The Impact of Federal Budget Sequestration

Budget SequestrationThe definition of “sequestration” has been adapted by Congress in more recent years to describe a new fiscal policy procedure. If Congress cannot agree on ways to cut back the total (or does not pass a new, higher Budget Resolution), then an “automatic” form of spending cutback takes place. This automatic spending cut is what is called “sequestration.”1

Sequestration of today’s Federal budget could affect nearly every major industry. There ARE going to be cuts in all Federal agencies and budgets, from Transportation to Energy to Healthcare almost every aspect of industry & trade in general.

Automatic Cuts could affect your business

For example, automatic cuts in Transportation programs alone could affect the operation of locks and dams up and down the Mississippi, impacting transportation costs of moving products through our river systems. Dredging projects at the port could be halted, stretches of highways may not be improved, and air transportation programs could be cut automatically.

With the failure of the Super Committee to enact the targeted budget reductions, automatic spending cuts totaling $1.2 trillion are now set to begin in January 2013 and continue each year over the next ten years.  The Congressional Budget Office (CBO) estimates that the spending cuts would reduce budget deficits by at least $2.3 trillion between 2012 and 2021. It should be noted that these measures in no way reduce the debt held by the public which is estimated to increase from $10.1 trillion (current) to $15.4 trillion by 2022.

Control the Program Cuts or else…

Unless Congress enacts legislation to alter or reverse the pending budget sequestration by January 2, 2013, defense programs could be reduced by 10% and many non-defense discretionary programs by 8%.  It is estimated that in the first year about $109 billion of across-the-board budget cuts will occur. Creating additional challenges these cuts come with only eight months remaining in FY 2013.

In subsequent FY’s (2014-2021) reductions in discretionary spending would be accomplished by lowering the caps on discretionary budget authority for those years. For the purpose of lowering those caps, the bill would set separate limits on funding for defense and non-defense purposes. These lower limits would be used by the House and Senate Appropriations Committees in crafting their respective annual appropriations bills.

On July 25, the U.S. Senate adopted legislation that requires a report on the effects of the automatic budget sequester.  Pressure has been building for some time on both sides of the political aisle to understand how the budget cuts will impact federal programs.  The legislation, HR 5872, passed by unanimous consent and instructs the Obama administration to provide details of the $109 billion budget cuts set to occur January 2, 2013 at the program level within 30 days.  The House passed the bill on July 17, by a vote of 414-2.

Example: USDA Sequestration Cuts

To give you an idea of the seriousness and far-reaching impacts of the potential budget cuts that could occur under sequestration, we conducted a brief analysis of the U.S. Department of Agriculture’s (USDA) discretionary program costs. USDA’s total outlays for FY 2013 are estimated at $155 billion. About 83% of outlays, or $128 billion, are associated with mandatory programs such as crop insurance, nutrition assistance programs, and farm commodity programs.

-10% Across The Board

The remaining 17% of outlays, about $27 billion in FY 2013, are discretionary programs that include

  • Special Supplemental Nutrition Program for Women, Infants and Children (WIC),
  • Federal Food Safety and Inspection,
  • Rural Development loans and grants,
  • Research and Education,
  • Soil and Water conservation technical assistance,
  • Animal and Plant Health,
  • management of national forests, wildfires, and other Forest Service activities, and
  • domestic and international marketing assistance.

As shown in the graph above, if budget sequestration occurs USDA could be requested to generate up to $2.2 billion in savings for the remaining eight months of FY 2013 from discretionary programs.  To achieve an 8% cut totaling $2.2 billion from FY 2013-level discretionary programs, USDA would have to implement across-the-board budget cuts of up to 10%.  The chart below depicts a 10% across-the-board cut for most of USDA’s discretionary programs:

USDA Discretionary Program 2013 Budget (Million $) 10%(Million $)
Research $ 1,103 $ 110.30
Research NIFA $ 1,244 $ 124.40
Animal Plant Health Insp $ 765 $ 76.50
Grain Insp P & A $ 40 $ 4.00
Agr Marketing Service $ 79 $ 8.80
Farm Service Agency $ 1,626 $ 162.60
Risk Mgt Agcy Admin & Oper $ 75 $ 7.50
Dole McGovern Intn’l Food Asst $ 1,764 $ 176.40
Rural Development Bus & Industry $ 128 $ 12.80
RD: utilities $ 578 $ 57.80
RD: Housing $ 1,486 $ 148.60
SSNP: WIC $ 7,439 $ 743.90
Food Safety & Inspec $ 996 $ 99.60
NRCS: Tech Asst $ 833 $ 83.30
NRE: Forest Service $ 4,861 $ 486.10
NASS $ 179 $ 17.90
USDA Bldg & Facil $ 244 $ 24.40
Total $ 23,440 $ 2,344.9

Again, we want to emphasize this example is for illustration purposes to showcase the seriousness and wide-ranging impacts of budget sequestration on USDA programs.  Budget sequestration is an extremely complicated issue and there are many gray areas that are impossible to analyze and provide estimates.  Such gray areas include exempt programs and administrative costs of exempt programs.  However, it would be a fair hypothesis to suggest USDA could be asked to generate annual savings ranging from $800 million to $1.5 billion over the next 10 years.

Moreover, in the past few weeks some lawmakers have expressed their grave concerns over the potential of as much as $600 billion in budget cuts coming from the Department of Defense over the next 10 years if sequestration occurs.  Legislation has been adopted in both the House and Senate to require the Office of Management and Budget (OMB) and the Pentagon to publicly release details of potential impacts of across-the-board cuts.

Depending on the outcome of the requested reports Congress may not support such drastic reductions in military and security spending and begin the process of re-prioritizing proposed spending cuts under budget sequestration.  Under such a scenario other government agencies would have to cut deeper into their programs to make up for any differences created by lessening defense cuts.

Not Before the Election…

We’re just 3 months away from the November Presidential and Congressional elections and it is doubtful Congress will address budget sequestration until after the elections.  But upon their return from the November elections, with perhaps a different perspective provided by the outcome, lawmakers will only have 16 legislative days to revisit sequestration.

Guiding the Future…

Without question austere budgets are the future for the federal government and most state governments.  Lawmakers are working to strike the appropriate balance of policies that will spur the fragile U.S. economy and promote economic growth and fiscal stability over the long term. Multiple policies reforming U.S. entitlement programs, housing and mortgage markets, the tax code and healthcare will be needed.

Companies and organizations across America are struggling to defend the programs that impact their interests. The challenge for these organizations is to connect with the correct legislative leaders and make the case for their programs and budget issues. Cansler Consulting is continually monitoring and advocating for our clients on important programs impacted by the federal budget debate. We are available to consult with your company or association on potential impacts and how to prepare for the effects of federal budget sequestration in 2013.


Cansler Consulting is an experienced lobbying firm in Food and Drug safety, budgeting, agriculture, rural healthcare, and energy policies and through our Congressional relationships we can help you influence the policy makers on Capitol Hill. You can contact us at info@canslerconsulting.com or at (202) 220-3150.

  1. Paul M. Johnson, Department of Political Science, Auburn University  http://www.auburn.edu/~johnspm/gloss/sequestration []
Share