Budget Control Act
Sequestration
How Does it Work
Budget Control Act
Passed the Congress in August 2011
Established the Joint Select Committee
on Deficit Reduction
It’s the Law!
P.L. 112-25
Budget Control Act
The provisions contained in the BCA
have the potential to have significant
impact on state budgets starting in 2013.
Already discussion in Congress to
amend the Act
Budget Control Act
The Act provides the framework for
everything Congress is doing not just
this year, but for the next 10 years.
Definitions
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Two categories: Defense and non-Defense
FY2013 Defense category includes many non-DOD programs
that relate to national security
FY2014 – FY2021 Defense category includes only DOD programs
Discretionary spending refers to outlays from budget authority
that is provided and controlled by appropriations acts.
Mandatory or direct spending refers to outlays from budget
authority that is provided by the laws other than appropriations.
Sequestration: Across the board cuts in budget resources of all
programs within a category (new budget authority, unobligated
balances, direct spending authority, and obligation limitations).
The Congressional Budget
Process
1. Under the provisions of the 1974 Congressional Budget Act, Congress is
suppose to adopt no later than May 15tha conference report on a Budget
Resolution that sets a ceiling on total spending (this is an aggregate number
that applies to mostly appropriation bills for the coming fiscal year).
2. The Budget Resolution give each House and Senate committee with new
budget authority an allocation of what it can spend for the upcoming Fiscal
Year (302a allocation).
3. For the Appropriation Committees, each subcommittee is given an allocation of
what they can put into their appropriations bill (302b allocation).
4. The Budget Control Act used both sequestration and these allocations to
control spending.
Budget Control Act
Why Sequestration Is Important
Limits on Discretionary Spending between FY2013 and FY2021
(In billions)
Fiscal Year
2013
2014
2016
2017
2018
2019
2020
2021
Original Limits on all Discretionary
$1,047
$1,066
$1,107
$1,131
$1,156
$1,182
$1,208
$1,234
Budget Control Act
Why Sequestration Is Important
Limits on Discretionary Spending between FY2013 and FY2021
(In billions)
Fiscal Year
2013
2014
2016
2017
2018
2019
2020
2021
Original Limits on all Discretionary
$1,047
$1,066
$1,107
$1,131
$1,156
$1,182
$1,208
$1,234
$1,234 - $1,047 = $187 allowable growth over 10 years
Three Things to Keep in Mind
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50% of all cuts must come from DoD
Sequestration applies only to mandatory
spending after FY2013
Cuts in both mandatory & discretionary
spending are allocated proportionally
How Sequestration Works
How Sequestration Works
The spending reduction process will automatically be triggered because the
Joint Select Committee on Deficit Reduction fail to achieve any savings.
Reductions must equal $1.2 trillion over 10 years (FY2012-FY2021)
The automatic spending reduction process entails four key steps:
1. The statutory discretionary spending limits for FY2013-FY2021 are revised,
by redefining the security and non-security categories and by extending
such categories through FY2021;
2. The amount of spending reduction required for each year is calculated and
divided equally between two categories—Defense and non-Defense;
How Sequestration Works
The spending reduction process will automatically be triggered because the
Joint Select committee on Deficit Reduction fail to achieve any savings.
Reductions must equal $1.2 trillion over 10 years (FY2012-FY2021)
The automatic spending reduction process entails four key steps:
3. The annual amount of spending reductions required each year in each of
these categories is further divided proportionally between discretionary
appropriations and direct spending programs (excluding certain programs
and activities) within each category; and
4. The spending reductions required in each year (FY2013-FY2021) are
achieved through a combination of sequestration and a downward
adjustment of the revised discretionary spending limits.
How Sequestration Works
The reductions required are implemented in three parts:
1. For discretionary spending for FY2013, a sequestration
of budgetary resources in that year
2. For discretionary spending for FY 2014-FY2021, a
downward adjustment of the revised discretionary
spending limits
3. For direct spending, a sequestration of budgetary
resources in each year from FY 2013 through FY 2021
How Sequestration Works
Human services programs are exempt from sequestration
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Social Security
Medicaid
Medicare (Limited to no more than a 2% reduction)
Academic Competitiveness/Smart Grant Program
Child Care Entitlement to States
Child Enrollment Contingency Fund
Child Nutrition Programs (with the exception of special milk programs
Children’s Health Insurance Fund
Commodity Supplemental Food Program
Contingency Fund
Family Support Programs
Federal Pell Grants under section 1070a of title 20
Grants to States for Medicaid
Payments for Foster Care and Permanency
Supplemental Nutrition Assistance Program
Supplemental Security Income Program
Temporary Assistance for Needy Families
How Sequestration Works
Human services programs NOT exempt from
sequestration include:
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Medicare providers,
Women, Infants and Children (except Special supplemental
nutrition program)
Substance Abuse Block Grant
Mental Health Block Grant
Community Services Block Grant
Promoting Safe and Stable Families
Social Services Block Grants
Child Care Development Block Grants
Child Welfare Services
Low-Income Home Energy Assistance
Community Health Centers
How Sequestration Works
The Budget Control Act establishes
discretionary spending caps through
FY2021 for both Defense and non-Defense
categories.
How Sequestration Works
Revised Statutory Limits on Discretionary Spending if Automatic Spending
Reduction Process is Triggered
(in billions of budget authority)
Fiscal Year
2013
2014
2015
2016
2017
2018
2019
2020
2021
Revised Security
Category
$546
$556
$566
$577
$590
$603
$616
$630
$644
Revised Non-security
Category
$501
$510
$520
$530
$541
$553
$566
$578
$590
How Sequestration Works
Sequestration applies to both mandatory and
discretionary spending in FY2013 only
In FY2014 – FY2021 sequestration applies
only to mandatory spending
Spending caps located in the BCA are used in
the normal appropriation process to limit
discretionary spending using 302a and
302b allocations
How Sequestration Works
For FY 2013, sequestration of $97 billion
occurs January 2, 2013.
For FY 2014 – FY 2021 sequestration occurs
15 days after Congress adjourns (either 1st
or 2nd session).
How To Calculate Spending Caps
How To Calculate Spending Caps
Determine Revised Limits on Discretionary
Sending
Discretionary spending limits are established
in BCA but are subject to revision
How To Calculate Spending Caps
The revised limits on discretionary spending
may fluctuate to accommodate:
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Emergency requirements
Appropriations for Overseas Contingency
Operations/Global War on Terrorism
Appropriations for continuing disability reviews
Appropriations for controlling health care fraud and abuse
Appropriations designed as being for disaster relief
How To Calculate Spending Caps
Subtract estimated amount of saving from
payments on interest from total amount of
spending cuts i.e. $1.2 trillion
How To Calculate Spending Caps
Subtract estimated amount of saving from
payments on interest from total amount of
spending cuts i.e. $1.2 trillion
Estimated at 18%
$1,200,000,000,000 x .18 = $216,000,000,000
$1,200,000,000,000 - $216,000,000,000 = $984,000,000,000
How To Calculate Spending Caps
Divide target amount equally between
Defense and non-Defense spending
$984,000,000,000 ÷ 2= $492,000,000,000 (over nine years)
How To Calculate Spending Caps
Determine how much the deficit must be
reduced each year from FY2013 until
FY2021 (Total of nine years)
$492,000,000,000 ÷ 9= $54,666,666,666
The $54.7 billion reduction is for both discretionary and
mandatory spending combined in each category
How To Calculate Spending Caps
To determine proportions of spending
reductions to allocate toward discretionary
or mandatory:
Multiply $54.7 billion by discretionary spending cap
Divide by total (discretionary and mandatory) non-exempt
spending = reduction in discretionary spending in that
category
To determine mandatory amount subject to sequestration
simply subtract discretionary reductions from $54.7
billion.
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$54.7 billion x $510 billion = $27.88 trillion
Discretionary
Cap
+
{
{
$27.88 trillion ÷ ($510 billion +~$206 billion) = $38.9 billion
OMB’s Baseline
Estimate for
Mandatory
Spending
=
$716 billion in total
non-exempt spending
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$38.9 billion reduction in discretionary spending cap
$15.7 billion reduction in non-exempt mandatory spending
Total savings of $54.7 billion
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$38.9 billion reduction in discretionary spending cap
$510 billion – $38.9 billion = $471.1 billion (new
discretionary spending cap for aggregate appropriations
in fiscal year)
How Sequestration Works
Revised Statutory Limits on Discretionary Spending if Automatic Spending
Reduction Process is Triggered
(in billions of budget authority)
Fiscal Year
2013
2014
2015
2016
2017
2018
2019
2020
2021
Revised Security
Category
$546
$556
$566
$577
$590
$603
$616
$630
$644
Revised Non-security
Category
$501
$471
$520
$530
$541
$553
$566
$578
$590
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$15.7 billion reduction in non-exempt mandatory spending
$15.7 billion cut from $206 billion in mandatory spending
via sequestration
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$15.7 billion reduction in non-exempt mandatory spending
$15.7 billion cut from $206 billion in mandatory spending
via sequestration
$15.7 billion is 7.6% of $206 billion, so all non-exempt
programs in the non-Defense category would be reduced
by 7.6%.
How To Calculate Spending Caps
Example for FY 2014 Non-Defense Category
Discretionary spending cap = $510 billion
$38.9 billion reduction in discretionary spending cap
Medicaid is exempted from sequestration and Medicare
provider cuts are limited no more than 2%.
Any cuts for Medicare provider benefits above 2% are
subtracted from the discretionary spending cap
Final discretionary spending cap reduction is $38.9 billion +
the additional Medicare cuts above 2%
Why is the Budget Control Act
and sequestration so important?
Sequestration in Mandatory spending for FY2014 is estimated at about
7.5%
A budget in FY 2013 of $1, 000,000,000 lowered 7.5% each year for ten
years would have $495,764,693 in FY2021
Or less than 50% of its FY2013 funding
Review
$54.7 billion is the amount both Defense and nonDefense spending must be cut each year
This reduction in spending is done proportionally
between discretionary and mandatory spending.
Discretionary reductions are done through the
normal appropriation process of allocations
whereas mandatory reductions are done through
sequestration or across the board cuts.
Review
The BCA depends on enforcement of
discretionary spending limits by allowing
members of Congress to raise a point of
order during consideration of
appropriations bills in each house.
Review
Because the caps limit the total amount of
budget authority for budget year, the order
in which an individual approbation bill is
considered will affect whether or not it is
subject to a point of order.