sequestration appropriations and the budget

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Sequestration, Appropriations and the Budget Picture

Julia Martin, [email protected]

Brustein & Manasevit, PLLCFall Forum 2013

Agenda• Congressional Climate

• Budget Action Leading up to the Shutdown

• Shutdown Showdown

• Next Steps

• The Future of Sequestration

• Quick Note on Policy Legislation

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CONGRESSIONAL CLIMATE

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Congressional Approval

<Source: PPP Poll, October 2013

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>Source: PPP Poll, October 2013

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55% 55%

44%

18%

33%

43%

28%

13% 13%

May 1977 Oct. 1990 Oct. 2013

Approve

Disapprove

No Opinion

Congressional ApprovalDo you approve or disapprove of the way the Representative from your Congressional district is handling his or her job?

Data: Gallup Polling

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Climate Within Congress• Lack of popularity/productivity leads to more political

angling on the few issues that are seeing some activity

• The problems:

• Highly contentious

• Sharply partisan

• Everything is fair game

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Climate Within Congress• The result:

• Loss of working relationships between members and staff

• Due to partisanship generally as well as retirements, elimination of benefits/salary cuts

• Short-term fixes to problems

• With promise of future long-term fix

• Constant crisis situation

• Discussions almost always reach crisis level due to procrastination, gamesmanship, statements about high stakes 12

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BUDGET ACTIONLeading up to the Shutdown

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Sequestration Refresher• Sequestration was triggered by the 2011 Budget

Control Act (BCA) after failure of Congressional debt “supercommittee” to balance budget

• Procedure generally follows 1985 Balanced Budget and Deficit Control Act, but specifics are subject to modification by Congress at any time

• This sequester was modified in the American Taxpayer Relief Act of 2012, commonly known as the “fiscal cliff deal”

• That law changed the start date of sequester cuts and the amount of cuts for FY 2013 15

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Sequestration Refresher• Began March 1, 2013• In FY 2013, cuts were carried out as automatic,

across-the-board reductions to actual spending levels for all non-exempt programs, projects, and activities

• Cuts were approximately 5%, but varied because: • Cuts were relative to FY 2013 budget • Budget allocations at State and district level affected by:

• New Census/population data• “Hold harmless” and “Small State Minimum” requirements in

laws

• Second 2013 CR made additional 0.2% across-the-board spending cut 16

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Sequestration Cuts

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Sequestration Refresher• FY 2013 sequestration cuts were implemented with first

allocation after March 1, i.e.:

• For single-allocation programs, like Head Start, beginning with programs which receive annual funding on April 1

• For competitive grant programs, beginning with first competition using FY 2013 funds

• For bifurcated funding programs like Title I of ESEA, the first allocation of FY 2013 budget year (October 2012) went out in full; sequester cuts were deducted from the second allocation (July 2013).

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• In FY 2014 through FY 2021, additional cuts are meant to be implemented through reductions to Congressional “spending caps”

• Internal limits that Congress sets on its own spending in each appropriations “account”

• Congress must pass individualized spending bills in all 12 accounts that, as a whole, comply with two basic requirements of sequestration:

• Make equal cuts to defense and non-defense spending caps

• Meet BCA requirements for reductions to spending caps (additional $109 billion in new cuts annually)

Sequestration in FY 2014 (as designed)

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Sequestration in FY 2014 (actual)

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SHUTDOWN SHOWDOWN(AGAIN) 21

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Trouble Brewing…• Clear from mid-summer that individual

appropriations bills were not going to be passed

• House Appropriations Committee said they would spare defense spending from further cuts at expense of non-defense (which would take 20% cut)

• Senate Appropriations Committee approved Labor-HHS-ED bill that increased funding

• House cancelled Labor-HHS-ED markup at last minute and never released text of bill

• U.S. scheduled to hit debt ceiling by October 17th

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Trouble Brewing…• Argument over funding Affordable Care Act

(“Obamacare”)

• House passed CR containing provision that would repeal health care law, fund government through December 15th

• Despite warnings from moderate Republicans, Senate

• Senate passed stripped-down measure which would fund government through November 15th, including health care law• House added requirements/riders back in

• Several more rounds of this “legislative ping pong” later…

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Government Shutdown• Lasted 16 days

• Agencies declared some personnel/activities “essential”

• Essential personnel must report to work, but are not guaranteed pay for shutdown

• Non-essential personnel are furloughed and may not, under penalty of law, conduct work

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Government Shutdown• Non-Essential Activities

• National parks and museums

• Civilian defense contractors

• Bureau of Labor Statistics

• OSHA

• EPA, FEC, IRS, NASA

• Agency press offices and social media

• Essential Activities

• TSA, air traffic control

• Active Duty Military

• Social Security benefits

• Pell Grant, federal loan, and ESEA Title I staff

• Feeding and care of research and zoo animals

• Congress

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Shutdown Impact• No new funding approved means all programs

without leftover appropriations must halt operations• Department of Education furloughed 95% of staff• G5 Grants Management website operational

• Managed by external contractors• Title I, ESEA funds went out on schedule

• October funds come from previous fiscal year (“advance” appropriations)

• Staff operating disbursement were declared “essential”

• Funds to Head Start, Impact Aid halted• No new reimbursements available for school

nutrition programs 27

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Shutdown Impact• Programs that can continue to run under a

government shutdown fall under three categories:

• Those declared “essential” to public safety, health, and other interests

• Those which are self-funded or funded through private donation• E.g., the United States Postal Service, Kennedy Center,

and parts of the Affordable Care Act launch

• Those which are operating under money that was appropriated in a previous budget year• E.g., Title I of ESEA, federal courts, some school

nutrition programs, and parts of the Affordable Care Act launch

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Shutdown Resolution• Appropriations bill passed October 17th

• Funds government temporarily • Through January 15th

• Using a “continuing resolution” or “CR”• At current (that is, post-sequestration FY 2013)

levels

• Created Budget Conference Committee• Bipartisan, bicameral committee• Tasked with creating new multi-year spending plan

• May, but does not have to, deal with sequestration

• No legal/policy authority; recommendations are non-binding

• Raised debt ceiling temporarily29

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NEXT STEPS 30

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New Deadlines• December 13th: Budget

Conference Committee must provide non-binding multi-year budget recommendations to full Congress

• January 15th: temporary spending authority from CR runs out

• Also: deadline for implementing sequestration cuts

• February 7th: New deadline for debt ceiling increase

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New Deadlines• Congress must address sequestration by January 15th

• Can address sequestration in a number of ways:• Repeal• Make modifications to requirements of sequestration

(including flexibility)• Make sequestration-compliant cuts to spending

• This means passing funding legislation which:• Cuts required amount from federal spending ($109 billion)• Takes equally from defense/non-defense

• Can be nuanced cuts or across-the-board reduction• Can be through regular-year appropriations OR temporary

measure like a CR

• Do nothing 32

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New Deadlines• Any spending legislation must meet two requirements

of sequestration:

• Cut an additional $109 billion from budget caps

• Make equal cuts to defense and non-defense spending caps

• If no spending legislation is passed, or if legislation does not meet these requirements more automatic cuts

• Automatic cuts to budget caps triggered January 15th

• Cuts equal to 7.2% of non-defense discretionary spending 33

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Caps vs. Spending• Budget caps ≠ actual spending

• What are budget caps?

• Also known as 302(b) caps

• Set by budget committees in House and Senate

• Set at appropriations account level (e.g., Labor-HHS-Education)

• Appropriations subcommittees issue bills that spend up to – but no more than – caps

• Sequestration cuts are implemented through reductions in caps, not in actual spending levels

• Therefore, cuts may differ from topline numbers if caps and spending levels are not the same

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Caps vs. Spending(in millions of dollars, assuming current spending levels)

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THE FUTURE OF SEQUESTRATION

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Byproducts of Sequestration• Continuation of contentious partisan environment

• Competition for shrinking pool of remaining funds

• Members angling for sequestration exemptions• To individual programs/agencies (e.g., NIH)

• To sectors of funding (e.g., Defense)

• Push for sequestration flexibility

• Desire to change/repeal sequestration leads to uncertainty in future budget years

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Sequester Flex?• Concept of allowing agencies to choose how to

implement cuts at program, project, or activity level

• The less specific actual funding legislation is, the greater authority is given by flexibility

• Across-the-board cuts mean flexibility more useful

• Specific appropriations which take into account sequester cuts make it less useful

• Has been repeatedly raised as an option for modifying sequester

• FAA was provided with FY 2013 flex in April

• Only example so far 38

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Sequester Flex?• Can be contentious

• Individual members of Congress each have pet projects or agencies whose funding they want to preserve

• Interest groups may not want agency heads to decide how to allocate cuts

• Will be part of debate in budget conference committee

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Other Changes?• Conservatives pushing to exempt Defense spending

from any additional cuts• Would mean an additional $18 billion in cuts to non-defense

discretionary spending

• House Appropriations Committee Chair Hal Rogers (R-KY) suggested this strategy during summer negotiations

• Projected to result in additional 18% cut to non-defense spending

• Democrats pushing to repeal sequestration entirely and increase spending for non-defense discretionary programs

• Republicans continue to push for more spending cuts, not just cuts to caps

• Democrats push for increased revenue through taxes40

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The Future of Sequestration

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New Solutions?• New deadlines = new opportunities for

panic and partisanship

• No clear resolution in sight on either sequestration or spending levels

• Significant possibility of another shutdown (or at least serious discussions of one) in January 2014

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Implementing the Sequester in FY 2014• No official agency guidance

• ED budget projections assume appropriations will remain at current (post-sequestration 2013) levels

• ED provided FY 2014 advance appropriations on October 1, 2013 at post-sequestration 2013 levels (full funding), assuming no additional cuts

• ED will likely follow same procedure for cuts as in FY 2013 for bifurcated funding programs• i.e., take any new spending cuts out of July allocation

• For other programs, new cuts will be taken out of first allocation after effective date • Could be January 16th, could be earlier/later

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Implementing the Sequester in FY 2014

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Sequestration Caveats• Implementation plans may vary between

agencies

• E.g., Forest Service very different from ED

• Sequestration cuts are cumulative

• Actual program allocations may change by more or less because of new population data and state/local hold harmless provisions

• Future of sequestration still VERY uncertain

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Budgeting for FY 2014

Hope for the best, prepare for the worst!

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QUICK NOTE ON POLICY LEGISLATION 47

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Policy LegislationFiscal issues

Everything else

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Disclaimer

This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.

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sequestration appropriations and the budget

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