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OMB Releases Report on Automatic Budget Cuts

Richard M. Jones
Number 121 - September 21, 2012  |  Search FYI  |   FYI Archives  |   Subscribe to FYI

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“The report leaves no question that the sequestration would be deeply destructive to national security, domestic investments, and core government functions.”  So warns a much-anticipated report released by the Office of Management and Budget (OMB) on September 14.  While estimating the projected size of automatic reductions in FY 2013 funding for 1,200 federal budget accounts that would occur on January 2, 2013, the 394-page OMB report provides no information about the impact of these cuts.

Two numbers appear repeatedly in the OMB report: 9.4 and 8.2.  Adhering to the exacting calculations mandated in Public Law 112-25, the Budget Control Act of 2011, automatic reductions of 9.4 percent would be made to the budgets of non-exempt defense discretionary programs, and 8.2 percent in non-exempt nondefense discretionary program budgets. With few or no exceptions, these reductions would be made in every federal defense and civilian research budget on January 2. 

This automatic reduction of funding – or sequestration – was a prominent and much-discussed section of the Budget Control Act when it was considered by the House and Senate.  The 74-page bill came before the House on August 1, 2011, less than a day before the government would go into default.  It was passed by the House after one hour of debate by a vote of 269-161.  Republicans voted 174-66 in favor of the bill; Democrats were split at 95-95.  House Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) both voted for the bill.

The Senate then passed the bill by a vote of 74-26.  Twenty-eight Republicans voted for the bill; 19 voted against it.  Forty-five Democrats voted for the bill, and six against it.  The two independent senators split their votes.  Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (D-KY) both voted for the legislation.  President Barack Obama signed the bill into law on August 2. 

A prominent provision of the Budget Control Act established a Joint Select Committee on Deficit Reduction comprised of twelve senators and representatives, equally divided by chamber and party.  The committee was charged with agreeing on a plan no later than November 23, 2011 “to reduce the deficit by a least $1,500,000,000,000 over the period of fiscal years 2012 to 2021.” This plan would be the basis for a bill that would be passed by the House and Senate and signed by the president.  Not surprisingly, the committee deadlocked and no action was taken.

The Budget Control Act is explicit in describing what would happen should a bill not be enacted to achieve at least $1.2 trillion in deficit reduction.  “Title I – Ten-Year Discretionary Caps with Sequester” mandates how automatic reductions in program budgets are to be determined and applied to achieve this saving. 

In late July, a subsequent bill, the Sequester Transparency Act, was enacted requiring the Administration to issue a detailed report intended as a preview of the budgetary reductions that will occur on January 2.  The result was the OMB report released last week.  There are four sections to this report: a two page introduction, an eight page technical report describing how the sequester amounts were calculated, an appendix of the projected reductions by budget account, and an appendix classifying the budget accounts as exempt or nonexempt from the sequester.  Note that there is also a category of direct spending that does not pertain to research funding.  

On the first page of the report, OMB acknowledges the provisions of the law to which it must adhere, stating “The percentage cuts in this report, and the identification of exempt and non-exempt accounts, reflect the requirements of the laws that the Administration is applying.  With the single exemption of military personnel accounts, the Administration cannot choose which programs to exempt, or what percentage cuts to apply.”

The format of the report is straight-forward.  Tables in the first appendix list each Agency/Bureau/Account/Functions, whether the spending is discretionary (money determined through the annual appropriations process) or mandatory and the amount of the budget subject to the sequestration reduction.  OMB explains the budgetary base line for the calculations: “the report assumes that discretionary appropriations are funded at the level that would be provided under a continuing resolution (CR) at the same rate of operations as in FY 2012” -- in other words, an agency or department’s current budget.  The report acknowledges an agency’s actual budget will change when Congress passes final appropriations legislation.

For each item the report applies one of two numbers as the applicable sequester percentage: 8.2 percent for nondefense discretionary appropriations, and 9.4 percent for defense discretionary appropriations.  The resulting “Sequester Amount” is then shown. 

For example, on page 186 in the report’s Appendix A, the amount for NASA’s Science budget is shown as $5,085 million.  The applicable Sequester Percentage is 8.2 percent.  The “Sequester Amount” – the amount of the reduction that will automatically be made on January 2, 2013 – is $417 million.

There is no additional detail about individual programs within NASA’s Science budget, or the impact of the funding reduction on science programs.  While the Sequester Transparency Act calls for the report to provide proposed reductions for every program, project, and activity level in 30 days, OMB explains that “additional time is necessary to identify, review, and resolve issues associated with providing information at this level of detail.”  The report has been criticized for its lack of additional information.

Regarding the impacts of such dramatic budget reductions, the report’s only comments are found in its Introduction:

“This report, which provides preliminary estimates of the sequestration’s impact on more than 1,200 budget accounts, makes clear that sequestration would have a devastating impact on important defense and nondefense programs. While the Department of Defense would be able to shift funds to ensure war fighting and critical military readiness capabilities were not degraded, sequestration would result in a reduction in readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families.”

“On the nondefense side, sequestration would undermine investments vital to economic growth, threaten the safety and security of the American people, and cause severe harm to programs that benefit the middle-class, seniors, and children. Education grants to States and local school districts supporting smaller classes, afterschool programs, and children with disabilities would suffer. The number of Federal Bureau of Investigation agents, Customs and Border Patrol agents, correctional officers, and federal prosecutors would be slashed. The Federal Aviation Administration’s ability to oversee and manage the Nation’s airspace and air traffic control would be reduced. The Department of Agriculture’s efforts to inspect food processing plants and prevent foodborne illnesses would be curtailed. The Environmental Protection Agency’s ability to protect the water we drink and the air we breathe would be degraded.

The report continues:

“The National Institutes of Health would have to halt or curtail scientific research, including needed research into cancer and childhood diseases. The Federal Emergency Management Agency’s ability to respond to incidents of terrorism and other catastrophic events would be undermined. And critical housing programs and food assistance for low-income families would be cut.”

Appendix A of this report lists the estimated reductions.  Illustrative of the dollar amounts (shown in the report as rounded to the nearest million) are the following estimated reductions:

  • National Institute of Standards and Technology: $62 million
  • Department of Energy – Science: $400 million
  • National Science Foundation: $586 million
  • National Nuclear Security Administration – Weapons Activities: $678 million
  • National Aeronautics and Space Administration: $1,458 million
  • National Institutes of Health: $2,529 million

Note that there is no breakdown for the Department of Defense’s 6.1, 6.2, and 6.3 science and technology programs, but only the larger category of Research, Development, Test and Evaluation for the Air Force, Army, Navy, and Defense-wide.

In the report’s table, OMB estimates that the NSF Research and Related Activities budget would be reduced by $463 million by the sequester.  A sense of the impact of this funding reduction for NSF, and a more general indicator for federally-supported scientific research, can be found in the foundation’s FY 2013 Budget Request to Congress.  NSF estimates that the FY 2012 average duration of its research grants is 2.9 years.  The estimated “Average Annualized Award Size” is $161,250, yielding approximately $467,625 for an average NSF award. 

Richard M. Jones
Government Relations Division
American Institute of Physics