Issues & AdvocacyFederal
Sequestration: Questions and Answers
By Andrew Goldberg, Managing Director, Government Relations & Outreach
Barring any unlikely last-minute negotiations, tomorrow agencies across the federal government will begin to see their budgets cut as a part of sequestration.
What does sequestration mean for architects, the built environment, and the broader economy? Some policymakers and pundits are warning of dire consequences for the country, while others believe the impact will be minimal. The real effects are hard to measure, and may not be apparent for some time. But there is little doubt that there will be at least some ramifications for almost everyone.
On the eve of the first round of sequestration, the AIA government relations and outreach team provides answers to some of the most common questions.
What is sequestration?
Sequestration is a series of automatic budget cuts affecting the budgets of most government agencies that would reduce spending by $1.2 trillion over the next nine years, including $85 billion in the current fiscal year. The cuts are divided equally between defense and non-defense programs (“discretionary spending programs” in Washington lingo) and would take an even percentage off every program. So-called entitlement programs like Social Security and Medicare are not affected.
Why is it happening?
In August 2011, President Obama and Congressional Republicans struck a deal to allow the federal government’s debt ceiling to increase. The deal created the so-called “supercommittee,” which was charged with developing a long-term deficit reduction plan. Sequestration was included as a trigger if the supercommittee failed to agree on a plan; the idea was that the cuts were so large and indiscriminate that it would induce both sides to strike a deal. However, the supercommittee failed to find consensus on a plan, triggering a January 1, 2013, start date for sequestration. The fiscal cliff deal signed at the start of the year delayed sequestration until March 1.
Do Congress and the White House want sequestration to happen?
Almost everyone on both sides say they do not want it to take place; the cuts are too large, they say; it takes a meat-cleaver approach by slicing the same amount from every program no matter its importance or effectiveness; it will hurt the economy, and so on. But while both sides say they want to find a way to stop sequestration, they do not agree on how to do it. Democrats have proposed replacing the $85 billion in sequestration cuts with a mix of spending cuts and tax increases, mainly focused on higher-income earners. Republicans oppose that approach, and have proposed shifting the cuts on defense to other non-defense programs, while Democrats in turn oppose. Some Republicans have also proposed giving agencies more flexibility in applying the cuts, so that higher priority programs could be spared. But Democrats have rejected that idea. As of right now, neither side appears to be making serious efforts to negotiate.
What are the impacts of sequestration on the economy?
It depends on who you ask. The non-partisan Congressional Budget Office has estimated that sequestration may cost the economy as many as 750,000 jobs this year. Others have disputed those numbers, saying that the cuts, representing about 2 percent of the total federal budget, will not have as large an impact as some have feared. The truth is, nobody knows for sure.
What is the impact on the overall federal budget deficit and national debt?
Concerns about the budget deficit (the difference, each year, between what the federal government spends and what it collects in taxes and fees) and the national debt (the total accumulated amount the federal government owes due to annual deficits) is the main driver behind the sequestration. There is little doubt that sequestration will reduce federal spending in the long run. However, the overall impact on the budget deficit is murky. Because sequestration only impacts so-called discretionary programs, and not entitlement programs, some estimates show that the long-term deficit reduction impact of sequestration will be minimal, and that as the population continues to age and health care costs rise, those increases will far exceed any budget savings. In addition, it sequestration slows the economy, that will reduce tax revenue, making it even harder to close the budget gap.
What is the impact on design and construction?
Although it is hard to know precisely what the impacts are, an AIA analysis released in October found that sequestration could reduce federal spending on design and construction by more than $2 billion, with potential job losses in the industry of up to 60,000 and higher costs to taxpayers in the long run due to deferred maintenance.
What does sequestration mean for architects and others who work for the federal government?
Most agencies have not finalized their plans under sequestration, but it is possible that up to a million federal employees may be affected, mainly through furloughs or days of unpaid leave, which may start as soon as March.
What does sequestration mean for architecture firms with federal contracts?
It depends on the kind of contract and the agency. GSA’s building programs, for example, are not directly affected by sequestration because their funding comes not from Congress but from fees that other agencies pay for space and renovations, However, if those agencies cut back on facilities spending, that will affect GSA programs. The best thing companies with federal contracts can do is check with their contracting officers.
Once the first round of cuts goes into effect, can they be reversed?
In theory, yes. Congress and the President could add money back into the budget, although with the current fiscal year half over, it is unlikely that agencies would be able to resume all activities that were delayed or canceled by sequestration before the fiscal year ends September 30.
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