GloucesterTimes.com, Gloucester, MA

December 9, 2012

Mass. facing greater impact of 'fiscal cliff'

From Wire and Staff Reports
Gloucester Daily Times

---- — BOSTON — Citing downsides for consumers, investors and state government and those it serves, House Speaker Robert DeLeo is expressing grave concern about the impact of the approaching federal fiscal cliff on Massachusetts, moreso than on other states.

During a brief interview last week with the State House News Service, DeLeo said the state’s $540 million budget shortfall could rise to nearly $900 million unless Congress and President Obama can find common ground on an alternative to major spending reductions and tax increases on the verge of hitting across the country.

“This could turn out to be a whole lot worse than it is right now,” the Winthrop Democrat said. Beyond tax hikes, the so-called fiscal cliff would also affect a number of Massachusetts companies in other ways, notably through cutbacks in federal contracts mandated by the debt-reduction plan that looms if Congress cannot reach a compromise.

In all, nine Cape Ann businesses — from grocery wholesalers to engine parts manufacturers and computer programmers — hold a total of 23 contracts with the U.S. Department of Defense, worth at least $9.2 million in 2011, according to data gathered by a nonprofit, non-partisan policy research group called Center for Security Policy. And those contracts could be dropped if andated across-the-board spending cuts became cliff casualties.

Gloucester-based engine parts manufacturer Bomco, Inc., for example, held at least $189,000 in contracts with the Defense Department in 2011, according to the data, all of which could fall on the chopping block, while Gorton’s of Gloucester holds a contract worth about $7.7 million for supplying food to the Defense Department.

On smaller scales, The Strong Group Inc., which is based at Grove and Maplewood avenues in Gloucester and makes leather badges for federal and municipal workers, could lose the $14,084 the company has held in defense contracts dating from 2011, according to sequestration study, while Defense has also signed on for $22,000 in consulting work from Herb Meiselman Services, based in Rockport, a deal the study found to be in jeopardy.

During a recent encounter with Congressman Edward Markey, the dean of the state’s all-Democrat U.S. House delegation, DeLeo said he asked Markey whether he believed the spending cuts and tax hikes scheduled to take effect Jan. 1 would occur or whether negotiators would find a new deficit reduction course.

“His answer was he felt that there’s no way that that could be allowed to happen and they could resolve the issue,” DeLeo said. “Having said that, I think I’ve heard the sum of those statements from Washington before and I find the position we’re in now — watching what’s going on right now, it almost seems to be just a recurring theme – discussions at the beginning, things break down.”

In addition to the potential for a $540 million budget problem to grow by $350 million, cliff-triggered tax increases could hit Massachusetts hard given the state’s high per capita income and wealth compared to other states.

Noting he spoke last week to a group of investors and financial services sector officials, DeLeo said, “What I heard loudly and clearly was they’re watching very closely in terms of what’s going on in Washington, in terms of what their next move is going to be relative to investing funds, hiring, stocks and the like. So this could have some real, real damaging effect.”

Attendees told DeLeo tax increases would affect their business decisions and personal spending plans.

“That’s what I heard from some of these folks,” he said. “They’re talking about well if I’ve got X, Y, Z company and I’m going to get hit with this tax, then what is that going to mean? If I am going to be paying more taxes myself personally, then I’m not going to have the money to invest and you know so on and so forth.”