Wichita — Kansas could lose more than 40,000 jobs next year, most of them in the private sector, if no deal is reached to avert mandatory tax hikes and spending cuts to defense and other federal operations under the “fiscal cliff,” according to an economic analysis.
Regional Economic Models Inc., a provider of economic models used by federal and state agencies across the country, estimates that 35,000 of the up to 40,400 jobs it anticipates the state potentially losing would be from private workers.
If the tax cuts pushed by President George W. Bush are eliminated there could be less consumer spending, harming Kansas retailers, REMI projects. There also could be a big hit to health care because of lower Medicare reimbursement rates and budget cuts, and there could be other large-scale job losses for Kansas in professional service such as architecture and engineering that support capital investments and heavy manufacturing.
Scott Nystrom, associate economist with REMI, said the good news for Kansas and other Upper Midwest states is that they have more diversified economies, including agriculture. That makes them less vulnerable to changes in federal and consumer spending and more able to weather the fiscal cliff.
Still, REMI projects a gross domestic product loss topping $2.75 billion for Kansas should the nation go over the cliff.
Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University, said the tax cuts would have the biggest impact on Kansas, but defense also could take a hit. Hawker Beechcraft, now in bankruptcy proceedings, is among the most vulnerable Kansas aerospace companies to possible cuts, Hill said.
The company declined comment on the potential impact of defense spending cuts on its business plan.
However, Hill noted that the nation’s light aerial attack fleet, which is more efficient and cost effective to maintain, is likely to benefit from defense cutbacks, and Hawker Beechcraft has a portion of that defense segment work.
At Spirit AeroSystems in Wichita the majority of the work is in commercial aviation, not defense. But Spirit still works on three significant defense programs, including building parts for Boeing on the Air Force refueling tanker as well as the Navy’s P-8A Poseidon Subhunter and the Marines CH-53K Heavylift Helicopter.
“While these are very high on the priority list, looming mechanical cuts to both defense and the FAA are of great concern, as they are to every aerospace company doing business in the defense and commercial aviation sectors,” said Spirit spokesman Ken Evans in an email.
The REMI numbers, posted this week on an interactive database on its website, allows states to look at the fiscal impact on their own state economies based on their differing industries, populations and other factors. The company’s regional economic model uses government data such as Bureau of Labor statistics, Bureau of Economic Analysis, and Census information.
The possibility of a fiscal cliff already has had a major impact on defense due to uncertainty, impacting jobs, investment and innovation, Evans said.
The Federal Funds Information for States, a joint service of the National Governors Association and the National Conference of State Legislatures, has estimated the potential impact of an across-the-board defense sequester in Kansas at $210.1 million, including $182.4 million in procurement contracts.
“If the sequestration part does act like a tipping point for a company’s viability, then the impact could be much worse for Kansas than what was modeled in the REMI estimate,” Hill said.
Spokeswoman Sherriene Jones-Sontag said Kansas Gov. Sam Brownback believes lawmakers in Washington will come to an agreement. She declined to specifically comment on the “hypotheticals” of REMI’s fiscal cliff economic analysis.
Kansas used REMI modeling last spring to evaluate the economic effects of last session’s tax policy, she said. State officials anticipate companies will add 22,900 new jobs in Kansas on top of normal growth next year — for which they credit the Legislature’s state income tax cuts and the exemption of the owners of 191,000 partnerships, sole proprietorships and other businesses from paying income taxes. Those projections, however, do not factor in a “fiscal cliff” scenario.