As the presidential and congressional campaigns continue toward their conclusion on Election Day, November 6, there is another – perhaps more compelling – date to consider: January 2, 2013. That is the date that massive federal spending cuts mandated under the “sequestration” process are expected to begin. The combination of these spending cuts and the expiration of tax breaks also expected to take place by January 2 has been termed the “Fiscal Cliff” for the United States economy, with a return to recession on the other side. With the calendar approaching January, pressure continues to build on Congress to do something to prevent this from happening. The biggest development in this area is a report compiled by the Office of Management and Budget (“OMB”), which was required by Congress in the Sequestration Transparency Act of 2012 (Public Law 112-155) (found at http://www.whitehouse.gov/). OMB has calculated that to reach the $1.2 trillion in cuts to defense and non-defense spending required over the next 10 years, the federal budget must be reduced by an annual amount of $109 billion (factoring in interest savings generated by the cuts). This translates into a cut of 9.4% in defense spending levels and 8.2% in non-defense spending levels that would take effect on January 2nd.
Fewer Blackhawk Helicopters; Border Patrol Agents; Air Traffic Controllers; Children in Head Start and less inspection of meat and poultry, to name a just few things.
OMB in its report breaks down the cuts from the sequestration process over the many agencies of the federal government, as required by Congress. But Congressman Norm Dicks (D-WA-6), the Ranking Member of the House Appropriations Committee, has released a report in a “Dear Colleague” letter to Congress that shows what those cuts would mean in terms of terms of reductions in procurement; personnel furloughed; and government services diminished. For example, the cuts in the Department of Defense’s Procurement Account “would mean 8 fewer UH-60 Blackhawk helicopters and 5 fewer CH-47 Chinooks, slowing Army plans to modernize its utility and heavy lift helicopter fleet”. Cuts to the Department of Homeland Security’s budget would mean 3,400 fewer Border Patrol agents which would “significantly impact progress along the Southwest Border”. The Federal Aviation Administration (“FAA”) would need to “lay off more than 2,200 employees, including air traffic controllers, technicians, and support staff”, which would most likely reduce the number of flights per day across the country. 100,000 fewer children would be enrolled in Head Start and the furlough of inspectors at the Food Safety and Inspection Service (“FSIS”) would impact the hours at slaughter and processing plants, which cannot operate without them, and as a result, raise the cost of cost of meat and poultry.
Other reports indicate the impact of sequestration on the economy and on jobs. The American Institute of Architects has released a report concluding that design and construction industry could face more than $2 billion in lost work, due to the reduction of design and construction projects at the agency level (found at www.aia.org). The Congressional Budget Office (“CBO”) forecasts the United States economy will fall back into a recession, “with real [Gross Domestic Product] declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013” (found at www.cbo.gov).
Look to the Lame Duck Session.
All of these projected impacts to the federal government and the economy points Congress acting to undo the effects of sequestration, likely as part of a “Grand Compromise” on spending cuts and taxes passed during a Lame Duck Session of Congress. This is expected to begin during the first weeks after Election Day. This will obviously be affected by the results of Election Day but action will still happen.