Sequestration Case

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