THE IMPACT OF PROPOSED FEDERAL BUDGET CUTS IN SHELBY COUNTY

By Jeff Wallace, Ph.D., Research Associate Professor

and

John Gnuschke, Ph.D., Director, Sparks Bureau of Business and Economic Research, The University of Memphis

The purpose of this analysis is to estimate the economic impact of potential federal budget cuts in Shelby County, Tennessee.  The analysis is performed using available budget information for the U.S. and Tennessee for the 2018 fiscal year. The estimates were derived using the IMPLAN economic modeling software.  IMPLAN®[1] provides estimates of changes in output (the dollar value of changes in the production of goods and services), earnings, and employment brought about as a result of the economic change in question. The methodology examines the link between the industry in question and other local industries, in addition to the impact on local households.

When it comes to evaluating the effects of proposed federal budget cuts, the only thing certain is that there will be cuts.  Exactly how much and when is debatable as nothing is set in stone at this time.  For instance, there is the Trump administration budget document America First: A Budget Blueprint to Make America Great Again, the companion Trump administration document Budget of the U.S. Government: A new Foundation For American Greatness, Fiscal Year 2018, and then there are various analyses by numerous think tanks and news agencies (including The Washington Post, The New York Times, etc.).  However, while presidents propose budgets it is up to the Congress to actually pass budget legislation for the President to vote on and those discussions are just now beginning.

To simplify the analysis, we limited the scope to three agencies/programs within Memphis and Shelby County that receive substantial amounts of federal funding:  Tennessee Department of Labor and Workforce Development (TDOLWFD), Housing and Urban Development (HUD), and Supplemental Nutrition Assistance Program (SNAP – otherwise known as food stamps). Dollar changes in allocations through 2027 were estimated using proposed annual rates of change from the Trump administration budget document[2] (Table 1). The results are presented in Table 2. 

As shown in Table 2, the first year of cuts results in a loss of $193.6 million for Tennessee across the three programs analyzed.  Assuming the planned cuts from the Trump budget document persist through 2027 results in a loss of $525.1 million for Tennessee. Using relative program shares based upon participation in each for Memphis and Shelby County results in an estimated loss of $133.6 million.

Economic Impacts. A basic principle used in this analysis is that one person’s spending becomes another person’s income.  The recipient of the spending will in turn use it to pay bills, by food, clothing, etc., in the normal course of events.  Accordingly, money changes hands multiple times with each purchase or change in spending. Following this principle and using generally accepted economic impact modeling methods, the estimated economic impacts on Memphis and Shelby County of the loss of $133.6 million were calculated and are presented in Tables 3 and 4. 

As shown, the proposed federal budget cuts for these three programs totaling $133.6 million is estimated to result in a loss of over 3,200 jobs, labor income of $188.3 million, value added (the value of what is added to goods and services through local businesses), and output (the total value of goods and services produced as a result of the activities in question) of nearly $490.0 million.  Table 4 shows that these losses will be spread across the Shelby County economy and not limited to government agencies and programs. Further, these specific federal budget cuts are estimated to result in a loss of $123.4 million in state and local taxes.

Caveats.  Economic impact models show estimated changes that would occur in static isolation (nothing else changing and no adjustments by participants in the affected industries).  Additionally, this analysis does not include changes in state spending related to the three programs analyzed.  Further, nothing is concrete in the Trump budget document nor in U.S. Senate and House bills around the budget.  While these limitations are large, the estimates do provide a ballpark estimate of how these proposed changes will affect the local economy. 

[1] For more information on IMPLAN, seehttp://implan.com.

[2] Source:  TABLE 26 -1. FEDERAL BUDGET BY AGENCY AND ACCOUNT, FY2018 BUDGET EXPLANATORY NOTE.  Located at:  https://www.whitehouse.gov/omb/budget/Analytical_Perspectives.