The Economic Impacts of Sequestration on the Massachusetts Economy
December 2013
The Massachusetts Executive Office for Administration and Finance (ANF), MassDevelopment, and the Massachusetts Life Sciences Center at the request of the Sequestration Task Force contracted the UMass Donahue Institute (UMDI) to complete a first-in-the-nation study of the near-term economic effects that sequestration cuts occurring in the federal fiscal years 2013 and 2014 have had on the Massachusetts economy.
The Donahue Institute’s Economic and Public Policy Research group (EPPR) conducted a detailed, highly customized analysis of the direct spending reductions due to sequestration, and an economic impact analysis that allocated direct spending impacts to industry activity (public, non-profit and private sectors) to quantify the direct and total employment, labor income, value added, business output and state tax revenue effects in FFYs 2013 and 2014. This study also applies a low-medium-high range of scenarios to reflect some of the uncertainty about the actual reduction in grant and contract funding and related activity.
The analysis suggests that while every state will be negatively impacted by the federal budget cuts, Massachusetts will likely be hurt far more than most. This is because the state’s universities and high tech companies have had disproportionate success in winning contracts over the years from federal agencies that are directly affected by the sequestration. In addition, the federal grants awarded to Massachusetts universities and high tech companies have helped fuel the growth of the state’s innovation economy. With a major reduction in the economic stimulus provided by these grants, prospects for future economic growth are seriously threatened.
