Sequestration snarling 2014 budget process

Sunday - 7/7/2013, 9:48pm EDT

The annual appropriations process is a complex and arduous Washington practice.

A dozen bills establishing agency funding must be passed by the House and the Senate — and the two versions reconciled — before being signed into law by the president. Failure to do so by the start of the fiscal year in October could lead to a government shutdown.

But what's snarled the process even more than usual this year is sequestration. The billions in automatic, across-the-board budget cuts have already taken a chunk out of 2013 spending and are poised to continue to do so again when the calendar rolls over to fiscal 2014 in just a few months.

As appropriators work to set agency funding, the House and the Senate disagree about how to account for the cuts in next year's spending plans.

The House has settled on a $967 billion plan that takes the total amount of the sequester cuts into account but spares the Defense Department from further reductions. The Senate, on the other hand, has settled on a higher top-line number, a "pre-sequestration" level of $1.058 trillion. Leaders there have called on House and Senate Republicans to appoint members to a conference committee to hammer out a broader deal on the automatic cuts separate from the appropriations process.

Long-time budget watchers agree the numbers game — the House and the Senate are still $91 billion apart on a top-line spending number — makes the process more difficult.

"It's more unusual than most years because there isn't agreement on the overall top-line level, which is important for the appropriations process," Joel Friedman, vice president for fiscal policy at the Center on Budget and Policy Priorities, told Federal News Radio.

And to top it all off, the deadline is quickly approaching. The fiscal year doesn't end until Sept. 30, but lawmakers will recess almost the entire month of August, meaning they only have about six weeks left of work.

House, Senate taking divergent paths

2014 Appropriations

Appropriations Bill

House

Senate

Agriculture $19.45 billion $20.79 billion
Commerce, Justice, Science $46.85 billion $51.86 billion
Defense $512.52 billion $511.86 billion
Energy and Water $30.43 billion $33.36 billion
Financial Services $16.97 billion $22.99 billion
Homeland Security $38.99 billion $39.51 billion
Interior/Environment $24.28 billion $29.66 billion
Labor, HHS, Education $121.79 billion $157.72 billion
Legislative Branch $4.12 billion $4.42 billion
Military Construction/VA $73.32 billion $72.24 billion
State $34.10 billion $49.84 billion
Transportation $44.10 billion $53.54 billion
Source: House Appropriations Committee, Senate Appropriations Committee

Congressional appropriators face two constraints in setting agency spending next year, both stemming from the 2011 Budget Control Act. First, the top-line number must adhere to annual caps on discretionary spending — set at $1.058 trillion in 2014, balanced not quite evenly between defense and nondefense. Second, unless lawmakers pass an alternative deficit-reduction plan, another tranche of automatic cuts is set to ax $91 billion from federal spending next year.

The House and Senate are taking divergent paths to deal with these two budget hurdles.

The House, following a framework set out by Rep. Paul Ryan (R-Wis.) and the House Budget Committee, sets agency spending at the lower post-sequestration number, $967 billion, but requires all the cuts to come from civilian agency budgets.

The conservative Heritage Foundation called the House approach "refreshing," ostensibly because — unlike the White House and Senate budgets — it doesn't blindly assume sequestration will be averted and because it eschews further Defense reductions.

"The measure would protect defense from further cuts and instead deliver the total savings through reductions to domestic discretionary programs," a post on the Heritage website stated.

However, this tactic runs contrary to the annual budgetary caps imposed by the budget law, which constrain both defense and nondefense spending, even before sequestration.

In contrast, the Senate plan funds both Defense and civilian agencies at the amounts allowed for by the BCA budget caps — $1.058 trillion. That's before sequestration, which the Senate wants to avert entirely with an alternative package of deficit cuts.

Friedman's organization, a left-of-center think tank, supports the Senate plan. The House approach, in a bid to spare the Pentagon from further reductions, would take an even larger chunk from nondefense spending than sequestration, the group argues.

"The Senate approach of funding discretionary programs at the BCA levels before sequestration and replacing sequestration with equivalent savings from elsewhere in the budget is far preferable," Friedman and his colleagues wrote in a post on the CBPP website.

Chicken-or-the-egg scenario

Lawmakers are essentially faced with a chicken-or-the-egg scenario: Do they come up with a plan to avert sequestration, which would have to include some alternative trims to agency budgets and then hammer out the nitty-gritty of annual appropriations? Or, do they attempt in one fell swoop to tackle both issues, doling out agency spending in a way that takes sequestration into account?

Democrats in the House, for example, have followed their Senate counterparts in calling for the Appropriations committees to hold off on setting next year's spending levels until a deal on sequestration is reached.

"With a balanced deficit reduction plan, we could establish an alternative allocation that would sufficiently fund our priorities and allow us to follow regular order for the appropriations process," Rep. Nita Lowey (D-N.Y.), the ranking member of the Appropriations Committee, said in a June 4 statement.

Rep. Hal Rogers (R-Ky.), the committee chairman, has voiced support for such a compromise "that will undo the damaging sequestration law and give us a single, common top-line allocation with the Senate," he said in The Hill. "However, until that time, we cannot sit by the wayside waiting for a deal to be made," he added.

For agency managers and contractors — for whom the annual appropriations process is a window into spending priorities for the upcoming year — it all means paralyzing uncertainty.

To further complicate matters, both the House and the Senate are violating provisions in the Budget Control Act, Friedman said: The House, by appropriating discretionary spending for Defense next year in excess of the budget caps, and the Senate by not taking into account the automatic sequester cuts.

"For either one of their plans to be carried through, they both have to have some kind of change in the law," Friedman said.

The uncertainty is visible in the House's glacial pace in passing the 12 spending bills. So far, the House has only approved two of them. By this time last year, the House had approved eight of the bills.

Full-year CR coming?

With the deadline rapidly approaching and more politically explosive fights coming in the form of negotiations over raising the debt limit, many think lawmakers will punt the spending issue to a continuing resolution (CR), a stopgap funding measure that largely continues spending at the previous year's funding levels.

But this year, even the CR process won't be as straightforward as in years past. A full-year CR could be problematic because it would still be bound by the BCA caps on discretionary spending.

Nevertheless, that's what some in industry are planning for.

"We've just come out with our guidance for FY 14, and we assume that we're going to be in CR with sequestration during all of 14," said Kenneth Asbury, president and CEO of services firm CACI on The Federal Drive with Tom Temin and Emily Kopp. "So, that's our planning assumption at the moment."

Contractors, agency managers and budget watchers, alike, will probably have to wait a while longer before the full picture of 2014 funding becomes clearer.

The real budget negotiations likely won't start up until September, Friedman predicted. And because of the enormity of the issues, the White House is sure to be involved.

"The two parties' strategies are not yet clear," he said. "Their positions are clear but their strategies in how to achieve them are not."

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