OMB Calls for Replacing Sequestration

Sequestration Update by OMB

OMB Calls for Replacing Sequestration The Office of Management and Budget (OMB) issued a “Sequestration Update Report” as required by the Budget Control Act of 2011 (BCA).

The report describes the actions that would be necessary to enforce the revised BCA discretionary spending caps under the House and Senate FY14 budgets.

The report, sent to Congress on August 20, says,

“the reductions calculated in this report demonstrate the need to enact a comprehensive deficit reduction plan to replace the Joint Committee reductions and set an appropriate level of spending in 2014 to support economic growth and job creation and provide for critical government services.”

OMB finds that both the House and Senate proposed FY14 budgets would be out of compliance with the BCA discretionary spending caps for FY14 and require the administration to sequester funds. The BCA’s original spending caps assumed that funds to address the deficit would be identified outside of discretionary spending; however, because the Joint Select Committee on Deficit Reduction (AKA Super Committee) failed to identify these funds, the BCA requires that the spending caps be lowered to ensure Congress’s deficit reduction goals are met. In FY13 nearly all HUD and USDA Rural Housing Service programs were cut due to the sequester.

The House bill would require a sequester of $47.9 billion of defense funding according to OMB. The House proposed an FY14 budget of $967 billion but changed the proportions of defense and non-defense funding in the budget. The House increased defense funding above the discretionary cap set for FY14 at the expense of the non-defense discretionary programs.

OMB finds that the Senate budget would require a sequester of $54.1 billion in defense funds and $34.3 billion in non-defense discretionary funds. The Senate budget would provide $1.058 trillion, assuming that the original BCA cap is in place and that additional deficit reduction funds are identified elsewhere. The Senate budget proposes eliminating sequestration in FY14.

The President’s FY14 budget request to Congress also included alternate budget measures to replace sequestration. The budget request “would achieve savings in excess of the targets set forth in the BCA, restore funding canceled by the March 1 sequestration, and restore the caps to the levels agreed to ATRA,” writes OMB.

In its report, OMB comments on the first round of the sequester saying, “economists estimate that the reductions implemented on March 1, 2013 are harming the economy and costing hundreds of thousands of jobs.

When Congress resumes work in September, it is expected to address the difference between the House and Senate proposed FY14 spending levels along with the broader fiscal debate on sequestration, increasing the debt ceiling before reaching default, and deficit reduction goals. As noted in OMB’s report, Congress has yet to pass any FY14 appropriations bills because of different approaches on sequestration and deficit reduction. With the October 1 fiscal year fast approaching, Congress will need to craft a continuing resolution (CR) in order to keep federal agencies funded and avoid a government shutdown while it negotiates a solution to the budget challenges at hand.

Click here to view the report.