Timing of the 2014 Sequestration

We’ve been asked repeatedly when the sequestration budget cuts for fiscal year 2014 will kick in.  As we see it, the 2014 sequestration has already occurred (even though fiscal year 2014 doesn’t officially begin until October 1).  That’s because the Office of Management and Budget ordered sequestration on April 10 and corrected its order on May 20.  The order did the following:

• It immediately reduced the cap on discretionary spending for fiscal year 2014 from $1.058 trillion to the $967.5 billion level that budget insiders often mention.
• It ordered entitlement cuts to take place and, in all but two cases, they will take effect on October 1.
• The two exceptions are Medicare and some farm price supports.  The scheduled 2 percent cut in payments to Medicare providers and plans will take effect next April 1 and last for 12 months.  It doesn’t start sooner only because the 2 percent “2013” Medicare cuts will continue through March 31, 2014 (under a special rule that’s unique to Medicare) and the law doesn’t permit doubling up the Medicare cuts.  Farm price supports start with the “crop year” (for each crop) that begins after October 1.

So why do some insiders say that 2014 sequestration won’t occur until January?  That’s because government budget officials will not enforce breaches in the discretionary caps (though sequestration budget cuts) until a week or two after Congress adjourns to end the session — and that may not happen until late in December.

The logic of waiting until adjournment to enforce funding caps dates from the 1990s, when Congress typically enacted its 13 appropriations bills one at a time from September through, say, November, after which lawmakers would leave town.  Total funding wouldn’t be known until the last bill was enacted.

As a result, Congress can deliberately break the caps for a little while through a temporary continuing resolution this fall that will keep government agencies funded without triggering an immediate across-the-board appropriations cut — as long as government spending falls under the caps by the time Congress adjourns.  Meanwhile, the sequestration of entitlement programs starts on October 1, regardless.

A short-term breach of the caps, however, won’t do agencies any favors.  Suppose a six-week continuing resolution allows an agency to obligate funds at an annual rate of, say, $107 million.  The agency still knows it will only end up with $100 million for the entire year under sequestration, so it would be foolish to deliberately obligate funds at the higher rate for six weeks and then have to squeeze the $7 million cut into a shorter period of time; that’s a recipe for bad management and furloughs.