OMB Releases Report on Automatic Budget Cuts

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Publication date: 
21 September 2012

“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.