The sequester is set to cut spending across the board. But how? We know an awful lot about what the sequester can't do. It can't cut Social Security, Medicaid, military salaries or any number of of exempt programs. It can't mess with federal pay scales. It can't favor certain programs over others. But the actual process by which cuts are to be determined, and who is involved in that process, is more obscure.
The problem, budget experts say, is that the Budget Control Act was simultaneously very strict in its dictates and not specific about what those dictates mean. "The law states that the 'same percentage sequestration shall apply to all programs, projects, and activities within a budget account,' " former OMB director Peter Orszag says. "That's pretty restrictive, giving little room for creativity."
What room there is comes from defining exactly what is meant by "programs," "projects" and "activities." "There is not a standard definition," Stan Collender, a longtime Congressional budget hand currently at the PR firm Qorvis, explains. "It’s not something that exists anywhere else in nature."
The terms originate in the Gramm-Rudman-Hollings Act of 1985, which established the first sequestration procedure, intended to implement automatic budget cuts if the deficit exceeded fixed targets. But neither that bill, nor the Budget Enforcement Act of 1990 (which succeeded Gramm-Rudman-Hollings), nor the Budget Control Act of 2011 (which created the impending 2013 sequester) specified just which components of each department and agency were "programs," which were "projects" and which were "activities."
Usually, appropriators allocate money to different "accounts," of which there tend to be a couple dozen per department, and several per agency. The OMB offered preliminary estimates of cuts to each account last September, although those numbers are somewhat dated after the fiscal-cliff deal. But accounts aren't programs, projects or activities, and OMB still hasn't laid out what programs, projects and activities are subject to the sequester.
And defining them is by no means easy. To borrow an example from Collender, one could reasonably define each grant that NIH gives out for biomedical research as a "project," and then further specify that every lab using the grant is a "program" and every employee an "activity." Or you could say that all cancer grants are collectively a "project," each type of cancer a "program" (e.g. all stomach-cancer grants are one program, all pancreatic-cancer grants another, etc.) and each grant an activity. Which set of definitions you use has major implications for how much flexibility administrators get, and yet Congress has laid out none of them. It's up to OMB.
Barry Anderson, now the deputy director of the National Governors' Association, is one of the few people to actually define programs, projects and activities (PPAs for short). He helped organize sequesters under the Budget Enforcement Act the last time the process was used. "The last sequesters were done and actually implemented in 1991, when I was at OMB," he tells me. "There were three officials – the budget director Dick Darman, Bob Damus at the general counsel's office, and me, and I was the head of the budget review division at the time. Both Darman and Damus have passed on, and I've been in therapy ever since and don’t like to talk about it."
Anderson used what he likes to call the "Chubby Checker rule," after the chorus of the singer's "Limbo Rock": "How low can you go?" He tried to make the purview of PPAs as small as possible, as close to the bottom of the department hierarchies as he could get, so as to blunt any criticism from Congress that OMB was favoring one program over another. If, say, the entire U.S. military were classified as a "program" and an individual NIH grant were also classified as "program," that would amount to giving the military more leeway than NIH. So instead he would define, say, a specific missile system as a program, instead of defining programs more broadly.
Anderson would also get around the restriction on altering pay scales by "furloughing" workers to achieve the desired cut in costs. "If you wanted to cut five percent of the wage bill for an agency, you could cut pay scales by 5 percent, or you could cut the time they work for 5 percent and not pay them for it," he explains. This was a particularly common tactic at agencies such as the Federal Trade Commission or Securities and Exchange Commission, whose costs are almost entirely personnel-related.
The process Anderson describes involves basically zero discretion for agency heads. Collender argues that the administration wants it that way. "One reason the White House hasn’t expressed interest in getting the flexibility that Senate Republicans want to give it is that it doesn’t want to take the responsibility," for the cuts in sequester, he tells me. If the White House actively picks and chooses programs, then it "owns" the cuts more than if it binds its hands and just cuts uniformly. That provides a powerful incentive to follow the Chubby Checker rule and define PPAs narrowly, for minimum discretion.
There are a few potential areas of executive discretion. Defense spending can be altered through a process called "reprogramming," in which the DoD allocates money originally appropriated for one purpose to another (subject to approval by congressional oversight committees). Some non-defense departments have reprogramming authority, but it's typically much more limited. That would allow the Pentagon to, say, move a chunk of money from one fighter-jet program to another, such that across-the-board cuts end up having a bigger net effect on one than on another. And, of course, Obama and Congress could always pass an alternative set of cuts. But if the sequester proceeds as it did the last go-around, the executive will be pretty much stuck.