There’s been no end of discussion about significant changes in federal spending lately, but the whirlwind of words and figures have not yielded a clear sense of the consequences the 2018 budget proposed by the Trump Administration would have at the local level. How would Shelby County fare if and when funding is cut for widely used public programs?

An analysis by Dr. John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis, and Dr. Jeff Wallace, associate research professor, provides an estimate of the economic impact our community would feel if the Trump administration’s budget proposals were to be enacted.

The blueprint for federal spending, which Mick Mulvaney, director of the Office of Management and Budget has called the “America First” budget, was made public in May. It proposes to balance the budget in 10 years with $3.6 trillion in cuts in social safety net programs, many of which are administered by the departments of Health and Human Services, Housing and Urban Development, and Education.

Those programs, Mulvaney says, discourage work and hinder economic growth. Opponents say the proposed tax cuts for wealthier Americans effectively take away from the poor, particularly the most vulnerable in the lowest quintile (20 percent of households in terms of household income), which in Tennessee is $18,440, according to the U.S. Census Bureau. In Memphis, it’s about $15,000.

In the first year of the decade-long plan, the Administration’s $4.1 trillion proposed budget for fiscal year 2018 is about on par with last year’s. The deep cuts in social programs are offset by proposed boosts in defense, border security, veterans’ care, and school choice.

But while the President proposes, it is Congress that disposes, with its own determination of how the money will flow. The administration’s proposal, however, is a starting point for discussions.

“To simplify the analysis,” Gnuschke says, “we limited the scope to three specific agencies/programs within Memphis and Shelby County that receive substantial amounts of federal funding.” Those are the Tennessee Department of Labor and Workforce Development (TDOLWFD), Housing and Urban Development (HUD), and Supplemental Nutrition Assistance Program (SNAP – also known as food stamps).

“The first year of cuts results in a loss of $193.6 million for Tennessee across the three programs analyzed,” his report says. The projection at the end of the budget’s tenth year shows the state losing  $525.1 million. The loss to Memphis and Shelby County would be an estimated $133.6 million in federal dollars.

The impact of this reduction, the analysis says, is a loss of 3,262 jobs and a loss in labor income of about $188.3 million. It will also result in a value added loss of more than $73 million (the value of what is added to goods and services through local businesses), and an output loss of nearly $490 million (the total value of goods and services produced as a result of the activities in question).

There are additional repercussions.

“These losses will be spread across the Shelby County economy and not limited to government agencies and programs,” the Sparks Bureau analysis says. “Further, these specific federal budget cuts are estimated to result in a loss of $123.4 million in state and local taxes.”

Meanwhile, the Better Care Reconciliation Act, introduced in the Senate last month and being debated as we go to press, would eliminate much of the Affordable Care Act (ACA) and make other changes that would result in about 22 million people losing health coverage over the next 10 years and of those, 15 million would lose Medicaid coverage. A report by the Urban Institute says the number of uninsured in Tennessee would increase by 353,000. About 70,000 of those would be Memphians, many in the lowest quintile of household income. 

The effect of that increase in the number of uninsured would likely see a return to how medicine operated for the poor before passage of the ACA. Instead of going to physicians and other practitioners, the uninsured would “go to the hospital and the costs and expense will be shifted to the other payers,” says Dr. Cyril F. Chang, Professor of Economics and Director, Methodist Le Bonheur Center for Healthcare Economics at the Fogelman College of Business & Economics.

Methodology: The analysis of the Trump budget impact used available budget data for the United States and for Tennessee in FY18. Estimates were derived using IMPLAN economic modeling software that estimates 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.

Economic impact is a function of money changing hands multiple times with each purchase or change in spending. Based on this principle and using generally accepted economic impact modeling methods, the estimated economic impacts on Memphis and Shelby County were calculated.

Gnuschke says that the models show estimated changes that would occur in static isolation, where nothing else changes and there are no adjustments by participants in the affected industries. Also, this analysis does not include changes in state spending related to the three programs analyzed.