Sequestration Becomes a Reality

For months policymakers in Washington have devoted countless hours debating and attempting to prevent the automatic the board spending cuts know as sequestration.  (For more information on the sequestration process, see DBR’s Dewonkify on sequestration).  Washington has known that sequestration has been a possibility (however at times remote) since the Budget Control Act was enacted in August 2011.  At midnight tonight, Friday, March 1st, sequestration becomes a reality.

What actually happens in sequestration?

Earlier this week, the White House Office of Management and Budget released a memo to all agencies providing some guidance on how to prepare for sequestration.  Agencies are still sorting out how to specifically implement many of the sequestration requirements.  These cuts will not necessarily happen overnight.

The Senate Appropriations Committee has a list of the impact of sequestration by agency.

There’s been a lot of talk of furloughing federal workers. Does this mean federal workers would expect a long weekend?

No.  Some agencies have already issued furlough notices to employees, most notably the Department of Defense.  But not all agencies will necessarily furlough employees, and some may delay any immediate furloughs.  For example, the Internal Revenue Service announced that it would not furlough individuals until after the April 15, 2013 tax deadline.

What does it mean if for federal workers who are furloughed?

Basically, a furlough is forced unpaid leave.  Employees who are furloughed do not get paid for the time they are furloughed.  They also are not allowed to work during their furlough time.

Employees will keep their full health insurance benefits.  However, for other benefits (such as retirement account contributions) that are income-based, furloughed employees will likely see reductions.

What’s being done to stop this?

Policymakers in Washington have proposed several options to address these cuts.

Senate:  Yesterday, the Senate voted on two bills to prevent the sequestration.  By a vote of 51-49, the Senate failed to proceed on S. 388, legislation that would have postponed cuts in fiscal year 2013 and part of 2014.  Matching deficit savings would have been achieved through a mix of higher taxes on those making more than $5 million a year, oil companies, and firms that export jobs overseas, as well as more focused cuts to the Departments of Defense and Agriculture.

The Senate also defeated by a vote of 38-62 S. 16, legislation that would have maintained the overall cuts, but would have afforded the President greater discretion in how they were applied.   The Administration released a Statement of Administrative Policy strongly opposing S. 16.

House: The House passed two bills (H.R. 5652 and H.R. 6365) last year that would have replaced the across-the-board sequestration cuts with offsetting cuts to domestic spending and entitlements.  Both bills passed without any Democratic votes, and the Senate refused to consider either.

Earlier today, House Speaker John Boehner indicated that the House will pass a Continuing Resolution next week that will cover the remainder of fiscal year 2013.  As with S. 16, that bill is expected to maintain the sequestration cuts, but allow agencies greater discretion in how to apply them.

Administration:  The Administration continues to advocate for the proposal it released in December 2012 as part of the fiscal cliff negotiations.  That proposal calls for $2.5 trillion in overall deficit reduction through a mix of tax increases and targeted spending cuts.

The White House also has released a state-by-state analysis of the impact of the sequestration.

What’s the status of negotiations?

Earlier today, President Obama met with Congressional leaders at the White House.  The hour-long meeting failed to yield any results.

Please continue to check back for more information. We will be providing updates as the sequestration unfolds.

*Andrew Bowman contributed to this posting.

**For a great piece on how sequestration effects the life sciences industry, read this blog post by our colleagues.

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