Today the UW Offices of Research, Federal Relations, and Planning and Budget released a joint update on the impacts of the sequester on the UW. This is the first of such updates that we will produce and disseminate to the UW community.
Category: Budget
Sequester Details
Schedule: Both the House and Senate are out until Wednesday in observance of the Jewish holiday of Rosh Hashanah. When they return, the Senate will take action on the 6-month continuing resolution. Both chambers are expected to recess at the end of the week and not return until after the November elections.
OMB Sequester Report: In the report released last Friday, the Office of Management and Budget (OMB) warns the sequester would be “deeply destructive” to national security, domestic investments, and core government functions. The report outlines some $109 billion in automatic reductions – or sequester – triggered by last year’s debt limit agreement. The automatic cuts would reduce spending over the next decade across more than 1,200 federal accounts starting January 2, 2013, trimming defense by $54.67 billion, domestic discretionary spending by $38 billion, Medicare by $11 billion, and other mandatory spending programs by about $5 billion. The 394-page report estimated the reductions would reduce discretionary defense spending by 9.4 percent and domestic discretionary spending by 8.2 percent. The estimates are calculated based on the level of federal spending in FY2012. Spending in FY2013 is almost sure to be higher since the proposed six-month continuing resolution (CR) increases spending slightly for the fiscal year that begins October 1st.
Sequester and Higher Education: If Congress fails to head off the $109 billion in overall cuts for 2013 before January 2nd – part of $1.2 trillion in required cuts over the next decade through the sequester – most aspects of federal spending relating to higher education would face reductions of either 8.2 percent (for discretionary programs) or 7.6 percent (for mandatory programs), including appropriations to the National Institutes of Health (NIH) and the National Science Foundation (NSF). NIH, for example, would lose more than $2.5 billion from its more than $30 billion appropriation, a cut of 8.2 percent. The report does not specify how the NIH and other agencies would carry out the reductions internally. In addition to cuts in programs, the law would raise the 1-percent origination fee for unsubsidized Stafford student loans by 7.6 percent, to about 1.1 percent of a total loan. PLUS-loan and unsubsidized-loan fees would rise slightly, from about 4 percent to about 4.3 percent of a total loan. Pell Grants would not be affected by the sequester in the first year.
OMB Report on Sequestration Implementation
The Office of Management and Budget (OMB) today released a report mandated by the Sequestration Transparency Act (STA, PL 112-155) that detailed the impact of the $109 billion in cuts that will be imposed by the sequester in January if Congress does meet certain spending targets. According to the report the cuts would result in an 8.2 percent across the board spending cut in all non-exempt nondefense discretionary spending. Congress could reach an agreement to delay the cuts or replace them with targeted cuts by specific program areas.
OMB notes the estimates and classifications in the report are preliminary. If the sequestration were to occur, the actual results would differ based on changes in law and ongoing legal, budgetary, and technical analysis.
Under the assumptions required by the STA, the Pentagon would take the largest hit of any single department, with a 9.4 percent reduction in non-exempt discretionary spending that amounts to a $55 billion cut for defense programs. This could cut into defense-funded research programs. The non-exempt nondefense discretionary funding is our main concern and the report indicates an 8.2 percent reduction in this funding. The sequestration would also impose cuts of 2.0 percent to Medicare – mostly taken in cuts to to doctors and other medical providers, not beneficiaries – 7.6 percent to other non-exempt nondefense mandatory programs, and 10.0 percent to non-exempt defense mandatory programs. Medicaid is exempt from the sequester.
Health Sciences
For NIH, the report indicates that $30.711 billion in discretionary budget authority would be subject to the 8.2 percent sequester, equal to $2.518 billion, and an additional $150 million in mandatory budget authority (for diabetes research) would be subject to a 7.6 percent cut, equal to $11 million. The total cut to NIH would equal $2.529 billion.
The report does not provide program-specific details for budget items under the Health Resources and Services Administration (HRSA), such as the Title VII health professions programs. According to the report, however, discretionary programs at the agency will be subject to an 8.2 percent cut. Mandatory appropriations, such as funding provided through the Affordable Care Act for the Prevention and Public Health Fund and presumably the National Health Service Corps, will receive a 7.6 percent cut.
Funding for the Agency for Healthcare Research and Quality (AHRQ) is exempt from the sequester since it is provided through the evaluation tap as opposed to direct appropriations. However, the Patient-Centered Outcomes Research Trust Fund (which funds the Patient-Centered Outcomes Research Institute) would be subject to a 7.6 percent cut, amounting to $30 million from the $390 million fund in FY 2013.
The complete report is available here.
The Office of Federal Relations is going through the remainder of the report now but I think it’s safe to assume that most of the non-health related research accounts will face an 8.2 percent cut if the sequester is implemented in January 2013.
House Approves 6-Month CR
Yesterday, the House easily passed a continuing resolution (CR) that the Senate will likely vote on next week. The House voted, 329-91, to back the CR (H J Res 117) that would fund government through March 27, 2013 at the discretionary limit set by last year’s deal to raise the federal debt ceiling (Budget Control Act), PL 112-25).
While described as a “clean” six-month extension of current funding, the House-backed measure does add billions of dollars in new spending, grants program extensions, and sets funding restrictions. Overall, the measure provides spending for the first six months of fiscal 2013 at an annualized rate of $1.047 trillion for discretionary spending, which matches the caps set in the 2011 Budget Control Act. The plan exceeds fiscal 2012 spending by $8 billion. Most of the discretionary increase ($5.937 billion) would be appropriated in a .621 percent across-the-board increase covering all 12 annual spending bills, with the remainder, $1.992 billion, marked for specific programs. The remaining funding would go toward, among other projects, nuclear weapons modernization at the Energy Department, cybersecurity efforts at Homeland Security, wildfire suppression efforts at Interior and the Forest Service, and disability claims processing at Veterans Affairs.
Source: Congressional Quarterly
Sequester “Fix” Discussed
There is growing pessimism on Capitol Hill that Congress will be able to reach a deal to avert the automatic spending cuts, known as sequesters, before – or even after – the November election. The “Gang of 8”, a bipartisan group of senators, continues to work on a comprehensive deficit reduction plan that most likely would not be unveiled until after the election, if at all. But even members of that group, who are typically optimistic about the prospects for reaching a deal, see little reason to hope for a breakthrough in advance of a lame-duck session.
The most likely scenario for dealing with the sequester is an idea to use roughly $55 billion as a “down payment” on the debt that would temporarily turn off automatic spending cuts and buy Congress at least six months to work out a bigger deal next year. The down payment would be linked to a deficit-reduction framework that would bind committees with jurisdiction over spending and taxes to an action plan. The $55-billion down payment under discussion would be equal to about half of the scheduled cuts triggered by sequestration next year to defense and non-defense spending. But the bipartisan group faces several hurdles to reaching a deal, such as whether any tax increases would be included in the $55-billion package. This fight has doomed previous efforts to reach a grand bargain deficit-reduction plan. Democratic negotiators say the down payment must include measures to raise new revenues, but Republicans have yet to agree. If a deal is reached and leaders sign off on it, Congress could approve the plan during the lame-duck session.
In the meantime, the House will vote Thursday on a largely symbolic GOP bill (HR 6365) that would require President Obama to offer an alternative to the across-the-board discretionary spending and mandatory defense spending cuts currently scheduled for January 2013. The proposed legislation would require the President to report by October 15th on how he would replace the sequester with other spending reductions, not tax increases, and would need to achieve $109 billion in replacement savings over five years. The legislation is expected to pass in the House on a party-line vote but has no prospects for approval in the Senate. House Democrats, meanwhile, plan to offer a Democratic substitute bill that would replace the sequester with cuts to agricultural subsidies by closing tax breaks for the oil and gas industry and higher taxes on millionaires, but it’s not likely to get a vote on the House floor.