US economy hamstrung by Washington's brinksmanship

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Associated Press

Posted on March 3, 2013 at 6:02 PM

Updated Monday, Mar 4 at 8:01 AM

COLORADO SPRINGS, Colo. (AP) — Three budget crises ago, in early 2011, Republicans and President Barack Obama faced off over raising the debt ceiling — and Alison Brown saw the writing on the wall.

Washington had entered the cycle of partisan brinksmanship over the budget that has sown confusion among federal agencies and delayed contracts to small companies like Brown's Navsys Corp., which designs satellite navigation systems in this military town. So Brown slashed her 40-strong workforce in half. And as she feared back then, her revenues have since plunged by half.

The latest crisis hit on Friday with across-the-board automatic spending cuts. They total about $85 billion, but the economic damage created by two years of showdowns is far greater. And there's no end in sight: Temporary resolutions funding the government expire on March 27. May brings another debt ceiling standoff.

"We're planning for the worst," Brown said in her office with a view of the Rampart Range, a portrait of President George W. Bush on the shelf behind her. "We're not going to be taking risks and making investments, and that's bad for the country as a whole."

Thousands of businesses are in similar straits, from defense contractors like Navsys to wind turbine manufacturers to wheat farmers. It is one reason the U.S. economic recovery has been so persistently anemic. But it is happening quietly, drowned out by dueling press conferences inside the Beltway and general disgust at the perpetual drama over federal spending.

In a paper this year, three economists estimated that 2.3 million private sector jobs have been lost since 2008 because of uncertainty over government policy. That uncertainty has spiked dramatically since the start of the budget showdowns in 2011.

While debates always have generated some uncertainty, "now every single decision is subject to this excruciating process," said Scott R. Baker, one of the paper's authors and an economics professor at Stanford University.

"We seem to be stuck in this series where we're staggering from politically-made crisis to politically-made crisis, and even if we solve it we do so in a way that lowers confidence in our ability to deal with the next one," Baker said.

With deficits setting records in recent years, Obama insists on a mix of tax increases and spending cuts. Republicans insist on cuts-only. Voters ensured two more years of uncertainty by re-electing Obama and a Republican-controlled House in November.

The impact is felt in Colorado, an economic microcosm for the country with 7.6 percent unemployment, only 0.2 percent below the national average. Its economy includes a robust aerospace industry and several military bases, and it contributes more in federal taxes than it takes in.

On the eastern plains, Colorado farmers should be enjoying skyrocketing prices for wheat, soybeans and other staples. Instead, they're fretting over the fate of the farm bill that has been held up in the budget debates. Farmers don't know if they'll still be protected from crop failures or other natural disasters. A last-minute, temporary extension Congress issued in January is little comfort to those who must decide what to plant based on the seasons, not the congressional calendar.

"You can tell that people are keeping their money close to them, waiting for resolution," said Kent Peppler, a grain farmer in the town of Mead who has put off buying machinery. "The farm bill is like the rule book. It's pretty hard to play the game if you don't know what the rules are."

Denver's suburbs were partly insulated from the economic downturn by a strong renewable energy industry. But wind energy tapered off when a federal tax credit, due to expire at year's end, became a hostage of the presidential election. Republican Mitt Romney called it a wasteful subsidy. Obama and some Republicans called it crucial to a growing industry.

The credit was extended in January, a few days after it expired, for one year. But that was too late for Vestas, a Denmark-based wind turbine manufacturer that employed 1,700 people in Colorado at the start of 2012. On Feb. 21, it announced it was cutting 10 percent of its remaining 1,100 manufacturing workers because of the late extension.

"It does take a while to get the industry re-started," said Peter Kelley of the American Wind Energy Alliance, which has tracked thousands of layoffs caused by credit uncertainty. The industry fears more turmoil because the new credit expires in December, he said.

"We continue to tell everyone on Capitol Hill you need long-term policies to get long-term growth in the wind industry," Kelley said.

The budget battle's most visible impact in Colorado has been on its many defense contractors, ranging from giants like Lockheed Martin to smaller firms like Brown's Navsys.

In 2011, Obama and Republicans could not agree on cutting the deficit enough to convince the House to raise the debt limit. They did agree to $1 trillion in cuts over 10 years that ultimately kicked in March 1 if they couldn't find other savings and revenues. Half those cuts affect the military. The combined pall of looming cuts and month-to-month budgeting has frozen the civilian defense industry.

"No real investments are going on," said Brad Michelson, a vice president at Infinity Systems Engineering, a Colorado Springs-based government contractor in engineering, intelligence and information technology.

At Navsys, five of its 20 remaining workers have shifted to a four-day workweek. Navsys has won competitive bids, Brown says, but the money won't come because the budget limbo has delayed payments. Brown is focusing more on commercial contracts.

"I'm not holding my breath that this problem is going to get fixed," she said.

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Find Nicholas Riccardi on Twitter at https://twitter.com/NickRiccardi .

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