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Budget Cuts Underscore Role, Vulnerability of Growth Industries

Posted on February 22, 2013

Massachusetts has outperformed the rest of the nation during the Great Recession and not-so-great recovery largely because of growth industries heavily funded by the government.

Budget CutsWe’re about to see just how important these industries ” including defense, research, biosciences and medicine ” are to the Massachusetts economy as federal policymakers appear ready to allow $85 billion in automatic spending reductions take effect a week from today.

Officials estimate that Massachusetts stands lose $127 million in federal research funding alone and several thousand jobs in the first year of the so-called sequester.

The $85 billion in spending reductions would cover the final seven months of the federal fiscal year, split equally between defense and non-defense programs. Exemptions would include Social Security, Medicaid and Food Stamps, with Medicare absorbing a smaller percentage cut ” 2 percent compared to 8 percent for the Pentagon.

The cuts would total nearly $1 trillion over the next decade.

Not good news for a Massachusetts innovation economy that has provided much of the commonwealth’s economic and job growth during the past decade. Defense contracts to Massachusetts companies increased 83 percent from 2003 to 2011, supporting 130,000 jobs that represent 4.1 percent of employment in the state. Meanwhile, Massachusetts created more biotechnology research jobs than any other state in the country from 2007-2011.

The potential challenge for the growth areas of the Massachusetts economy is sobering:

  • The American Association for the Advancement of Science estimates that Massachusetts may lose $3.1 billion in federal research and development grants during the next five years.
  • Massachusetts brings in $2.5 billion each year in funding from the National Institutes of Health, more per capita money than any other state. Dr. Gary Gottlieb, president and chief executive of Partners HealthCare, told lawmakers this week that NIH research dollars support about 35,000 jobs in Massachusetts, and that sequestration reductions of $275 million annually could eliminate 2,600 of those jobs.
  • Throughout New England, defense supports about 320,000 jobs. Industry executives say a $300 million loss in funding would cost 3,300 jobs in just the first year of the sequester.
  • Defense and medicine are also significant generators of innovation and business formation in areas ranging from computer software to biosciences to nanotechnology. Economists worry that the creative soup of world-class universities, prestigious hospitals and renowned defense technology companies may cool to a low simmer in the wake of federal budget reductions.

Cuts are coming in one form or another to all of these industries, even if Congress and President Obama eventually replace the sequester with a long-term agreement to reduce the nation’s $16 trillion debt. But the prospect of getting an accelerated view of how important these sectors are to Massachusetts is more than a little unsettling.