As Deficit Shrinks, So Does Mandate for Sequester
Policy + Politics

As Deficit Shrinks, So Does Mandate for Sequester


Just as the National Institutes of Health prepares to cut the country’s biomedical research budget, and Defense Secretary Chuck Hagel readies hundreds of thousands of civilian defense workers for furloughs, they may get a reprieve. New Congressional Budget Office projections this week showed substantial shrinkage in the federal budget deficit, which could alter the need for automatic across the board spending cuts this year and beyond.

The deficit has topped $1 trillion a year since the recession ended four year ago, but will plummet to about $642 billion, or 4 percent of the gross domestic product, in the current fiscal year ending Sept. 30, according to the CBO report. That’s about $200 billion lower than the non-partisan budget agency projected just three months ago—and nearly three times the $85 billion of across the board defense and domestic spending cuts that were mandated this year under sequestration.

Although the deficit topped 10 percent of GDP in 2009, it could shrink to as little as 2.1 percent of the overall economy by 2015, before beginning to gradually climb throughout the rest of the decade. For the remainder of President Obama’s administration, the deficit would fall to $560 billion in 2014 and $378 billion in 2015 before rising to $432 billion in 2016.

CBO said higher tax revenue due to the improving economy and better-than-expected bailout repayments by mortgage giants Fannie Mae and Freddie Mac are the key reasons for the improved outlook.

The release of this upbeat budgetary news coincided with Hagel’s announcement on Tuesday that the department plans to furlough 680,000 civilian workers beginning in July for up to 11 days of unpaid leave as part of a plan to meet a $30 billion DOD funding shortfall caused by sequestration. Under the Budget Control Act of 2011, about $1.2 trillion of automatic long-term spending cuts began to kick in March 1 – with a first installment of $85 billion of defense and domestic discretionary spending cuts through the remainder of the current fiscal year. 

President Obama and many congressional Democrats say the sequester was a serious mistake and are calling for a budget deal that would eliminate or blunt the effects of the cuts, but Republicans are resisting absent other major spending or entitlement reform concessions from the administration. Some Democrats said yesterday that they were reviewing the new CBO report to determine whether it might provide them with additional leverage in combatting sequestration.

Senate Appropriations Committee Chairman Barbara Mikulski, D-Md., termed the CBO report “a pleasant and heartening surprise” that reflects an improving economy and housing market. But she declined to say whether it would be enough to put her efforts to cancel sequestration this year over the top.

“Anything that has our government in a greater fiscal discipline shows that you have to have an economy that [combines] growth with austerity,” she told The Fiscal Times. “And the pleasant surprise about yesterday’s [CBO] report was that it showed this was coming because of the housing market, and the housing market is part of President Obama’s pro-growth” policies. 

Sen. Tom Harkin, D-Iowa, chairman of the Senate appropriations subcommittee on labor, health and education, said he was optimistic the new deficit numbers will help carry the day in blocking further budget cuts this year in important social programs and the critical biomedical research conducted by the NIH and its hundreds of thousands of research grantees.

“This is a perilous moment for NIH, and indeed for the future of biomedical research in this country,” Harkin said at a hearing yesterday on NIH’s budget. He later told the Fiscal Times that the combination of an improved economy and housing market and falling deficit projections should demonstrate to both parties that “we don’t need the sequester to go on beyond the end of the year.

If Republicans push to continue the sequester, he added, “then it becomes clear the sequester is being used not necessarily to reduce the deficit, but simply to squeeze government, to stop government services, to make government ineffective.”
Sen. Jerry Moran of Kansas, the ranking Republican on Harkin’s subcommittee and a major booster of NIH, said that while the CBO deficit report was good news, “Our fiscal problems are huge” and that “we ought not lose our fiscal discipline over what might turn out to be a short-term change.”

For now, however, the federal bureaucracy continues to adjust to the sequestration. Hagel argued that making further cuts to military training and unit readiness would be irresponsible. The furloughs will save the department $1.8 billion, according to officials. The new defense secretary tried to soften the blow to workers by noting that the 11 days are down from the 14 that the Pentagon had warned would be needed, and only half of the 22 days that were originally forecast, according to the Washington Post.

But in response to a question about whether the DOD civilian workforce would have to worry about this again next year, Hagel replied: “I can’t guarantee you that we won’t be in some kind of similar situation next year.”

Meanwhile, NIH officials have been fine-tuning their plans for addressing the cuts mandated under the sequester. NIH’s budget of roughly $31 billion will be cut this year by $1.6 billion or 5 percent, which is forcing cutbacks in research in all 27 of the NIH’s institutes and centers, including the National Cancer Institute, as well as other hospitals, universities and research centers that depend on federal grant. NIH’s total research portfolio will shrink from 36,259 grants last year to 34,901 this year, a decline of 1,358 grants for research.

According to NIH, the organization has lost almost 22 percent of its purchasing power over the past decade as a result of inflation and now the sequester. Officials caution that if the Budget Control Act   maintained indefinitely, NIH funding will decline by about $19 billion over the coming decade.

NIH will be awarding some 3,300 fewer research grants this year than the 38,215 authorized last year research projects; and despite all the research opportunities and potential, the number has dropped to 33,000 – or by more than 3,300. The impact is being particularly hard felt in 2013, where we will be funding 700 fewer projects than we did in FY2012.

NIH director Francis Collins testified yesterday before the appropriations subcommittee that the sequester “has already dealt a devastating blow to NIH” and that by continuing to cut or hold flat the government’s biomedical research budget, the government risks missing “the next big discovery in cancer” or undercuts the development of a new generation of medical researchers.

Some Republicans including Moran and Sen. Richard Shelby of Alabama are major boosters of the NIH and have vowed to work to improve their budget. However, Sen. Tom Coburn, R-Okla. has dismissed some of NIH’s grants as wasteful or useless. Coburn’s “Wastebook 2012” cited as examples $295,364 to determine that male fruit flies are more attracted to younger female fruit flies than older female fruit flies and $350,000 researching how golfers perform better when using their imagination.