sequestration numbers are in: more details...

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Sequestration Numbers are In: More Details Emerge Background The federal contracting community has been waiting with bated breath for more details to determine the impact of sequestration on their businesses. Although the Budget Control Act (BCA) of 2011, which brought sequestration to the table, provided a (fairly) clear description of the dollar impact at the aggregate level, the impact at the program level is still unclear. The devil is in the details, so as the true implications of sequestration became more clear, and the deadline closer, Congress became more concerned with how the sequestration cuts would be implemented. To force the administration to provide those details, they passed the Sequestration Transparency Act (STA) which Obama signed on August 7. Potentially the shortest piece of legislation on record (a whopping 2 pages), the STA gave the Obama administration 30 days to report, for each account to be sequestered, estimates of the “level of sequestrable budgetary resources and resulting reductions at the program, project, and activity (PPA) level based upon the enacted level of appropriations.” My team of analysts and I, who have analyzed the federal budget account-by-account, literally laughed out loud at the idea that the administration could pull together that amount of information within 30 days. We wondered if they could even find the people who knew the people who knew where the data was within 30 days. The report acknowledges this challenge by stating that, “Regularizing reporting across different budget accounts and agencies requires the resolution of many definitional questions, and the sheer volume of data presents administrative challenges that require additional time for OMB to address.”

OMB Report Applies BCA Percentages to Major Budget Accounts Released a week after the September 7 deadline, the report sheds some light onto the impact of sequestration, but not much. The BCA established a uniform percentage reduction across accounts, specifically stating that “except as otherwise provided, the same percentage sequestration shall apply to all programs, projects, and activities within a budget account.” Those percentages vary, depending on the sequestration category as seen in the chart below:

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Sequestration Percentage Cuts

Preliminary analysis of the data shows a few trends:

Defense hit hard, but small elements of major accounts have been shielded. The relative size of DoD budget accounts make them very large targets, but there are elements of the major accounts that are under exemption. There are several accounts in which DoD exempts nearly as much (or more) as it sequesters, such as:

o Defense-wide: Defense Health Program, Operation and Maintenance, and Research, Development, Test and Evaluation

o Navy Operation and Maintenance o Army Operation and Maintenance and Procurement o Air Force Research, Development, Test and Evaluation

Agencies’ working capital funds are largely protected. In most cases, all of the vast majority of working capital funds have been exempted. Some contract work is funded from these accounts.

Fund accounts with economic implications are largely exempted. Although not completely exempt, many of the accounts that support insurance and credit programs are exempt.

Senate and House member compensation is exempt. Although general salaries and expenses are sequestrable, compensation for Senate and House members, approximately $127 million is exempt.

Contractors and government employees will take hits. With the exemption of military personnel compensation, employees of most agencies will likely be impacted as a large percentage of most Salaries and Expenses accounts are sequestrable. Accounts funding general operations and facilities management are largely sequestrable so contractors will be impacted.

States (and other grant holders) will be impacted. Although some grant accounts are fully or partially exempt (such as State Medicaid Grants), others are sequestrable, such as:

o HHS Child Care and Development Block Grant o HHS Social Services Block Grant o HHS Affordable Insurance Exchange Grants o HHS State Grants and Demonstrations


o HUD Homeless Assistance Grants o DOT Capital Investment Grants

Key Areas of Sequestration and Exemption

The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) as amended, identifies programs exempt from sequestration and subject to special rules. The percentage cuts in OMB’s sequestration report, and the identification of exempt and non-exempt accounts, reflect the requirements set forth in the BBEDCA. The administration cannot choose which programs to exempt, or what percentage cuts to apply. Although the number crunching is far from over, OMB’s report does shed some light into areas that will be subject to sequestration and which areas will be exempt. Examples for the top federal agencies are provided in the tables below.

DEFENSE (Non-Military Depts.)

Dept./Bureau Budget Account Total Budget Amount ($m)

Sequestration Amount ($m)

Operation and Maintenance Operation and Maintenance, Defense-wide

43,890 3,879

Defense Health Program 37,168 3,269

Afghanistan Security Forces Fund 14,100 1,325

Research, Development, Test and Evaluation

Research, Development, Test and Evaluation, Defense-wide

23,344 2,007

Procurement Procurement, Defense-wide 8,009 705

Mine Resistant Ambush Protected Vehicle Fund

3,338 314

Joint Improvised Explosive Device Defeat Fund

3,148 296

Military Construction Military Construction, Defense-wide 4,415 415


Exempt Amount ($m)

Military Personnel Concurrent Receipt Accrual Payments to the Military Retirement Fund

6,950 6,950

Operation and Maintenance Operation and Maintenance, Defense-wide

43,890 2,624

Defense Health Program 37,168 2,388

Allied Contributions and Cooperation 905 905


Account

Department of Defense Acquisition Workforce Development Fund

751 570

Procurement Procurement, Defense-wide

8,009 506


Research, Development, Test and Evaluation, Defense-wide

23,344 1,994

Revolving and Management Funds

Working Capital Fund, Defense-Wide 54,877 54,473

Working Capital Fund, Defense Commissary Agency

7,475 6,092

National Defense Sealift Fund 1,833 610

Pentagon Reservation Maintenance Revolving Fund

551 551

ARMY



Operation and Maintenance Operation and Maintenance, Army 81,090 6,867

Operation and Maintenance, Army National Guard

7,496 686

Operation and Maintenance, Army Reserve

3,356 309

Procurement Other Procurement, Army 13,386 1,251

Aircraft Procurement, Army 9,116 843

Procurement of Weapons and Tracked Combat Vehicles, Army

3,003 276

Procurement of Ammunition, Army 4,514 229


Research, Development, Test and Evaluation, Army

12,897 954

Military Construction Military Construction, Army 8,486 383

Dept./Bureau Budget Account Total Budget Exempt


Amount ($m) Amount ($m)

Military Construction Military Construction, Army 8,486 4,414

Military Personnel Military Personnel, Army 50,436 50,436

National Guard Personnel, Army 8,267 8,267

Reserve Personnel, Army 4,521 4,521

Medicare-Eligible Retiree Health Fund Contribution, Army

2,404 2,404

Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Army

913 913

Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Army

524 524

Operation and Maintenance Operation and Maintenance, Army 81,090 8,037

Procurement Procurement of Ammunition, Army 4,514 2,078

Missile Procurement, Army 2,087 285

Research, Development, Test, and Evaluation

Research, Development, Test, and Evaluation, Army

12,897 2,749


Working Capital Fund, Army 12,279 12,101


AIR FORCE



Operation and Maintenance Operation and Maintenance, Air Force 47,056 4,267

Operation and Maintenance, Air National Guard

6,388 577

Operation and Maintenance, Air Force Reserve

3,501 321

Procurement Other Procurement, Air Force 24,204 2,226

Aircraft Procurement, Air Force 21,936 2,010

Missile Procurement, Air Force 7,380 668


Research, Development, Test and Evaluation, Air Force

35,658 2,717


Operation and Maintenance, Air National Guard

6,388 577

Operation and Maintenance, Air Force Reserve

3,501 321

Procurement Other Procurement, Air Force 24,204 2,226

Aircraft Procurement, Air Force 21,936 2,010


Exempt Amount ($m)

Military Personnel Military Personnel, Air Force 29,971 29,971

National Guard Personnel, Air Force 3,147 3,147

Reserve Personnel, Air Force 1,747 1,747

Medicare-Eligible Retiree Health Fund Contribution, Air Force

1,442 1,442

Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Air Force

277 277


Operation and Maintenance, Air 6,388 254


National Guard

Procurement Other Procurement, Air Force 24,204 525

Aircraft Procurement, Air Force 21,936 550

Missile Procurement, Air Force 7,380 275


Research, Development, Test and Evaluation, Air Force

35,658 6,758


Working Capital Fund, Air Force

24,963 24,883

NAVY



Military Construction Military Construction, Navy and Marine Corps

3,618 290

Operation and Maintenance Operation and Maintenance, Navy 50,979 4,291

Procurement Aircraft Procurement, Navy 23,837 2,240

Shipbuilding and Conversion, Navy 22,774 2,141

Other Procurement, Navy 7,656 692

Procurement, Marine Corps 3,943 366

Weapons Procurement, Navy 3,926 369


Research, Development, Test and Evaluation, Navy

19,120 1,777


Exempt Amount ($m)

Military Construction Military Construction, Navy and Marine Corps

3,618 538

Military Personnel Military Personnel, Navy 28,341 28,341

Military Personnel, Marine Corps 14,316 14,316

Reserve Personnel, Navy 2,037 2,037

Medicare-Eligible Retiree Health Fund 1,409 1,409


Contribution, Navy

Medicare-Eligible Retiree Health Fund Contribution, Marine Corps

880 880

Reserve Personnel, Marine Corps 672 672

Operation and Maintenance Operation and Maintenance, Navy 50,979 5,330

Procurement Other Procurement, Navy 7,656 289


Research, Development, Test and Evaluation, Navy

19,120 221


Working Capital Fund, Navy 25,488 25,488

AGRICULTURE


Sequestration Amount ($m))

Farm Service Agency Commodity Credit Corporation Fund 19,175 469

Natural Resources Conservation Service

Farm Security and Rural Investment Programs

3,019 220


Exempt Amount ($m)

Food Nutrition Service Supplemental Nutrition Assistance Program

87,414 87,306

Farm Service Agency Commodity Credit Corporation Fund 19,175 13,005

COMMERCE



National Oceanic and Atmospheric Administration

Operations, Research and Facilities 3,131 257

Procurement, Acquisition and Construction

1,816 149

U.S. Patent and Trademark Office

Salaries and Expenses 2,951 242



Exempt Amount ($m)

Census Working Capital Fund 683 683

National Oceanic and Atmospheric Administration

Operations, Research and Facilities 3,373 242

EDUCATION



Office of Elementary and Secondary Education

Accelerating Achievement and Ensuring Equity

15,742 1,291

Education Improvement Programs 4,544 373

Office of Special Education and Rehabilitative Services

Special Education 12,640 1,036


Exempt Amount ($m)

Office of Federal Student Aid Student Financial Assistance 24,535 22,824

ENERGY



National Nuclear Security Administration

Weapons Activities 7,214 678

Defense Nuclear Proliferation 2,296 216

Environmental and Other Defense Activities

Defense Environmental Cleanup 5,018 472

Energy Programs Science 4,874 400

Energy Efficiency and Renewable Energy

1,810 148


Exempt Amount ($m)


National Nuclear Security Administration

Weapons Activities 8,484 1,270

Other Defense Activities 2,494 1,671

Energy Programs Science 5,501 627

Energy Efficiency and Renewable Energy

2,086 276

Power Marketing Administration Bonneville Power Administration 5,371 5,256

Construction, Rehabilitation, Operation and Maintenance, Western Area Power Administration

1,351 1,255

Colorado River Basins Power Marketing Fund, Western Area Power Administration

197 197

Departmental Administration Working Capital Fund 276 276

HOMELAND SECURITY



Citizenship and Immigration Services

Citizenship and Immigration Services 2,991 205

Customs and Border Protection Customs and Border Protection 11,657 823

Federal Emergency Management Agency

Disaster Relief 7,077 580

Immigration and Customs Enforcement

Immigration and Customs Enforcement

5,992 477

Transportation Security Administration

Aviation Security 5,483 448

United States Coast Guard Operating Expenses 7,305 297


Exempt Amount ($m)

Citizenship and Immigration Services

Citizenship and Immigration Services 2,991 298

Customs and Border Protection Customs and Border Protection 11,657 1,511


Departmental Management and Operations

Working Capital Fund 938 938

Federal Emergency Management Agency

National Flood Insurance Fund

3,551 3,551

National Protection and Programs Directorate

Federal Protective Service 1,302 1,301

Science and Technology Research, Development, Acquisitions and Operations

946 278

United States Coast Guard Operating Expenses 7,305 3,762

Retired Pay 1,431 1,431

Medicare Eligible Retiree Health Fund Contribution, Homeland Security

203 203

United States Secret Service Contribution for Annuity Benefits, United States Secret Service

250 250

HEALTH AND HUMAN SERVICES



Administration for Children and Families

Low Income Home Energy Assistance 3,472 285

Children and Families Services Programs

9,934 812

Centers for Disease Control and Prevention

CDC-Wide Activities and Program Support

6,369 464

Centers for Medicare and Medicaid Services

Federal Supplementary Medical Insurance Trust Fund

3,426 281

Food and Drug Administration Salaries and Expenses 3,940 318

Health Resources and Services Administration

Health Resources and Services 6,305 509

Indian Health Service Indian Health Services 5,031 317

National Institutes of Health National Institutes of Health 34,093 2,518

Substance Abuse and Mental Health Services Administration


3,640 275



Exempt Amount ($m)

Agency for Healthcare Research and Quality

Healthcare Research and Quality 351 351

Centers for Disease Control and Prevention

CDC-Wide Activities and Program Support

6,369 709

Centers for Medicare and Medicaid Services

Program Management 5,286 4,828

Indian Health Service Indian Health Services 5,031 1,165

National Institutes of Health National Institutes of Health 34,093 3,382

Program Support Center Retirement Pay and Medical Benefits for Commissioned Officers

528 528



3,640 292

INTERIOR



National Park Service Operation of National Park System 2,236 183

Bureau of Indian Affairs Operation of Indian Program 2,368 194

Departmental Offices Mineral Leasing and Associated Programs

2,184 166


Exempt Amount ($m)

Bureau of Reclamation Lower Colorado River Basin Development Fund

253 253


US Geological Survey Surveys, Investigations, and Research 1,525 457

Bureau of Indian Affairs Operation of Indian Programs 2,639 271

Office of the Special Trustee Tribal Special Fund 339 339

Department-wide Programs Working Capital Fund 1,620 1,546


Interior Franchise Fund 1,168 1,168

Insular Affairs Compact of Free Association 205 205

Payments to the United States Territories, Fiscal Assistance

248 248

JUSTICE



FBI Salaries and Expenses – Defense Function

4,932 464

Salaries and Expenses – Non-Defense Function

4,646 271

Federal Prison System Salaries and Expenses – Non-Defense Function

6,596 537


Exempt Amount ($m)

General Administration Working Capital Fund 1,215 1,215

Legal Activities & US Marshalls Salaries and Expenses, General Legal Activities

1,330 467

Assets Forfeiture Fund 1,369 282

Salaries and Expenses, United States Marshals Service

2,774 1,602

Salaries and Expenses, United States Attorneys

2,324 364

FBI Salaries and Expenses 4,646 1,345

DEA Salaries and Expenses 2,533 505

Federal Prison System Commissary Funds, Federal Prisons (trust Revolving Fund)

355 244

Federal Prison Industries, Incorporated

711 711


LABOR



Employment and Training Administration

Training and Employment Services 3,203 262

Unemployment Trust Fund (Discretionary)

4,336 356

Unemployment Trust Fund (Mandatory)

65,380 1,018


Exempt Amount ($m)

Departmental Management Veterans Employment and Training 273 220


Employment and Training Administration

State Unemployment Insurance and Employment Service Operations

3,919 3,832

Unemployment Trust Fund (Mandatory)

65,380 51,986

Payments to the Unemployment Trust Fund

11,922 11,922

Office of Workers' Compensation Programs

Black Lung Disability Trust Fund

309 250

Special Benefits 3,400 3,400

Energy Employees Occupational Illness Compensation Fund

1,260 1,260

Pension Benefit Guaranty Corporation

Pension Benefit Guaranty Corporation Fund

8.706 8,553

NASA



National Aeronautics and Space Administration

Space Operations 4,222 346

Science 5,085 417


Cross Agency Support 5,294 246

Exploration 3,767 309


Exempt Amount ($m)

National Aeronautics and Space Administration

Cross Agency Support 5,294 2,300


STATE



Administration of Foreign Affairs

Diplomatic and Consular Programs 15,890 1,084


Exempt Amount ($m)

Administration of Foreign Affairs

Diplomatic and Consular Programs 15,890 2,674

Embassy Security, Construction, and Maintenance

2,425 855

Working Capital Fund 4,158 4,158

TREASURY



Departmental Offices Grants for Specified Energy Property 3,671 279

IRS Enforcement 5,373 436

Operations and Support 3,985 325

Build America Bond Fund 3,351 255



Exempt Amount ($m)

Departmental Offices Terrorism Insurance Program 245 242

Office of Financial Stability 282 282

Exchange Stabilization Fund 296 296

Treasury Franchise Fund 252 252

Financial Agent Services 610 610

Federal Reserve Bank Reimbursement 331 331

Claims, Judgments, and Relief Acts 816 816

US Mint United States Mint Public Enterprise Fund

3,452 3,056

IRS IRS Miscellaneous Retained Fees 331 292

Payment Where Child Tax Credit Exceeds Liability for Tax

21,886 21,886

Payment Where American Opportunity Credit Exceeds Liability for TAX

7,541 7,541

Federal Financial Banking Federal Financing Bank 3,551 3,551

Comptroller of the Currency Assessment Funds

1,027 1,027

TRANSPORTATION



Federal Aviation Administration Trust Fund Share of FAA Activities (Airport and Airway Trust Fund)

5,061 415

Operations - 377

Facilities and Equipment (Airport and Airway Trust Fund)

2,819 229

Federal Highway Administration

Payment to the Transportation Trust Fund

6,200 471



Exempt Amount ($m)

Office of the Secretary Working Capital Fund 495 495

Working Capital Fund, Volpe National Transportation Systems Center

260 260

Federal Aviation Administration Operations 11,498 6,895

Grants-in-aid for Airports (Airport and Airway Trust Fund)

3,516 3,515

Administrative Services Franchise Fund

466 466

Federal Motor Carrier Safety Administration

Motor Carrier Safety Grants 307 307

Motor Carrier Safety Operations and Programs

271 271

Maritime Administration Ready Reserve Force 340 340

National Highway Traffic Safety Administration

Highway Traffic Safety Grants 550 550

What’s Next?

The most glaring omission from this report and previous discussions is implementation. How will agencies execute these cuts, especially when they will occur after the fiscal year has already started (and under a continuing resolution)? Sequestration is not a new concept so OMB likely has plans for implementation – they’re just not yet sharing them with us.

Clearly, most contracts are funded from defense and non-defense discretionary accounts, but the details provided do not yet allow for much insight into specific program impacts. OMB noted that additional time was needed to report on sequestrable funds at the PPA level, which is something that those contractors prepping employee pink slips would find of great interest. That data would allow for some level of mapping between sequestrable programs and contracts, and allow contractors to prepare themselves for the eventuality of sequestration or, at a minimum, mitigate the impact that the uncertainty has created.


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