Sequester in Brief

I was asked to prepare some information for budgeting for next year and realized that I hadn’t spent nearly enough time getting to know sequestration.  I basically knew that they keep jurors from talking to the public and viewing media that may influence their opinions… WAIT – that is jury sequester.  With federal sequestration, I could talk about it intelligently, but hadn’t learned what I really needed to learn about the topic. So, the following is my paraphrased opinion to my boss on what sequestration is and is not…

Sequestration is the mechanism provided for balancing the budget of the US government in the Budget Control Act of 2011. Under this mechanism, there are not “cuts” per se to the operating budget of the US, but caps put in place that – if overspent – would result in cuts in so-called “non-exempt discretionary spending.” I think this is really just a mincing of words – a cut is a cut regardless of how it happens. Also, the rest of the story is that the cuts in spending would actually go to paying down the national debt. See also “fiscal cliff” as it pertains to a CBO report.

There are two ways to avoid the sequestration – 1) enact a budget that comes in under the caps, or 2) raise the existing caps on spending (which was the solution for the 2012 deadline).

Graphic from the Congressional Budget Office showing difference in 2012 spending and 2013 caps.

Although the politically charged number is $1.2 trillion, current estimates by the OMB indicate around $7.0 billion for 2013 in sequestration under current proposed appropriations. However, since there have been no appropriations bills enacted, there is a Continuing Resolution that carries with it the threat of sequester based on 2012 levels. The difference between 2012 and 2013, as projected by the Congressional Budget Office, would be more like $487 billion. The CR basically allows current spending levels until Congress can act. Bottomline – there are plans out there that get us where we need to be, but no one is acting (supposedly only because of the election cycle).

Specific guidance from President Obama is due out this week on what areas and programs may be affected.  In the end, if/when sequestration DOES happen we can expect the following:

  • More cuts to current programs that are tightening their belts already.
  • More cuts of planned projects that will be delayed until a TBD date.
  • More requests from government personnel to reduce prices to the government to enable activities to continue.
  • More requests from government personnel to discount existing contracts or modify them accordingly.

In my opinion, the likelihood that out-and-out “sequestration” happens is about 30%. However, everyone knows that cuts are coming regardless of the sequestration. Caps will still be lower than 2012 and spending will still be down across the board.

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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