Marney Cox, Chief Economist, San Diego Association of Governments
Related Story: San Diego Parks Feel Impact Of Federal Shutdown
CAVANAUGH: San Diego is a long way from Washington DC, but we can't escape the government shutdown. Yesterday, local federal workers and civilian defense employees went in to close down their offices for what could be an extended furlough. How many San Diegans will really notice the shutdown? Will it affect our daily lives and hurt our fragile economy? My guest, Marney Cox is chief economist with San Diego regional association of governments, or SANDAG. And welcome back to the show.
COX: Thank you, Maureen. Good to be here.
CAVANAUGH: How many workers in San Diego are not on the job because of this government shutdown?
COX: Approximately 33,000 according to the personnel management at the federal level. We have over 47,000 what were called nonessentials, but only 33 of those thousand have actually suffered furloughs.
CAVANAUGH: And it's my understanding that even the civilian workers who are on the job, most of them will not be getting a paycheck this Friday; is that right?
COX: That's correct.
CAVANAUGH: If the government is still shut down.
>> That's right.
CAVANAUGH: Remind us of what's been closed locally.
COX: Well, a lot of things like national parks have been closed. There are some members of the doesn't of defense who work here that are nonessential that have left their jobs. There are pieces of lots of departments that we have here at the federal level. Although I'm not aware of a single department that's completely shut down. Although there are pieces of a lot of them.
CAVANAUGH: Now, there are also impacts, I believe, that are not immediately obvious. Like I read about a delay in processing FHA loans. How will that impact our local real estate economy?
COX: Well, you have certain amounts of time to close your real estate loan before it really expires. So you may lose the purchase of the house or whatever you're trying to accomplish there with that loan. And if it delays too long, goes beyond the escrow time period, you may have to get that extended.
CAVANAUGH: And are there other impacts that are not immediately obvious? I read that you can still get a pass port.
>> That's right. But the processing may be slower. And the interesting part about this is that the statistics we would use to determine how bad this may be will actually be impacted because of the closure. So many of the analysts who collect the information that allow us to determine differences between yesterday and today actually won't be on the job. So sometimes the longer it lasts, the harder it will get. The federal reserve is a good example. They're trying to figure out where the labor force is responding well. So then they could taper back from their stimulus programs. If we don't collect the data on the labor force, it will be difficult for them to do their job and determining whether or not they should tone down the papering.
CAVANAUGH: And if there's nobody in the statistical bureau to do the report anyway, it's going to be more difficult to get those things out.
>> That's correct.
CAVANAUGH: There's been some concern in San Diego about the WIC program. Will other food and government support programs upon affected by the shutdown?
COX: Well, the shutdown may affect the speed at which the service is provided. But my understanding is that program, for example, will continue. Most of those essential kinds of programs. It doesn't mean all or across the board. There are some staph members who have left even though the program is still operating, it's not operating as freely as it could, in terms of providing services or accommodating new people who may be looking for assistance. Because they simply don't have the staff available to them to do the processing.
CAVANAUGH: So what you are expressing for most people in San Diego is they may find things that they need -- they may still be able to get them, but they may find more impediments in the opening days of what could be a lengthy government shutdown?
COX: Yeah, and I think the ski is that last point about lengthy slowdown. The longer it occurs, some people can put up with day 2, 3, a week's worth of delay. But once it traipses into two, are three, four weeks, you're beyond the capable of being able to just handle a delay. Then you need to start making plans to do something different because you're just not certain that what you wanted to accomplish will be able to get done.
CAVANAUGH: Well, if families are -- have a member of the family who is furloughed for a week or so and the paycheck is not coming in, what does that do to our region's economy?
COX: Most paychecks here will be sent out. Whether or not they're sent out on time -- they're experiencing some problems for unemployment checks for example, are not associated with the government shutdown, but another problem. But the checks will eventually show up. You're asking how close to the treetops does the household fly, and can they survive? And it varies across the board. And I think the point here is that sometimes we have support mechanisms in place that if the check didn't arrive, they can look for an additional level of support somewhere. Those are thes ones that may not be available.
CAVANAUGH: Do we know how the government shutdown in the '90s, how it affected the economy in San Diego?
COX: The aggregate scale was difficult to see. Very small. The national models that determine what kinds of impact laying off 800,000 people might be, for every week layoff, there's a .12 percentage point decline in the national economy on a quarterly basis. So two, four weeks in a row, you're going to end up at about a half percent decline over the course of a month. That's significant in terms of a $16 trillion economy. But it progressively builds. So if it only lasts a week, it will be hard to see what the impact was. But if it progressively builds, and then there are other issues such as the deficit question and whether or not we'll be raising the debt level, and if it rolls into that, then I think we compound the problem. And then there'll be unintended consequences that you have to deal with that you didn't even think about in advance of setting this in motion.
CAVANAUGH: I want to ask you a little bit more about the debt sealing. That deadline is looming on, October 17th. But some economists have pointed out that back in the '90s when there was a government shutdown, the economy was a lot stronger in the United States than it is now. And this shutdown now might have more of an effect.
COX: Very true. We were coming out of a deep recession, especially one that hit Southern California in the 1994, 1995 time period. Department of Defense, are real estate industry, and banking took it hard. Over the course of the next five years was the fastest rate of growth that San Diego has experienced in the past 40 years. So that five years worth of growth through the year 2000 as we saw emerging high-tech industries, in telecommunications and life sciences areas. So that really started us off on a growth where we almost forgot about and of the past problems that we had because of the benefits associated with that kind of growth. But we're in a different position today. No one is expecting next year or the following year to be anything close to what happened in the second half of the 1990s.
CAVANAUGH: Let me bring another guest on board. San Diego City Council member Lori Zapf is on the line. She is in Washington DC this week as a member of a San Diego delegation to the nation's capitol. Welcome to the program!
ZAPF: Thank you. It's all very interesting.
CAVANAUGH: Could you give us a report, if you will, on the atmosphere in Washington during the shutdown?
ZAPF: Well, yeah, it's very interesting to be here. The day before, we had just many, many, many meetings. And that was on Monday. And people were hopeful and somewhat optimistic that there would be some agreement before midnight. And things changed on Tuesday, and from a meeting I was at this morning, I was hearing that there are really no real talks going on. And people are just kind of wondering what's going on and how long this will last and what the impacts are going to be. But there's no real optimism that I'm hearing anywhere that it's going to resolve anytime soon. But they were wrong about one thing, hopefully they'll be wrong about that.
CAVANAUGH: Has the government shutdown affected the talks that you have had with legislators? I know the delegation went to Washington to have talks with members of Congress about San Diego's economy, about its future, about its projects. So how large a shadow has this shutgown had on these talks?
ZAPF: Well, on Monday for instance, we had a lot of great meetings. There's 130 of us that came, business leaders from every sector of -- from health and technology and education all over the place. And so we had a lot of terrific meetings. Ive spent the entire afternoon at at Pentagon meeting with the secretary and undersecretary of the Navy, the Marines, talking about really pretty impactful things to our local economy, such as what impact would a shutdown have, what impacts are sequestration having, what we can expect with troop drawdowns. They're cutting back on maintenance, operations, infrastructure; thousands of troops in the next few years just in the Marines are going to be taken home. So that means fewer contracts, it's a huge impact on our economy. And of course we're trying to mitigate those impacts by begging them not to do it, but should that not happen, we should know so we can plan accordingly and know what's coming. But the next day, a lot of the meetings were are canceled that were agency-related. And I was very disappointed to lose the meeting that we had with the Department of Transportation regarding for me in particular the mid-coast trolley.
ZAPF: The EPA, talking about clean water. But on the other side, our members of Congress and their staff have a lot of time on their hands! So we actually had a lot of meetings with a lot of congressional members and their staff. So yesterday was a very, very busy day for all of us. It was just not the day that we were expecting.
CAVANAUGH: I'm wondering, have you or the delegation been letting our Congress knows that this shutdown actually affects people here in San Diego?
ZAPF: Oh, yes, absolutely. And I'm sure they're hearing it from everyone. But absolutely. And we're talking about like Marney was just talking about, the military is a huge sector of our economy and with so many people being out of a job -- I was thinking oh, my goodness, right before the holidays are approaching. This is just tragic. And little things like 8th grade field trips that came and these kids worked washing cars and doing all this stuff, and here they are, and none of the museums are open, and it's all shut down. And it's just really -- there's a lot of disappointment to go around around the country, certainly.
CAVANAUGH: I really appreciate your taking the time to speak with us during your trip. Thank you so much.
ZAPF: My pleasure. Thank you for having me.
CAVANAUGH: San Diego City Council member Lorie Zapf. And now back with Marney Cox. We just heard that report from Washington DC. It sounds like a weird time there. But there may be a weirder time to come. Because what you just mentioned, the failure to raise the debt ceiling, are the failure to do that by October 17th, what kind of consequences do you see coming from -- if Congress actually fails to raise the debt ceiling?
COX: Well, I think a parallel here, they're chosen particular staff members to go on furlough here. Of so they prioritized their expenditure. And I think if they can't raise the debt ceiling because we have obligations we need to meet, and the debt ceiling, most people attribute that to to our debt outstanding that we owe other foreign countries or business or households in the United States. They could prioritize it differently and pay those debts. But it means that there's something else that wouldn't get paid. I think what they've chosen to do, and there's probably about four different ways they can approach this. And I think what they've chosen to do is that as money flows in, what they'll do is wait until they have enough sufficient cash to pay whatever that debt is, and then pay it. So things pile up. You don't get paid on time, but you'll get paid. Until they can get through this. There's a lot of other ways, cut 5% across the board. Those other kinds of alternatives they've set aside and simply as the cash flows in is when they'll make the payment. So there'll probably be a lot of delay in payments as opposed to even no payments occurring. But that's the uncertainty we were referring to. And uncertainty impacts markets differently. Financial markets don't like uncertainty at all.
CAVANAUGH: Could the failure to raise the debt ceiling turn the U.S. economy back into a recession?
COX: It could if it extends along enough period of time. And the uncertainty about when you may receive something from the federal government, a payment on a debt, whatever it might be, is incorporated into your planning process because you still need to do business. And if you need to do that, you're going to have to make some adjustments elsewhere. And as those ripple over time is when the economy slows down. There's simply less activity that's actually occurring nationwide. And as that begins to slow down, you could tip us back into the recession. But it would take an extended period of time for that to occur.
CAVANAUGH: Thank you so much. Very good information for us all.
COX: Thank you, Maureen.