While most of the Senate is focused on the impending July 1 deadline at which time the interest rate on loans issued this coming school year will be set at 6.8 percent, up from 3.4 percent rate on loans made last year, other senators see another deadline, one that has far bigger ramifications for education programs. January 2nd is the day that across-the-board cuts known as sequestration, established in last summer’s debt ceiling agreement, kick in.
Last week, during deliberations on the farm bill that the Senate passed on Thursday, Senators Patty Murray (D-WA) and John McCain (R-AZ) introduced an amendment that would illustrate what the effects of sequestration will be come January. The amendment passed easily, though it hasn’t yet made it into law.
The amendment requires that the White House Office of Management and Budget (OMB) report within one month a line-by-line account of how sequestration would reduce the yet-to-be enacted fiscal year 2013 appropriations. The president would then have two months to produce the report that, among other things, identifies the effects of sequestration on education programs, the estimated number of teacher positions lost as a result of the cuts, and the predicted number of students affected by program cuts. It must also quantify reductions in educational spending caused by the cuts at state and local levels. (One wonders why the senators didn’t make this request of the Congressional Budget Office instead, given that it would not have required a law, the CBO works for Congress, and it is well-suited to the task. Do the Senators think that the White House and OMB are not prepared operationally for sequestration?)
Senators aren’t the only ones concerned about the imminent cuts, though. School districts, states, and education stakeholders across the country all have questions. Though no one can know the impact of the cuts on fiscal year 2013 appropriations – remember, Congress hasn’t actually appropriated funds yet for that year, which begins on October 1, 2012 – we can examine what might happen.
Here’s a quick review of why sequestration looms and how it is supposed to work. Last August, Congress passed the Budget Control Act (BCA) as part of a bipartisan agreement to raise the ceiling on the national debt. The law set spending limits for appropriations bills for the following 10 years (the fiscal year 2013 limit is set at $1.047 trillion, $3 billion below 2011 levels but $4 billion over 2012 levels). It also tasked a congressional “supercommittee” with finding $1.5 trillion in deficit reduction.
If the supercommittee failed (it did) to reach a deal that reduced the deficit by $1.2 trillion over 10 years by Thanksgiving and Congress didn’t pass a deficit reduction bill (it didn’t) by January 15, 2012, federal agencies must cut funding they receive in the fiscal year 2013 appropriations bill by a uniform percentage on January 2, 2013. Separately, in future years, total spending limits on appropriations bills would be reduced further.
A Congressional Budget Office (CBO) report issued in September 2011 estimated that sequestration would be set at about $39 billion in fiscal year 2013 for non-defense appropriations if Congress ultimately enacts appropriations funding at this year’s cap, $1.047 trillion. That translates into a 7.8 percent reduction after the bill is enacted.
The Labor-HHS-Education fiscal year 2013 appropriations bill that passed the Senate Appropriations Committee earlier this month illustrates how sequestration would affect funding for education programs should that bill become law. Keep in mind that the percentage is only an estimate, and actual spending cuts could look different.
Of course, this all assumes that Congress and the president allow sequestration to proceed as it is scheduled in current law. Historically, lawmakers have always “cancelled” sequestration when their spending and tax-cutting ambitions got ahead of predetermined limits and sequestration would have been triggered.
The House has already passed such a piece of legislation that would cancel the 2013 sequestration, and the president included plans to cancel it in his 2013 budget request. But none has made it into law and a final answer on what lawmakers will do will probably have to wait until after the November elections. You can always count on Congress to wait until the last minute to fix a problem.
For more information on the Budget Control Act, click here to read our issue brief exploring the fiscal year 2012 appropriations process. To follow the budget process, check out our background and analysis page on federal education appropriations.