Ultimately, new legislation (enacted with appropriations or separately) can direct which set of caps will be applied and how. Image: AlexRoz/Shutterstock.com
By: FEDweek StaffFollowing are key sections of a Congressional Budget Office analysis of the cuts in agency budgets that would be needed—under terms of the Fiscal Responsibility Act, the 2023 law that suspended the federal debt ceiling—if regular appropriations are not enacted for the current fiscal year—the kind of cuts that led to many thousands of federal employees being furloughed without pay the last time such “sequestration” cuts were imposed, in 2013.
The set of caps that applies to discretionary funding depends on the timing of the enactment of appropriation acts and the duration for which funding is provided. The caps specified in section 102 were triggered because discretionary funding was provided by the continuing resolution that was in place on January 1, 2024. Unless all full-year appropriations have been enacted by April 30, 2024, OMB will use the section 102 caps to determine whether sequestration is required.
Within 15 days of the enactment of the last full-year appropriation act, OMB will use the section 101 caps to determine whether sequestration is required.
Additional sequestration orders might be required if more base funding is provided after enactment of all full-year appropriations.
Ultimately, new legislation (enacted with appropriations or separately) can direct which set of caps will be applied and how.
What Is Discretionary Sequestration?
Discretionary sequestration is an administrative process for reducing budgetary resources in the event of a breach of statutory caps. (OMB also uses sequestration to enforce other statutory requirements for the federal budget.) In this instance, to determine whether sequestration is required, OMB must compare its estimates of defense and nondefense discretionary funding provided for 2024 with the caps specified in the FRA. If OMB determines that funding for one or both categories exceeds the relevant cap, the President must issue a sequestration order to eliminate the breach.
To formulate that order, OMB decides how each budgetary account is treated under the statutory rules for sequestration. OMB then determines the amount of budgetary resources subject to sequestration, which differs from the amount of funding estimated to have exceeded the caps. Some categories of spending that can cause a breach are not subject to sequestration. Other categories—even though they cannot cause a breach—are subject to such an action.4 For example, funding for programs administered by the Department of Veterans Affairs is exempt from sequestration. Likewise, the President has exempted funding for service members’ pay from sequestration in fiscal year 2024.5 Despite that, base discretionary funding for those activities is considered in the determination of whether total base funding complies with the caps. Excluding those programs from sequestrable resources increases the size of the cuts that would be imposed on other discretionary programs.
Some factors work in the opposite direction: Budgetary resources that are not part of base funding can be sequestered. Examples include certain funding designated as an emergency requirement and unspent defense appropriations from prior years.
Required Sequestration in 2024 Under the Caps
To illustrate how the caps in the FRA could affect discretionary funding, CBO estimated the reductions required under each set of caps if enacted funding equaled the annualized amount of base funding under the current continuing resolution. CBO estimates those amounts at $860 billion for defense and $777 billion for nondefense activities.
Section 102 Caps. CBO estimates that the annualized base budget authority provided by the current continuing resolution exceeds the section 102 defense cap by $10 billion and the nondefense cap by $41 billion. Thus, on April 30, 2024, OMB would be required to cancel 1 percent of sequestrable defense budgetary resources and 5 percent of sequestrable nondefense budgetary resources.
The immediate effects on federal agencies’ operations could be much greater than those percentages suggest, however. If an agency operates through April 30 (seven months into the fiscal year) at the amounts provided by the continuing resolution, a 1 percent reduction in defense funding for the fiscal year would require a 2.4 percent reduction over the period from May 1 to September 30. Similarly, an overall reduction of 5 percent imposed by the nondefense cap would require a 12 percent reduction in funding for the final five months of the year.
Section 101 Caps. CBO estimates that to comply with the FRA’s section 101 caps, base nondefense funding must be $73 billion lower after full-year appropriations are enacted than the amount now provided by the current continuing resolution (see Table 2). If full-year funding is set at the amounts in the continuing resolution, a sequestration of 9 percent would be required to enforce the nondefense cap. Defense funding provided under the continuing resolution is $27 billion below the section 101 cap, so no sequestration would be required in that category.
Enacting all of the full-year appropriation acts would cause the section 101 caps to apply—even if the section 102 caps had been enforced on April 30.
Reverting to the section 101 caps from the section 102 caps would increase allowable defense funding by $37 billion (a 4 percent increase) but would further decrease allowable nondefense funding by $33 billion (a 4 percent decrease) According to OMB, if full-year appropriations were enacted after sequestration was ordered on April 30, the section 101 caps would apply but the reductions in budgetary resources (which would be ordered to comply with section 102) would not be reversed automatically without legislative action.
Therefore, the total amount of defense funding for fiscal year 2024 might remain at the amount set in section 102 if full-year funding that equaled the amounts provided in the current continuing resolution was enacted after April 30 and if that law did not reverse the sequestration order.
The situation for nondefense funding is different: If 2024 nondefense funding is first reduced to comply with the section 102 cap on April 30, OMB may need to order another sequestration to comply with the lower section 101 nondefense cap 15 days after the enactment of all of the full-year appropriation acts if the funding those acts provide is the same as the funding provided in the continuing resolution.
Why Does the Nondefense Sequestration Percentage Exceed 1 Percent?
To determine the FRA caps under section 102, a 1 percent reduction is applied to CBO’s estimate of CAA, 2023, base funding. It is not applied to the amount of funding in place under the current continuing resolution. CBO’s estimate of budget authority under the CAA, 2023, is $34 billion less than such funding under the continuing resolution. (Of that amount, $33 billion is attributable to nondefense funding; the remainder is for defense.) Because of that difference, funding that is 1 percent below CAA, 2023, base funding is below the amounts in the current continuing resolution by a larger percentage.
Most of the difference between the funding under the continuing resolution and base funding under the CAA, 2023, stems from these factors: • Enacted advance appropriations for 2024 for the Department of Veterans Affairs and the Indian Health Service are higher than the amounts under the CAA, 2023, by $17 billion and $5 billion, respectively.
• The Federal Housing Administration is expected by CBO to collect roughly $7 billion less in receipts in fiscal year 2024 than it did in 2023. In the budget, those receipts are counted as offsets to discretionary budget authority and outlays.
• Base budget authority provided by the CAA, 2023, was reduced by several cancellations of budget authority that had been provided previously. CBO estimates that the affected agencies lack enough budget resources to fully repeat those cancellations in 2024, thus increasing by $1 billion the net budget authority provided in the continuing resolution.
Uncertainty
Significant uncertainty surrounds the effects of the limits on discretionary funding contained in section 102 and section 101 of the FRA. Ultimately, funding will depend on the actions of lawmakers and on OMB’s decisions about sequestration.
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