FY 2013 Sequestration Remains on Track, Budget for Rest of Year Stymied, FY 2014 Budget Request Delayed

No significant progress has been made in averting the automatic reductions that are scheduled to occur to almost all federal department and agency program budgets on March 1. There is no firm information about when the Obama Administration’s FY 2014 budget request will be released. Also unknown is what will be done when short term funding for government operations expires at the end of March.

Positions have not changed about what should be done to achieve enough savings to prevent the legislatively-mandated reduction, or sequestration, of most federal program budgets. Congressional Republicans contend the recent agreement raising tax rates for very wealthy individuals concludes negotiations about additional revenues, emphasizing the need for spending reductions and entitlement program reform. The Obama Administration and congressional Democrats reiterate their call for a balanced approach of additional tax revenues and spending reductions to achieve the savings target mandated in the 2011 budget law.

This year’s sequestration of $109 billion was originally scheduled to occur on January 2, but was delayed for two months as part of last month’s agreement to avoid federal default. This postponement was “paid for” through some revenue and spending changes, but did little to alter the overall parameters of the sequestration.

As a result of this latest agreement, on March 1 there will be a 7.3 percent reduction in national security discretionary funding for this year. Non-security discretionary funding will be reduced by 5.1 percent. While these are smaller percentages than first scheduled, the time remaining in this fiscal year (ending on September 30) is also reduced, increasing the difficulty of implementing these reductions.

It is important to recognize that this year’s (FY 2013) reductions are only the first of nine years of similar reductions, going through FY 2021. As now configured, an average of $109 billion in cuts will be made every year for nine years (a figure not adjusted to account for the latest agreement) to a baseline spending calculation. In all, $1.2 trillion in reductions will be made during this period through sequestration when interest savings are included.

Efforts continue to raise public and congressional awareness about the impacts of sequestration. A recent example provides projected reductions in federal support for university research by state. The organization behind this initiative, which includes the Association of American Universities and the Association of Public and Land-grant Universities, calculates that sequestration would reduce research funding by approximately $95 billion in nine years.

Also coming up next month is the end of short term funding that allowed the federal government to remain functioning. This funding expires on March 27, and appropriators have been unable to craft new legislation because of uncertainty about the sequester, and the amount of funding that will be available.

No one knows how all of this will be resolved. There is a significant possibility that sequestration will occur and later revised as part of the agreement to fund government operations after March 27. There is also speculation none of the appropriations bills will be passed, and that with the fiscal year half over, there will be an agreement to continue the present level of “flat” funding for the remainder of the year, subject to sequestration. Earlier this week, President Obama called for “a smaller package of spending cuts and tax reforms” to delay the sequestration for a few months in hopes that a larger agreement could be struck. Congressional Republicans rejected this plan because it would include higher taxes.

Also unknown is when the Administration will send its FY 2014 budget request to Congress, which was delayed, according to the Office of Management and Budget, because of “considerable uncertainty about revenue and spending for 2013 and beyond.” The request was to have been sent to Congress on February 4. When reporters asked about the release earlier this week, the White House press secretary responded “I don’t have a date for you when that will happen.” The general thinking is that it will be sometime in March.