Agreement Reached on Six-Month Continuing Resolution as White House Gears Up for Sequester

August 8, 2012

By Scott Cox, Senior Legislative Specialist, ASI Government

Congressional leaders and the White House have agreed to moving a continuing resolution that would fund government operations for the first six months of fiscal year (FY) 2013, which begins October 1. Under the deal, total funding for agencies would be capped at a prorated $1.047 trillion, the ceiling mandated by the Budget Control Act and a slight increase compared to the $1.043 trillion in overall government funding for the current fiscal year. The details of the stop-gap measure likely will not be known until after lawmakers return from the five-week August recess.

“During the August district work period, committee members and their staff will write legislation that can be passed by the House and Senate in September and sent to President Obama to be signed into law,” remarked House Speaker John Boehner (R-OH) when announcing the agreement last week.

Meanwhile, the Office of Management and Budget (OMB) informed agencies it would not be able to calculate the specific spending cuts under the sequester, if it is allowed to occur as scheduled on January 2, until FY2013 funding levels are known. “OMB will work with agencies, as necessary, on issues surrounding the sequestration order and its implementation,” wrote OMB acting director Jeffrey Zients in a memo to department heads. “[S]hortly before any sequestration order is issued, OMB will collect information from agencies on sequestrable amounts and, where applicable, unobligated balances, and calculate the percentage reductions necessary to implement the sequestration. In the meantime, agencies should continue normal spending and operations since more than five months remain for Congress to act.” Zients reiterated the administration’s call for Congress to avoid the across-the-board cuts by replacing them with a balanced deficit reduction plan. “[T]he sequestration would be highly destructive to national security and domestic priorities, as well as to core government functions,” he warned.

Congress has passed—and President Barack Obama is expected to sign—legislation that would direct the President to report to House and Senate lawmakers, within 30 days of the bill’s enactment, on the spending cuts necessary to achieve the reductions required under the sequester at the program, project, and activity (PPA) levels. However, it is unclear whether the administration will meet that deadline given Zients’ assertion that OMB cannot calculate the specific spending cuts until FY2013 funding levels are enacted. “These PPAs can change from year to year and differ substantially in their level of specificity between budget accounts,” he noted while testifying before the House Armed Services Committee on August 1. Zients also told the committee that just preparing for the sequester would have an adverse effect across government by diverting scarce resources and disrupting the lives of federal and contractor employees. He went on to highlight for lawmakers the expected outcomes if the automatic cuts were to take effect:

Cuts would total some $109 billion a year from FY2013 through FY2021, split evenly between defense and nondefense programs.
In FY2013, OMB would apply a uniform percentage reduction at the account level, which would apply equally across PPAs within an account as identified by agencies, with the bulk of the reductions coming from discretionary programs.
From FY2014 through FY2021, the reductions in discretionary funding would be implemented by lowering the discretionary caps, and nonexempt mandatory programs would be sequestered each year.
Unobligated balances must be factored into the sequestration calculation for defense programs under current law, though the level of unobligated balances will not be known for some time. In addition, the President intends to exempt military personnel accounts, a move that would increase the cuts to other defense programs.

“Let me be clear: the impact of sequestration cannot be lessened with advance planning and executive action,” Zients cautioned. “Sequestration is a blunt, indiscriminate instrument designed to force Congressional action on achieving a balanced deficit reduction plan . . . It is not a credible substitute for a responsible deficit reduction plan.”

Also testifying at the hearing, Deputy Secretary of Defense Ashton Carter described the impact the sequester would have on the Department of Defense (DoD), contending the automatic cuts would introduce “senseless chaos into the management of more than 2,500 defense investment programs.” An across-the-board cut to defense programs of nearly $55 billion in FY2013, 95 percent of which would be shouldered by DoD, would result in a 10 percent reduction to DoD's budget if the President exempts military personnel funding, according to Carter. This calculation assumes that enacted FY2013 funding equals the President’s request, and reflects DoD’s best assessment of unobligated balances from prior years. He explained that while cuts to budget accounts—such as Army operation and maintenance—must be equal in percentage terms, DoD managers would have the flexibility to determine how best to allocate the reductions within each budget account in the operating portion. Carter went on to note that sequestration would:

Generally not affect funds already obligated as of the date the sequester cuts are calculated
Force some military managers to buy fewer weapons, causing unit costs to rise, and result in further cuts in buy amounts
Possibly require a partial hiring freeze or unpaid furloughs of the civilian DoD workforce
Result in delays in payments to service providers and, potentially, some denial of service under the Defense Health Program

“I cannot describe a ‘plan’ that somehow eliminates these consequences, or even mitigates them substantially,” Carter remarked. “The reason for this is that sequester was designed to be an inflexible and mindless policy. It was never designed to be implemented.” He later echoed Zients’ call for Congress to pass a balanced deficit reduction package to avert sequestration.