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‘Fiscal cliff’ impact could hit Richland County hardest, economist says

By Chuck Crumbo
Published Dec. 13, 2012

Columbia could fall the hardest among S.C. metro areas if the country tumbles off the so-called fiscal cliff.

Joseph Von Nessen
Joseph Von Nessen
That’s the opinion of University of South Carolina economist Joseph Von Nessen, who offered the assessment at Wednesday’s 32nd annual Economic Outlook Conference hosted by the Darla Moore School of Business.

The Columbia metro area is more vulnerable because it is the seat of state government, and home to a number of federal agencies and Fort Jackson, the Army’s largest training center.

If the White House and Congress can reach a deal by New Year’s Eve to avoid the so-called fiscal cliff, then the 2013 outlook for the Columbia area and South Carolina points to stable growth, Von Nessen said.

But the fiscal cliff could stymie the Columbia economy because its basic elements — expiration of the Bush tax cuts, reinstatement of the payroll tax, elimination of extended unemployment benefits and deep, automatic, across-the-board cuts in federal spending — would combine for a heavy hit on the area’s pocketbook.

“Richland County is one of the few counties in major metropolitan areas that’s going to get hit from all of those,” Von Nessen said. “So you’ve got workers who will get hit with the tax raises, you’ve got a large government infrastructure in the Midlands so they’ll lose federal funding.

“The government has been shedding jobs,” Von Nessen added. “That’s one of the reasons why we haven’t seen Columbia grow. It’s been growing, but it hasn’t been as aggressive as Greenville and Charleston.”

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Sequestration could impact the Defense Department most because it accounts for roughly half of federal spending. Cutbacks at Fort Jackson could affect everything from the number of troops that are trained to construction projects.

Fort Jackson accounts for nearly 20,000 jobs in the Columbia area and has an annual economic impact of $2 billion, according to a recent analysis for the S.C. Military Base Task Force.

Military spending, though, already is being reduced as the United States winds down the war in Afghanistan.

South Carolina leaders have warned the state could lose 14,000 jobs over the next decade if Congress doesn’t put the brakes to sequestration.

If sequestration takes effect, an estimated $600 billion would be whacked from the Pentagon budget over the next 10 years. That’s on top of $489 billion the Defense Department has proposed to trim from its budget over the next 10 years.

Sequestration is a remedy Congress adopted last fall after failing to come up with a plan to reduce the $16 trillion federal deficit through a combination of spending cuts and tax increases.

Besides tax hikes and spending cuts, federal Emergency Unemployment Compensation benefits are ending this month for 29,000 S.C. residents.

Richland County, Von Nessen noted, has a higher percentage of recipients than other metro areas.

Among the state’s metro areas, Columbia has the second-highest jobless rate at 7.3%, according to the latest numbers from the state Department of Employment and Workforce. Charleston had the lowest rate at 6.7% followed by Greenville at 6.8%.

The state agency reported 27,152 people in the Columbia area were out of work in October, compared with 22,133 in Charleston and 21,128 in Greenville.

The state agency estimates that ending the unemployment benefits will remove $6.2 million a week from the state’s economy.

The fiscal cliff’s impact will be noticed by a reduction in consumer spending, Von Nessen said.

“Historically, Columbia is very stable but it’s not recession proof,” Von Nessen said.

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