Sequestration (si-kwes- trey -shuhn) Preparing for a Possible Reduction in Federal Funds ( School/Grant Year) © 2012 by the Texas Education Agency

Definition of Sequestration The Congressional Budget Office defines sequestration as “the cancellation of budgetary resources,” which is another way of saying “automatic budget cuts.”

Significance of Sequestration A “sequester” was written into the Budget Control Act of 2011, meaning that unless the US Congress and the president act to rescind it, automatic budget cuts will go into effect at the beginning of Federal education spending could automatically be cut by approximately $4.1 billion, nationally.

Not a Done Deal Although the Budget Control Act of 2011 mandates sequestration, the US Congress and the president can still take action to rescind it.

Not a Done Deal All methods of rescission are legislative, requiring bipartisan action in Congress and approval of the president. Any action must be taken before January 2, 2013, the date on which sequestration is scheduled to go into effect.

Mechanics of Sequestration The Office of Management and Budget (OMB) has sole authority to determine how the automatic spending cuts will be apportioned across the federal agencies. Because the OMB has not yet made that determination, the dollar amount impact of sequestration can only be projected.

Mechanics of Sequestration Federal education spending is projected to be cut by anywhere from 8% to 14% for the school and grant year, or $4.1 billion nationally. The sequester written into the Budget Control Act of 2011 is designed to take effect over a nine- year period and to cut approximately $109 billion from the federal budget in each of those nine years.

Effect of the Possible Sequestration on Texas LEAs If sequestration goes into effect under the Budget Control Act of 2011, federal education spending will be cut in early 2013, in the middle of the school and grant year.

Effect of the Possible Sequestration on Texas LEAs All federal grant awards would be reduced. If TEA takes no action, LEA budgets would be cut in the middle of the school year.

TEA’s Elected Course of Action Although sequestration is not a done deal, TEA has elected to prepare for the possibility that it might happen. TEA has elected to avoid cutting LEA budgets in the middle of the school year to the extent possible.

TEA’s Elected Course of Action Formula Grant Programs: TEA will reduce planning amounts for federal formula grants. TEA will withhold 10% of the state’s expected appropriation from the LEA’s planning amount calculations. If no sequestration, TEA will award the 10% in reserve to grantees at maximum entitlement.

TEA’s Elected Course of Action Discretionary Competitive Grants: TEA will withhold 10% of the state’s expected appropriation from the competition. TEA will award 90% of the funds competitively and fully fund the grants awarded. If no sequestration, TEA will award additional grants with slightly shortened timelines.

TEA’s Elected Course of Action Discretionary Noncompetitive Grants: TEA will withhold 10% of the state’s expected appropriation from the planning amount. TEA will award 90% of the funds available to grantees. If no sequestration, TEA will determine at that time whether to increase the existing grants by 10% or carry the reservation in to the next year.

Forecasting: January 2013 By January 2013, either sequestration will be in effect or rescinding legislation will have been passed and signed into law. If the federal education budget has been cut, the amount of the cuts will be known.

Forecasting: January 2013 However…. It is possible, that federal education spending could be cut by more than 10%. If that were to happen, LEA budgets would be reduced by the additional amount (anything over the 10% initially withheld) at maximum entitlement time (for formula grants) or mid- year (for discretionary grants).

More Information Contact your Regional ESC or submit questions by to: May 29, 2012 To The Administrator Addressed Letter ▫Click on “Attachment” at the end of the letter and scroll down to the attached background information © 2012 by the Texas Education Agency