Damage control for Budget Act
By Jim Dyer and Scott Lilly,
Jim Dyer, a principal at the Podesta Group, was clerk and staff director of the House Appropriations Committee from 1995 to 2005. Scott Lilly, a senior fellow at the Center for American Progress, held that position with the Appropriations Committee when Democrats controlled the House in 1994 and after that served as minority staff director.
Once again, Congress is in the midst of a legislative session threatened by a problem of its own making and is uncertain about how, when or where to solve it. In nine months, a law on the books, the Budget Control Act of 2011, will wreak havoc not only on the operations of federal government, but our entire economy, if lawmakers do not agree on an alternative approach to cutting the budget.
Unfortunately, no one in Washington seems to be particularly concerned.
Lawmakers, agency heads and even lobbyists are discounting the probability of the sequestration mandated in the Budget Control Act — the bill passed last summer to raise the debt limit. That legislation would cut most defense and non-defense discretionary spending by about 12 percent for the first nine months of 2013.
Most commentary suggests these issues will be resolved after Election Day, in a lame-duck session. But what evidence suggests that a sudden outbreak of reasonableness will occur after Nov. 6? Furthermore, how much economic damage will be inflicted before this lame-duck miracle occurs, should it take place? Too few are thinking about the potential damage to government services and the economy if sequestration were implemented.
We negotiated on opposite sides of major budget confrontations for more than a decade, and we think the federal government needs to begin weighing these questions now, rather than after the November elections. There is too little time, and too much is at stake.
One problem is the apparent belief that slicing $110 billion out of a $3.6 trillion budget is no big deal. The truth is that those cuts will come from a much smaller part of the budget — and in a time frame that will make them impossible to absorb without major dislocation for the economy at large as well as for government bureaucrats.
Some of the most serious damage will be directed not at the big programs about which the two parties have deep and long-standing disagreements but at basic, critical functions of government that are broadly supported by members of both parties. Take U.S. marshals, who, among other things, protect judges and juries during federal court proceedings. Some recent analysis indicates that the U.S. Marshals Service will have to furlough (suspend salary payments) every deputy marshal in the country for five weeks during the nine-month sequestration period. Because U.S. court dockets are already so crowded that it is difficult to find enough marshals to maintain adequate protection levels, it is possible that each federal court in the nation will have to cancel five weeks of court dates during the first nine months of next year.
Similar scenarios are possible with an array of federal services: Processing of applications for patents and trademarks, Social Security benefits, and federal land leases would be reduced. So would food and meat inspections. Perhaps even more problematic would be a 12 percent personnel cut among air traffic controllers. One budget analyst we spoke with suggested the possibility of “flightless Fridays.”
Perhaps the greatest hazard of these cutbacks would be the uncertainty they would create in specific industries — such as airlines — and in the economy as a whole. Studies have demonstrated that uncertainty over government policy can be harmful to investment and job creation. Sequestration would create uncertainty in spades.
Consider the situation faced by a small business with 100 employees working under a government contract. The program that funds the contract is to be cut by 12 percent on Jan. 2, but this particular contract could be cut by much more. The contractor realizes that if he does not send out layoff notices before late October, as required by most states, he will be liable for paying salaries for which he may not be reimbursed. Such firms would effectively be forced to prepare such notices in August or September to avoid the serious damage, or even bankruptcy, that a sequestration might cause.
The disruption of government procurement would be huge — and the resulting costs of pending projects, such as border protection and submarine construction, could skyrocket. The risk of doing business with the government would also greatly increase, as would the prices that government would be expected to pay in the future.
It is doubtful that either political party would be willing to simply suspend sequestration and tell world credit markets that we will begin to address our deficit problems when we find it more politically convenient. Thoughtful people in both parties have an obligation to get to work now to avert a crisis that could be of far greater proportions than are generally appreciated.