While sequestration usually means an agent of a court taking valuable property for safekeeping while a legal dispute is ongoing, the term has been adapted by the US Congress to mean a procedure by which automatic budget cuts are applied to federal agencies when Congress cannot either agree to spending limits established under its annual Budget Resolution or increase the Budget Resolution to accommodate spending increases.
Sequestration was first introduced in the Gramm-Rudman-Hollings Deficit Reduction Act of 1985. The Act was meant to reform how Congress passes appropriations bills. Congress does not pass an annual budget on one vote. Rather, it passes about a dozen separate bills. That makes increasing in the federal deficit a result rather than a choice.
The Budget Control Act of 2011 makes sequestration automatic from federal fiscal years 2013 through 2021 should Congress fail to curb spending or increase the Budget Resolution. The Act requires Congress to appoint the Joint Select Committee on Deficit Reduction, dubbed the “Super Congress” or "Supercommittee," whose goal is to make long term recommendations for reducing the federal deficit. Congress meant to back itself into a corner. Those members of Congress basically said to themselves and future members, “Fix this spending problem, or else.”
How It Works:
Sequestration forces lawmakers into an unpalatable position. They have three options. First, they can make specific spending cuts that will anger some voters. Second, they can increase the Budget Resolution which makes them look unwilling to make the hard decisions they were elected to make. Third, they can allow a mathematical process to make budget cuts which makes them look weak and will undoubtedly have unintended consequences on federal government operations.
This third option is sequestration. The goal of Budget Control Act was to make that third option so bad that the first or second option would have to be chosen. Voters and fundamental economic principles will only allow for increasing spending -- the second option -- for so long, so eventually Congress has to rein in their spending.
When sequestration happened, the US Treasury calculated the amount to be withheld, or “sequestered,” from each agency and gave each agency what they have to spend. The total amount sequestered by the Treasury is be the difference between the appropriations authorized by Congress and the cap established in the annual Budget Resolution.
While sequestration is certainly a cold, calculated process, Congress has taken some of bite out of the process. Social Security and parts of the Department of Defense are exempted. Nothing would get Congress moving faster than automatic cuts to Social Security benefits. Imagine a sea of senior citizens and individuals with disabilities demonstrating on at the US Capitol.
Going into sequestration, no one knew exactly how the Treasury would apply the spending cuts. The Budget Control Act says that reductions are to be applied evenly by “program, project and activity.” Can that mean different things for different agencies? No one really knew until the Treasury or the President said how the spending cuts would be applied.
Implications for Smaller Agencies:
With larger programs granted exemptions from sequestration, the burden of sequestration falls disproportionately on smaller agencies. If sequestration goes on too long, unexempted programs could be crippled.
Implications for Federal Employees:
Personnel expenses compose a huge percentage of any government budget. The most logical places to go when cutting expenditures are the big chunks of the budget. Sequestration has meant furloughs and potential job losses for federal employees.The most likely mechanism for cutting positions would be a reduction in force.
Implications for Federal Contractors:
Federal contractors could be in for a rough ride with sequestration. Agencies could cancel some contracts in full. Other contracts could be cut in similar proportions to the budget reductions forced under sequestration.
Implications for Citizens:
Governments are often asked to do more with less. Sequestration undoubtedly means agencies do less with less. Sequestration has impacted government services. The amount, timeliness and quality of government services have been adversely impacted by sequestration.