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Looking Past the Cliff: Can OMB Strategies Prevent a Recession?

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The Department of Defense might be particularly susceptible to cutbacks.

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G. William Hoagland, a former Republican chief of staff of the Senate Budget Committee, agreed that OMB could use the apportionment process to slow the rate of spending cuts early in 2013 while the negotiations continue. "They could apportion the reductions more heavily in the fourth quarter of the fiscal year, as opposed to the second and third quarters," Hoagland said.

But that strategy is fraught with risk, noted Hoagland, now a senior fellow at the Bipartisan Policy Center. "If you think there's going to be a deal reached, then you can soften [the impact of the cuts]. But if a deal's not reached, then boy, that fourth quarter is really bad." That's because all of the spending cuts deferred in expectation of a deal would then have to be extracted from the operating budgets of the Pentagon and domestic government programs.

Robert D. Reischauer, a former director of the Congressional Budget Office, said that federal agencies will be "very cautious" in deciding how to best forestall the mandated spending cuts, "because they don't want to create huge problems for themselves in the future."

Last September, OMB issued a report warning of the looming cuts that lawmakers and policymakers say would be indiscriminate and could wreak havoc on government services, including scores of domestic programs. The cuts were mandated under the Budget Control Act of 2011 to end the debt-ceiling crisis. That legislation immediately cut government spending by $1 trillion and ordered an additional $1.2 trillion of automatic savings over the coming decade unless a special House-Senate "super committee" could agree to a package of cuts and additional revenue to meet that target. But the super committee failed to reach agreement late last year, helping to set the stage for the fast-approaching fiscal cliff of deep spending cuts and tax increases.

DELAYS IN PURCHASES, REPAIRS

For the Pentagon, allowing the automatic cuts to go into effect would mean delaying new equipment purchases and repairs, reducing services for military families, and reducing the readiness of units not actively deployed, according to the OMB report.

While the Department of Defense would be able to shift funds to ensure that war fighting and critical military readiness capabilities were not degraded, sequestration would result in a reduction in the readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families, the OMB report said.

The sequestration reductions would also mean fewer FBI agents and federal prosecutors; a dramatic reduction in federal scientific research; curtailed food inspections; and fewer air traffic controllers, according to the detailed 400-page report prepared by OMB. Sequestration would undermine investments vital to economic growth, threaten the safety and security of the American people, and cause severe harm to programs that benefit the middle-class, seniors, and children, according to the report. Education grants to states and local school districts supporting smaller classes, after-school programs, and children with disabilities would suffer as well, it also said.

Moreover, customs and border patrol agents, correctional officers, and federal prosecutors would be slashed. The Federal Aviation Administration's ability to oversee and manage the nation's airspace and air traffic control would be reduced, as would the Department of Agriculture's efforts to inspect food processing plants and prevent food-borne illnesses and the Environmental Protection Agency's ability to protect the air and water.

While White House aides have insisted they weren't planning for this scenario, Zients recently instructed agency heads to start preparing for the worst, according to Politico. Zients is likely to issue a report as early as January 3, the day after sequestration is set to take effect, explaining how the cuts will be implemented and signaling how much flexibility will be granted to department heads.

But the 1985 budget law guiding the process is complex, and Congress's jerry-rigged omnibus spending packages and conference reports will pose a number of perplexing obstacles to implementing sequestration.

"Congress needs to own up to the fact [that] sequestration was a massive mistake that is already eroding our prospect of continued economic growth," Scott Lilly, a former Democratic House Appropriations Committee staff director, said earlier this year. While a long-term budget and tax deal is more desirable, he said, Congress at a very minimum should delay the impact of sequestration until next October, to give the new Congress time to find a better solution.

Editor's Note: This article by Eric Pianin originally appeared on The Fiscal Times. Brianna Ehley of The Fiscal Times contributed to this article.

For more from The Fiscal Times:

Stephen Colbert Explains the Fiscal Cliff

The Myth of Being Rich at $250,000

Tax Hikes Over $250K: The End of the Upper Middle Class?


Follow The Fiscal Times on Twitter @TheFiscalTimes.
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