Mechanics of Sequestration

It is a little more than a week until automatic across-the-board reductions will be made to most federal budgets. Earlier this month, Controller of the Office of Management and Budget [OMB] Danny Werfel spoke about the mechanics of the $85 billion sequestration. At a February 8 briefing, Werfel spoke about the amount of the sequester, its application, and compliance.

Reductions:

“OMB now calculates that sequestration will require an annual reduction of roughly 5 percent for nondefense programs and roughly 8 percent for defense programs.

“However, given that these cuts must be achieved over only a seven-month period instead of a twelve-month period, the effective percentage reductions will be approximately 9 percent for nondefense programs and 13 percent for defense programs. These are large and arbitrary cuts, and will have severe impacts across government.”

Department and Agencies:

“And if you’ll indulge me to be a little bit technical. What happens is, OMB, we take this amount, this $85 billion that we have to cut, and we apply it to every account in government. Every account has to be cut by a certain percentage. It’s not like the agencies can move money amongst accounts. But it’s even worse than that. Even at the subaccount, there’s something called Program, Project and Activity, which exists within each account. And the way the sequester law is written, is that even -- underneath the account, even at the Program, Project and Activity, they all need to be cut by that same percentage.

“So, for example, FAA, they have to cut resources in a way that’s going to impact the air traffic controller workforce. There’s no way to basically say, well, we’ll move -- we’ll try to take all the cuts in this area, like maintenance or custodial work. It’s not possible to do that because the law is written with such stricture that the cuts have to be taken at such a granular level. And that’s why when I say it’s across the board, indiscriminate –”

Implementation:

“So from a technical standpoint, what happens is that if we have to issue the sequester order and move into this phase on March 1st, essentially it cancels $85 billion in budgetary resources that agencies previously had available. So they now have to get to the end of the fiscal year, across government, on a budget that now has $85 billion less than it once did.

“Now, agencies are going to have to carry out and get to the finish line in a way that’s most effective to meet their mission. And so, in some cases, I think you’ll see variation. In some cases, you’ll see immediate impacts. And in some cases, agencies will work out those changes to their programs and their structures over time. So there’s no easy answer to say what the world is going to look like on March 2nd. We just know that these impacts -- while not all of them immediate -- if we don’t take action, they will take place.”

He later added:

“They need to execute plans that protect their mission. But as I mentioned, the legal requirement would be that when we get to September 30th, the end of the fiscal year, they will have to across government have spent $85 billion less. And every agency is going to have to approach that differently.”