Required Distribution of Fiscal Year 2014 Reductions Affected a Relatively Small Portion of Mandatory Spending

In fiscal year 2014, the total amount of mandatory budget authority across  the federal government was approximately $2.9 trillion, spread across  roughly 443 accounts. Certain budget authority is exempt or subject to  special rules. The exemptions and special rules lead sequestration to  affect some areas of the federal government more than others. For example, nearly all mandatory budget  authority for Medicare and more than 90 percent of the mandatory budget  authority that supports the administration of justice was sequestrable,  whereas national priorities such as social security and veterans benefits,  which comprise a larger portion of the federal budget, were exempt from  sequestration. About two-thirds of federal agencies with mandatory budget  authority implemented sequestration procedures in 2014. Even though they had created the administrative framework to implement  sequestration during its first year in fiscal year 2013, the agency officials  we spoke with indicated that implementation of the fiscal year 2014  sequestration required them to engage in additional administrative  activities to ensure that reductions were applied correctly and to  accommodate the changes in cash flows for programs and services. For  example, at the Department of the Treasury (Treasury), officials said  sequestration reductions to the Treasury Forfeiture Fund (TFF) created  additional uncertainty about the availability of funds, which led to cash  management concerns. Reported Effects on Program Participants Varied Across Entities and Individuals in Our Review

Selected agencies reported that program beneficiaries were affected in  different ways by the sequestration reductions ranging from smaller direct  payments, reduced services, delayed payments, and reduced tax credits. While those sequestered  amounts are counted as reductions in the fiscal year for which they are  sequestered, because they can be made available for obligation again in  future years, they do not result in lasting savings for the federal  government. For Certain Types of Sequestered Mandatory Spending, Actual Amounts Cannot be Determined Until After the End of the Fiscal Year

Section 251A of BBEDCA requires OMB to provide estimates of the  required reductions for any fiscal year in which a sequestration of  mandatory spending and reductions of discretionary spending limits has  been ordered. However,  OMB staff also confirmed that the reductions listed for mandatory  accounts with indefinite budget authority may differ from the amounts that  were actually sequestered because the amount of budget authority for  these accounts is for an unspecified or indeterminable amount at the time  of enactment. Moreover, they are not required under  BBEDCA to tally the actual amounts reduced in a given year. Moreover, compiling such  data could serve as a benchmark to evaluate the progress made each  year toward the overall savings of $1.2 trillion required by law. This  represents less than one percent of mandatory budget authority in fiscal  year 2014. Aside from Medicare and certain other health programs, the  largest drivers of mandatory spending growth are statutorily exempt from  sequestration. However,  these agencies said implementation involved additional administrative  activities, and in certain cases, an additional element of uncertainty when  planning and executing their budgets. The processes established under BBEDCA were designed to reduce the  federal deficit by at least an additional $1.2 trillion over 10 years. Doing so, along with reporting  the amount of “pop ups,” would provide a clearer picture to decision  makers of the amount of funds that were permanently canceled, thereby  representing the true savings generated from mandatory spending  reductions each year. Recommendations for Executive Action

To increase the transparency to Congress about the total amount of funds  agencies have available in a given year, we recommend that the Director  of the Office of Management and Budget identify and publicly report the  total amount of actual budget authority government-wide that is  temporarily sequestered and “pops up,” or becomes available again to  agencies for obligation in the subsequent fiscal year. OMB agreed with the first  recommendation but disagreed with the second, as discussed below. Appendix I: Objectives, Scope, and Methodology

This report examines: (1) the designation of mandatory accounts across  the federal budget under the President’s sequestration order for fiscal  year 2014; (2) how selected agencies implemented the fiscal year 2014  sequestration order and the effects, if any, they reported the required  spending reductions had on programs and services; and (3) how  continued sequestration of mandatory spending relates to the  achievement of deficit reduction goals. Furthermore, we reviewed budget data, guidance, and documentation of  any reported programmatic effects of sequestration for each of the  selected accounts.
Why GAO Did This Study

In fiscal year 2014, federal agencies implemented the second consecutive year of sequestration reductions to mandatory spending, which are scheduled through fiscal year 2025.
GAO was asked to review the implementation of sequestration on mandatory accounts and any related effects. This report examines 1) the designation of mandatory accounts government-wide under the President's sequestration order for fiscal year 2014, 2) how selected agencies implemented sequestration and any effects they reported on programs or services, and 3) how continued sequestration of mandatory spending relates to the achievement of deficit reduction goals.
GAO analyzed fiscal year 2014 budget data on sequestration; selected a nongeneralizable sample of 6 accounts from USDA, HHS, Treasury, and DOT based on the amount of sequestrable budget authority, budget function, and account type; reviewed documentation on sequestration; interviewed budget officials; and reviewed legislation.

What GAO Found

GAO found that in fiscal year 2014, total mandatory budget authority government-wide was approximately $2.9 trillion spread across roughly 443 accounts. The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended, required the Office of Management and Budget (OMB) to apply a range of sequestration rates to non-exempt mandatory spending. This resulted in estimated reductions of $19.4 billion in fiscal year 2014, which was less than one percent of mandatory budget authority. Exemptions and special rules in BBEDCA led some areas of government to be reduced more than others. For example, 90 percent or more of mandatory budget authority for the administration of justice and transportation was subject to reduction. Veterans benefits and services were exempt. About two-thirds of the 67 federal agencies with mandatory budget authority implemented sequestration procedures in 2014. The largest drivers of mandatory spending growth—Social Security and health care—are statutorily exempt from sequestration under BBEDCA, with the exception of Medicare and certain health programs which are subject to a special rate.
Agency officials responsible for managing the selected accounts in GAO's review at the Departments of Agriculture (USDA), Health and Human Services (HHS), the Treasury (Treasury), and Transportation (DOT) reported varied administrative and programmatic effects. While they said 2014 sequestration procedures were similar to the prior year, implementation involved additional administrative activities to ensure that reductions were applied correctly and to accommodate the changes in cash flows for programs and services. In certain cases, selected officials said sequestration added uncertainty when planning and executing their budgets. They also said that the required reductions affected program beneficiaries in different ways including smaller direct payments, reduced services, delayed payments, and reduced tax credits.
The processes established by BBEDCA were designed to reduce the deficit over 10 years by at least an additional $1.2 trillion. However, the subsequent availability of temporarily sequestered budget authority in certain accounts—referred to as “pop ups”—provide savings in the year they are sequestered but do not represent lasting savings. OMB staff said they do not tally the total amount of funds that “pop up,” nor are they required to do so. However, doing so would provide additional transparency to Congress about the total amount of funds agencies have available in a given year.
In addition, actual sequestered amounts for certain types of mandatory spending cannot be determined until the end of the fiscal year due to the variable nature of indefinite budget authority—budget authority for an unspecified or indeterminable amount at the time of enactment. OMB staff said they do not aggregate government-wide data on the actual amounts sequestered nor are they required to do so under BBEDCA. However, tabulating actual amounts after the close of the fiscal year would provide a clearer picture of the amount of funds that were permanently canceled, thereby representing the true savings generated from mandatory spending reductions each year. Moreover, compiling such data could improve transparency and serve as a benchmark to evaluate the progress made each year toward the required overall savings of $1.2 trillion.

What GAO Recommends

GAO recommends that OMB identify and publicly report the total amount of (1) temporarily sequestered budget authority that becomes available in subsequent fiscal years and (2) actual budget authority sequestered government-wide each year. OMB agreed with the first recommendation but disagreed with the second, citing implementation burden. GAO believes such information would enhance the transparency of achieving federal deficit reduction goals as discussed in the report.