Background and History of Budget Sequestration
- The congressional budget process, established by the Congressional Budget and Impoundment Control Act of 1974 (Budget Act; P.L. 93-344), was designed to be result-neutral. It gave Congress tools to evaluate and make changes to fiscal policy—Budget Committees, budget resolutions, and the Congressional Budget Office (CBO). The Budget Act was not designed to promote a particular fiscal policy.
- Subsequent budget laws have added new procedures aimed at specific fiscal objectives. In 1985, the Balanced Budget and Emergency Deficit Control Act (BBEDCA, P.L. 99-177) sought to balance the federal budget through statutory maximum deficit amounts (deficit caps), and created the budget sequester mechanism—automatic across-the-board cuts in nonexempt budget accounts—to incentivize and enforce the intended result.
- In 1990 Congress shifted its budget control strategy from deficit caps to controlling the growth of spending and deficits. The Budget Enforcement Act of 1990 (BEA; P.L. 101-508) established
statutory limits on discretionary spending (programs funded through annual appropriations). The BEA also established a new “pay-as-you-go” (PAYGO) requirement that legislation providing new mandatory spending, or reducing revenues, must be paid for with offsets. Violation of the discretionary spending caps, or the PAYGO requirement, were enforced using the sequester mechanism. - With the emergence of budget surpluses in the late 1990s, spending caps and PAYGO were allowed to expire in FY 2002. By the end of the decade, however, concerns over budget deficits in the wake of the financial crisis and recession led to enactment of a new, permanent PAYGO statute in 2010, and new budget control legislation in 2011.
- The Budget Control Act of 2011 (BCA; P.L. 112-25) established new discretionary spending caps for each year through FY 2021 estimated to save $917 billion over ten years. The BCA also established a Joint Select Committee on Deficit Reduction (Joint Committee) to negotiate another $1.5 trillion in budget savings by December of 2011. As a fallback, the BCA provided that automatic spending reductions would be triggered if Congress did not enact at least $1.2 trillion in Joint Committee budget savings by January 15, 2012.
- The 2012 deadline was not met and $1.2 trillion in Joint Committee automatic reductions were triggered. The BCA applied most of the automatic budget savings to discretionary spending through reductions in the spending caps (often called sequester caps), and the remainder of the savings were applied to mandatory spending through annual sequestration (across-the-board cuts).
- Subsequent legislation (four Bipartisan Budget Acts or “BBAs”) has partially or fully rolled back the automatic discretionary cap reductions that were to take effect in each year through FY 2021. However, the annual sequester of mandatory spending has been implemented each year—and extended nine years through FY 2030.
What Is a Sequester?
- A sequester provides for the automatic cancellation of previously enacted spending, making largely across-the-board reductions to non-exempt programs, activities, and accounts. A sequester is implemented through a sequestration order issued by the President as required by law.
What Current Budget Requirements Are Enforced by Sequestration?
Sequestration is currently employed as the enforcement mechanism for three budgetary policies.
- It is included as the enforcement mechanism for statutory limits on defense and non-defense discretionary spending as established by the Budget Control Act. In this situation a sequester is used either to deter enactment of legislation violating the spending limits or, in the event that legislation is enacted violating these limits, to automatically reduce discretionary spending to the limits specified in law.
- Sequestration is also included in the BCA to enforce the budgetary goal established for the Joint Select Committee on Deficit Reduction. The BCA established an automatic process to reduce spending, beginning in 2013, in the event that a joint committee bill reducing the deficit by at least $1.2 trillion over the period covering FY 2012-21 was not enacted by January 15, 2012.
- Sequestration is included as the enforcement mechanism for the Statutory PayAs-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139). The budgetary goal of Statutory PAYGO is to prevent new revenue and mandatory spending legislation enacted during a session of Congress from increasing the net deficit (or reducing a net surplus) over either a six-year or 11-year period. The sequester enforces this requirement by either deterring enactment of such legislation or, in the event that legislation has such an effect, automatically reducing spending to achieve the required deficit neutrality.
What Triggers a Sequester?
- For the discretionary spending limits, sequestration is generally enforced when a final sequestration report is issued by the Office of Management and Budget (OMB) within 15 calendar days after the end of a session of Congress. A sequester will occur only if either the defense or non-defense discretionary limits are exceeded.
- For the sequester associated with the Joint Select Committee on Deficit Reduction (often referred to as the BCA sequester or the Joint Committee sequester), the spending reduction is more complicated. Since a bill was not enacted reducing the deficit by at least $1.2 trillion over the period covering FY 2012-21, the sequester process was activated, and the actions described below will happen each year absent legislation enacted to the contrary. Under the BCA, the required reductions associated with the Joint Committee were to be achieved annually through a two-part process:
- First, the discretionary spending caps mentioned above are adjusted downward (or decreased) each year through FY 2021. These adjusted levels are calculated by OMB and are included annually in the OMB Sequestration Preview Report to the President and Congress, which is to be issued with the President’s annual budget submission. However, the Bipartisan Budget Acts of 2013, 2015, 2018, and 2019 have either reduced or eliminated the intended discretionary cap adjustments.
- Second, a sequester of non-exempt direct spending programs takes place each year through FY 2025 [now 2030]. These levels are also calculated by OMB and are included in the annual OMB Report to Congress on the Joint Committee Reductions, which is also to be issued with the President’s budget submission. The sequester does not occur, however, until the beginning of the upcoming fiscal year.
- For Statutory PAYGO, if a sequester is required, it is implemented once OMB issues an annual PAYGO report not later than 14 days after the end of a session of Congress. However, in most cases, new mandatory spending and revenue reductions have been exempted f
How Is a Sequester Administered?
- The statutory requirements for the sequester process are prescribed by the BBEDCA, as amended.
- Sequesters are implemented initially by an order issued by the President that must follow the specified statutory requirements.
- First, the total dollar amount of necessary spending reductions must be established by OMB, which must also determine what accounts are not exempt from the sequester, creating a “sequestrable base.”
- OMB must then calculate the uniform percentage by which non-exempt budgetary resources must be reduced to achieve the total necessary reduction.
- Budgetary resources, as defined in Section 250(c)(6) of the BBEDCA, include new budget authority, unobligated balances, direct spending authority, and obligation limitations.
- Once this uniform percentage is determined, it is applied to all programs, projects, and activities (PPAs) within a budget account.
- PPAs are delineated in different ways: For accounts included in appropriations acts, PPAs within each budget account are delineated in those acts or accompanying reports, and for accounts not included in appropriations acts, PPAs are delineated in the most recently submitted President’s budget.
- Thereafter, as executive branch agencies implement the sequestration order, they may take various actions after the cancellation of budget authority with regard to specific spending. These actions, many of which are subject to statutory limitations, may include the following:
- Transferring funds between accounts,
- Reprogramming funds within an account among one or more PPAs,7 Considering procurement-related options that the government has, pursuant to contract law or otherwise, and
- Furloughing agency personnel.
What Programs Are Exempt from a Sequester?
- Many programs are exempt from sequestration, such as Social Security and Medicaid. In addition, special rules govern the sequestration of certain programs, such as Medicare. These exemptions and special rules are found in Sections 255 and 256 of the BBEDCA, as amended, respectively. See also, The Annual Sequester of Mandatory Spending through FY 2029.
- To see a list of both discretionary and direct spending programs subject to the FY2013 sequester, see the OMB Report to Congress on the Joint Committee Sequestration for FY 2013.