Universities, hospitals, and defense contractors are delaying hiring and expansion — and in some cases laying off workers — because Congress postponed spending decisions in the deal to avoid the fiscal cliff, leaving the future uncertain for these critical sectors of the Massachusetts economy.
Congress’s eleventh-hour compromise on Tuesday settled tax questions for most Americans, but lawmakers postponed for two months the contentious issues of how and where to reduce federal spending. That leaves scores of Massachusetts institutions and businesses in limbo, unsure of whether they can count on government contracts and grants that support their operations.
“The riskiest part of the fiscal cliff still remains for Massachusetts,” said Martin Romitti, senior vice president at the Center for Regional Competitiveness in Washington.
Janet Ceddia, president and owner of Security Construction Services, a general contractor in Hudson, laid off several employees recently because of a slowdown in government work, including delays in a $3 million contract to rebuild an Army firearms range still in operation at the former Fort Devens. The Pentagon and other federal agencies have put projects on hold until Congress acts.
“I didn’t have the work, and I couldn’t suffer bleeding costs,” Ceddia said Wednesday. “Congress may have kept the financial markets from going into a total tailspin, but I’m in no better place than I was a week ago.”
Congressional leaders carved out a hard-fought tax plan that raised taxes on top earners and Social Security payroll taxes for most Americans.
The agreement sent stocks soaring; the Dow Jones industrial average added 308.41 points to close at 13,412.55, a gain of 2.4 percent, the largest point gain in more than a year. The S&P 500 and Nasdaq stock indexes notched even sharper gains of 2.5 percent and 3.1 percent, respectively.
Yet the compromise was far from comprehensive, and some of the most bitter budget battles lay ahead. Congress delayed more than $110 billion in automatic spending cuts set to take effect Jan. 1, extending their deadline for two months in the hope of finding a more measured approach to lowering the budget deficit.
But that delay also heightens the likelihood of another tortured political showdown in March, when the federal government also will face the limit on its borrowing, known as the debt ceiling. Congress must vote to raise the debt ceiling, which Republicans have used as a means of forcing spending cuts from reluctant Democrats.
Massachusetts has much at stake in the outcome. The state is the fifth-highest recipient of Department of Defense money, which exceeded $14 billion in 2011, according to an analysis by the University of Massachusetts. Another $7.7 billion in federal funding was allocated to the state’s colleges, universities, and hospitals for research and development, including large grants from the National Institutes for Health.
These cuts would come as the Massachusetts economy is slowing. The state unemployment rate has risen a half-percentage point since the summer, to 6.6 percent from 6.1 percent in July.
Romitti, who coauthored the UMass analysis, said the scale of cutbacks under consideration could drag the state into another recession. If Congress allows the automatic cuts to take effect, some 50,000 jobs could be lost in the first few years, including many high-paying jobs in the state’s research and technology sector.
University of Massachusetts officials said the state system could lose as much as $32 million in federal research funding if the current plan goes into effect unchanged. Dana-Farber Cancer Institute in Boston is reluctant to begin new projects with NIH funding up in the air.
“It worsens the uncertainty,” said Karen Bird, Dana-Farber’s chief financial officer. “We’ll be in an anxious state for a couple more months.”
Officials at the Massachusetts Institute of Technology, which receives about $1.3 billion in federal funding a year, warned researchers last fall to prepare for potential budget cuts of as much as 9 percent, or more than $100 million, if the country fell off the fiscal cliff. University officials and researchers are still waiting for Congress to act on spending issues before they making long-term commitments to projects and hiring.
“It’s disappointing that we won’t have more clarity,” said Claude Canizares, vice president of research and associate provost for MIT. “But I guess one could still be hopeful that some sensible resolution will be found.”
Wealthier investors will probably face higher taxes on dividends and capital gains under the tax deal struck in Washington, but few expect those changes to have much of an impact on the state’s mutual fund industry, a major employer in Boston.
Boston mutual fund executive Duncan Richardson said the changes could even help the industry by permanently extending many tax cuts that were in jeopardy. “It’s a great start to 2013 after all the drama,” said Richardson, chief equity investment officer for Eaton Vance Corp.
Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, the state’s largest employers’ group, said the compromise reached Tuesday took away some economic uncertainty. Some companies may begin hiring again because they know next year’s tax rates, Mayer said, “but there are still very severe issues, particularly for any company doing most of their business with the government.”
Triton Systems Inc., a Chelmsford technology company that makes specialty coatings for missile systems and other defense products, decided Wednesday to put off hiring and capital investments for the second quarter in a row because it is unclear whether its contracts will be reduced or canceled.
“It’s a black box,” said Triton’s chief executive, Ross Haghighat. “The federal government is really doing a disservice” to contractors.
Triton and its subsidiaries received about $30 million from the federal government last year. The company and its affiliates have about 200 employees, including 100 in Chelmsford.
Prattville Machine & Tool Co., in Peabody, a family-owned business that employs 85, said it is already feeling the effects of a government spending slowdown. Owner Vincent Spinali said some components in his inventory are beginning to back up because government spending for them has been suspended.
“We’re still on shaky footing,” he said, “waiting for things to happen.”