Fiscal Commission Proposes Extensive Cuts to Federal Economic Development

After months of closed-door negotiations, the chairs of National Commission on Fiscal Responsibility and Reform has released a draft list of proposals to reduce the growing federal deficit. The proposals include drastic cuts to the federal government's economic development agencies, including the elimination of the Economic Development Administration (EDA) and the Hollings Manufacturing Extension Program (MEP), as well as the merging of the Department of Commerce and the Small Business Administration (SBA). The commission also has proposed funding cuts for research into fossil fuels, defense and private sector space flight. While the proposals would have far-reaching consequences for the TBED community, commissioners have emphasized that the current draft does not represent the final report and many changes are expected before it is released later this year. President Barack Obama has said that he will comment on the commission's proposals once the full report is released in December.

President Obama established the bipartisan panel, co-chaired by Erskine Bowles and Alan Simpson, in February to recommend steps that could be taken to bring spending in line with tax revenue. If adopted in its entirety, the commission's draft would reduce the FY2015 deficit by $200 billion, bringing the figure down to 2.2 percent of GDP. An estimated $4 trillion would be eliminated from projected deficits through 2020. Bowles and Simpson, however, have characterized the draft as a starting point, and none of the nine Democrats and seven Republicans on the commission have embraced the current version, according to the New York Times.

One of the guiding principles used by the commission was to focus on cuts that reduce "red tape and inefficient spending that puts a drag on the economy and job creation" in order to promote economic growth and keep the country competitive. Under the heading "Cut Outdated, Low Priority and Under-Performing Programs," the commission recommends entirely eliminating the EDA. Citing Congressional Research Service and Government Accountability Office reports that the agency has drifted from its core mission of aiding depressed areas and has made erroneous claims of job creation and investment returns, the report characterizes the agency as wasteful and redundant in light of other federal initiatives. Eliminating the agency would save the federal government $300 million in FY15.

Other major economic development eliminations in the draft include the the National Institute of Standards and Technology (NIST) Hollings Manufacturing Extension Partnership (MEP) and Baldrige National Quality Program, as well as three regional development agencies. The NIST programs provide services already available from the privates sector and some funding from MEP supports "inefficient companies that would otherwise go out of business," according to the commissioners. Ending the programs or supporting them through fees would save $120 million annually. The report calls the Appalachian Regional Commission, the Denali Commission, and the Delta Regional Authority duplicative of other existing federal programs and finds their outcomes difficult to evaluate. Eliminating the three agencies would save $100 million in FY15.

The commission also proposes merging the Department of Commerce and SBA into a new Department of Commerce and Innovation. By combining the programs of the two agencies, the federal government could "strengthen the potential impact" of Commerce initiatives, according to the draft report. The new department would have a budget 10 percent lower than the two separate agencies, for a savings of $1 billion in FY15.

The proposals include a number of cuts to federal research programs and R&D investment. In light of growing private investment, the commissioners propose cutting new funding for the Department of Energy's applied research on fossil fuels, which would save $900 million in FY15. Another $6 billion could be saved over the next five years by ending NASA's investment in private sector development in space flight technologies. Among the many Defense cost-saving measures, the report proposes reducing spending on Defense Research, Development, Test & Evaluation (RTD&E) by 10 percent. If this recommendation were adopted, Defense's RTD&E budget would fall by $7 billion in FY15.

Read the Fiscal Commission report at: http://www.fiscalcommission.gov/news/cochairs-proposal.