When the Budget Control Act of 2011 was passed, it put in place drastic cuts to government spending scheduled to go into effect on Jan. 1, 2013.
The legislation and the accompanied cuts were designed to be so drastic that it would force Congress to negotiate a compromise plan.
Unless that compromise is reached, one of the victims of those cuts will be the aerospace industry in Colorado. According to the Aerospace Industries Association the cuts would cost Colorado more than $125 million in direct NASA spending in 2013.
“The biggest impact may be on the people who get laid off because of spending cuts,” said Mac Clouse, a professor of finance at the Daniels College of Business. “The history of defense spending is that if you lose that government contract you do lose employment.”
In Colorado, NASA projects include the Orion capsule being designed by Lockheed Martin Space Systems and the Dream Chaser spacecraft being created by the Sierra Nevada Corporation. Both would eventually see significant cuts to project funding under the Budget Control Act of 2011.
While those cuts and potential layoffs would impact the aerospace companies, the effects would ripple throughout the state.
“It is what we call in economics ‘the multiplier effect.’ If you were to lose your job you’re not going to do much spending, and if I happen to be the place that you go each morning for breakfast you may not come in as often, because you don’t have as much discretionary income. We see it filtering though the whole economy,” Clouse said.
He says the threat of the fiscal cliff has placed a cloud of doubt over business community. Those doubts are stifling economic growth.
“The thing you have to remember is consumer confidence and just the expectation of what is going to happen in the economy. This is not favorable news for economy and businesses are not going to expand until they hear favorable news about the economy,” Clouse said.