Budget ax hangs over U.S.

No deal on horizon; cuts due to kick in Friday

National Governors Association Chairman Gov. Jack Markell of Delaware, left, with Vice Chariman Gov. Mary Fallin of Oklahoma speaks during a news conference at the NGA Winter Meeting in Washington, Saturday, Feb. 23, 2013. The nation's governors say their states are threatened if the automatic, across-the-board budget cuts known as the sequester take effect March 1.  (AP Photo/Manuel Balce Ceneta)
National Governors Association Chairman Gov. Jack Markell of Delaware, left, with Vice Chariman Gov. Mary Fallin of Oklahoma speaks during a news conference at the NGA Winter Meeting in Washington, Saturday, Feb. 23, 2013. The nation's governors say their states are threatened if the automatic, across-the-board budget cuts known as the sequester take effect March 1. (AP Photo/Manuel Balce Ceneta)

— In the first week of March, a laid-off person living on $300 a week in unemployment benefits is liable to find a surprise in the mailbox: notification from Uncle Sam that come April the check will be $33 lighter.

“Sequestration,” a budget term consuming Washington in recent weeks, is about to move from political abstraction to reality for tens of millions of Americans. Barring a last-minute deal, about $85 billion is to be cut from military, domestic and certain health-care programs beginning Friday.

Much of the government will be spared, only magnifying the cuts elsewhere. If the cuts are not reversed, federal spending at the discretion of Congress will eventually fall to a five-decade low. Even larger cuts are scheduled to take effect every year over the next 10.

By the end of this week, federal agencies will notify governors, private contractors, grant recipients and other stakeholders about the dollars they stand to lose. On Friday, the Treasury Department will immediately trim subsidies for clean-energy projects, school construction, state and local infrastructure projects, and some small business health-insurance subsidies.

Nearly 2 million people who have been out of work for more than six months could see unemployment payments drop by 11 percent in checks that arrive in late March or the first days of April, according to the White House budget office. That’s an average of $132 a month. Doctors who treat Medicare patients will see cuts to their reimbursements.

At the annual National Governors Association meeting, Democratic and Republican chief executives expressed pessimism that both sides can find a way to avoid the automatic spending cuts. They pointed to the impasse as another crisis between the White House and Congress.

For many governors, the budget-cut fight fuels a sense of frustration with Washington.

“My feeling is I can’t help what’s going on in Washington,” Gov. Terry Branstad, RIowa, said Saturday. “I can’t help the fact that there’s no leadership here, and it’s all politics as usual and gridlock.But I can do something about the way we do things in the state of Iowa.”

The looming cuts were never supposed to happen. They were intended to be a draconian fallback intended to ensure that a special deficit-reduction committee would come up with $1 trillion or more in savings from benefit programs. It didn’t.

“We should go back and remember that sequestration was originally designed by both the administration and Congress as something so odious, so repellent, that it would force both sides to a compromise. There can’t be any question, this is something that nobody wants,” said Colorado Gov. John Hickenlooper, a Democrat.

If the stalemate in Washington continues, furloughs and layoffs will probably begin in April, starting largely in the 800,000-member civilian work force of the Defense Department and then rippling across the country, from meat inspectors in Iowa to teachers in rural New Mexico.

“If they hit me with a $3 million cut in March, I’m not sure what I’m going to do,” said Raymond Arsenault, the superintendent of the Gallup-McKinley County Schools, a district that serves primarily Navajo students on the Arizona-New Mexico border.

Arsenault’s school system would be hit much harder than most because 35 percent of his $100 million annual budget comes from federal education “impact aid” to offset the fact that large tracts of land in the district are owned by Washington and therefore not subject to taxation. Of that aid, $3 million may be about to disappear.

The sequester involves trimming $85 billion from a $3.6 trillion annual federal budget, or about 2.4 percent. But the cuts will not affect Social Security or Medicaid, and the Medicare cuts total about $11 billion in fiscal 2013, which ends Sept. 30, according to calculations by the Bipartisan Policy Center.

Thus, entitlement spending, which poses the biggest long-term challenge to the federal budget, accounts for only a sliver of the cuts. That leaves more than $70 billion in cuts to be applied over the next seven months to the roughly two-fifths of the budget that is devoted to discretionary spending, including the military, education and dozens of other categories.

These cuts would probably not be confined to 2013. Even if President Barack Obama manages to persuade Congress to raise new revenue, he has said he would replace only half of the spending cuts with tax increases, in essence accepting a half-trillion dollars in cuts over 10 years. That would be on top of more than $1 trillion in cuts already enacted by the Budget Control Act, which created the sequester in 2011 as part of a deal to raise the country’s statutory borrowing limit.

A comprehensive deficit-reduction deal, which isstill Congress and the White House’s stated goal, might mitigate the impact by including fast-growing programs like Medicare and Medicaid in the cuts. But belt-tightening, for now, appears to be the new normal.

In private, Capitol Hill staff members and members of Congress have admitted that there are no viable plans on the horizon to delay or offset the cuts. At best, Congress might be able to pass a bill giving agencies more discretion in carrying out the budget cuts. But that is opposed by the White House because officials fear that such a change would give lawmakers a false sense that they had done much to ease the pain of the cuts, when in fact, budget officials say, little would have changed.

That means that as of Friday, dozens of federal agencies must start trimming their budgets. Given how much they have to cut, White House budget officials said, they will have no choice but to start the reductions immediately.

The worst-hit by far will be the Defense Department, which is already absorbing a $500 billion budget cut over 10 years agreed to in 2011 and isoperating under a temporary spending agreement even as it draws down the war in Afghanistan. Military personnel are exempted from furloughs, but civilian personnel are not, so the Pentagon is preparing to put hundreds of thousands of civilian workers on notice that they might lose 22 days of work this year.

“We have long argued that the responsible way to implement reductions in defense spending is to formulate a strategy first and then develop a budget that supports the strategy,” Ashton Carter, the deputy secretary of defense, told Congress this month. Sequestration “would achieve precisely the opposite effect by imposing arbitrary budget cuts that then drive changes innational security strategy.”

Throughout the government, the cuts would hit certain programs particularly hard without touching others. The National Institutes of Health, for instance, would need to cut about 5 percent of its annual budget in seven months, meaning hundreds fewer research grants, said Kathleen Sebelius, the health secretary. Money for food safety inspection and air traffic controllers would also be cut.

About 600,000 low-income women and children would stop receiving food aid. The Interior Department would issue 300 fewer leases for oil and gas production in Western states.

NASA plans to cancel six technology development projects, including deep-space communications. National parks would close or curtail operations in their visitor centers, affecting hundreds of thousands of travelers.

Transportation Secretary Ray LaHood said Friday that flights to major cities like New York and Chicago could be delayed by as much as 90 minutes during peak travel periods because fewer air traffic controllers would be on the job.

Most Education Department programs are already fully financed for the current school year, so the big cuts would not occur until September. But “impact aid,” which goes to school districts like Arsenault’s with untaxed federal lands, is paid during the school year and will be affected immediately.

Budget experts said the dollar amount of the cuts might not be devastating to government operations or to the economy, particularly if agencies had discretion in how they carried them out and if they were apportioned sensibly.

“Can we survive this? Of course we can. It’s a $16 trillion economy,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office. “Cutting wisely, not stupidly, is a good idea. We’ve got what everybody thinks is a stupid way to cut.”

In some cases, small cuts can take big tolls. Because meat andpoultry plants cannot operate without federal inspectors onsite at all times, one furloughed inspector would shut down an entire plant.

Agriculture Secretary Tom Vilsack estimated that the cuts would mean 15 unpaid stay-athome days for every employee of the Food Safety and Inspection Service, cutting meat and poultry production by 5 billion pounds, costing the industry more than $10 billion and cutting worker wages by $400 million.

Alarmed, J. Patrick Boyle, the president of the American Meat Institute, sent a letter on Feb. 11 to Obama asserting that keeping inspectors home would violate federal law.

“I respectfully request that, in the event of sequestration, USDA meat and poultry inspectors not be furloughed so that the secretary of agriculture can fulfill his statutory obligations,” he wrote.

But the request, Vilsack replied, runs counter to the legal requirement he faces under sequestration.

Information for this article was contributed by Johnathan Weisman and Annie Lowrey of The New York Times; and by Steve Peoples and Ken Thomas of The Associated Press.

Front Section, Pages 1 on 02/24/2013

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