The Sequestration Effects on the Budget and Government

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Table of Contents

Abstract
Introduction
Effects of Sequestration
Conclusion
References

Abstract

Sequestration has many meanings depending on the field in which one uses it. For example, in the legal field, this term means a process of seizing properties on behalf of the state or creditors, while jury sequestration is the process of isolating a jury. On the other hand, budget sequestration is a legal process that entails invoking routine spending cuts. This paper will look at the latter concept of sequestration. The United States added this method in its Budget Control Act of 2011 as a tool for controlling the federal budget. This legal procedure became operational in the 2013 fiscal year.

The federal government aimed at controlling its expenses in order to curb the ceiling national debts. The entire process deals in applying spending cuts in all sectors of the economy. As a result, budget sequestration intends to limit the size of the US budget. Clearly, this procedure of setting a hard cap on federal spending has mass effects on all programs and departments by an equal measure. This research paper analyzes the effects that sequestration has on the budget. Moreover, the paper will look into the impacts of sequestration on government agencies and the operations of the government.

Introduction

The fiscal policy of budget cuts to certain levels on the US spending took effect on March 1, 2013. This followed the ratification of the Federal Budget Control Act of 2011; the process targets to reduce federal spending by close to $85.5 billion during the 2013 fiscal year. In July 18, 2012, a national debt of $15.882 trillion and the $15.003 trillion GDP at the end of June 2011 sparked discussions in the Congress thereby necessitating the Congressional Budget Office (CBO) to come up with policies that could take the nation back to a sustainable fiscal discourse (The National Association of Regional Councils, 2012). The nations debt had been increasing by over $500 million annually since the 2003 fiscal year.

Clearly, the US debt crisis was the key reason for the passing of the Budget Control Act of 2011, which President Barack Obama signed on August 2, 2011. The Act had to institute legislation that was to cut the debt-ceiling crisis by $1.2 trillion in the next decade. The CBO established a Congressional Debt Super Committee that was tasked to come up with the procedures of making reductions on the federal debt. Notably, the disagreement within the Super Committee led to automatic sequestration.

The government was to split the mandatory cuts across the board equally between domestic and defense spending. The federal government plans to reduce their spending for the years 2014 to 2021 with a similar margin in all the subsequent years. On the other hand, the government will record an increase in outlays by over $238 billion annually up to 2023. Notably, the rate at which the outlays will increase will be lesser than the past fiscal years owing to budget sequestration. The federal government applied this process in order to curb increasing debt margins. For instance, US targets to reduce her debts by over $1.4 trillion and receive interest savings of $228 billion from spending cuts on outlays of $996 billion. Some of the programs and departments that budget sequestration targets include Social Security, Medicare, and Military pensions.

An example of reductions in budget spending is in Medicaid, where the sequestration procedure will reduce the spending by 2% per annum as compared to the initially planned level (The National Association of Regional Councils, 2012). Even though this procedure targets to reduce the federal debts and stabilize the economy from a long-term perspective, it has received criticisms from several organizations. Some people argues that the timing is early and should have waited for the economy to improve while others want the federal government to increase the spending cuts in order to clear the debts within a short span. At the time sequestration was taking effect, the President was not clear on the issue, as the House remained divided. The House speaker cited a lack of leadership at a time when the nation was at crossroads on the next course of action.

Effects of Sequestration

The GDP

According to the non-partisan Congressional Budget Office (CBO), sequestration will lead to loss of close to 770,000 jobs by the end of the 2013 fiscal year due to the $85 billion cuts on the federal budget. However, some economists have disagreed with the CBOs projection; they claim that the projection is too far from the actual effects. They contend that sequestration will lead to job losses that total to 300,000 since the federal government agencies have high chances of reducing the working hours in order to prevent layoffs (The National Association of Regional Councils, 2013). Evidently, sequestration will lower the budgetary allocations to programs that touch the lives of the American citizens. According to economists, government contract workers are at higher chances of losing their jobs than any other group of workers due to the sequestration of the budget.

Presently, the economists argue that it is not easy to determine precisely the consequences of automatic federal budget cuts on the layoffs since there are no pieces of information, which exemplify the size of the government employees who are on contract. The actual impacts of sequestration on contractual jobs are obtained by taking into account the amount of savings that the federal government foresees to obtain after deducting the savings they expect from the overhead costs cutbacks. The economists are still not convinced on whether this effect of sequester cuts will occur instantly or gradually throughout the year. Evidently, job losses will pressurize the unemployment rate on the upward trend since the entire process will lower the growth of payrolls, thereby undercutting earnings.

The economists agreed that the sequester cuts would affect the hours worked heavily which will result to undercut in net payments. Even if the economists do not agree with the CBOs position of 700,000 job losses, it is factual that the sequestration process will lower the payouts due to the decline in the number of working hours. Further, CBO projects that the automatic spending cuts will knock 1.5 points from the GDP growth for the 2013 fiscal year. On the other hand, Stephen Fullers prediction has put the loss of the FY2013 at $215 billion, which represents a two-thirds decrease on Real GDP growth rate (The National Association of Regional Councils, 2013).

The Transport Sector

From another perspective, average Americans felt the effect of the automatic spending cuts in the month of April when there were massive flight delays since the Federal Aviation Administration (FAA) experienced unpaid leave for its employees. All the FAA workers have to take two furlough days during the pay season up to the end of this year as a mode of recovering the budget cuts on the agency in the 2013 fiscal year. Moreover, the air traffic controllers have to take one day off for every 14-work days starting April 22 to September 30; this totals to 11 furloughing days (Ehley, 2013). FAA targets to use these moves as options of absorbing the cuts. The delays at the Custom and Immigration departments are also forcing the White House to cancel most of its tours.

In addition, the budget cut affected low-income Americans in areas such as health services, education, and food industry. By mid-April of this year, over 70,000 preschoolers had stopped attending Head Start, several food outlets had stopped operating, and there was reduction in health services among the low-income Americans, as clinics were turning away cancer patients under the Medicaid program (Ehley, 2013). Some analysts have viewed the Congress idea of cutting spending on some programs as discriminative in comparing the delayed take offs that middle-class American could experience at the airports to lack of food and housing by the poor Americans.

Medical Sector

On the medical field, economists expect the sequestration process to have an impact at the National Institutes of Health (NIH). In comparison to the 2012 fiscal year, this government agency will record a fall in budgetary allocations by $1.70 billion from the initial $30.85 billion. Obviously, NIH budget shrinks due to the automatic spending cuts and the new political reality that have affected the spending on conferences and travels. Therefore, the agency is focusing on cutting continuing grants that it had been offering to a commitment level that is manageable within the aspects of the sequestration process. In line with the sequester cuts, government organizations have also started to announce their sequester arrangements. Interestingly, NIH has implemented numerous programs that have helped to avoid furloughs (Ehley, 2013). Defense Sector and the Judiciary

Additionally, sequestration has led to substantial effects on the defense sector. For example, the 2013 sequester expects a cut of over $40 billion in the defense sector. The Navy and Air Force department of the US Military plan to cut the purchases on aircraft by $3.5 billion, $13.5 billion cut on services that touch on military operations and a cut of about $6 billion on military research services. In addition, the sequester initiative will cut military benefits such as TRICARE program and the tuition support program (Impact of sequestration on federal agencies, 2013). The cuts on defense and non-defense will result to loss of jobs in the military both directly and indirectly.

Stephen Fuller predicts a total number of 2.13 million jobs losses. Markedly, the states will experience different levels or numbers of job losses since the sequestration will also affect the states at different levels. For instance, a state like California expects job losses of over 200,000 while Wisconsin expects job losses between 10 and 100,000. The sequester cuts impacts greatly on defense and domestic discretionary hence resulting to decreases in job absorption rates. This initiative is also expected to reduce the overall payouts among the long-term unemployed person by $450.

The budget cuts have also made Federal courts close on Thursdays implying that they do not operate on Fridays. The courts are furloughing 21,000 employees for 15 working days and cutting spending on information and communication systems within their premises. Federal courts in San Francisco Bay will remain closed for one day every month from April to September as a way of absorbing the automatic federal spending cuts. The Judiciary, which has 33,271 employees, has received a budgetary allocation of $5.2 billion in the 2013 fiscal year.

The Judiciary plans to cut close to $350 from its initial funding level. This action will result to 15 furlough days (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013). Such federal departments register long queues that do not materialize leading to delays in service provision. The effect resulted from the layoffs that these organizations have undertaken. Notably, some of these government agencies have opted not to fill the vacant positions as a strategy to operate within the automatic federal budget cut. Sequestration has also led to closure of Public Broadcasting transmitters as the government bodies cannot maintain the systems under the sequester cuts.

The Broadcasting Board of Governors (BBG), on the other hand, does not intend to hire any workforce and even foresees to eliminate employees bonuses and reduce broadcasts. Notably, BBG is one of the federal agencies that intend to function without practicing furloughing. The Government Printing Office (GPO) has 2,378 employees and expects to operate within the $83.6 million budget. The budget cuts have not only forced some agencies to suspend their employees contributions towards the retirement plan but also use furloughs as a means of making employees absorb the shock on their pay cuts. For instance, at the Salt Lake Community Action Program, the executive director agrees that they are employing the above tactics as a way of going through the tricky budgetary times.

In Alaska, the South East Alaska Regional Health Consortium board members unanimously agreed to close the Bill Brady Healing Center, which has been treating diseases related to alcohol and other drugs in Alaska (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013). Clearly, the cuts on government spending have reduced the services that government agencies offer to the public. On the Housing and Urban Development, over 120,000 Americans are projected to lose the support from Voucher program and there are possibilities of removing the formerly homeless Americans from their present houses. HUD uses these reactions as a means of recovering the cut funds. This agency has 9,594 employees and does not plan to furlough the employees in order to meet the costs of the cut. However, it has given out 10 days between May 10 and August 30 in which it will not offer services to the public.

Education Sector

The education sector has not been exempted either; for instance, there have been proposals within the military to reduce the school days to four in a week. The sequester cuts have massively affected the operations of these government agencies. The entire teaching fraternity also expects to face furloughs in the next couple of months. The billions that the budget has cut from the military spending could force Fort Bragg schools to adopt the above plans. The spokesperson Commander Leslie Hull-Ryde of the Department of Defense revealed that the sequester cuts will lead to closure of military schools during the furlough periods, which does not exempt the military schoolteachers (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013).

However, Leslie Hull-Ryde assured the stakeholders that the Department of Defense has prioritized on minimizing the repercussions of the automatic budget cut on their students in order to enhance quality education for all students thereby preserving the institutions image and status. In Maryland, the budget cuts have slowed down various community outreach programs that the Army community has been conducting at Fort Meade. The Army community also expects to stop the aerial demonstrations and military open houses until April 1, 2013. The Army Parachute Team was also expected to stop public performance until the next fiscal year, and a ban on house members from using military planes in their trips has been implemented.

Further, in the Cincinnati-Hamilton County Community Action Agency, coordinators have figured out how they will cut the number of children under the Head Start program. Clearly, the plan may affect the number of learners that study through the program, the number of teachers and bus routes. The budget cuts have worried most families that have been relying on the Head Start program in educating their children. Michelle Hopkins of the Community Action Agency wonders whether the federal budget cut may result to sub-quality care for the Head Start program or unskilled teaching force that will be ready to accept the pay cuts, but offer no skills to learners needs (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013).

The CAA announced that federal funding cuts have made over 200 kids drop out of the Head Start program in Cincinnati-Hamilton County. In addition, close to 10 classrooms will have fewer teachers than before the sequester cut since over 20 teachers are likely to lose their jobs. The federal funding cuts expect to save about $1 million from the Head Start Program. Some of the targeted avenues under the program include transportation routes, teachers payouts, and the students fee.

Another example is the University of North Carolina that expects to cut over 30 work-study jobs in the subsequent academic year. The University intends to save $84,000 through the program in order to maintain the services within the institution. However, the University management holds that the directive will not reduce work opportunities for the affected students (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013). The University has also revealed their frustration towards the governments failure to work together thus forcing them to come up with their own means of handling issues surrounding the new budget. The work-study program has enabled students to have jobs and study at the same time. The sequester cut, therefore, will reduce the rate at which students gather the industrial working skills while in school.

The failure by Congress to enact legislation that was to decrease the government debts by March 1, 2013 led to the automatic federal budget cuts. The Federal Student Aid Programs have also felt the pinch of sequestration. The Direct Loan Program, for instance, will increase its interest rates that it levies on borrowers as from March 1, 2013. The Unsubsidized or Subsidized Direct Loan will attract an increase of 0.051% in interest rate to 1.051%. On the other hand, Direct PLUS Loans will register a fee increase of 0.024% from the initial 4.0% thus making both parent and graduate student borrowers to adjust the repayment interest (Hananel, 2013). The Education Department has notified borrowers of the alterations and offered vivid explanations on how it has reached on the fee increase. The budget cuts have also not exempted the Iraq and Afghanistan Service Grants from experiencing reductions of the amounts that beneficiaries receive.

The disbursements that the Department of Education conducted after March 1, 2013 were decreased by 10.0% of the original entitlement amount. For example, the 2013-2014 award of $5,000 will be reduced to $4,500 due to the 10.0% deduction. Moreover, the Teacher Education Assistance for College and Higher Education (TEACH) Grants has reduced the disbursement for eligible students by 7.1% effective from March 1, 2013. For instance, an award of $3,000 attracts a reduction of $213 thus resulting to an award amount of $2,787. Even though the Pell Grant Program is exempted from the cut, it has to stabilize the maximum award that it gives in each fiscal year. The program has been increasing its grants with a large margin, but will have to remain within a given limit due to the sequester cuts. For example, the Department of Education will have to maintain the maximum award of 2012-2013 at $5,500, and the maximum grant for the 2013-2014 at $5,645 (Furlough Watch: Agency-by-Agency Impacts of Sequestration, 2013).

Department of Security

The federal government holds that the automatic $85 billion cut on the budget will reduce the ceiling trillion debts that have accumulated over the past years; therefore, the American citizens must be ready to cope up with the effects. Homeland Security Secretary Janet Napolitano held that the sequester cuts will reduce their services, cause furloughs and force them to hire freezes. The management at Homeland Security has viewed budget cut as having high possibilities of affecting their activities at the Customs and Border Protection. Specifically, all Customs and Border Protection employees are receiving reduced overtime cuts and have 14 non-consecutive working days that began on April 6. On public services, the agency has released 1,000 illegal immigrants in order to reduce expenses (Hananel, 2013). According to Immigration and Customs Enforcement chief John Morton, some of the immigrants were financial criminals and robbers. Clearly, sequestration affected the operations of ICE in enhancing national security. Some of these foreign national offenders had posed the highest level of risk to the entire world.

The National Aeronautics and Space Administration (NASA) on its part expects over 20,500 contract workforce to lose their jobs in line with the sequester policy. The administrators intend to cut most expenses in education and public outreach programs. Some of the programs that NASA expects to enforce immediate cuts include NASA public programs that aim at reaching out to the public and stakeholders, videos and educational workshops. Moreover, NASA has experienced reductions on research grants and cancellation of some key projects due to unfilled vacancies within the workforce. The National Science Foundation (NSF) has cut over 1,000 grants intended for research and close to $35 million contractual funds that have been supporting the environmental and oceanographic research.

Environmental Aspects

Two months into the sequestration, government agencies focus on how to relocate spending in their operations following the budget cuts across the board. The Environmental Protection Agency has reacted to the budget cuts by furloughing its employees. The 18, 655 EPA employees are facing furloughing for a period not exceeding 10 days. Here, the management layoff workers temporarily, but the move does not affect the pensions and health care coverage. Therefore, no employee is fired in furloughing. Federal agencies like the Government Accountability Office and the Small Business Administration had initiated plans on how to counter the automatic spending cut hence did not employ the furloughing method of adjusting to the budget cuts across all programs (Hananel, 2013).

The GAO, which has 2,975 employees planned to cut costs in areas like IT and travel spending in order to work within the $526.2 million budget allocation. The agriculture Department that has over 100,000 employees received a budget allocation of $155 billion this fiscal year. In the Food Safety and Inspection Service, close to 2,100 employees were to undergo furloughing, however, the continuing resolution bill that the Congress passed saved the employees. Farm Service Agency officials argued that the stopgap bill has made it possible for them to recover the budget cuts from other avenues like conferences and travels hence assisting the agency to prevent furloughing.

Other Agencies

The Interior Department experienced up to 14 furlough days on its employees. As a result, there were delays on issuance of drilling permits and leases. The fish restoration program had a cut of $44 million on the grant money for all the states (Impact of sequestration on federal agencies, 2013). The Yellowstone National Park has been beginning its operations late during the spring season in a bid to save money. Several Parks are operating for fewer days than before the sequester cuts took effect and even closing their visitors centers. For example, the Bureau of Indian Affairs schools have reduced the schools days due to sequestration. The Treasury, of all the agencies, expects to furlough its employees for 5 days after the end of the tax-filing season. According to IRS, the federal budget cuts have affected the tax collection process.

The State on its part has experienced delays in visa processing times and security provision for diplomats and ambassadors that travel abroad. The Economics Development Administration has to furlough all the 206 employees for a period of six days in order to work within the 2013 budget allocation of $220 million. The Social Security Administration (SSA) officers close their offices at noon on Wednesdays and half an-hour early for the remaining days. SSA has also lost over 100 employees who were working at the front-line due to attrition. From another perspective, the job losses due to sequestration have brought harsh economic times to the current workforce in the United States.

Small Business Administration has also experienced the effect of sequestration, as it cannot process close to 2,000 loans that have been supporting 22,700 jobs in the small business enterprises. Consequently, business-counseling centers across US have recorded reductions in the number of clients as a way of absorbing the shock of budget cuts. The Office of Management and Budget furloughs 485 workers and expects the affected employees to take their unpaid vacations between April 21 and September 7 as a way of recovering the 5% reduction in its budget. The National Oceanic and Atmospheric Administration (NOAA) has also felt the effects of sequestration and, therefore, has reduced spending on training, management positions and travel and, at the same time, leaving over 2,500 positions unfilled.

The federal workforce at NOAA has four furlough days. On the energy sector, at the Hanford Nuclear Reservation, over 250 employees lost their jobs and there are expectations of furloughing more than 3,000 workers for several weeks. Federal labor agencies like the Mine Safety and Health Administration expects to layoff 30 lawyers by June 1 after the closure of two of its offices that handle cases of mine-safety appeals (Impact of sequestration on federal agencies, 2013). The National Labor Relations Board had predicted 22 furlough days for its employees and reductions in staffing levels during job trainings.

Conclusion

The research paper has discussed the effects of sequestration on the budget, government agencies, and their functions. However, some economists were in contention that sequestration can be avoided from a technical aspect. They proposed that Congress could have passed legislation to reverse the legal requirement in the BCA thereby making President Obama sign it before January 2, 2013. The National League of Cities had urged the President and Congress to avoid sequestration and adopt a non-partisan plan to minimize the debt deficits and balance the necessary reductions in spending in order to enhance revenue (The National Association of Regional Councils, 2012).

In addition, the National Association of Counties did not support the move; it argued that Congress would not be able to reduce the trillion-budget deficit by applying cost reductions on domestic and non-military discretionary programs. The association further held that Congress should not shift costs to counties; for example, expected cuts on Medicaid as a way of accomplishing debt deficit reduction. Even though the automatic cut on the federal budget is underway, it received negative receptions from the majority of American citizens. Sequestration has caused numerous impacts across departments and programs in the US barely two months into action. The automatic federal cuts on the 2013 budget and the subsequent ones have caused furloughs and layoffs across the government sectors.

References

Ehley, B. (2013). Sequestration Effects On Government Business Insider. Business Insider. Web.

Furlough Watch: Agency-by-Agency Impacts of Sequestration. (2013). Government News, Research, and Events for Federal Employees GovExec.com. Web.

Hananel, S. (2013). Furloughs Vary Widely At Government Agencies Amid Sequestration Cuts. The Huffington Post. Web.

Impact of sequestration on federal agencies. (2013). Washington Post. Web.

The National Association of Regional Councils. (2012). Understanding Sequestration and Its Impact on Local Governments & Regions. mwcog.org. Web.

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