How the Sequester Will Affect the Nashville Real Estate Market

Sequester Nashville Real Estate MarketThe sequester, a series of automatic spending cuts, will take effect March 1 unless further action is taken by Congress. No one disagrees that we need to cut the deficit, however, there is much debate concerning the best way to tackle the problem.

The sequestration was born out of the Budget Control Act, otherwise known as the debt ceiling crisis of 2011. The debt ceiling was increased to prevent a complete suspension of government borrowing, a potential government default and a partial shutdown of the United States government. As part of the agreement, across the board cuts would go into effect if Congress did not act.

Most hoped that an agreement would be reached by the end of 2011, to provide a better plan for cuts than what was agreed to in the Budget Control Act. The White House would prefer a balanced approach that includes both spending cuts and tax increases to meet the targeted dollar amount of the original bill. Most Republicans prefer to make all of the spending cuts, but from different areas of government than outlined in the Budget Control Act. With just a few days left, it does not appear that any compromise on the budget cuts will take place.

In late February, the White House released a report concerning the impact the sequester would have on each state. The direct impact on Tennessee is as follows:

Schools: Tennessee will lose just over $14 million in funding for primary and secondary education. The White House estimates that the cuts could affect the jobs of 200 teachers or aides. Head Start could be eliminated for 1200 children across Tennessee. Education for Children with disabilities would lose about $11 million in funds. College students could lose some opportunities for low income students and work study jobs.

Environment: Tennessee will lose about $2 million in environment funding and $1.2 million for fish and wildlife protection.

Military: There are 7,000 civilian Department of Defense employees in Tennessee who would face a possible furlough. This would reduce gross pay for these folks by $37 million dollars. The base operation fund for Fort Campbell would be cut by $1.9 million. These cuts in military spending would have a larger affect on the Clarksville area, and a minimal affect on the Nashville economy.

Law Enforcement: The state would lose less than $400,000 in Justice Assistance Grants that address both drug and violent crime issues.

Other Areas: The state of Tennessee would also lose a total of $4 million in funding for a variety of programs including: Job Search Assistance, Child Care, Vaccines for Children, Public Health, Domestic Violence and Meals for Seniors.

Tennessee may be able to handle the sequester better than other states. Our state is in better financial condition than most and our economy is headed in the right direction. Could these spending cuts drive more people to relocate to Nashville?

The Office of Management and Budget calculates that the sequestration will require an annual reduction of 5% for all non-defense programs and 8% for defense programs. Most of us would prefer that these budget cuts could be distributed in another way. Some may even wonder why they have to threaten children, schools and law enforcement when it comes to reducing spending or raising taxes.

Considering that baseline budgeting automatically increases the Federal budget by 7% every year, the sequester hardly seems like the economy killer as some have represented.

Why can’t we find a way to cut 10% or less from the budget without massive layoffs?

Based in the data provided by the White House, it does not appear that the sequester will have more than a minimal effect on the Nashville economy. With the market already heating up in 2013, I do not expect this latest dilemma to be a setback in the momentum of the Nashville Real Estate Market.

 

Will the sequester drive more people to Tennessee? Can we cut 10% or less without massive layoffs?  Leave Your Comments Below!

 

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