StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

As Expected, OMB Sequester Report Shows Little, Means Nothing

17 Sep 2012
Posted by Stan Collender

As I expected and warned everyone when legislation was enacted requiring it in early August, the report released by the Office of Management and Budget last Friday with the details of the spending cuts that will occur if the sequester actually happens on January 2 was a nonevent that provided little, if any, actual new information or guidance. It was barely a one-day story that may provide all sides in the debate, that is, those who want the across-the-board spending cuts to occur and those who think they're a tool of the devil, with some fodder for arguing their position but no real additional ammunition to make their case.

If what I'm saying isn't plain enough...The OMB report that some thought could be a game-changer, actually changed nothing.

For the record...The report projects that military appropriations will be cut by 9.4 percent and domestic appropriations by 8.2 percent. The difference in the percentages is the result of the difference in the amount of spending eligible to be cut in each category. The president opted to use one of the few choices given to him and exempted military uniformed personnel. That meant that the Pentagon reductions came from a smaller base and, therefore, had to be a higher percentage.

A quick step back for the uninitiated among us.

The "sequester" is the across-the-board cut in spending that was automatically triggered when the anything-but-super committee failed to agree on a deficit reduction plan last November. The $109 billion in domestic and military appropriations cuts -- half from each category -- will occur on January 2, 2013, and, therefore, are the last part of the so-called "fiscal cliff," the much-talked about series of tax increases and spending reductions that, unless Congress and the president enact legislation to stop or change them, will go into effect at the start of this coming year.

This sequester, which was part of the Budget Control Act -- the legislation adopted in August 2011 that increased the federal debt ceiling, reduced the deficit and set up the hardly super committee -- was not a new concept. It was first created 27 years ago by Gramm-Rudman-Hollings (the Balanced Budget and Emergency Deficit Control Act) in 1985. Sequesters, or rather the threat of a sequester, stopped being a part of the congressional budget debate when GRH was replaced by another process in 1990.

Several basic things about this sequester:

First, and completely contrary to much of the rhetoric about it that Republicans have used during the 2012 election campaign, the Budget Control Act and, therefore, the Pentagon and domestic spending cuts it will impose if the sequester happens, was not an Obama administration initiative and was approved with substantial GOP support: 

The final vote was 269 to 161 in the House, with 174 Republicans and 95 Democrats voting for the bill and 66 Republicans and 95 Democrats voting against. In the Senate, 28 Republicans and 45 Democrats voted for the BCA, 19 Republicans and 6 Democrats voted against it and 1 independent voted for and 1 against.

In the toxically hyper partisan environment that that has existed in Washington the past few years, the vote to approve the BCA has to be considered one of the few high points in bipartisan agreement in this Congress.

Second, the fact that the report released by OMB last Friday had to be ordered by Congress in a subsequent bill -- the Sequester Transparency Act -- happened because Congress didn't include a report requirement in the original BCA. BCA was drafted quickly under a great deal of pressure at virtually the last possible moment before the debt ceiling had to be raised. There were no hearings and it went through few of the standard reviews that happen for most bills. The final legislation passed by Congress and signed by the president didn't include any requirement that the White House tell anyone what would be cut by how much before the sequester went into effect.

Third, what gets cut by how much is actually defined in great detail in the sequester rules set up in the BCA and the White House has only a limited amount of discretion. The president can't, for example, decide to cut the Pentagon by less and domestic programs by more. In fact, like GRH did, the BCA takes away much of the presidential discretion by specifying which programs are exempt and requiring that the cuts in the remaining programs be by "program, project, and activity" or PPA.

Ironically, the effort to prevent the White House from picking winners and losers by requiring that every eligible program, every project within each eligible program and every activity within each project be cut by the same amount is what gives the president some limited ability to make some decisions. The reason is that there are no common definitions for "program," project," or "activity" because those aren't standards used anywhere else in federal budgeting.

Being able to set the definitions gives the White House some leeway. For example, if it uses a broad definition of a program such as "Procurement, Army," the president has more ability to determine that some systems will be cut by more than others. The alternative -- defining each system as a separate project - would give him less discretion.

That's why the 300-plus pages of charts and numbers in the OMB sequester report are less gospel and more preliminary than many expected when the Sequester Transparency Act was adopted. In fact, the most important part of the report itself is this language rather than the numbers:

From page 9:

As described further below, because of the STA’s reporting deadline of just 30 days, the large number of PPAs across all agencies and budget accounts, and inconsistencies in the way PPAs are defined, additional time is necessary to identify, review, and resolve issues associated with providing information at this level of detail..

And from page 10:

To assist in the preparation of this report, OMB asked agencies, after consultation with the chairs and ranking members of the Appropriations Committees of the House and the Senate, to submit budgetary information to OMB on PPAs. In doing so, agencies identified thousands of PPAs across appropriations acts and accompanying reports and the President’s Budget, with varying definitions of PPAs depending on the particular act and the reporting agency. Regularizing reporting across different budget accounts and agencies requires the resolution of many definitional questions, and the sheer volume of data presents administrative challenges that require additional time for OMB to address.

In other words, nothing in the sequester report is final and almost everything could be changed after the election. That renders the report interesting but largely meaningless.

so will congress rush to try

so will congress rush to try and define everything in the budget in as rigid a manner as possible to save their precious defense pork? instead of trying to cut the spending like they campaigned to do?

Small Typo

You write, "The final vote was 269 to 161 in the House, with 174 Republicans and 95 Democrats voting for the bill and 95 Republicans and 66 Democrats voting against." You meant to right, "and 95 Democrats and 66 Republicans voting against."
(No need to post this.)

Not that small

Thanks. I hate making a mistake like that but love it when my posts are fact-checked by readers. 

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