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OMB Watch Outlines Strategies to Minimize Near-Term Sequester Impact

One of the keys to a strategy of letting the fiscal slope elements expire to increase leverage for a reasonable post-slope deal after the fact concerns how the Office of Management and Budget handles the sequester, the automatic cuts to defense and discretionary spending. They issued a report back in September, but it wasn’t terribly illustrative, just giving a level of cuts to each program in the budget affected.

Now, a new report from OMB Watch suggests that OMB and federal agencies can make the sequester manageable in the early weeks following the triggering of the sequester. This is predicated on a temporary sequester in the first several weeks of 2013, perhaps up to a month.

In the report, OMB Watch argues that the White House and the federal agencies can essentially postpone impacts of the sequester while a budget agreement gets negotiated.

The executive branch has a variety of tools to deal with the cuts on a short-term, temporary basis. These include controlling the rate of federal spending during the first few weeks of the year, delaying the announcement of new federal contracts and grants until later in the year, redirecting funds to more urgent activities early in the year, and using spending options to prevent agency layoffs.

“Advocates and citizens should urge the White House and agencies to use the tools at their disposal to minimize the impacts of the automatic cuts required by the Budget Control Act until a budget compromise is found,” said Lester. “In poll after poll, the American people have said they want to see taxes on the wealthy increased. Allowing the Bush tax cuts to expire may be the only way to achieve that. Then the president and Congress will have several weeks to negotiate a constructive budget agreement – one that raises the revenue required to keep the recovery going, supports critical public programs, and reduces the debt over time.”

This is almost a parallel to the “extraordinary measures” that the Treasury Department can undertake to delay the impact of the debt limit. For example, OMB can accelerate program spending in early 2013 even with the sequester cuts, basically bringing spending forward into those initial weeks. This would allow them to avert layoffs, the biggest near-term consequence of the sequester. In addition, agencies can use “carryover” funds already appropriated but never used. They could prioritize program activities within a particular budget line item to minimize impact. They could work through existing contracts and grants, which are not eligible for the automatic cuts, before signing new ones, which are eligible.

None of these strategies would prevent cuts, but they would give the Administration breathing room in early 2013, basically an extra month or so to work out an arrangement. If the incoming Congress is more broadly favorable for Democrats, that would be an option worth taking. If the strategy looks more promising to propose a tax cut after all the Bush-era tax cuts expire, then these strategies would ensure minimal near-term impact from sequestration, despite allowing that to trigger. The hard December 31 deadline, in other words, doesn’t have to be much of a deadline at all, and that means Democrats have a wider menu of options, election outcome permitting.

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David Dayen

David Dayen