Sequestration 101 Final

7/31/2019 Sequestration 101 Final

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Federal Budget

Sequest rat ion 101Perspect i ves t hr ough t he Count y Lens


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What is Sequest rat ion?

Sequestration: Process of appl ying aut omat ic, across-t he-boardspending reduct ions evenly di v ided bet w een security (defense)

and non-security(mandat ory/ ent i t lement f unds + annual

discret ionary f unds) f unct ions

Because t he Super Comm it t ee f ai l ed t o reach an agr eement ,

sequest r at i on is now schedul ed t o occur beginni ng on January 2, 2013

Sequest r at i on was f i r st enact ed in 1985 as part of t he

balanced budget and emer gency def i ci t cont r ol act

(com monly known as t he Gr amm -Rudm an-Hol l i ngs Act )

Ser ves as t he model f or t he pr ocess t o be used dur i ng

im pl ement at ion of t he Feder al Budget Cont r ol Act of 2011


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What is Sequest rat ion?

However , t he repor t leaves no quest ion t hat

sequest rat ion would be deeply dest ruct ive t o

nat ional secur i t y, domest ic invest ment s, and

core government funct ions.

- OMB Report Pur suant t o t he Sequest r at ion Transparency Act of 2012 (P. L. 112155),

President s Of f ice of Manageme nt and Budget , Sept emb er 14, 2012


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Context for Federal Debt and DeficitDiscussion and Act ions


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NearlyOne-Third

of Our

Spending is

Borrowed

Sour ce: Congressional Budget Off ice (Januar y 2012)

Fiscal Year 2012 Outlays:$3.63 Tril lion

Federal Budget Pict ure

Revenues67%

Deficit

33%


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FY2012 Federal Budget

Snapshot


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Federal Budget Pict ure

Absent reforms, U.S. debt is set t o skyr ocket in the coming decades

Sources: Congressional Budget Of f ice (Januar y 2012) and Bipar t isan Poli cy Cent er


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Source: U.S. Treasur y as of August 15, 2012


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How Did We Get Here?


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Reached OldFederal Debt Ceil ing

Budget Cont rol Act of 2011 (S. 365) Enact ed

Fail ure of Super Com m it t ee t o Find Savings

Sequest er Requi red by Law


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Budget Control Act of 2011 (S. 365)

Set st age f or $2.4 Tr i l l i on increase in Federal debt cei l i ng

BUTw it h of f set t ing reduct ions in t w o phases

$900 Bil l i on in savings over next 10 years, incl uding new spendi ng caps f or12 annual appropr iat ions bi l ls

Joint Select Comm it t ee on Def ic i t Reduct ion ( Super Comm it t ee )

set up t o ident i f y at least $1. 5 Tr i l l ion in ext ra savings over 10 years

HOWEVER, i f comm it t ee f ai ls, aut omat ic t r igger of across-t he-board

cut s in b ot h def ense and non-def ense accounts each year over t henext nine years (t hru FY2021)

htt p:/ / democrats.budget. house.gov/ si tes/ democrats.budget. house.gov/ f i les/ 08.03.11%20Budget%20Control%20Act%20summary.pdf


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Basics of the

Federal Budget

Sequestration

Process and

Impact


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Under st anding t he Breakdow n of

Fund ing Level s Under Sequest rat ion

Total triggered cut$1.2 trillion

Distribute remaining

$984 billionevenly among

fiscal years2013 to 2021

Evenly split

each years cutbetween defenseand non-defense

accounts

Subtract 18 percentin debt service

savings$216 Bil lion

$109.3 Bil lion inAutomat ic Cuts

per Year

Defense$54.6 bill ion

Non-defense$54.6 bil lion


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Translat ing FY2013 Sequest rat ion Cut s

9.4 percent to non-exempt defense

discretionary spending

8.2 percent to non-exempt domest ic

discretionary spending

Source: htt p:// www.whit ehouse.gov/sites/default/ fi les/omb/assets/legislat ive_report s/sequest rat ion/sequest rat ion_update_august 2012.pdf

2.0 percent to Medicare, 7.6 percent to non-exempt

nondefense mandatory programs, and 10.0 percent

to non-exempt defense mandatory programs


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Understanding Sequestration

What is unique about FY2013

Cut s occur at st art of 2 nd quart er of t he f i scal year (Jan. 2, 2013)

Discret ionary cut s occur no mat t er w hat Congress appropr iat es Sequest er cut s happen at program -proj ect act iv i t y (PPA) level

Across-the-board cuts dif f icult for many PPAs:

Account s t hat are nearl y al l personnel cost s,

l ike t hose f or Border Pat rol Agent s

Large procurement of const ruct ion pro j ects


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What is Exempt from Sequestration?

Medicaid

Social Security

Medicare Part D Low -i ncom e Subsidi es

Medicare Payments to States for

Qual i f ied Individual Premiums

Food Stamps (SNAP)*

Childrens Health Insurance Funds

Transit Form ula Grant s

Grant s in Aid t o Airport s

Childcare Enti t lement

Vet eran s Af f airs Programs

Com m odit y Loans and Conservat ion

Reserve Program

Crop Insurance

Military Personnel Funding

Pell grant s

Salar y and benef i t s f or Member s of

Congress and t he Pr esident

Here is a snapshot of 149 exempt programs:

* SNAP receives $8 million annual cut

For a complete list of exempt programs, download the OMB Reporthttp://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf


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FY2013 Proj ected Cuts:

8.2% Domest ic Discret ionary Reduct ion = $38 Billion Total

HUD Community Development Block Grant (CDBG) = $242 Mill ion

HUD HOME Invest m ent Program = $81 Mil l i on HUD Section 8 Housing = $1.5 Billion

HUD Hom el ess Assist ance = $156 Mil l ion

U.S. Economi c Developm ent Adm ini st rat ion (EDA) = $34 Mil l i on

USDA Rur al Devel opm ent = $203 Mil l i on EPA St at e and Local Grant s = $93 Mil l i on

EPA Hazardous Subst ance / Superf und = $119 Mil l i on

DOE Ener gy Ef f ici ency & Renew able Ener gy = $54 Mil l i on

FEMA St at e & Local Disast er Preparedness & Recover y Program s = $183 Mil l i on

FEMA Disast er Rel ie f = $580 Mil l ion

Exam ples of FY2013 Cut s by Program


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FY2013 Proj ected Cuts:

8.2% Domest ic Discret ionary Reduct ion = $38 Billion Total

DOJ State Criminal Alien Assistance Program (SCAAP) = $17 Million

DOT Essent ial Air Ser vice* = $12 Mil l ion (Discret ionary funds only)

Educat ion Dept s Elem ent ary & Secondary Educat ion = $1.3 Bi l l ion

FTA Transit Capi t al Grant s = $163 Mil l i on

HHS Subst ance Abuse & Ment al Heal t h = $275 Mil l i on

HHS Chil d Care Discret ionar y = $187 Mil l i on HHS Old er Amer ican / Aging Services = $121 Mil l i on

DOJ St at e & Local Law Enf orcem ent = $92 Mil l i on

DOJ Juveni le Just ice = $21 Mil l i on

DOL WIA Tit le I Form ula Gran t s t o St at es = $262 Mil l i on

Exam ples of FY2013 Cut s by Program


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Programs Cut by 7.6%

Payment-in-Lieu-of-Taxes (PILT) = $30 Mill ion

HHS Social Service Block Grant (SSBG) = $136 Million

DOT Essent ial Air Ser vices* = $4 Mil l ion (Mandat ory f unds only)

HHS Prevent ion & Publ ic Healt h Fund = $76 Mil l i on

NTIA St at e & Local Imp lem ent at ion Program = $5 Mil l i on

Programs Cut Less Than 7.6% FHWA Federal -Aid Highways = $56 Mil l i on

HHS TANF = $2 Mil l ion

SNAP = $8 Million Child Nut r i t ion = $4 Mi l l ion

FY2013 Projected Cut s:

Mandatory/Direct Allocat ion = $5 Bill ion Total


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Lim it ed t o 2% cut f rom provider payment s under part s A & B

Medicare Advant age ( Part C) Drug Plan Cont ract s (Part D)

FY2013 Projected Cut s:

Medicare - Total $11 bill ion (2.0%)


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Elect ions and Fiscal Cl i f f Scenar ios


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Lame Duck Makes Sequest rat ion Negot iat ions More Tense

Concur r ent Fi scal Pr essur es Cause Legi sl at i ve Bot t l eneck

Source:National Journal, July 2, 2012, Field Guide to the Lame Duck, Nancy Cook.


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Key Factors to Avoid Sequester?

Lame Duck Session: Congress ret urns Novem ber 13 for organizat ionalef f or t s, but w i l l ad j ourn f or Thanksgiv ing w eek and ret urn f i rst week of

Decem ber f or possib le Lame Duck session

Market Reactions: In post -elect ion environment , Wal l St reet expect sCongress and t he Whit e House t o addr ess f iscal cl i f f issues, incl uding

t ax ext ensions and pot ent i a l t ax and ent i t lement ref orms, delay of

sequest rat ion, and raising of f ederal debt cei l ing

Elect ion Outcomes: Wil l w e have a change in t he Whit e House, and

one or bot h cham bers of Congress? Who w i l l be t he key players in t he

budget d el i berat ions? How w il l t he 2014 Senat e cam paigns f or Senat e

Minor it y Leader Mit ch McConnel l (R-KY) and Senat e Finance Com m it t ee

Chair m an Max Baucus (D-MT) com e i nt o pl ay?


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Can Sequestration be Avoided?

YES! However

Congress must pass legislation and President Obama would

need t o sign bef ore January 2, 2013

Congress coul d pass legislat ion t o post pone cut sand buy

t im e f or a grand bargain on t he federal debt and def i c i t

Moodys Invest ors Servi ces w arned i t w ould low er t he

U. S. credi t rat ing i f negot iat ions do not produce a plan t o

st abi l ize and reduce t he nat ional debt . So, t here is st i l l r eal

pr essure t o address our nat ion s long-t erm debt


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Beyond Sequestration, What Else is on theTable for Fiscal Cliff Discussions?

Cost

Bush Tax Cuts + AMT $235 Bil l ion

Extension of Payrol l Tax Cut $90 Bil lionUnemployment Insurance $25 Bil l ion

Tax Extenders and BusinessDepreciation

$80 Bil lion

The Sequester $60 Bill ion

Af fordable Care Act Taxes $25 Bil l ion

Medicare Doc Fix $10 Bill ion

Federal Debt Ceiling ????

Total $525 Bil lion Minimum


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How Can You Get Engaged?


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NACo Posit ion

I t is near ly im possibl e t o address t he f ederal debt and def ici t cr isis by

severely cut t ing domest ic, non-mi l i t ary discret ionary programs

Federal assist ance t o st at e and local governm ent s w i l l help m it igat e fur t herlayoff s; A new r ound of cut s w i l l m ost l ikel y result f rom sequest er

Federal invest m ent s and mat ching f unds in st at e and local inf rast ruct ure

proj ect s helps produce pr ivat e sect or j obs and impr ove our compet i t iveness

Def ici t reduct ion should NOTbe accomplished by shift ing costs to counties,im posing unf unded mandat es, or pre-em pt ing count y programs and t axing

author i ty

Special care should be t aken t o ensure t hat ref orm s t o Medicaid,

in part icular, are not sim ply a shi f t of healt h care cost st o count ies

NACo is advocat ing f or a balanced approacht o def ic i t reduct ionnegot iat ions. Our general pr incipl es incl ude:


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Call to Action

Writ e Cal l Social Media

Communicate with your Congressional delegationthe following message:

As a f el l ow elect ed of f ic ia l r esponsibl e f or our ci t izens w el l -being,I urge you t o work in a bi part i san f ashion t o seek a balanced compr omi se

on reduct ions and r evenue raisi ng i n order t o def use t he budget cr i sist hi s nat i on f aces. Use a bal anced f i scal appr oach i n seeking sol ut i ons.


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Contact Us!

Ed Rosado, NACo Legislative Director

202.942.4271

[email protected]

For quest ions or mor e inf orm at ion, f eel f r ee t o cont act us below

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Sequestration 101 Final

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