 
to New Mexico will equal 7.0 percent, while 
cuts in total federal spending will equal 7.6 
percent.
- Cuts in New Mexico will be somewhat 
below the national share because cuts will 
in some cases focus on programs in which 
New Mexico’s participation is comparatively 
small. Programmatic cuts in New Mexico 
will be disproportionally high ‘other 
procurements’ (including Energy 
Department procurements that fund the 
national laboratories 19 percent versus 7 
percent of all federal cuts) and highway 
constructional and planning (15 percent 
versus 5 percent). Cuts in New Mexico will 
be disproportionately low in defense 
procurements (2 percent versus 15 
percent) and federal employee 
compensation (5 percent versus 14 
percent). 
- In all, New Mexico stands to lose more than 
20 thousand full and part time jobs because 
of the direct, indirect and induced impacts 
of cuts in federal spending in the state. The 
cuts take full force in 2014, when the 
Budget Control Act takes full effect. 
Employment losses will be greatest in 
professional and business services, which 
include the national laboratories (5,420 jobs 
in 2014); health care (4,260 jobs in 2014); 
and government, including military (1,810 
jobs). Other sectors will lose jobs primarily 
because of reduces wages and salaries, 
and thus consumer spending. 
- Note that the previous analysis of the 
forecast under IHS Global Insight’s 
pessimistic scenario did not explicitly 
consider the impacts of federal spending 
cuts in New Mexico. The incorporation of 
these cuts results in small reductions in job 
growth in 2012 and 2013, leaving overall 
growth rates in positive territory. However, 
in 2014 these cuts would shave fully 1.6 
percentage points off employment growth, 
pushing the economy to a 0.5 percent loss 
in total employment. As these job losses 
are assumed permanent but not 
cumulative, employment growth will return 
close to existing rates.  
40
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59 41


Impacts of the Debt Control Act of 2011

https://digitalrepository.unm.edu/cgi/viewcontent.cgi?article=1007&context=bber

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