September 18, 2012

Sequester Details

By Christy Gullion

Schedule: Both the House and Senate are out until Wednesday in observance of the Jewish holiday of Rosh Hashanah. When they return, the Senate will take action on the 6-month continuing resolution. Both chambers are expected to recess at the end of the week and not return until after the November elections.

OMB Sequester Report: In the report released last Friday, the Office of Management and Budget (OMB) warns the sequester would be “deeply destructive” to national security, domestic investments, and core government functions. The report outlines some $109 billion in automatic reductions – or sequester – triggered by last year’s debt limit agreement. The automatic cuts would reduce spending over the next decade across more than 1,200 federal accounts starting January 2, 2013, trimming defense by $54.67 billion, domestic discretionary spending by $38 billion, Medicare by $11 billion, and other mandatory spending programs by about $5 billion. The 394-page report estimated the reductions would reduce discretionary defense spending by 9.4 percent and domestic discretionary spending by 8.2 percent. The estimates are calculated based on the level of federal spending in FY2012. Spending in FY2013 is almost sure to be higher since the proposed six-month continuing resolution (CR) increases spending slightly for the fiscal year that begins October 1st.

Sequester and Higher Education: If Congress fails to head off the $109 billion in overall cuts for 2013 before January 2nd – part of $1.2 trillion in required cuts over the next decade through the sequester – most aspects of federal spending relating to higher education would face reductions of either 8.2 percent (for discretionary programs) or 7.6 percent (for mandatory programs), including appropriations to the National Institutes of Health (NIH) and the National Science Foundation (NSF). NIH, for example, would lose more than $2.5 billion from its more than $30 billion appropriation, a cut of 8.2 percent. The report does not specify how the NIH and other agencies would carry out the reductions internally. In addition to cuts in programs, the law would raise the 1-percent origination fee for unsubsidized Stafford student loans by 7.6 percent, to about 1.1 percent of a total loan. PLUS-loan and unsubsidized-loan fees would rise slightly, from about 4 percent to about 4.3 percent of a total loan. Pell Grants would not be affected by the sequester in the first year.

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