Explaining Sequestration

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Budget cuts hurt all of us, and it’s important for nonprofits to speak together to advocate for a budget that reflects our values. To that end, we have resources to help nonprofits understand federal processes and how they create the need to think about the budget as a whole and to appreciate how surrounding policy discussions (like taxes and healthcare) will impact nonprofits.

One process that we have yet to talk about, but is likely to come up in the media soon, is sequestration. This process is going to come up more because just before the August recess, the House of Representatives passed an appropriations bill that brings with it a threat of sequestration.  We wanted to take some time to discuss the sequestration process, and why it is so important to nonprofits.

In examining sequestration we are left feeling alarmed to see that some members of Congress are willing to abandon a bipartisan tradition of providing even a modicum of much needed relief to communities, and instead preferring to set essential spending at the lowest level on record. It is not a budget that reflects our values.

The procedural tangle that sequestration puts all of us in demonstrates the need for nonprofits to engage with federal policy makers, placing an emphasis on the need for investment in communities, and to take a long term view of the budget. Like all conversations around the budget, it is important to remind members of Congress and the media that the budget provides an opportunity to lead with our values of partnership, community, and interconnectedness.

What is sequestration?

Sequestration is a budget process that happens when appropriations go above a binding annual spending cap. It automatically withdraws funding from most government programs by equal percentages. This sequestration mechanism will affect every budget until 2021.

Why did this start?

The debt ceiling refers to how much money the government is allowed to borrow. If the debt ceiling isn't raised, the government runs out of money to pay what it owes, which can be damaging to U.S. credit ratings and lead to the shutdown of some government programs.

In 2011, Congress needed to raise the debt ceiling.  Many in Congress were opposed to that. As the part of the  compromise reached, Congress agreed to reduce the overall deficit by $1.2 trillion over the next 10 year in the Budget Control Act of 2011. That amount of deficit reduction represents significant cuts to essential programs, and came at a time when the country was still reeling from the realities of the Great Recession.

The Budget Control Act gave Congress two paths towards reaching their target: come up with a bipartisan solution, or face tough spending caps with sequestration attached. The sequestration process was designed that way to make sure every member of Congress would have harmful cuts unless they could come to a deal. Unfortunately though, the committee in charge failed to find a solution, and the current spending levels went into place.

How have these spending caps been working out so far?

The spending caps required by the BCA deal with two pools: defense and non-defense discretionary spending. Non-defense spending includes programs like WIC, HUD, and other essential programs that provide funding for nonprofits.

In recent years, both parties have agreed that those spending caps are too severe. Congress therefore has found ways to provide some relief from sequestration spending caps equally to both defense and non-defense spending through means such as cuts to entitlements, hiring contractors instead of federal employees, or changes to tax expenditures.

The appropriations bill passed by the House departs from that tradition of providing equal sequester relief for both defense and non-defense spending by quite a large margin. As you can see from the graph below, defense spending surpasses spending caps by $72 billion and non-defense spending- the spending that nonprofits rely on to provide essential services to our communities – is below the cap by $5 billion, cutting essentially programs further.

How was the House expecting to offset this spending?

Since the automatic cuts that would trigger with those level of appropriations would put actual funding well below their current request, it is likely that when this bill was authored they were expecting to pay for it with cuts in other programs.  The assumption was that a healthcare bill would pass that would help provide the offset for the $72 billion overage. This is also why the healthcare debate is likely to persist. It is also possible that if a tax package were passed, it could be the source of the deficit reducing measures.

 

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What's next?

Whatever the strategy for finding enough funding for sequester relief, it’s unlikely it will be in place by the appropriations deadline of Oct 1st. But even though this bill is not likely to move forward, it’s important to understand how profoundly devastating what this bill proposes truly is.

The sequestration caps are austerity measures, which have been in place for seven years. These caps mean that vital programs remain chronically underfunded.  But this appropriations bill goes well beyond even that degree of austerity. First, it sets non-defense discretionary spending at $5 billion below an already profoundly damaging level, eroding the value of the benefits and services provided. Next, it requires an additional cut of $72 billion to fund its dramatically disproportionate increase in defense spending. We likely will see attempts to pay for that increase with cuts to entitlement programs like Medicaid, Medicare and SNAP.

In looking at sequestration, we can see further evidence that engaging with federal lawmakers is vital to creating a budget that holistically reflects the values of the nonprofit sector.  


Need support on how to engage with federal lawmakers? We have resources that can help!

Looking for the talking points on sequestration? We've prepared an infographic for you to use!