Report: White House could blunt impact of sequestration - at least for a while

Thursday - 11/8/2012, 4:19pm EST

Patrick Lester, director of federal fiscal policy, OMB Watch

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With each passing day sequestration, the automatic across-the-board budget cuts set to take effect in January, creep closer to reality.

The $1.2 trillion in cuts over 10 years — $109 billion next year alone, split equally between Defense and civilian agencies — have led many budget and defense analysts to warn of a looming fiscal cliff. But a new report from independent watchdog group OMB Watch suggests the White House has a few tools at its disposal to blunt the impact of the cuts.

OMB's apportionment authority

The first is the Office of Management and Budget's authority to control the rate of federal spending over the course of the fiscal year, known as apportionment.

"Congress, constitutionally, has the authority to set the budget, but once they pass those appropriations bills, it is up to the administration — the President — to decide how that money will be spent over the course of the year," said Patrick Lester, the director of federal fiscal policy at OMB Watch and the report's author, in an interview In Depth with Francis Rose.

If Congress and the administration agree on a broad budget deal early next year — even after sequestration goes into effect — it's likely the cuts will wind up having only a short-term effect, according to the report.

Essentially, in the first few weeks after sequestration is triggered, OMB could ramp up spending "just enough to prevent those cuts from really biting," Lester said.

At most, though, that only buys the administration about a month, he said. OMB's legal authority to use apportionment in this way is also unclear, the report cautioned. In fact, under current law, OMB is directed to use apportionment to prevent overspending in the early part of a fiscal year, the report stated.

Agencies can shift funds

Agencies, themselves, also have some options to "cushion the impact" of sequestration, the report noted. Once Congress appropriates funding, agencies are tasked with obligating those funds to specific programs or projects.

The agencies control the rate at which funds are obligated over the fiscal year, and many agencies are allowed to carry over unobligated funds from one year to the next.

Other methods of shifting funding include transfers, which move funding between appropriated line-items and reprogramming, which allows managers to shift funding within an appropriation.

According to the report, both methods offer "substantial ability to redirect cuts away from sensitive areas of spending to other areas that be less sensitive in the first few weeks of the year."

None of these methods would exactly be unfamiliar territory for agencies.

Lester told Federal News Radio because of the increasing prevalence of last-minute continuing resolutions, agencies are now "quite used to basically pinching their pennies at the beginning of the fiscal year waiting to see what that final bill looks like."

Personnel costs present challenge

However, federal managers will face constraints in attempting to shield federal employees from cuts.

"It is more difficult to delay spending on employee compensation and benefits because these costs are incurred throughout the year," Lester wrote in the report. And managers often have less flexibility to reprogram funds because "some budget accounts are so overwhelmingly dominated by personnel-related costs that avoiding personnel cuts becomes difficult, if not impossible."

That leaves layoffs, known as reductions-in-force (RIF), and furloughs on the table, Lester wrote in the report.

However, in the continuing resolution approved by Congress in September, lawmakers created an escape hatch of sorts, allowing OMB to accelerate spending in the early months of the year to avoid furloughs. Also, the law, which created the sequester, has allowed the President to exempt military personnel costs.

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