In the final Presidential debate earlier this week, President Barack Obama made a promise that caught a lot of people’s ears: he said sweeping budget cuts currently set to take effect at the end of this year won’t happen. The so-called "fiscal cliff’ hasn’t gotten a lot of coverage this election season, but it’s already having an impact on the state’s economy.

The following is a transcript of Megan Verlee's report.

Reporter Megan Verlee:  State economist Natalie Mullis is taking President Obama at his word when he says he and Congress will find a way to prevent across-the-board spending cuts and massive tax increases before the end of the year. She’s just not quite sure how.

Chief Economist Natalie Mullis:  "We expect Congress to come in and maybe do an extension for a few months, two or three months, to give them time to talk about it. And then pull back on part of it, but not all of it. We just don’t know what. Nobody knows what."

Reporter:  The fiscal cliff was the draconian punchline to last year’s Congressional stalemate over raising the national debt limit, a threat designed to prod lawmakers into a long-term deal to fix federal finances. But it didn’t work. Federal budget experts believe the cuts and taxes would be enough to throw the nation right back into a recession. Which is why people have faith Congress will put them off. But Mullis says just the uncertainty is taking a toll.

Mullis: "There’s a lot of healthy things in our economy, and our economy would be ready to move forward and grow at a much faster rate than it’s growing right now, but it’s not. And a lot of the reason for that is because people are uncertain about what to expect and so they’re waiting to see what will happen."

Reporter:  And while they wait, some businesses aren’t hiring or investing in new equipment. That’s especially true for Colorado’s aerospace and defense sectors, two of the biggest industries in the state.

Brad Michelson, Vice President Infinity Systems Engineering: "Nobody knows what the costs will be, and which programs will be impacted."

Reporter:  Brad Michelson is an executive with Colorado Springs-based Infinity Systems, an engineering and software company which depends heavily on federal defense contracts. Like Mullis, Michelson doesn’t really expect the federal budget to fall off the fiscal cliff, but Infinity Systems is holding off on hiring right now, just in case.

Michelson:  "We’re in a bit of a conservative mode, not being as aggressive as we normally would be in our hiring practices, just to wait until we know exactly what the landscape and the funding profiles on these contracts will be."

Reporter:  While companies like Infinity Systems are worried about how federal cuts will affect their bottom lines next year, there’s a much bigger spending plan at stake too: the state budget. Governor Hickenlooper has to unveil his proposed budget for the coming fiscal year next week, with the future of a lot of federal programs still very much in doubt. Budget director Henry Sobanet says the spending plan assumes Congress and the White House will reach a deal. If they don’t, Colorado citizens would see big cuts to popular programs.

Budget Director Henry Sobanet: "Just giving you some examples: there might be some reductions in college and career-ready student grants, Title I grants, mathematics and science partnerships, homeland security grants."

Reporter:  One thing that makes the fiscal cliff so tough for states is that they’d lose money for things like helping low-income students, but all the federal requirements about student improvement would stay in place. Sobanet says there’s not enough money in the state budget to pick up all the slack.

Sobanet:  "If it occurs, then we decide, well, how much money should we backfill, if any at all.  Many times the state has decided not to replace disappearing federal money."

Reporter:  Members of Colorado’s Congressional delegation say efforts are underway behind the scenes to negotiate a deal and avert the fiscal cliff. But they also acknowledge that nothing will happen until Congress meets for its lame duck session after the election. 

 

[Photo: CPR/MVerlee]