Return to ASDWA's Newsroom

Spending Cuts Loom

Unless Congress shockingly finds a new path to compromise, the Federal Budget will undergo severe cuts to both defense and discretionary programs on January 23, 2012.  The cuts (also called sequesters) are automatic and take effect because of the “Super Committee’s” inability to find a way to manage the growing budget deficit.  The budget cut process has two principal stages:

Stage 1:  The predetermined cut amount ($1.2 trillion) will be decreased by 18% in debt service savings.  The remaining $984 billion will be divided across each fiscal year through 2021 ($109.3 billion/year).  That amount will be divided equally between defense and non-defense spending accounts which means that the two categories will each be cut by $54.7 billion/year.

Stage 2:  There are different requirements for how the discretionary (non-defense) and mandatory (entitlement) fund cuts are allocated.  For FY 13, a single percentage cut will be applied to all discretionary accounts to achieve the savings target ($54.7 billion).  However, for FYs 14-21, Congress will be required to lower the statutory cap on total discretionary spending to achieve the required savings.  Mandatory accounts (with exemptions in place for Social Security, Medicaid, civilian and military retirement, and low-income assistance programs) will apply a single, uniform percentage cut to meet the funding cut goal.  Note, however, that Medicare cuts cannot exceed 2%.

There is a fair amount of speculation on Capitol Hill that Congress may try to repeal, or at least modify, some of the cut provisions before they take effect.  Whether the Dems and GOP can agree on how to make those modifications is the big question.