August 6, 2012

Sequestration: Origins and Outcomes

Before I begin, I would like to tell you what a great personal thrill it is be working with an organization as wonderful as NASAA, and to let you know that I look forward to meeting you at NASAA’s conference in October.

In last month’s column, my predecessor, Tom Birch, discussed briefly an upcoming budgetary process known as sequestration. If it is allowed to commence, sequestration will impose significant and automatic cuts to domestic and defense spending over the next 10 years.

The questions I am sure you have are, What is sequestration? Where did it come from? While it is known today as the “fiscal cliff” and is bemoaned by Republicans and Democrats alike, sequestration is the result of perhaps the only significant bipartisan legislation to pass out of the current Congress. As you may recall, at this time last year, President Obama and the Republican-controlled House of Representatives were in the midst of a tense standoff. The Treasury Department was on the verge of reaching its congressionally authorized debt limit; and its requests to Congress for an increase (traditionally a noncontroversial measure) were strongly opposed by Republicans in the House, who contended that taking steps to reduce our nation’s growing debt outweighed any consequences that would result if the United States defaulted on its obligations. At the 11th hour, a deal was struck: Congress would pass legislation approving an increase in our nation’s debt limit, and in return, the president would sign legislation, known as the Budget Control Act, that would drastically reduce federal spending.

The Budget Control Act reduces spending through several mechanisms. First, it places statutory caps on discretionary spending from FY2012 through FY2021. Second, it creates a committee made up of members of the House and Senate who are instructed to develop legislation that would reduce the federal deficit by at least $1.5 trillion over that same 10-year period. To ensure that the committee would be taken seriously, the Budget Control Act included a “poison pill” provision stating that should the committee’s work fail to yield legislation, a series of across-the-board cuts, known as sequestration, would be triggered.

Unfortunately, the committee, known as the supercommittee, was unable to reach an agreement and, as a result, sequestration has been triggered. As a result, on January 1, 2013, a budgetwide $1.5 trillion automatic spending reduction process will be begin.

The Congressional Budget Office estimates that the sequester will decrease funding for all domestic discretionary programs (including the National Endowment for the Arts) by 8%. The good news is that because the spending reductions have not occurred yet, there is time to amend or eliminate the sequester. Unfortunately, political reality makes addressing the sequester in the next few months almost impossible. Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH) have made it clear that the sequester will not be addressed until after the election, and perhaps not until after the next Congress is sworn in, in 2013.

I realize that this is troubling news, but take some comfort in knowing that advocates across every sector of the economy are equally motivated to see the destructive cuts called for the in sequester undone, as are members of both the Democratic and Republican parties. NASAA will continue to monitor these developments very closely and keep you apprised of any news. In the meantime, I encourage anyone with questions to contact me at 202-939-7906, or by e-mail at ibrown@edwardswildman.com.