Study: Sequestration won’t necessarily mean immediate furloughs, layoffs

The odds that a lame-duck session of Congress will produce a breakthrough in Washington’s fiscal stalemate are slim, according to a study released Friday. But the White House and federal agencies have several tools they could use to temporarily mitigate the harm from across-the-board budget cuts scheduled for Jan. 2, 2013, the nonprofit OMB Watch found.

“Most analyses of the impact of sequestration are based on an assumption that it will be fully implemented for the remainder of the federal fiscal year,” said the report written by Patrick Lester, director of fiscal policy at OMB Watch. “However, it is possible that sequestration might be triggered but later retroactively canceled as part of a broader budget agreement between Congress and the president in early 2013” with minimal or no damage to most federal defense and nondefense programs.

Tools to control the damage include delaying the announcement of new contracts and grants, redirecting funds to more urgent activities early in the year and using spending options to prevent agency layoffs.

“The administration still has significant flexibility to avoid furloughs and [reductions in force],” the analysis stated. “First, the Budget Control Act gave the president authority to exempt spending on military personnel, which he has chosen to do. Second, for civilian personnel, Section 112 of the continuing resolution that funds federal programs through March 27 (H.J. Res. 117) provides the administration power to accelerate spending as necessary to avoid furloughs.”

Lester encouraged use of these tools. "In poll after poll, the American people have said they want to see taxes on the wealthy increased,” he said. “Allowing the [George W.] Bush tax cuts to expire may be the only way to achieve that. Then the president and Congress will have several weeks to negotiate a constructive budget agreement -- one that raises the revenue required to keep the recovery going, supports critical public programs and reduces the debt over time."

The OMB Watch report pointed to several factors that make a lame-duck budget deal unlikely: “The sharply divided, highly partisan character of the current Congress, coupled with a hotly contested presidential election, undermines the desire for compromise. Congressional leadership elections scheduled for January 2013 will make ambitious leaders in each party unwilling to appear to be working with the opposition party. Congress has a limited number of working days in which to find a compromise between the election and Jan. 2. And finally, many new members of Congress fear that the pledge they made to never raise taxes will come back to haunt them if they agree to a budget deal that includes tax increases before the end of the year.”

By agreeing to tolerate sequestration temporarily, the analysis stated, the White House could exploit a new political calculus requiring that, absent a budget deal by Dec. 31, taxes would return to Clinton-administration era levels. “Every budget deal proposed after that, the analyst said, will “inevitably involve a vote for tax cuts for middle-class Americans.”