WASHINGTON -- California stands to lose as much as $4.5 billion in federal funds and more than 200,000 jobs next year if Congress fails to reach a deficit reduction agreement by Dec. 31.
The cuts, originally intended as a threat to get Congress to address the national debt, are now coming into sharper focus as the deadline approaches, and some fear it could damage the state's fragile economy. Numerous studies have tried to quantify the impact on California.
Low income Californians are especially vulnerable because they rely on federal programs for services ranging from childcare and health screenings to education and family violence prevention.
Southern California would be hit particularly hard by cuts in military spending. The Defense Department would lose $57 billion, costing California 135,000 jobs in 2013, according to a report by Stephen Fuller at George Mason University.
"The cuts are going to be hitting just about every aspect of federal spending that might show up here in the state of California," said Robert A. Kleinhenz, chief economist at the Los Angeles County Economic Development Corporation.
Deal struck in 2011
The looming cuts are a result of a compromise reached in the summer of 2011, which raised the U.S. debt limit but forced Congress to identify $1.5 trillion in spending reductions. If they failed, an automatic $1.2 trillion in cuts equally divided between domestic programs and defense -- known as sequestration -- would take place.
Though the deadline was missed, Congress can still avoid the cuts if it reaches a deficit deal by the end of the month. Obama met with top members of Congress ten days after his re-election in hopes of reaching a deal, but a compromise has not been reached.
Many economists fear the cuts will propel the United States back into a recession. The George Mason University study projected a loss of more than 2 million jobs and a $215 billion drop in the nation's gross domestic product.
Cuts could reach $546 million
Without department by department budgets, it is impossible to know exactly which programs will be cut and which will be spared. However, recent state-by-state analyses provide a glimpse into the potential consequences of the cuts.
Senator Tom Harkin, D-Iowa, who serves on the Senate Appropriations Committee which distributes federal money, projected that cuts in health, education and labor will total more than $546 million in California alone.
Among the consequences for California:
The University of California warns it could lose $335 million in research funds and $21.5 million in Medicare revenue for its Health System.
"It would have a devastating impact on the nation, including California, and including the University of California." said Gary Falle, the university's associate vice president for Federal Governmental Relations.
California's economy is currently on the rebound. The Legislative Analyst's Office projects a 1.8 percent increase in California's gross state product in 2013. However, it projects the ripple effects of sequestration would result in a 0.6 percent contraction.
Defense cuts critical
Studies point to California's vulnerability to defense cuts. The PEW Research Center estimates that $8 billion in California defense contracts would be lost over the next 10 years. An analysis by the Center for Security Policy projects nearly one in five California defense contracts would be lost next year alone.
All 58 California counties are at risk.
San Diego and Los Angeles, the counties with the most valued contracts, have the potential to lose over $2 billion next year, according to the center's analysis. Even Mariposa County, with only one defense contract -- worth $6,072 -- is projected to lose $571.
Not everyone in Washington is overly concerned about $109 billion in cuts in light of the government's $3.6 trillion budget. California Rep. Tom McClintock, R-Granite Bay, said it pales in comparison to the huge increases in federal spending over the past decade.
In an interview, he noted that the cuts would amount to barely one quarter of one percent of total federal spending, "which frankly underwhelms me."
"The sequestration is negligible," McClintock said.
State faces hard times
Economists warn the failure to reach a compromise could send the U.S. back into a recession with grave implications for California.
"That would mean job losses at the national level and the reversal of the job gains that we saw here in California over these last few months," Kleinhenz said.
The loss of income due to job cuts would reduce consumer spending by more than $11 billion in California alone, according to the George Mason University report.
The expiration of Bush-era tax cuts are another element of the fiscal cliff negotiations between Obama and Republicans.
President Obama is pushing for a deal to maintain tax rates for a majority of Americans, but raise rates on households with taxable income above $250,000. That would include roughly 750,000 California households -- six percent -- according to the 2010 census.
While McClintock is not terribly worried about sequestration, he expressed concern over how tax increases would hurt California.
"If the taxes are allowed to go up"... it will be very negative for the state's economy," McClintock said.
The California News Service is a journalism project of the University of California's Washington Center and the UC Berkeley Graduate School of Journalism.