Debt Committee Failure

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ASU Economist Dennis Hoffman discusses the failure of the congressional “super committee” to reach a deficit reduction deal and the impact on Arizona.

Ted Simons: The congressional debt "super committee" recently failed to meet its deadline to come up with a deficit reduction plan. How will this failure impact Arizona? Here with some answers is Arizona State University economist Dennis Hoffman. Thanks for joining us.

Dennis Hoffman: Great to be here.

Ted Simons: Were you surprised that this thing failed? This is pretty serious business and yet nothing.

Dennis Hoffman: We didn't get much hope leading up. I guess I wasn't surprised at the end, I was hopeful. There was a little bit of rumbling, say, a month ago. We get teased by this grand bargain here and there, but no agreement at the end of the day.

Ted Simons: Impact on Arizona?

Dennis Hoffman: Well, I think it's important for people to understand, if you look at, say, data from the 2010 report from the federal government, you know, picture $64 billion, $64 billion. That's about 10 grand a head that come flowing into the state from the federal government. It goes everywhere. To procurement of goods and services, social programs, federal programs, healthcare, transportation, it's everyone where.

Ted Simons: And, of course, the concern is, the enforcement mechanisms, because they didn't reap a deal, happening in January, 20 13, how much will we get hit?

Dennis Hoffman: Got to speculate, right? We don't know how this will come out. But the current agreement that have been put in place, call for cuts to half to defense and half to other discretionary programs. The state is reliant on defense. $11 billion in direct product sales to the federal government financed by the Department of Defense. So that's Raytheon and Boeing and Orbital and even mid-sized and smaller businesses selling products to the federal government to support the defense. $11 billion, Ted.

Ted Simons: That's major. You're talking aerospace and science and the whole nine yards. What about education?

Dennis Hoffman: Well, the discretionary programs, it's tough to get our hands on where that money is going to come from. We're told we're not likely to see cuts in say, the individual Medicare recipient or individual social security recipient, but I think that's deceiving. What they're likely to do is continue the model of squeezing the healthcare providers and these are private businesses by and large that deliver healthcare services to the elderly and what they're told, "Yeah, you can continue to get support from the federal government and get Medicare reimbursement, but you have to take less and provide the same amount of services and you can only do that so long."

Ted Simons: The condition that the state is in, we talked about that, trying to find ways to get money, at least federal money to flow in here.

Dennis Hoffman: Betsey's program depends on the two for one match that the feds offered and offered for years and it's vital and sustaining of private sector. Many of these hospital entities are private sector that benefit from it. But the healthcare industry, one of the industries that's been growing over the last four, five years, and you can squeeze this matching formula. Maybe not two-to-one anymore. Who knows?

Ted Simons: Also, who knows regarding transportation plans. Light rail, freeways, obviously, a lot of federal involvement there. Discretionary as well? Is that included?

Dennis Hoffman: Sure. In my opinion anything would be on the table. It would strike me. Again, the details are going to be worked out. You know, we don't want to be overly alarmist, I guess here Ted, but the details have to be worked out. It's important for people to understand that if we're going to deal with this massive debt issue, this issue that people are concerned about, there's hard choices on both sides of the ledger. Cutting is going to be hard choices. Going to lead to problems and manifest themselves right here in Arizona, because we're quite dependent on federal expenditures in the state

Ted Simons: Could we see something as major as base closures?

Dennis Hoffman: Well, it hasn't been discussed, but if the Department of Defense is going to take you know, I worked out just in terms of procurement, if all of the cuts to defense came in the form of procurement, that would be a 20% reduction. How do you figure that out? If you translate that to Arizona, you're talking about $2.2 billion in cuts in procurement, in the state of Arizona. That's high-end jobs, private sector jobs. Jobs that we've depended upon for decades in this state, so who knows? If it's manufacturers or bases or where it's going to end up, Ted.

Ted Simons: Will we get hit harder, do you think, than other states, other regions?

Dennis Hoffman: The data I've looked at recently, if you look at our procurement receipts from the feds, divided by, you know, something relevant, either purchases that we send out of state, or GDP or GSP numbers, if you scale it, it appears we're reliant, there are other state like Alabama, Virginia, also very reliant on the Department of Defense. But in terms of competitors, we're up there.

Ted Simons: Last question: Do you think it's likely, considering what you're saying about Arizona and every state of the union, the same thing on those program, perhaps, with this being there on the table, are these cuts going to go through or come back, we can't afford this kind of?

Dennis Hoffman: It depends on good honest dialogue, I think. I'm not saying that tax increases are easy to swallow. Tax increases have their own pain. But if you're going to deal with this debt problem, you're going to have to deal with it both on the expenditure side and on the tax side and perhaps we need to understand it's not just certain individuals that are going to get hurt on each side of the ledger.

Ted Simons: All right. Dennis, good to have you here. Thanks for joining us.

Dennis Hoffman: Thank you, Ted.

Dennis Hoffman: Economist, Arizona State University;

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