Impact of Automatic Spending Cuts Could Be Managed
for Several Weeks

White House could mitigate the impact of a short-term sequester
in early 2013

On Jan. 2, 2013, if Congress and the president have not enacted legislation delaying or canceling a process known as "sequestration," $109 billion in automatic, across-the-board spending cuts will be applied to defense and non-defense programs in 2013.

If these cuts were to occur, however, the White House would have substantial authority to mitigate and postpone the impact on those programs that are not exempt for several weeks. Moreover, large portions of the federal budget would be exempt from the cuts.

Click to read the full analysis.

Strategies for Mitigating and Postponing the Impacts of Automatic Cuts

The White House and executive branch agencies have the power to manage, mitigate, and postpone the negative effects of sequestration for several weeks if they choose. These strategies include:

  • Controlling the Rate of Federal Spending: Once funds have been appropriated by Congress, it is up to the executive branch to decide how to spend that money throughout the year. The White House Office of Management and Budget (OMB) has authority, called "apportionment," that enables it to accelerate spending for programs as needed in early 2013. This would offset the impact of sequestration for a short period of time.

  • Using Carryover Funds to Help Cushion the Impact: Federal agencies have the ability to manage their own finances to save money early in the year and can carry those savings over to later in the year. Some federal programs, such as highway programs, have funds that they carry over from year to year that are not subject to sequestration, which can help cushion the impact of automatic cuts to those programs.

  • Redirecting Funds to More Urgent Program Activities Early in the Calendar Year: Federal agencies have limited authority to redirect cuts within their budgets away from sensitive areas of spending to other areas that may be less sensitive in the first few weeks of the year.

  • Accelerating Spending to Avoid Federal Employee Furloughs and Layoffs: Military personnel are exempt from sequestration. For civilian personnel, Congress has given agencies authority to accelerate spending to prevent furloughs and layoffs.

  • Delaying the Announcement of New Federal Contracts: Existing contracts are largely immune from automatic cuts, and the administration has indicated that it will work to minimize the effects on those existing contracts that may be affected. New contract announcements could also be delayed until later in 2013.

  • Delaying the Announcement of New Federal Grants and Prioritizing Existing Grants: Existing grants carried over from 2012 are largely immune from automatic cuts. Continuation grants in 2013 may be affected at the time they come up for renewal, but they may be prioritized by federal agencies over new grant awards, which could be delayed until later in the year.

  • Delaying Sequestration for Education Programs: Most education funding to the states (such as Title I) is advance-funded. The administration has already indicated that advance-funded education programs will not be affected by sequestration until July.

The effects of automatic cuts cannot be put off forever, but they could be managed and substantially reduced for several weeks in early 2013 if the administration so chooses. For more details, see our longer analysis, Mitigating the Impact of a Temporary Sequester.

Programs Subject to and Exempt from Automatic Spending Cuts

If automatic cuts do occur under sequestration, they will be divided evenly ($54.7 billion each) between defense and non-defense programs. These cuts will include:

  • 8.2 percent cuts ($38.0 billion) in non-exempt non-defense discretionary programs like Head Start and education programs.
  • 7.6 percent cuts ($5.6 billion) in non-exempt non-defense mandatory programs like agricultural disaster relief.
  • 2 percent cuts ($11 billion) from payments to Medicare providers and health insurance plans.
  • 9.4 percent cuts ($54.6 billion) in non-exempt defense discretionary programs.

Again, many of these cuts can be temporarily mitigated using the tools described in the previous section.

A number of programs are exempt from automatic cuts, including:

  • Social Security benefits (old-age, survivors, and disability).
  • All programs administered by the Department of Veterans Affairs (VA).
  • Military personnel spending (subject to the president’s approval, which he has provided).
  • Interest on the federal debt.
  • Refundable tax credits.
  • A variety of low-income programs, including Temporary Assistance for Needy Families (TANF), food stamps (the Supplemental Nutrition Assistance Program, or SNAP) and child nutrition programs, mandatory funding under the Child Care and Development Fund, Medicaid, the Children’s Health Insurance Program (CHIP), foster care, and the Supplemental Security Income (SSI) program.

Administrative expenses for these programs are still subject to automatic cuts.

About eight percent of federal payments to individuals would be subject to automatic cuts (sequestration of Medicare applies to providers and health insurance plans, not benefits or coverage for individuals), as well as one of every five dollars in federal aid to state and local governments. Individual low-income households receiving direct support for nutrition assistance under the Women, Infants, and Children program, housing assistance, or help paying for heating fuel under the LIHEAP program will be most affected by cuts to federal payments to individuals. Even temporary cuts to these programs could cause hardships. However, 92 percent of federal assistance to individuals is exempt from automatic cuts.

For more information, contact Patrick Lester, Fiscal Policy Director, at 202-683-4859 or plester@ombwatch.org.

Read the full analysis [PDF, 371 K]