Abstract Understanding sequestration can be overwhelming. What are government sequestration and the Budget Control Act (BCA) of 2011 and how do they impact us? Which government agencies will feel the impact the most? Are there agencies that are exempt from the sequestration? And finally, is there a way to prevent the sequestration? A budget sequester is when money under current law is used to fund the budget deficit. President Barack Obama signed into law on Aug 2, 2011 a federal statute titled The Budget Control Act (BCA) of 2011.
This federal statute will impose limits on discretionary programs by more than $1 trillion over ten years from 2012 through 2021. These limits are based on the Congressional Budget Office baseline from 2010 (Kogan, 2011). Sequestration was technically triggered when Congress failed to reach an agreement by Jan. 15, 2012, but because the cuts do not begin until 2013, Congress really has until the end of this year to enact new legislation that would cancel or delay the cuts (OMB Watch, Nov 6, 2012). As an employee on a military installation, the impacts of the sequestration could cause short and long term effects on our contractor support.
Understanding Sequestration Sequestration can be broadly defined as the action of taking legal possession of assets until a debt has been paid or other claims have been met. In government terms, a sequestration is an attempt to reform Congressional voting procedures. This is an effort to make the size of the Federal government’s budget deficit a matter of conscious choice rather than simply the outcome of an appropriations process. A process in which no one ever looked at the cumulative results until it was too late to change them.
If the appropriation bills passed separately by Congress provide for total government spending in excess of the limits Congress earlier laid down for itself in the annual Budget Resolution, and if Congress cannot agree on ways to cut back the total, then an automatic form of spending cutback takes place. This automatic spending cut is what is called sequestration (Johnson, 2005). What are the major elements of the BCA of 2011? First, it allowed the President to raise the debt limit by $2. 1 trillion. This limit is estimated to be enough through early 2013.
Second, established limits on annual appropriations bills which cover discretionary or non-entitlement programs such as defense, education, national parks, the FBI, the EPA, low-income housing assistance, medical research, and many others; the limits reduce projected funding for these programs by more than $1 trillion through 2021. Third, it required the House and Senate to vote in the fall of 2011 on an amendment to the Constitution to mandate a balanced budget every year. Fourth, it established a Joint Select Committee on Deficit Reduction to produce legislation to reduce projected deficits by at least an additional $1.
2 trillion through 2021 (beyond the savings generated by the discretionary caps). And finally, the BCA established a contingency mechanism to ensure that $1. 2 trillion in deficit reduction would be achieved if the Joint Select Committee failed. This provided for automatic, across-the-board budget cuts in many programs in 2013 and reductions in each year from 2014 through 2021 in the annual caps on discretionary appropriations as well as automatic cuts in selected entitlement programs (Kogan, 2011). Which government programs will feel the impact the most?
If sequestration does take place the cuts will be divided evenly between the defense and non-defense programs, approximately $55 billion each. Non-exempt non-defense programs like Head Start and education programs will have an 8. 2% cut, approximately $38 billion. Non-exempt non-defense mandatory programs like agricultural disaster relief will have a 7. 6% cut, approximately $5. 6 billion. Payments to Medicare providers and health insurance plans will have a 2% cut, approximately $11 billion. In addition, non-exempt defense discretionary programs will have a 9.
4% cut, approximately $54. 6 billion (OMB Watch Nov 2, 2012). This includes keeping military bases open, paying salaries and research and development. The approximately $55 billion in 2013 defense cuts will be imposed in a similar but not identical manner. The defense cuts will occur through across-the-board, proportional reductions in the funding provided for defense accounts in the appropriations bills. War costs within the National Defense function are subject to sequestration, as are defense unobligated balances carried over from prior years.
Although military personnel are not exempt from sequestration the President can exempt some or all military personnel funding from the sequestration. This is because the funds for fiscal year 2013 will already have been appropriated by Congress. However, if he chooses that option, the cuts in other defense funding would have to increase. As of Nov 13 the President did exempt military personnel from sequestration (OMB Watch Nov 2, 2012). Which government programs are exempt from automatic cuts?
A number of programs are exempt to include Social Security benefits, all programs administered by the Department of Veterans Affairs, interest on the federal debt, refundable tax credits, and several low-income programs. Low-income programs that are exempt include food stamps, child nutrition programs, Medicaid, foster care, Temporary Assistance for Needy Families, mandatory funding under the Child Care and Development Fund, the Children’s Health Insurance Program, and the Supplemental Security Income program (OMB Watch Nov 2, 2012). So what are the expectations for 2014 and beyond?
The process for 2014 and out is quite different. The required defense funding cut of approximately $55 billion in each year from 2014 through 2021 will occur through reductions in the annual statutory caps on defense funding that the Budget Control Act sets for each of those years if sequestration is triggered. Unlike in 2013, there will be no automatic cut of all affected defense programs by the same percentage; instead, the Appropriations Committees will decide how to live within the newly reduced defense funding caps (Kogan, 2011).
For non-defense programs the process will be the same as in 2013 for entitlements but different for non-defense discretionary programs. Medicare payments to both providers and health insurance plans will continue to be cut by 2 percent. However, because Medicare costs are projected to rise through 2021, the dollar amount saved will increase from $11 billion to approximately $18 billion in 2021. In years 2014 through 2012, the remaining amount of the approximately $55 billion in non-defense cuts will be applied proportionally to other non-exempt mandatory programs and overall non-defense discretionary funding.
Because Medicare will take a progressively larger share of the $55 billion non-defense cut, other non-defense programs cuts will continue to decline (Kogan, 2011). One of the biggest concerns of the sequestration is the possibility of prompting a recession in 2013. The combination of expiring tax cuts and the reductions in spending on discretionary government programs, known as the ‘fiscal cliff’, could throw the country back into recession. However, the hopes are that a budget deal would be reached in early 2013 that would retroactively cancel the sequestration.
Within the Department of Defense (DoD) there is a lot of concern with sequestration and the automatic cuts that would be implemented in fiscal year 2013 if Congress fails to reach an agreement on the deficit reduction plan. The Under Secretary of Defense (Comptroller) is working with the Office of Management and Budget (OMB) to ensure the Department is ready to implement sequestration in January if it occurs. In the meantime, consistent with OMB guidance, a memo titled Guidance on Fiscal Year 2013 Joint Committee Sequestration has been issued stating that DoD needs to continue normal spending and operations.
The memo states to not let our programs, personnel, and activities to begin to suffer the harmful effects of sequestration while there is still a chance it can be avoided. The memo has directed that all commanders and managers in the DoD continue the defense mission under current laws and policies, without taking any steps that assume sequestration will occur (A. B. Carter, personal communication, Sep 25, 2012). In other words, the DoD is to continue business as usual. Although it is business as usual, government contractors may feel the greatest impact.
In conclusion, sequestration would have long enduring and painful effects on all aspects of government agencies, DoD and non-DoD alike. If Congress does not meet the requirements imposed by the Budget Control Act of 2011 DoD government contractor layoffs and potential government shutdowns may occur and non-DoD government programs, like education and Medicare, will have long term consequences. Sequestration can only be prevented if Congress passes legislation that undoes the Budget Control Act of 2011 before January 2, 2013. References Johnson, P. (2005). A Glossary of Political Economy Terms.
Retrieved from http://www. auburn. edu/~johnspm/gloss/sequestration Kogan, R. (2012). How the Across-the-Board Cuts in the Budget Control Act Will Work. Retrieved October 30, 2012, from http://www. cbpp. org/cms OMB Watch (Nov 2, 2012). Mitigating the Impact of a Temporary Sequester. Retrieved November 4, 2012, from http://www. ombwatch. org/mitigating-impact-of- automatic-spending-cuts OMB Watch (Nov 6, 2012). White House and Federal Agencies Could Manage Effects of Automatic Spending Cuts in Early 2013. Retrieved November 10, 2012, from http://www. ombwatch. org/node/12266.