It's hard to know if the sequester is just typical Washington the-sky-is-falling politicking or something that will actually affect your business. Fortunately, I'm here to help. First, a one-paragraph history lesson:
In 2011, House Republicans refused to raise the debt ceiling without big cuts in the federal deficit. So, Congress and the Obama administration worked out a temporary deal that included a doomsday provision--$1.2 trillion in across-the-board cuts to all federal spending over 10 years, including things that both Democrats and Republicans really didn't want to cut (domestic programs and the military, mainly). The idea was that these looming, drastic cuts would spur both sides to act like grown-ups and work out a legitimate deal.
Whoops! The grown-up deal never happened. So on Friday the clock runs out, and the U.S. Government will cut its budget by the first $84 billion.
But, you can't cut out $84 billion without having some effect. So, if you're an entrepreneur, here are some key questions to determine whether you really need to be sweating about the sequester.
1. Does your zipcode start with a "2?"
The Washington, D.C., metro area has largely been spared the worst effects of the Great Recession, the housing bubble, and really all manner of recent economic calamity. The reason is that so many people who live there either work for the federal government, or sell to it in one form or another. All of a sudden, however, more than a million federal workers suddenly face the possibility of furloughs. That could suck billions out of local purchasing power in Washington, Virginia, Maryland, and other areas with lots of federal employees.
2. Are you a contractor? Particularly in the defense industry?
The Pentagon is going to take a big hit. Nearly 800,000 civilian defense workers will be furloughed at least one day a week, the Navy will cut back its Pacific presence by a third, and if things don't change there will be all kinds of layoffs at the Department of Defense. (Take a look at ABC's hyperboblic 57 Terrible Consequences of the Sequester blog for a few more examples.) Bottom line, it's not a good time to start selling $640 toilet seats or $7,600 coffee pots.
3. Do your customers depend on federal funding?
President Obama tried to rally Americans against the sequester with a speech in front of cops and firefighters, because many of them will likely be laid off. The Department of Education would cut $60 million from aid to schools on Indian reservations. Head Start and school lunch funds will be hit. As an entrepreneur, if these kinds of public institutions are your customers, you could feel the sting.
4. Do you fly a lot?
The Transportation Security Administration and the Federal Aviation Administration will both start furloughing employees for a one or two days each pay period. (Since feds generally get paid every second week, that means roughly 10 to 15 percent fewer workers on duty any given day). So, you can expect longer lines at airport security and longer departure delays for aircraft.
5. Are you waiting the government to decide something?
The Patent and Trademark Office will lose about $156 million and the FDA will lose about $318 million, so if you're waiting for a decision on a patent or a medical product, you might wind up waiting longer. Meanwhile, inspection agencies like the Mine Safety and Health Administration and Occupational Safety and Health Administration will cut back. (Silver lining? The IRS will have less money for audits!)
6. Are you a criminal?
According to Attorney General Eric Holder, federal prosecutors will take 2,600 fewer cases this year, and the FBI will wind up furloughing many of its employees for up to 14 days. So, good time to break the law, I guess. The downside comes if you get caught. The Bureau of Prisons will furlough employees as well, which means more prisons will go on "full or partial lockdowns" to make up for having fewer guards.