SEQUESTRATION AND MORE

Transcription

1 SEQUESTRATION AND MORE Discussion with Northern Virginia Technology Council 14 September 2012 Dr. Lisa Oakley-Bogdewic 2012 The MITRE Corporation. All rights reserved.

2 2 Topics The Calendar is Important BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary of the Numbers Continuing Resolutions BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

3 3 The Calendar is Important Planning Programming Budgeting Execution FY Focus FY FY15-19 FY14 FY13 Impacts LT Debt Deficit Spending Cutbacks, SEQ CR, SEQ X Source: OMB

4 4 Sequestration (SEQ) 101 What is SEQ? Automatic spending cuts. [CRS] Will SEQ impact all sponsors? Yes. Both appropriations (discretionary) and entitlements (mandatory). [BCA 2011] Will SEQ Impact DoDmore than others? Yes. CRS estimates 48% from DoD discretionary, 42% from Non-Defense discretionary, 10% from Mandatory budgets. When will SEQ take effect? ~$917B from budget caps in Phase I; $1.2T Phase II over FY13-21; includes saved net interest costs. [BCA 2011] Does DoDhave a plan for SEQ? Intentionally not. Panetta urges Congress to responsibly reduce the deficit and avoid harmful impacts. [DoD] How long will SEQ impacts last? Reductions are planned through FY21. Cuts are permanent and counted in subsequent years, so initial changes are largest. Jobs. Has SEQ ever happened before? Yes, in Mechanism established in Will SEQ solve the Fiscal Cliff problem? SEQ is just one contribution to reduce debt through deficit reduction. Expiration of tax cuts, cuts in job measures, and new health care taxes will also affect the Deficit landscape. BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

5 5 SEQ is Phase II of Budget Control Act (BCA) 2011 Phase I: Discretionary spending limits, or caps, for each of FY2012-FY2021 Total $917B $497B non-security $420B security $350B from Defense category $330B from DoD Phase II: automatic, across-the-board spending reductions. Budgetary resources are permanently canceled to enforce policy goal of $1.2T additional cuts over FY13-FY21 48% from Defense Discretionary 42% from non-defense Discretionary 10% from Mandatory (CRS Estimates) BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

6 6 Possible Types of DoD SEQ Impacts Appropriation Approx. Budget Share Functions Supported Operations & Maintenance 38% Civilian Personnel Ops and Training Maintenance Base Operations Health Care Military Personnel 26% Benefits Force Structure Procurement 21% Major Systems Non-Major Systems Research & Development 12% Acquisition Programs Science & Technology Test Military Construction 3% Military Construction Source: President s Budget BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

7 7 CRS Estimate of Timing of Phases I + II Cuts to Outlays FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Total "new" Cuts Discretionary Defense Non-Defense Mandatory Student Loans Medicare Other mandatory Total New Cuts Multiplier Factor % *2.1T = -378 Total BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

8 8 CBO s 9 Aug 12 Estimate Really Just Budget Caps If you have seen $54B as the DoD estimate of SEQ, this is the source This is the added reduction in the budget cap CBO estimates SEQ will reduce discretionary authority by $93.8B in FY13 Brings Defense down to $491B budget cap in FY13 BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

9 9 Sequestration (SEQ) Statistics We Care Most About Fiscal Cliff: $16.3T expected outstanding debt EOY FY12 ($14.8T EOY FY11) U.S. GDP ($2005): 2011 = $13.15T ($15.04T nominal) Federal Budget ($2005): 2011 = $3.15T ($3.6T nominal) Avg. annual :+4% from 2006, +4.1% from 2001, +2.6% from 1991 BCA 2011 Limits + SEQ: $900B+$1.2T = 2.1 T = in Debt Limit Sequestration as a % of: The Fiscal (Public Debt) Cliff = $1.2T/$16T = 7.5% The nominal Federal Budget = $110B/3.6T = 3.1% for FY13; 10% for Discretionary Is the $16.3T Outstanding Federal Fiscal Cliff All We Care About? Source: BEA and OMB BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

10 The Total Fiscal Cliff Picture, as of Sunday, 12 August 2012, 5:30 p.m. BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions 10

11 11 After the BCA 2011: FY14 Budget Plans Budget Plans: What has been DIRECTED in the way of cuts by OMB or Congress? FY2014: 5% from non-it discretionary 10% from IT Prioritize addbacks Improve management FY2014 cuts are thus added to the reductions in the BCA 2011 What should my customer be doing to plan for budget cuts? Approx. -$59B for FY14: Affects weapons systems, warfighter IT, operating funds, and other discretionary spending Prepare programmatic recommendations for budget cuts to meet FY14 OMB Budget Guidance Conduct Better Planning: Leverage IT streamlining, eliminate identified program duplications Source for data and guidance: OMB BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

12 12 Large DoDand Non-DoDIT Programs Subject to 10% Cut DoDIT over $240M per Year (39% of DoDIT Spending) Current Year $M DoD Investment Title FY11 FY12 FY13 DEFENSE INFORMATION SYSTEM NETWORK 2, , ,109.4 Next Generation Enterprise Network 1, , ,877.0 DEFENSE ENTERPRISE COMPUTING CENTERS NETWORK ENTERPRISE CENTER STAFF OPERATIONS COSTS Warfighter Information Network - Tactical Increment Non-DISN Telecomm Joint Tactical Radio System (JTRS) - HANDHELD, MANPACK, AND SMALL FORM FIT RADIOS (HMS) DLA Computing Infrastructure LONG HAUL COMMUNICATIONS PAYMENT TO DISA - AFNIC Consolidated Afloat Networks Enterprise Service NETWORK ENTERPRISE TECHNOLOGY COMMAND LEASED TELECOMMUNICATIONS (NON-SYSTEM SPECIFIC) Electronic Health Record Way Ahead BASE LEVEL COMMUNICATIONS INFRASTRUCTURE - ANG GLOBAL COMBAT SUPPORT SYSTEM - ARMY Battle Command Training Centers (Army Consolidated Listing) LOGISTICS MODERNIZATION PROGRAM U.S. ARMY INFORMATION TECHNOLOGY AGENCY ENTERPRISE COMPUTING FACILITY UNCLASSIFIED SYSTEM MHS Cyberinfrastructure Services Warfighter Information Network - Tactical Increment GLOBAL COMMAND AND CONTROL SYSTEM- JOINT Air and Space Operations Center - Weapon System DEFENSE INFORMATION SYSTEMS NETWORK (DISN) GLOBAL INFORMATION GRID (GIG) BANDWIDTH EXPANSION (BE) BCA 2011 and Sequestration Current Year $M Department/Agency Investment Title FY11 FY12 FY13 Health and Human Services CMS Medicaid Management Information System (NM) 2, , ,298.4 Veterans Affairs Medical IT Support 1, , ,284.0 Energy Consolidated Infrastructure, Office Automation, and Telecommunications Program Health and Human Services ACF IT Grants to States Veterans Affairs Enterprise IT Support Homeland Security CBP - Infrastructure National Aeronautics and Space Administration NASA IT Infrastructure Agriculture Advanced Planning Documents (APDs) -- IT Investments Grants to States the Treasury IRS Main Frames and Servers Services and Support (MSSS) Social Security Administration Infrastructure - Data Center Health and Human Services NIH IT Infrastructure Homeland Security NPPD - National Cybersecurity Protection System (NCPS) the Treasury Affordable Care Act Administration Transportation FAAXX704: Automatic Dependent Surveillance- Broadcast (ADS-B) Homeland Security USCIS - Transformation Agriculture Electronic Benefit Transfer (EBT) -- IT Investment Grants to States Transportation FAAXX504: En Route Automation Modernization (ERAM) Commerce NOAA/NESDIS/ GOES-R Series Ground Segment Agriculture Forest Service Computer Base Homeland Security ICE - IT Infrastructure (Atlas) Fiscal Cliff FY14 Budget Plans Summary Non-DoDIT over $240M per Year (27% of non-dodit Spending) Source: OMB IT Dashboard Continuing Resolutions

13 Examples of Discretionary Funds Subject to 5% Cut in FY % cut is ~$24.6B Source: President s Budget 5% cut is ~$2.5B BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

14 Federal Deficit and Debt Reduction Actions Combined 14 BCA Phase I BCA Phase II (SEQ) FY14 Budgetc Reductionsc Projected Deficit Cuts Over the FY12 to FY21 Year Timeframe to Achieve $4T Debt Reduction FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Budget Caps on Discretionary Spending: -$497B/54% non-security; -$420B/46% security (-$330B/36% DoD)] Sequester (or TBD redux): [-$811B/39% Defense discretionary; -$715B/34% non-defense discretionary; -$170B/8% mandatory; -$400B/18% Interest 10% cuts to approx. $75B/year in IT spending = ~-$7.5B/-$3.4B DoD 5% cuts to approx $1.03T in remaining discretionary spending = ~-$51.7B/-$25B Defense Interest Savings: ~-$75B Debt Redux -$917B -$1.2T ~-$548B Remainingc Reductionsc Remaining Presidential Goal of $4T Debt Reduction Invest in education, innovation, infrastructure, and R&D, plus fiscal discipline. ~-1.33T =~-$4.0T $16.3T Fiscal Debt Approximately $12.3T Remaining of 2012 Federal Debt Anticipated Increase in Federal Debt from Deficit Spending BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

15 15 Complicating Factor: Continuing Resolution What is a Continuing Resolution? A CR provides interim funding when Congress has not enacted appropriations. From 1998 to 2011, there were 87 CRs passed, 48% handled in seven days or less, and the remainder ranged from 21 to 365 days in duration. [CRS] What is the status of the current CR? Congress passed an informal 6-month CR in July, which would authorize a total of $1.047T expenditures through March The details of the CR will be resolved upon their return 10 Sept How will the CR interact with Sequestration? The CR will allow agencies to operate at FY12 budget levels through its duration. This could mean 14% cuts instead of 8% cuts if SEQ occurs. The CR may also reduce some political risks. [OMB] When will we know the impact of the Sequestration? OMB reports they are unable to detail the impact of cuts in September 2012 because Appropriation Bills have not been passed to use as a basis. However, we can see the functions supported by various appropriations. When might the Appropriations Bills be resolved? If passed, the CR will push appropriations bill resolution to the next Congress. The House has acted on seven bills but the Senate has refused to act. [APPNs Committee] BCA 2011 and Sequestration Fiscal Cliff FY14 Budget Plans Summary Continuing Resolutions

16 BACK-UP: RELATED SEQUESTRATION LEGISLATION AND OTHER MACRO SLIDES 16

17 17 Sequestration History BCA of 1974 established the CBO, created standing budget committees, increased congressional authority in budget process, decreased President s ability to impound appropriations, oved start of FY from July to Oct. Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, Title II of P.L ): Known as the Gramm-Rudman-Hollings Act, sequestration exemptions outlined Balanced Budget and Emergency Deficit Control Reaffirmation Act: Relays which organization (OMB, CBO) conducts analysis and reports estimates used for sequestration orders Budget Enforcement Act: Created 5 year caps for discretionary spending, raised taxes, and created "pay-asyou-go" (PAYGO) rules for taxes and certain entitlement programs (additional spending or tax cuts must be offset by increased revenue or decreased spending) Balanced Budget and Taxpayer Relief Act: The Balanced Budget Act of 1997 (a spending bill) and the Taxpayer Relief Act of 1997 (a tax bill) legislated the elimination of the annual budget deficit by Bi-partisan and agreement was easy because revenues were high, from tech-boom growth in the economy and marginal tax rate increases in Economic Growth and Tax Relief Reconciliation Act; 2003 Jobs and Growth Tax Relief Reconciliation Act: known as Bush Tax Cuts, a response to surpluses that ran from Emergency Economic Stabilization Act: --legislation passed in response to the international credit and subprime mortgage crisis in Established Troubled Assets Relief Program (TARP) which authorized the U.S. Treasury to spend up to $700 billion to purchase "troubled assets" from institutional investors American Recovery and Reinvestment Act a.k.a. the Stimulus Bill attempted to lift the U.S. economy out of a major recession through federal spending. The estimated cost of the final bill was $787B. Spending included aid to the unemployed, infrastructure projects, health care, education, law enforcement, homeland security, new energy programs, and home- and auto-buyers credit. Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO, Title I of P.L ): partially includes some mandatory spending to be subject ot sequestration (Medicare physician payments, estate and gift tax, AMT, and other middle class tax cuts) and included some spending areas (e.g., emergency spending, debt service) as excluded from Sequestration. Budget Control Act of 2011: alters a few partial and total exemptions. See P.L

18 Over the last ~50 years: 1962: Mandatory-25%; Discretionary-75% 2012: Mandatory-63%; Discretionary-37% Total Fed expenditures up average 3%/yr Real GDP up avg. 3%/year (sources BEA, OMB) DoDspending up average 1%/yr 18 Trends in Federal Spending (Source: OMB) Total Fed Expenditures, % Discretionary, and Defense vs. Non-Defense Discretionary (all $2005) 80% 70% 60% 50% 40% 30% 20% Total National Defense Total Non-Defense Total Federal Government Expenditures % Discretionary Discretionary non-defense up avg. 3%/year % By derivation: Entitlements up avg. 5%/year* 0 * Unsustainable is when spending increases faster than the rate at which the economy grows. SEN Pat Toomey (R-PA) 0% Source: OMB 18

19 19 Deficit Spending is Large Today 400,000 U.S. Deficits, e, in Nominal and Real (2005) Dollars OMB projects the >$1.1B per year deficit spending started in 2009 will decrease incrementally to $500B per year starting in , , , , , estimate 2015 estimate 2017 estimate Today -1,000,000-1,200,000-1,400,000-1,600,000 Data Source: OMB Surplus or Deficit ( ) Real Surplus (Deficit) (2005=100) $M

20 20 And the Debt Limits Continue to Increase The Debt Limit is currently over $16T Some years have seen several revisions to the Debt Limit 18, , , , ,000.0 Debt Limit in $B: 1940 to , , , , Data Source: OMB

21 21 Outstanding Debt as a Percent of GDP is over 100% Debt as a % of GDP is a measure of an Ability to Pay U.S. ranked 20 th in the world at 99.46%* in Gross Federal Debt as a Percentage of GDP Gross external debt 2011: $14.959T 2011 GDP (est.): $15.040T high debt due to high levels of investment in EE bonds by the middle class* Data Source: OMB 2013 estimate 2015 estimate 2017 estimate *James K. Galbraith, Why all the Fuss? at

22 22 Ways to Reduce National Debt* Inflate / Default Less Preferred Reduce Spend/Tax Ratio Out-Grow the Debt More Preferred *Jerry L. Jordan, Monetary Policy as a Fiscal Instrument,

23 GAO Simulation of Federal Deficits:* Without a change in behavior Deficit Levels will reach 20% of GDP by Assumptions Simulation 1 (blue): CBO baseline projections FY11-20 then held constant Simulation 2 (purple): Tax exemptions extended Revenue increases delayed Discretionary spending same pace with GDP *GAO, The Federal Government s Long-Term Fiscal Outlook: January 2011 Update, GAO Report #: GAO SP.

24 Deficits: Primary Cause of Debt 24 Debt to GDP ratio* increases exponentially in both cases to 200% What is wrong? Both simulations end up in the same place, it just takes longer. US needs to cut spending andfind a way to outgrow our debt *Debt Held by the Public does not include debt held by gov t accounts, about 30% of GDP today

25 25 Sources of Deficit Spending: Federal Spending from Entitlements (62.5%) and Appropriations (37.5%) Total Gov t Spending in 2011 was at 35% of GDP State & Local- 11% Payments to Individuals-15% Defense-5% Interest-2% Remainder-2% Government Expenditures by Major Category as a Percent of GDP, State and Local From Own Sources (Except Net Interest) Social Security and Medicare Other Payments for Individuals Defense and International Other Federal Net Interest Data Source: OMB TQ

26 Sequester is Just One of Many Changes Impacting the Deficit Source: The Committee for a Responsible Federal Budget, Between a Mountain of Debt and a Fiscal Cliff, Slide 6.