According to the memo, “Agencies should continue normal spending and operations” in early fiscal 2013, which officially began on October 1. This message came as part of a document OMB normally issues each year in late September detailing how federal agencies should operate under stopgap continuing resolutions (or “CRs”). However, this year is more complicated as the CR (H. J. Res. 117) signed into law by President Obama last week extends most federal operations for six months, a longer period than most CRs.

In a separate notice issued to agencies on the FY2013 CR, OMB also urged Congress to pass a “balanced package of deficit reduction” so that the automatic, across-the-board cuts built into last year’s debt-limit deal (P.L. 112-25) can be replaced with a more targeted approach to budget cutting. In mid-September, OMB released a report that projected sequester cuts of 9.4 percent to non-exempt defense discretionary spending and 8.2 percent to non-exempt domestic discretionary spending.

Unless Congress acts to avert or postpone the sequester before the January 2 deadline, OMB will need to trigger the actions needed to make $109 billion in cuts for the fiscal 2013 accounts of most federal programs. Both Republicans and Democrats have criticized this method for making cuts, and there have been calls from lawmakers and stakeholder groups across the political spectrum to prevent the sequester.

It remains unclear whether Congress will be able to reach a compromise on the sequester after the November elections. Republicans want to replace the cuts with alternative reductions, and the GOP-led House passed a budget resolution this year that included extensive cuts to domestic spending while eliminating the cuts to the Defense Department that would come under sequester. Democrats want an approach that would include higher tax revenues and alternative cuts to replace the sequester.

In brief, the 394-page OMB sequestration report projects cuts of 9.4 percent to non-exempt defense discretionary spending and 8.2 percent to non-exempt domestic discretionary spending. Most appropriated discretionary defense and domestic spending will be affected, with the exception of programs dealing with the pay and benefits of military personnel. Most mandatory spending programs including Social Security, Medicaid, and food stamps, are exempt from sequestration.

Regarding the impact of sequestration on transportation programs, OMB determined that Highway Trust Fund programs and the FAA’s Airport Improvement program are largely exempt from cuts under sequestration due to a drafting oversight in the Budget Control Act.  However, the report indicates that bailout transfers from the General Fund to the Highway Trust Fund would be subject to the sequestration process.

Click here to view the full OMB report.

The GOP measure (H.R. 6365), which was passed 223-196, would require the president to submit to Congress by October 15 a plan to replace the defense cuts with other spending reductions—and would prevent the plan from including revenue increases. Once a proposal to replace the automatic cuts with other spending cuts is enacted, the bill would reduce the cap on discretionary spending for fiscal year 2013 by $19 billion and eliminate the separate caps for defense and non-defense discretionary spending—which would then allow Congress to approve higher levels of defense spending.

While the bill is unlikely to see Senate action and the White House has already threatened to veto it, the measure is symbolic and allows lawmakers to voice concern over the impending sequestration — the automatic cuts that would reduce federal spending by nearly $1.2 trillion over the next 10 years. This issue continues to be a major concern to the White House and Congress, as the first $109 billion in cuts is scheduled to take effect in January unless Congress acts to postpone or prevent the cuts.

NADO Webinar on Sequestration from NADO on Vimeo.

When President Obama signed the Budget Control Act (BCA) (P.L. 112-25) in August 2011, ending a Congressional standoff over increasing the debt limit, the January 2, 2013 deadline for Congress to agree on a way to reduce the federal budget deficit—and thereby avoid the across-the-board cuts to federal agencies called for by the BCA’s sequestration process—seemed to be in the distant future.

Now, with a little over four months until the sequester is scheduled to begin, debate over the issue is heating up as Congress looks for ways to prevent or postpone the defense and nondefense cuts, estimated by the Congressional Budget Office (CBO) to be approximately $984 billion over nine years, or almost $109 billion annually.

Congress is currently in recess and will not return to Washington, D.C. until September 10. When members of the House and Senate return, the first order of business will be approving a six-month spend plan (also known as a continuing resolution or “CR”) to keep the federal government operating from October 1 through the end of March 2013.  While passage of the plan will avoid a possible government shutdown during election season, it will not end the threat of sequestration in January.

So What’s Next…..And Could Congress Prevent Sequestration?

Before leaving for the August recess, Congress passed legislation (H.R. 5872) requiring the Obama administration to provide Congress with more details regarding the projected impact on federal agencies and functions of sequestration. The president signed the bill on August 7, and under the terms of the legislation, the White House and OMB have 30 days to provide the required report.  The bill also requires that OMB and federal agencies consult with the House and Senate Appropriations Committees about the potential impact of the cuts.  Over the past few days, NADO staff has been in contact with Appropriations Committee staff and were informed that these consultations are well under way.

With the upcoming November elections, and even after the elections, it will be difficult for Congress to negotiate a compromise.  However, many are hopeful that the White House/OMB report will provide enough information to force action in time to avoid cuts that were designed to be unthinkable for both parties.  As a result, Congress could enact legislation that would avoid or postpone the sequestration which would need to be signed into law by President Obama before January 2, 2013.

But for now, OMB and the federal agencies are acting as if the sequestration will occur.  On July 31, OMB Acting Director Jeff Zients sent a letter to all federal agencies warning that significant preparations will begin over the next several months and that OMB officials would be meeting with all departments to discuss how the cuts under sequester work and what programs could be exempt.

Up to now, administration officials have indicated that they believe Congress will find a way to avoid the sequester, and Acting Director Zients stated the White House still believes a budget agreement to replace the sequester is possible.  “The president remains confident that Congress will act, but because it has not yet made progress towards enacting sufficient deficit reduction, the Office of Management and Budget will work with agencies, as necessary, on issues raised by a sequestration of this magnitude,” Zients said.  In the meantime, he suggested that agencies should not adjust their rate of spending at the October 1 start of the fiscal year but “continue normal spending and operations since more than five months remain for Congress to act.”

NADO Webinar on Sequestration from NADO on Vimeo.

• Click here to view the Power Point slides

On August 13, the National Association of Development Organizations (NADO), in partnership with the Bipartisan Policy Center, hosted a webinar on the topic of sequestration and the potential impact on regional development organizations and local governments. Shai Akabas, a senior policy analyst from the Bipartisan Policy Center, a Washington, DC-based think tank that promotes bipartisanship and works to address key challenges facing the nation, provided an in-depth look at sequestration and the impact that it could have on the economy as a whole, and federal government spending and programs.

Last year’s Budget Control Act (P.L. 112-25) established the Joint Select Committee on Deficit Reduction (known as the “Super Committee”) that was tasked to find at least $1.2 trillion in deficit reduction over the next ten years.  Unfortunately, the Super Committee was unable to reach agreement on a final deficit reduction plan.

This failure has triggered an automatic process to enforce across-the-board spending cuts to most federal programs, through a process known as sequestration, unless Congress prevents this from taking place before it goes into effect on January 2, 2013.  

So how does this affect regional development organizations and local governments? In the first year alone, Congress will be required to make $109 billion in across-the-board cuts to FY2013 federal government spending.  Automatic cuts will be required to the Department of Commerce’s Economic Development Administration programs, U.S. Department of Housing and Urban Development programs (like the CDBG program), U.S. Department of Transportation programs, U.S. Department of Agriculture programs, U.S. Department of Labor’s workforce programs and many others.

Questions that were addressed during the webinar included:

• How did we get here?
• What is sequestration?
• When will sequestration occur?
• How will sequestration impact regional development organizations and local government?
• How would sequestration affect programs like EDA and HUD CDBG?
• What are the politics surrounding sequestration and the likelihood of it being eliminated or replaced?

The House bill, Sequestration Transparency Act of 2012 (H.R. 5872), would require the White House to produce a report within 30 days explaining how the $109 billion in cuts would affect both domestic and defense programs. Additionally, the bill would require the report to identify all programs that would be exempt from the automatic cuts and include any other data or explanations that would improve public understanding of the imminent sequester.

The Senate approved similar legislation in June, adopted as an amendment to the Senate’s farm bill (S. 3240), which calls for detailed reports from three sources—the U.S. Department of Defense, the Office of Management and Budget, and the White House—with analysis on the potential impact of the scheduled cuts.

It is unclear how the issue will be resolved, especially with the farm bill stalling in the House (the current farm bill expires on Sept. 30, 2012). The Senate could take up the House bill, but it’s unclear if Democrat leaders will allow it to be considered. Regardless, Members from both chambers and both sides of the aisle would like to negotiate a deal before the August recess so that upon their return, they have clarification on the impacts of the sequestration and could then argue to delay or prevent the cuts.

On July 12, NADO and others from the nondefense discretionary (NDD) community delivered a letter to Congress, urging leaders to avert sequestration by adopting a balanced approach to deficit reduction that does not include further cuts to NDD programs. Click here to view the letter.

Loren Adler and Shai Akabas, senior policy analysts from the Bipartisan Policy Center, a Washington, DC-based think tank that promotes bipartisanship and works to address key challenges facing the nation, will provide an in-depth look at sequestration and the impact that it could have on the economy as a whole, and federal government spending and programs.

Questions that will be addressed during the webinar include:

• How did we get here?
• What is sequestration?
• When will sequestration occur?
• How will sequestration impact regional development organizations and local government?
• How would sequestration affect programs like EDA and HUD CDBG?
• What are the politics surrounding sequestration and the likelihood of it being eliminated or replaced?

Spaces for the webinar are limited.  RSVP today by clicking here.