Specter of Budget Sequestration Looms Over November's Elections

Unless Congress and the White House take action by the end of the year, across-the-board spending reductions will go into effect for all federal agencies as a result of provisions in the Budget Control Act of 2011. The budget sequestration would reduce defense discretionary funding by 9.4 percent and non-defense funding by 8.2 percent from the 2011 baseline. Though the Office of Management and Budget (OMB) report outlining these reductions does not provide details by program, research and economic development spending could be affected disproportionately, since, in many agencies, these programs are supported through discretionary spending.

When bipartisan majorities in the House of Representatives and Senate passed the Budget Control Act in August 2011, the threat of sequestration was included in the legislation as a mechanism to force Congress to address the growing federal budget deficit. The act established multiyear caps to constrain discretionary spending and charged a "supercommittee" with devising a deficit reduction plan to abide by those caps. The committee, however, failed to reach an agreement and Congress has not approved yet a deficit reduction plan. In accordance with the legislation, if no such plan exists by the January 2, 2012, across-the-board reductions will be put in place for all federal agencies.

In September, OMB published its breakdown of exempt and non-exempt budget accounts, and estimated cuts for all federal agencies. OMB notes that sequestration is a "blunt and indiscriminate instrument," one which was never intended to become a reality. The report states that "no amount of planning can mitigate the effects of the cuts." If the sequestration goes into effect, funding would be reduced at the following rates in FY13:

• 10 percent for defense mandatory programs;
• 9.4 percent reduction for discretionary defense funding;
• 8.2 percent reduction for discretionary non-defense funding;
• 7.6 percent reduction for other non-defense mandatory programs; and,
• 2 percent reduction for Medicare.

There is also the possibility that the reductions for non-defense funding could be even larger. A proposal passed by the House as part of the FY13 budget resolutions would shift the defense reductions to the non-defense side. This proposal, however, is unlikely to be approved by the Senate or White House, according to the New York Times.

The OMB report includes preliminary estimates of budget reductions under the sequestration for FY13. Reductions related to TBED include:

• Research Development Testing & Evaluation
  • Air Force - $2.72 billion
  • Defense-wide - $2 billion
  • Navy - $1.78 billion
  • Army - $954 million
• National Institutes of Health - $2.53 billion
• NASA - $1.458 billion
• National Science Foundation - $586 million
• Office of Energy-Science - $400 million
• National Institutes of Standards and Technology - $62 million
  • Hollings Manufacturing Extension Partnership - $10 million
• Department of Agriculture Rural Business Cooperative Service - $16 million
• Department of Agriculture Rural Development - $15 million
• Economic Development Administration - $3 million

Read the OMB sequestration report...

Two recent reports address the harmful effect sequestration could have on U.S. research competitiveness. The American Association for the Advancement of Science (AAAS) finds that sequestration could reduce federal R&D expenditures by $57.5 billion over the next five years. AAAS estimates future R&D funding levels under three different scenarios: funding without the sequestration, but within the Budget Control Act's discretionary spending caps, funding with defense and non-defense reductions, and funding with only non-defense reductions. The report provides details on how the sequestration could impact each of the major federal research agencies and how individual states could be affected. Read AAAS' analysis...

A report from the Information Technology and Innovation Foundation (ITIF) estimates that, if the sequestration is allowed to remain in effect through 2021, U.S. GDP would decline by at least $203 billion and up to $860 billion. ITIF's estimates are based on projected reductions in federal R&D spending and the ensuing loss of U.S. research competitiveness. Decreasing federal support for basic research would be particularly harmful, since the private sector remains reluctant to invest in high-risk, long-term research projects. Read Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth...

Both reports conclude that the sequestration would harm the U.S. innovation economy at a time when other nations are making significant investments in research competitiveness. While the growth of private-sector R&D has made the country less dependent on federal investment, it remains a vital component of the national research enterprise and reduction would severely impede our ability to generate new technologies and products.

Last week, President Barack Obama signed a continuing resolution to fund federal agencies through March 27, 2013. The continuing resolution does not affect the sequestration, which still will go into effect at the start of the new year. Congressional negotiations over the sequestration are expected to resume during a lame duck session after the election.