1. Sequestration and the FY 2013 Federal Budget
‘Power of Congress’ fundamentals for purposes of the topic of sequestration
Established into law, by Article 1, Title 8 of the constitution, providing the ‘power of the purse’ to Congress
Congress has the authority to appropriate funds and approve a budget
Borrow money on U.S. Credit (i.e. Incur debt, bond for which will be repaid, w/interest)
Increase, establish, collect duties and taxes as a means to collect revenue
Provide for the Defense and Welfare of the U.S.
Etc…
Misconceptions: The Executive office does not have the ability/authority to appropriate funds
Prepared by Bert Kramer for the Potomac Chapter of the NCMA
September 18, 2012

2. Sequestration Defined History of the Budget and Deficits
For our purposes - mandatory budget reductions over a 10 year period to reduce the National Debt
History of the Budget and Deficits
Funding the Government - pay as you go
Funding sources- taxes or borrowing by the US Treasury
Deficit – expenditures exceed revenue
Debt ceiling set by Congress/Increase requires approval of both houses
Potential impacts without ceiling increase
Theoretical default on interest payments
Credit rating- higher cost of borrowing
Obvious alternatives: Reduce spending/Raise taxes
Government has forced a march to reduce the national debt through sequestration
How does the government proceed in this situation – Budget constraint and Deficit? Government cannot operate without appropriations and limited debt ceiling
October 1st of each fiscal year the government is expected to have an approved budget by congress, but continuing resolution of the fiscal budget has been the norm
Government starts to operate on a pay as you go, Reduces spending and raise taxes
Government could mortgage assets, i.e. National parks, parkland, etc., but not likely the resolution and last resort.
Current debt ceiling $16 Trillion, with approx. $400 billion left in debt ceiling for the year.
Debt ceiling is established by congress and bound up to the limits established by the ceiling for spending/borrowing
If debt ceiling threshold is breached, loans go into default for unpaid interest on previously borrowed money
Treasury cannot pay the interest to the bond holder (creditor), without debt ceiling increase
If debt ceiling is increased, this will likely lower U.S. credit rating causing higher interest payments to creditors by virtue of a negative debt-to-revenue ratio
Deficit situation when spending/borrowing exceeds revenues

3. First year – public debt?
1776
First reported $75,463, ($1.0B 2012)
Now $16 Trillion
Borrowing
As of percent of Govt. spending is borrowed
Growing concern with Deficit and impending debt ceiling breach led to Budget Control Act of 2011
Key components of Act
Super Committee established to produce debt reduction legislation by Nov no agreement reached
Sequestration triggered without  $1.2T deficit reduction
January 2013 $1.0T in Government wide automatic spending reductions across FY 2013 through 2021 without further legislation
Public Debt
Government has always had debt; deficit become the issue
Rare surplus periods – most recent under Clinton in 90’s where portion of revenues from capital gains taxes as a result of IPO boom.
Budget Control Act of 2011 (BCA), signed into law by President Obama
Act was in response to overspending and need to increase debt ceiling to avoid default on U.S. loans, and reduce deficit
The act raised the debt ceiling, and allowed congress more time to come up with a plan before the end of the year
Sequestration is the default option to reduce the deficit

4. FY 2013 Continuing Resolution - Six months
Expected early September 2012-$1.0T House bill
Impact on Sequestration???
OMB recommendations –budget reductions- Sequestration Transparency Act
Due Sept 7 –report delayed- new date TBD
Potential Impacts: without budget reduction or increase in debit ceiling
Government shutdown
Program delays/terminations
Workforce reductions
O&M funding first source for funding reductions??
Congressional action on BCA not expected before election
Recommended actions
Request available funding on existing contracts
Review contract termination liability
Assess Congressional action on OMB/CBO web site
Sequestration Transparency Act
Does not provide a plan to implement sequestration
Without risk to government contractor
Amount of reduction by agency not clear
Indicates Military pay will not be affected
Discretionary spending is questionable and not established through this Act
Impact/Recommendations to Contractors due to Sequestration
Staff augmentation likely to be reduced
Contractor termination liability needs to be assessed and communicated to customer
Ensure current contract activities are fully funded
Contractors should prepare for lower spending profile in future
Constructively plan for reductions
Worker Adjustment and Retraining Notification Act (WARN)
Employers must provide 60 day advance notification to employees if more the 100+ employee will be affected by mass layoffs (<500, or 33% of employers total workforce), plant closing (<50 employees) that occur over >30 day period.
Public Law (29 U.S.C. 210l, et seq.)
DOL cannot enforce WARN