Sequestration probably the dumbest way to cut the budget

The FAA had sought to spread forced budget cuts across all employees, including traffic controllers.
The FAA had sought to spread forced budget cuts across all employees, including traffic controllers. (ELAINE THOMPSON / AP, File)
Posted: May 06, 2013

In Washington, no publicly visible pain is the way to budget gain.

"If a tree falls in a forest and no one is around to hear it, does it make a sound?" That familiar philosophical question has been rewritten by the recent reaction to the Federal Aviation Administration's decision to furlough air-traffic controllers in order to fulfill the sequestration budget cuts.

The new question is, "If a budget cut is made so few see it, and the press doesn't cover it, does it hurt?" In Washington, the answer is "No," and that is what is so wrong with budget policy.

Sequestration is probably the dumbest way to cut the budget to come out of the minds of the Washington crazies. Created by the 2011 budget compromise, it mandated spending reductions that were supposed to be so bad that no rational, sane, or thoughtful individual would consider allowing them.

But in Washington, politics trumps logic, and sequestration is law. As a consequence, the FAA was required to make serious spending reductions. The agency determined the best way to comply with sequestration was to furlough each member of its entire workforce, including air-traffic controllers, for one day every other week until the end of September.

That decision and its consequences triggered the series of events that created a political firestorm.

Was the FAA wrong in asking all of its employees to share in the pain? Consider the situation the FAA faced:

Salaries make up about 70 percent of the agency's costs, so that is where you have to make most sequestration cuts. With roughly half of the agency's operations group being controllers, if you want to avoid problems for travelers, the remaining operations employees would have to shoulder all the payroll cuts. Dropping the controllers from the equation means the rest would have to take off not one day every other week but one day every week.

Had the FAA decided to concentrate the income loss on fewer workers, the impact of the cuts might actually have been exacerbated: The greater the income loss, the greater the likelihood the workers would reduce their spending rather than draw down savings.

The negative impacts of the added spending reductions doesn't end with just decreased spending by furloughed FAA workers. Those impacts multiply through the economy. Businesses would have reduced sales and would have to cut back their purchases from their vendors, and so on. Some firms that would have felt the cuts might have had to cut payrolls. Excluding controllers from furloughs is hardly costless, especially to the other workers.

But furloughing air controllers meant productivity was lost because so many people were stuck in airports. True, but many of those businesspeople were on their computers, tablets, and phones conducting business while they waited. The extent of the productivity loss is unclear, especially as leisure travelers were also stuck in airports.

Could reductions have been made in other parts of the budget? Yes, but they would have to take from the modernization segment of the budget, which is exactly what happened. This will slow the building and modernization of the FAA.

In order to shut people up, our politicians traded capital spending for current expenditures, which says a lot about their priorities - less waiting time now but more in the future.

Let's summarize: The FAA had to decide between increasing traveler waiting time and reducing productivity by an uncertain amount versus requiring about 16,000 workers to lose 20 percent of their income for six months, thus increasing the negative impacts on businesses and potentially increasing waiting time and reducing efficiency in the future.

The initial decision doesn't seem so terrible when you put it that way.

The real problem with the FAA's decision has nothing to do with what was good for the agency or the economy. By concentrating the pain, the FAA showed there is no such thing as a free budget cut. Cuts always hurt someone.

Keep in mind, the controllers' salaries make up only about 0.25 percent of the $85 billion in sequestration cuts. We are not hearing anything about the other 99.75 percent of the reductions, reminding us that in Washington, a good budget cut is one that is out of sight and out of mind - even if it still hurts the economy.


Joel L. Naroff is president and chief economist of Naroff Economic Advisors Inc., Holland, Bucks County. Contact him at jnaroff@phillynews.com.

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