Forget Sequestration. The Real Budget Fight Comes March 27 When the Government Shuts Down.

Commentary about business and finance.
Feb. 22 2013 3:36 PM

Forget Sequestration

The real deadline for government shutdown is March 27.

President Barack Obama delivers remarks on the sequestration- joined by emergency responders.
This is by far the most boring budget crisis of the Obama years

Photo by Jim Watson/AFP/Getty Images

Sequestration—it’s the talk of Washington. Republicans have press releases about it. Democrats have press releases about it. Media outlets are doing polls about who’s to blame, and cranking out Explainer pieces to keep you informed.

But the truth is that this is by far the most boring budget crisis of the Obama years, and to call the political posturing around it kabuki is an insult to a historic Japanese theatrical tradition. Unlike the last couple of debt ceiling fights, the fiscal cliff, the 2010 lame duck, or even the underrated 2012 payroll tax holiday extension, there’s no drama here because the parties aren’t actually negotiating. They’re not even pretending to negotiate. They’re just talking.

That’s because the sequester doesn’t really matter.

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When the sequester hits on March 1, nothing much happens. The cuts take effect, but agencies have been expecting them for months and are prepared to slow down their pace of outlays. The legislation creating the sequester back in 2011 deliberately minimized the amount of discretion that agency managers have over how to allocate cuts. But even an across-the-board cut applied to every program doesn’t imply an exact equal reduction in the amount of spending each and every day or even week. For a few weeks, any halfway competent agency is going to be able to keep things running more or less as they have been recently. Big shortfalls in services would only show up later down the road.

And the reason it doesn’t matter that much is that a much bigger deadline looms. On March 27 the Continuing Resolution that funds the overall discretionary operations of the federal government runs out.

When that happens, it’s lights out—quite literally. There are some exceptions for emergency personnel and entitlement programs (think Medicare) keep functioning, but when the CR expires, the government shuts down. All “non-essential” federal employees are put on furlough, and programs simply stop functioning. The National Parks will close down, and the Centers for Disease Control won’t track infections. Visa and passport applications won’t be processed. Nor will new applications for disability benefits. Regulatory agencies will take a break.

A government shutdown’s something we haven’t seen since Jan. 6, 1996, when then-President Bill Clinton and then-Speaker Newt Gingrich patched up their budget disagreements. It looked very close to happening back in 2011 when flush-with-victory House Republicans initially seemed intent on pressing demands on the Obama administration that the president would never accept.

Ultimately, John Boehner and his troops agreed to settle for less than they’d set out to obtain. That meant a $39 billion, one-year cut in discretionary spending, but no “policy riders” on abortion, no defunding of NPR, etc. Team GOP pocketed that win, deciding they could come back for more when the national debt was scheduled to run up against its statutory limit in summer 2011. That debt ceiling crisis did, indeed, result in substantial additional spending cuts.

The 2013 calendar is reversed. The debt ceiling fight happened early in the year, and the Obama administration—by standing firm and refusing to negotiate—got through it without giving up anything. Just a few weeks earlier they’d won substantial tax increases as part of the fiscal cliff drama. That’s left Republicans craving a win, and craving a fight.

The bad news is that this means the odds of a government shutdown are pretty high. The good news is that the tough negotiations that’ll be needed to either avert or else end a government shutdown provide ample opportunity to resolve the problems associated with the sequester. For starters, however the appropriations dispute is resolved, it’ll end up superseding sequestration in terms of how much money is spent overall.

The other aspect of sequestration is that it doesn’t just cut spending; it cuts it in a very inflexible way. Agencies are supposed to cut each “activity” they undertake by the same amount rather than setting priorities. When tried in the past, this has led to such absurdities as a mandate to "scrape 5 percent less poop" off each navigational buoy in the Chesapeake Bay. It works that way specifically because sequestration was supposed be onerous, in order to encourage Congress to agree on deficit reduction. But Congress could easily grant agencies more flexibility about how to allocate the cuts. Once an agreement is reached on spending levels, sticking with inflexibility is pointless and won’t give either side any leverage for anything.

There’s no guarantee that Congress will do the right thing and let agencies allocate their money more rationally, but there’s no reason not to. There will be one more month of posturing. March 27 is the real deadline, not March 1.

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