Congress averts a government shut down and modifies sequestration

March 25, 2013

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Congress passed a measure this week that will keep federal agencies funded through the end of the current fiscal year and will slightly modify the so-called “sequestration” budget cuts.

The federal government has not passed a budget since April 2009 (for fiscal year 2010) and has been operating on a series of temporary resolutions, in essence continuing to spend at current levels on rolling six month cycles. The continuing resolution, passed on March 21, funds the government for the remainder of the current fiscal year, which ends September 30.

Passage of this legislation, known as a “continuing resolution” prevents a government shutdown that may have occurred beginning on March 27, which is when the most recent spending resolution expires. The spending bill maintains the $85 billion in mandatory federal budget “sequester” cuts that began March 1, although it includes provisions designed to soften the impact in some areas, including for the military and other federal agencies. The Departments of Labor, Health and Human Services and Education, for example, each will receive a slight increase in post-sequestration funding levels.

The sequester cuts will be phased in over time, and while the impact will be felt in many places, the net effect on the overall U.S. economy is expected by TIAA-CREF Chief Economist Timothy Hopper to be minimal.

Many educational institutions will feel the impact of sequestration through cuts to federal research programs and student aid. The Pell Grant program is exempt from cuts this year, however. The new spending bill will restore a small percentage of cuts made to the National Institutes of Health (NIH) and the National Science Foundation (NSF). The NIH, for example, lost $1.6 billion of its $30.7 billion budget through sequestration, but will get back $67 million in the current fiscal year from the new spending bill. The NSF, with a $7 billion budget in 2012, lost $209 million from sequestration of which $90 million will be restored as part of the bill.

Next on the horizon: Another debt ceiling debate

The next deadline facing Congress is April 15, a self-imposed deadline for each chamber to pass a budget or have their salaries withheld until the chamber has done so. The House of Representatives passed a budget March 21, avoiding the chamber being subject to the “no budget, no pay” provision. It was also expected that the Senate would pass a budget soon after the House. Since the new spending resolution does not address the debt ceiling, Congressional action will be required by mid-May to avoid a potential U.S. government debt default.

TIAA-CREF NEWS ARCHIVE

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