Congress’ Sequester Carries Dire Consequences for San Diego Innovation Economy

by on February 26, 2013 · 21 comments

in Economy, Government, Health, Politics

Dr. Geoff Wahl

Dr. Geoff Wahl

Cuts to government funding for basic research–already at dangerously low levels–could have devastating long term economic effects nationally, locally

Our greatest responsibility is to be wise ancestors—Jonas Salk

In 1994, San Diego lost an enormous part of its identity.  The city was known as an aviation haven.  Its role in aviation history became cemented when it produced the Spirit of St. Louis, the first aircraft to fly across the Atlantic Ocean on one tank of fuel.  Aircraft, missiles, defense related electronic systems along with the Department of Defense have practically defined San Diego.  It was what made the local economy tick.  Heck, it was the local economy.

That all changed when General Dynamics closed its Convair division, putting an end to the defense and aviation manufacturing giant’s presence in the city.  At the peak of its influence, General Dynamics employed in excess of 18,000 San Diegans, and was an integral part of the San Diego culture.  When they left, only a giant, gaping hole remained, both physically with the massive, abandoned Kearney Mesa campus, and economically.

The Department of Defense is still here, and is still the region’s largest employer.  But for nearly a decade the region has struggled to redefine itself; to replace what had for so long been the heart of the local economy.

Slowly but surely a new identity started to emerge.  San Diego is home to one of the premier research universities in the country, doing pioneering work in health sciences, renewable energy, and information technology.  With UC San Diego at its epicenter, combined with the growing research prowess at San Diego State University, biotech and clean tech have become the economy of the future for the region.  A 2004 Milken Institute study determined the San Diego metropolitan area to be the number one biotech research cluster in the country.

As research’s role in the region grew, San Diego began to strive to become the “Silicon Valley” of biotech and cleantech; to become as synonymous with biotechnology and clean energy research as the Bay Area is with computer technology, and every bit as vital as an economic engine.  Those efforts to this point have been exceptionally fruitful, as new tech startups have sprouted like the algae being turned into the fuel of tomorrow.

That could change at the end of this week if the sequester is allowed to happen as currently scheduled.  “Instead of calling it sequestration, we should call it an amputation, where you get to choose which of your limbs you are going to lose,” explained Dr. Geoff Wahl, a leading cancer researcher at the Salk Institute at a media availability arranged last week by Congressman Scott Peters.

There is little doubt that the sequester—indiscriminate, across the board cuts to the federal budget agreed to by Congress as an absolute last, and undesirable resort—will carry serious consequences for the national economy, and the San Diego economy in particular.

Congressman Scott Peters

Congressman Scott Peters

Basic research—the very foundation of the research cluster—depends heavily on federal dollars.  Without it, research activity will slow to a crawl and could eventually wither away.

The sequestration (or amputation) threatens to cut $2.5 billion from the National Institute of Health’s budget (8.2%).  To put that in local terms:  In fiscal year 2012, San Diego research groups benefited from 1,760 grants totaling more than $130 million from the National Science Foundation and $850 million from the NIH.

Nationally, cuts to research funding could mean that 2,300 fewer grants will be funded, costing 33,000 jobs.  Locally, economists believe that at least 4,500 jobs could be lost.  Due to a cut in NIH funding alone San Diego stands to lose 3,100 science jobs—which includes cancer research funding—according to information provided by Dr. Lynn Reaser, the Chief Economist at Point Loma Nazarene University.

If the sequester goes into effect, NIH grant cuts would cost San Diego about 10% of its sci/tech workforce, she said.  About 42,000 people work in science and biotech, equating to the loss of 3,100 life-science jobs and an additional 1,400 industry support jobs, and $290 million in funding.

According to Wahl, in the past 25% of all grant proposals were funded.  “That would fund all the research you could possibly need to do.”  In recent years, that has been reduced to 7%, and will suffer even further as a result of the sequester.

“The budget cuts will bring a pervasive and unforgiving ripple effect that will reach every corner of our region,” said Mark Leslie, the interim president and CEO of the San Diego Regional Chamber of Commerce in a released statement.  “For every one job lost in the military, tourism or innovation sectors of San Diego, another job and a half will also be lost by way of support and administrative roles, construction projects, support for local retail outlets, and much more.  Today San Diego stands tall because of our military and innovation centers but sequestration will cut the very legs that we stand on and traumatize our economy.”

Mark Cafferty

Mark Cafferty

From the Conservative perspective, a loss in government funding would seem to be a blessing.  The argument from that end of the political spectrum says that government should not be in the business of picking winners and losers in research, and that if the research is truly valuable, then private entities will step in to cover the gap in funding.

Not so, says Wahl.  “Basically, basic research is typically longer term and quite risky, just the type of work that industry CANNOT typically do.  Generally, industry takes the late stage highly developed ideas and then applies them to the clinic,” he wrote in an email.  “The risk and investment as well as time to product are all lower.  Thus, it is critical that the government support research so that discoveries can be converted to products.  This is what Industry does very well.  By contrast, basic researchers have little knowledge of how to make products.”

In an interview on PBS’s “NewsHour” discussing President Obama’s State of the Union proposal to fund a decade’s worth of research into mapping the human brain, Dr. Francis Collins, the Director if the NIH, noted the importance of government funding in the area of brain research and mapping:

The kind of science we’re talking about with this brain activity map, this would not happen in the private sector alone.  There’s no direct product here that anybody would see as a reason to invest if you’re a stockholder.  But it will be something that industry will want to follow closely and build upon.

Asked why private dollars alone would not be enough to fund the kind of activity that public entities such as the NIH and National Science Foundation supports, he said the turnaround is too long:

“The time it takes for that return on investment is unpredictable, and it’s probably not short.  And the private sector understandably—they have stockholders to answer to—is not going to put hundreds of millions of dollars into something where the return is somewhat uncertain and may not happen for years to come.  This is the natural place for the government to invest, just like the genome project (mentioned by President Obama in his State of the Union speech), where all that effort was funded by the taxpayer, but then resulted in this enormous proliferation of private sector activity that’s transforming medicine.”

Wahl noted that the government invested $3.8 billion in the Human Genome Project in the 90’s, which resulted in a $786 billion return to the U.S. economy.  Without adequate government investment, that research and those results would never have happened.  Intellectual property generated by the Salk Institute, he said, has led to the formation of 33 different companies in San Diego; intellectual property that originated through funding from the National Cancer Institute and NIH.

“When you provide money for scientific research, it is an investment.  There is a return on that investment,” said Wahl.

“San Diego’s life sciences community, like San Diego’s defense community, is beholden significantly to investment from Washington, D.C,” said Mark Cafferty, the president and CEO of the San Diego Economic Development Corp.  “There are many biotech and life sciences communities that are not.  They don’t attract the same sort of research and development grants.  They’re not built around research and development the way that San Diego is.”

If the sequester hits and funding is slashed “we face the prospect that the next Google or Facebook or the next great cure for cancer will be developed by someone who is educated at UCSD, but then moved to China, or Israel or Europe because those places are the ones that support science,” said Peters.

“Let me put it to you in school terms,” said Dr. Wahl.  With only seven percent of grants being funded, “you take the hardest class with the most brilliant students, and you get a 93% on your final exam and you fail, because you didn’t get a high enough score.  Which brilliant student is going to choose a career in this area when they have a 93% chance of failing?  None.”

The Salk Institute tagline is “Where cures begin.”  It takes a lot of work and a large investment of time and money to find these cures.  You have to start somewhere, and researchers at Salk have made great progress—slow, painstaking progress, but progress nonetheless—in the area of cancer research.  That research is particularly critical Bianca Kennedy, a patient advocate who works on outreach with the Salk Institute and Dr. Wahl’s team.

Bianca Kennedy

Bianca Kennedy

Kennedy was diagnosed with breast cancer at the age of 35.  She underwent a bilateral mastectomy and six months of chemotherapy.  A year ago she was diagnosed with breast cancer for the second time and has started another round of chemotherapy treatments.  “It’s been an exceptional opportunity for the scientists in the lab to be able to see someone that’s not a stranger to them, but someone they’ve gotten to know on a personal and a professional level going through breast cancer.  They’ve seen me go through some disfiguring surgeries.  They’ve seen me go through treatments where I come in one day bald.  And they’ve seen me go through a lot of the effects of chemotherapy, like a red steroid mass the day after my infusions.”

She says it helps to put a human face on the disease for the scientists.  She also says that she has been able to remain in high spirits because she sees the work that they are doing, “working around the clock” to find a cure “with the kind of drive and dedication I’ve never seen before in any other community.”

“That gives me great hope and I’m very privileged to see those efforts,” she says.

Best case scenario, funding cuts as a result of the sequester will cause that research to be slowed even further.  Worst case scenario:  That research could come to an end.

Remember that Jonas Salk quote at the top of this story?  “Making decisions today will have a profound impact on future generations,” says Geoff Wahl.  For someone like Bianca Kennedy, funding for cancer research is the difference between hope and a death sentence.

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Andy Cohen

Andy spent 15 years working in the highest levels of the San Diego professional sports world, including both the Padres and the Chargers. He began his foray into writing while a volunteer for Francine Busby's 2010 Congressional campaign, eventually becoming a contributor to the now defunct SDNN. He has reported on local and national politics for both the OB Rag and the San Diego Free Press. When not reporting news and events, he offers political and policy commentary from a liberal perspective, occasionally turning back to his sports roots. While he does not hide his more liberal political bent, Andy always strives for fairness in the telling of a story.
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{ 21 comments… read them below or add one }

avatar John Lawrence February 26, 2013 at 9:44 am

I’m all for government spending that advances the cause of humanity, but I welcome the relatively trivial (8%) cut in the defense budget. The US defense budget is larger than the rest of the world’s defense budgets combined. and it needs to be cut and the spending transferred to rebuilding infrastructure. Any time you are talking about reducing the defense budget, it comes down to the fact that somebody’s job is going to be eliminated. Every dollar the government spends on defense or anything else goes to some human being, and that means every dollar cut means somebody’s job is cut.

Of course, rather than losing their job entirely which is what would happen in the private sector, they are talking about a “furlough” which means a 20% pay cut and working one less day a week for government workers. I imagine this is what would also happen in the scientific research community. Nobody wants to take a pay cut, but that is not quite so dire as losing one’s job totally and completely. For those dedicated scientific researchers, they should be still able to make a go of it making 20% less on a job which probably pays them $150K or more.

If we can never shrink the military-industrial complex without dire effects on the economy, we are doomed to being a national security state forever. The trick is to transfer the spending to waging peace instead of waging war and transfer the jobs to the peace complex and out of the military-industrial complex. As for the scientific community, I think they should be able to take a pay cut and, if they are truly dedicated, continue with their jobs. It’s not asking too much when they’re lucky to have a job at all.

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avatar Andy Cohen February 26, 2013 at 11:24 am

No one…….well, almost no one……disagrees with the need to cut military spending. The Pentagon has said that they need to reduce their budget, not increase it. When the Republicans insisted on increasing military spending during the campaign, the Pentagon pushed back pretty hard–Repubs were insisting on continuing programs or creating new ones that the Pentagon insisted that it didn’t need.

So the dispute isn’t WHETHER we should reduce military spending, it’s HOW MUCH should we reduce military spending. And as much as it needs to be done, the sequester takes it way too far. We can even weather some reductions here locally. Scott Peters acknowledged that last week. Again though, the question is by how much?

Whether we like it or not, military spending is a big part of our economy, especially locally. Drastic cuts means massive job losses, which is obviously bad for the economy. But we can go about it in a smart, responsible way to where we reduce defense spending so that it doesn’t cripple the economy (and with the end of the Iraq war and the wind down of the Afghanistan war spending will be reduced by default….or at least it should). We can then move forward and continue to eliminate old and outdated programs that we don’t need. Investments in certain technologies will also reduce overall spending in the long run. Obama has already proposed leaning up the military, putting a greater focus on special ops forces and reducing the numbers of the rank and file.

Military cuts have to be a part of this, and they will be. But you don’t just take a meat cleaver to the military budget……unless you think it’s a good idea to simply amputate a perfectly good limb. Right now, the administration and Congressional/Senate Dems are trying to be responsible.

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avatar Sergey February 26, 2013 at 1:21 pm

Military spending has sharply risen from $294b in FY 2000 to $705b in FY 2013 http://www.sdvfp.org/us-military-spending/ I would like to see it back at FY 2000 level. I agree that 8% is too drastic reduction but let’s not forget that it was increasing by nearly 7%/year ($294b*1.07^13=$708b).

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avatar Anna Daniels February 26, 2013 at 10:23 am

Congress can and should cancel the sequester. Period. It is a manufactured crisis. From the Progressive Caucus:
“If Congress cannot come up with a replacement to the sequester before the end of the week, we should eliminate the sequester entirely. One million working Americans should not be forced to pay the price for Republican stubbornness. If this goes into effect, it will be one of the most irresponsible legislative failures in the history of the Republic. “

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avatar Goatskull February 26, 2013 at 10:57 am

I certainly can’t disagree with that, but personally I have no confidence what so ever. Not a stitch. We pretty much have to brace for disaster and accept it as the cards laid out for us. Hopefully I’m wrong but I won’t bet my life on it. I know people who are going to face homelessness and have actually made preparations for it. Where I work the furlough for a couple people is going to be such a financial hardship (as they are paying of debts) the they may lose their security clearance which would in effect result in actual job loss. There are people out there whose survival depends on vital services and they may lose that.
We’re past the point of who to blame and it’s pretty much become irrelevant at this stage. Again I hope I’m wrong.

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avatar Andy Cohen February 26, 2013 at 11:25 am

They should, but they won’t. It would completely defeat the Congressional Republicans’ purpose for existence.

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avatar Goatskull February 26, 2013 at 3:40 pm

Andy is right. The simple fact that they sould is outweighed by the simple fact that they wont. It’s a hard pill to swallow that’s not going to change anything.

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avatar Lester Burnham February 27, 2013 at 11:47 am

Yeah it’s a manufactured crisis by created by the Obama administration according to Bob Woodward:

from the article:
At the Feb. 13 Senate Finance Committee hearing on Lew’s nomination to become Treasury secretary, Sen. Richard Burr, R-N.C., asked Lew about the account in my book: “Woodward credits you with originating the plan for sequestration. Was he right or wrong?”

“It’s a little more complicated than that,” Lew responded, “and even in his account, it was a little more complicated than that. We were in a negotiation where the failure would have meant the default of the government of the United States.”

“Did you make the suggestion?” Burr asked.

“Well, what I did was said that with all other options closed, we needed to look for an option where we could agree on how to resolve our differences. And we went back to the 1984 plan that Senator (Phil) Gramm and Senator (Warren) Rudman worked on and said that that would be a basis for having a consequence that would be so unacceptable to everyone that we would be able to get action.”

In other words, yes.

—————

And back to the third presidential debate where Obama says sequester wasn’t his idea and won’t happen:

So who do you believe?

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avatar Goatskull February 27, 2013 at 12:08 pm

Neither.

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avatar Doug Porter February 27, 2013 at 1:27 pm

The debt ceiling agreement that contained the sequestration cuts got significantly more Republican support than Democratic support.
In fact, 174 of 240 House Republicans voted for it, while just half of House Democrats joined them (95 out of 190 votes). In the Senate, Democrats carried the vote, providing 45 of the 74 “yes” votes, but Senate Republicans also supported it by a 28-19 margin.
So in total, more than 70 percent of congressional Republicans voted for the deal that included the sequester, while 58 percent of Democrats voted for it.
So it would appear that the GOP had a significant role in making this happen.

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avatar Lester Burnham February 27, 2013 at 5:22 pm

Still the Obama administration’s idea. BTW guess what the White House is saying to Woodward:

Woodward: White House Warned Me “You Will Regret Doing This”

Looks like the White House is turning Nixonian. Maybe Obama will use his NDAA powers to declare Woodward a terrorist and indefinitely detain him in the still open after four years Guantanamo Bay detention camp.

Why The NDAA Bill is Even Scarier Than You Thought

1. The Indefinite Detention Clause: The NDAA has become the most controversial element of President Obama’s foreign policy. Section 1021 of the NDAA bill of 2012 allowed for the “indefinite detention of American citizens without due process at the discretion of the President.”

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avatar Andy Cohen February 27, 2013 at 5:39 pm

1) It was a proposal that was never supposed to be acted upon. It followed the theory of “Mutually Assured Destruction,” where both sides are pretty much decimated.

2) That being the case, it was assumed (incorrectly, obviously) that cooler heads would prevail and that Republicans would actually sit down and negotiate in good faith. A deal would get done, and the sequester wouldn’t matter in the end. It was, after all, supposed to be nothing more than a deterrent.

3) No one, and I mean NO ONE actually thought that the Republicans in Congress would go so far as to deliberately and gleefully tank the economy for their own perceived political gain. The first indicator was their refusal to negotiate……at all. Accept no compromises. All cuts to non-defense programs. Revenues are a non-starter. Ideological purity. And now they’re behaving as if the sequester was the preferred path all along. They actually WANT the economy to fail, all so they can hurt this president.

Finally, the Republicans didn’t have to vote for the sequester. They didn’t have to approve it in the first place. And as Doug pointed out, Repubs overwhelmingly supported it, whereas the Dems only tepidly did so. It was a last resort, and the Dems treated it that way. But the Republicans are using it in order to hold the entire country hostage.

As for your indefinite detention criticism……that too you can blame on the Republicans. The administration was going to try the prisoners in federal court–which have had far more success in trying terrorism cases than the military kangaroo courts have. They were ready to try KSM. The trial was set. And the Repubs shot it down. The administration had made arrangements to shut Guantanamo down. They bought a brand new prison that was still sitting vacant in Illinois where they were going to move the prisoners to. But the Repubs shot that down, too.

The administration has tried to be reasonable, only to realize that they’ve been negotiating with themselves all along. Hard to cut a deal when there’s no one to cut a deal with.

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avatar Lester Burnham February 28, 2013 at 10:42 am

1) If it wasn’t supposed to be acted upon then why did the president sign the bill? Mutually assured destruction? The sequester is a 2% cut in the rate of growth. They’re still spending more than the year before. That would be like my employer giving me a 3% pay raise instead of 5%.

2) Negotiate in good faith? Obama moved the goal post according to Woodward:
From the Woodward article link in my first post:
“In fact, the final deal reached between Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Ky., in 2011 included an agreement to no tax increases in the sequester in exchange for what the president was insisting on: an agreement that the nation’s debt ceiling would be increased for 18 months, so Obama would not have to go through another such negotiation in 2012, when he was running for reelection.

So when the president asks that a substitute for the sequester include not just spending cuts but also new revenue, he is moving the goal posts.”

3) A 2% reduction in the rate of growth is hardly tanking the economy. What’s the unemployment rate again?

“And as Doug pointed out, Repubs overwhelmingly supported it, whereas the Dems only tepidly did so.”
Democrats are the party of big government so it’s no surprise most voted against spending cuts even if they’re 2% of the rate of growth.

“As for your indefinite detention criticism……that too you can blame on the Republicans.”
Obama signed it (with an autopen I think) so the buck stops with him. The NDAA also restricts Obama’s ability to transfer detainees for repatriation or resettlement in foreign countries or to prosecute them in federal criminal court and he still signed it. He also included a signing statement with it. Remember when he promised he wouldn’t do that because that was something Bush did?
https://www.youtube.com/watch?v=voWuAXts76E
Do you hold Obama responsible for anything?

“The administration was going to try the prisoners in federal court–which have had far more success in trying terrorism cases than the military kangaroo courts have. They were ready to try KSM. The trial was set. And the Repubs shot it down.”
A federal court in the same hood as the former WTC. Even democratic Senator Diane Feinstein was against it. So I guess you think trying terrorists in a federal criminal court with the rights of US citizens is a good thing?

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avatar Doug Porter February 28, 2013 at 2:58 pm

So much for Woodwards’ “threat” story. (He’s got books to sell…) The actual emails got published. From Gawker:
The baldness of Woodward’s lie made it impossible for even the most wetbrained conservative partisans couldn’t stand by him. Hot Air, the stomping ground of Michele Malkin, allowed that “it’s a threat so veiled I can’t see it.” The Daily Caller’s Matt Lewis wrote that Woodward “played” conservative media. The Washington Examiner’s Byron York agreed that it “wasn’t close to a threat.”

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avatar Goatskull February 26, 2013 at 10:44 am

As a DoD civil service employee who will furloughed effective in April I hear sone interesting and colourful arguments amongst my co-workers (sometimes close to blows). It really is pointless at this stage to argue. It’s comeing and that’s that.

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avatar John Lawrence February 26, 2013 at 7:02 pm

I don’t see where an 8% cut to the military budget which has been growing at 7% a year is a drastic cut. If it is, what would be a reasonable cut? And nobody has said a godam word about how the trillions spent on two wars which have either ended or are coming to an end figures into the equation. That should be at least a 7% cut right there.

And nobody has said a word about how defense contractors profits should be cut from their cost plus status. The more money their lobbyists can get Congress to spend, the greater are their profits. Of copurse they’ve got it set up so that the poor slob workers like Goatskull will suffer all the pain, but not Lockeed Martin or Northrup Grumman or Halliburton CEOs or shareholders. I’d like to hear how much pain they’re going to suffer. A big part of the problem is that much of the military has been privatized leading to huge costs that would be reduced if their functions were done inhouse like they used to be. You don’t need Halliburton to do KP duty at 10 times the cost.

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avatar Andy Cohen February 26, 2013 at 7:58 pm

John, it’s kind of a double edge sword, because people do work for those defense contractors, so if you cut their projects too much, a lot of people lose their jobs in short order, which actually hurts the economy. But you’re right, they have to–and are–ramp down spending as the wars wind down. That’s happening. Obama has talked about it, and the Pentagon spokespeople have talked about it. That’s part of the reason there’s such a bigger emphasis on drones nowadays.

As for the cuts themselves, a better way to look at it is that the sequester will cut $600 billion from defense spending over 10 years. I don’t know where you got the 8% from, but an average of $10 billion per year is a LOT of money. Too much in a short period of time.

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avatar Goatskull February 26, 2013 at 10:34 pm

The low end workers for the contracting companies will feel it. They will just flat out get laid off.

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avatar Goatskull February 26, 2013 at 10:37 pm

Andy’s also right in that such drastic cuts in such a short period of time is not good and will have a domino effect. While it could be argued that it should have never gotten to this point to begin with, the fact is it did. Now our local economy could be crippled.

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avatar Goatskull February 26, 2013 at 10:44 pm

I guess if there’s one thing this whole mess has done for me (aside from reduced hours/pay cut and possible lay off in the future), I have developed a very strong and personal hatred for people who choose an elected public office as a career choice, on both sides of the political divide. Theoretically speaking the only difference between who I voted for and who I didn’t is that unlike the person I didn’t vote for, I won’t kick the person I voted for in the face after pushing them down the stairs. More realistically I will never shake the hand of even the people I voted for.

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avatar John Lawrence February 27, 2013 at 9:17 am

A better solution would be to give Obama the discretion to cut where he chooses but keep the amount the same. That way instead of across the board cuts, they could be made in a more intelligent way.

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