Sequester primer: Federal spending cuts kick in, then what?

/ 28 February 2013 / eunice

Devin Henry, MinnPost, February 28, 2013 – WASHINGTON — It’s become obvious lawmakers will be unable to reach a deal turning off automatic spending cuts set to take effect this weekend.

It’s not like Washington hasn’t known this was coming. Members of Congress and the White House have had since November 2011 to reach a deal ending this “sequestration,” which both side of the aisle say they want to do. But the deadline for doing so is midnight Friday — and no talks are even scheduled until that morning.

Lawmakers have been warning of sequestration’s ill effects since before the election. But still, polls show the public at large hasn’t been following the drama as much as those inside the Beltway might think. So, here’s a quick primer on what sequestration is, how it came to be, and what it might mean for Minnesota.

What is sequestration? Sequestration is a series of automatic spending reductions set to cut $1.2 trillion in federal spending over the next 10 years, including about $84 million between now and September (the end of the fiscal year). The cuts are split evenly between defense and discretionary spending, though several mandatory spending programs (like Medicaid, Social Security and food stamps, among others) are exempt.

What will the effects look like? Minnesota will be hurt by the sequester less than other states since it gets less money from the federal government, relative to the size of the state budget, and doesn’t have many major military installations or government contractors.

But the White House warns the cuts will still hurt several sectors of the state economy, education chiefly among them (Beth Hawkins has an excellent overview of sequestration’s toll on state education programs here). But many state agencies say they’re in the dark as to what the cuts will look like in practice.

Broadly, the feds are warning the budget cuts will lead to interruptions in the services they offer. The Federal Aviation Administration, for example, said it will have to furlough so many air traffic controllers that smaller general aviation airports may have to go without.

There could also be ripple effects throughout the economy. Take, for example, a warning from Agriculture Secretary Tom Vilsack last week. Since food inspectors are subject to sequestration furloughs, and since meat packing plants can’t operate without them, the livestock industry at large could take a $10 million hit as packing operations slow.

Where did sequestration come from? Remember the 2011 debate over raising the limit on the amount of debt the federal government can take on? When Congress eventually passed the Budget Control Act that summer, lawmakers agreed to raise the debt limit on two conditions: the first was a $1 trillion spending cut over 10 years, which is now law. The second was the promise that Congress would pass a future deficit reduction package, and if it failed, a series of automatic spending cuts would take effect in 2013 instead. That’s sequestration.

The Budget Control Act established what would be colloquially known as the “super committee,” a bipartisan, bicameral group of lawmakers that was supposed to identify $1.2 trillion in savings and thereby turn off sequestration. To no one’s real surprise, the “super committee” was anything but super, and announced in November 2011 that it had failed to come to an agreement. That set sequestration into motion.

What have the two parties done about it? The only time congressional Republicans, Democrats and the White House have agreed to any sequestration-related legislation was in January. The final “fiscal cliff” deal passed and then delayed sequestration for another two months. That makes Friday the deadline.

House Republicans have passed two bills meant to undo sequestration, but Democrats were vehemently opposed to both — while the bills turned off the sequester, they came at the expense of spending cuts to mandatory programs like food stamps.

The Senate is set to take up competing sequestration bills on Thursday, but neither will pass — the Democratic plan raises taxes and the GOP one would have President Obama institute new spending cuts with congressional override authority.

What has the Minnesota congressional delegation said? The Minnesota delegation has little influence over how this sequestration battle plays out so they’re really in the same holding pattern as the rest of us: no one really knows what deal, if any, the White House and congressional leadership will reach.

Minnesota’s party stalwarts (John Kline, Erik Paulsen, Tim Walz, etc.) tend to back their parties’ basic negotiating position. Republicans blame Obama for proposing the sequester (Kline and Paulsen, along with the majority of Republicans, voted for the Budget Control Act but neither were comfortable with the sequester) while Democrats want to see higher taxes in any deficit reduction plan.

There are wrinkles to some of the delegations’ public positions, however. Keith Ellison and the Progressive Caucus want to do away with sequestration and replace it with a very liberal deficit plan, but that’s not going to happen with Republicans controlling the House. Blue Dog Democrat Collin Peterson has said he assumes Washington gridlock will let sequestration take hold.

What if lawmakers don’t end sequestration this week? First off, it seems almost certain that nothing will happen by the deadline — Wednesday’s news that Obama and congressional leaders will hold their first sequestration talks on Friday tends to prove that.

In that case, the deadline shifts back a few weeks, to March 27. That’s the day current federal spending expires, meaning Congress must pass a long- or short-term budget by then, or risk a government shutdown. Slate’s Matt Yglesias argues that government agencies can probably absorb three weeks of crunched budgets and that it’s reasonable to expect a sequester fix in any March budget deal. But the stakes will be significantly higher then, since failure will mean a federal government shutdown.

In terms of what a final sequestration fix will consist of, the battle lines look familiar. Obama wants a mix of spending cuts and tax increases. Republicans generally oppose new taxes and want to replace the blind slashing of sequestration with targeted cuts elsewhere.

So in sum, we’re probably not going to see a sequester deal this week. And whatever a final deal might look like, and when it might come, is really anyone’s guess.