On March  26, 2013, Congress and the President enacted the Consolidated and  Further Continuing Appropriations Act, which provided full-year  appropriations to federal agencies and had the effect of reducing the  sequestered amount for fiscal year 2013 from $85.3 billion to $80.5  billion.on total sequestered amounts for programs that are funded by permanent   The final sequestered amount for fiscal year 2013 is dependent  indefinite budget authority, such as entitlement programs like Medicare  payments where obligations depend on the number of eligible  beneficiaries receiving benefits. Sequestration Reduced Selected Federal Components’ Services to the Public and Increased Some Partners’ and Recipients’ Reliance on Other Funding Sources

The selected components and their partners reduced or delayed some  services to the public and operations in 2013 as a result of sequestration. For  example, CBP officials reported that sequestration reductions did not  leave them with sufficient funds to provide the overtime necessary to  fully staff inspection booths, which resulted in increased average wait  time for international passengers. From fiscal years 2012 to 2013,  wait times increased from 19.7 minutes to 22.8 minutes at one airport  and from 20.9 minutes to 26.8 minutes at another. For  example, to implement sequestration reductions, CMS reported  reducing the frequency of surveys to determine the quality of care and  compliance with federal standards at psychiatric hospitals from once  every 3 years to once every 4 to 5 years. Surveys of specialized  organ transplant centers were reduced from once every 3 years to  once every 4 to 6 years. Officials from one of the districts  specifically reported an average increase of two or three students per  elementary school class from the prior school year. DOD reduced military training and readiness activities, such as  canceling or limiting training, which the agency reported could  increase the number of non-deployable units, decrease surge  capacity to meet additional requirements with ready forces, and lead  to skills gaps. In some instances, the effects of sequestration compounded other  reductions in federal, state, and local funding sources. Similarly, some PHAs used funding  However, we found that in some cases the effects of sequestration were  unknown because it is difficult to isolate the effects for some programs  and activities that receive funding from multiple sources. For example, the  effects of the 2 percent sequestration of Medicare payments are difficult  to quantify due to difficulty in isolating the effects of sequestration from  other factors that increased or decreased payments to providers, as well  as possible changes in provider behavior to compensate for the  sequestration reductions. Similarly, it is difficult to isolate the specific  effects of sequestration on Title I school districts because Title I funding  typically makes up a small portion of the school district’s total funding  compared to state and local sources. Specifically, CMS had difficulty  determining all of the types of provider payments that would need to be  cut and which funding was subject to special sequestration rules. Similarly, CBP budget officials told us that applying sequestration to fee  accounts was more difficult than other accounts due to uncertainty over  whether fee accounts would be exempt from sequestration, as well as  uncertainty about how to apply sequestration cuts to fee accounts. In addition, uncertainty surrounding the timing and amount of  sequestration limited the components’ ability to provide substantive  communication to its program partners and recipients. Recipients of PIH Indian Housing Block grants told us that uncertainty  surrounding the fiscal year 2013 federal budget process presented  challenges because they did not receive the full amount of their grants  from HUD until several months into the calendar year. Officials from  OESE and PIH told us that they had few options for implementing  sequestration because some of their largest programs are based on  eligibility formulas—established by law in some cases—or the funds are  disbursed to program partners to fund various services to the public. In cases where officials did have some discretion in applying  sequestration reductions, components reported that they had to make  trade-offs to protect higher priority activities in their resource allocation  decisions. Similarly, within DOD, the military services sought  to protect training requirements for deployed and next-to-deploy forces. To do this, DOD took actions such as canceling or limiting training for  forces not preparing to deploy in fiscal year 2014. Similarly,  according to CMS officials, an initiative to improve the efficiency of its  facility inspections that began in 2011 helped CMS plan for the fiscal year  2013 sequestration. Consistent with our March 2014 report, we found that actions components  took to mitigate the effects of sequestration on mission priorities will not  be available to the same extent, if at all, in future years. In addition, these case studies provide further evidence that the  uncertainty surrounding the timing and amount of sequestration  hampered communication with program partners and recipients. OMB’s  implementation of the recommendations in our March 2014 report would  facilitate agencies’ planning and implementation for a potential future  sequestration by documenting federal agencies’ and OMB’s decisions  and principles for planning for and implementing sequestration. Agency Comments and Our Evaluation

We provided a draft of this product to the Secretaries of DHS, Education,  HHS, and HUD, and the Director, OMB for comment. DHS, Education,  HHS, and HUD provided technical comments that were incorporated, as  appropriate. OMB did not provide comments. Related to  reductions to other federal programs and activities, officials from one  district reported that in addition to Impact Aid, the district also  experienced funding cuts to other federal programs due to sequestration  such as special education, vocational education, Indian education, and  Title I, among others. For example  officials from one of the districts reported increasing elementary  school classes by an average of two or three students. Appendix IV: Fiscal Year 2013 Sequestration at the Office of Public and Indian Housing

	Sequestration Reduced the Number of Households Receiving Rental Assistance, Housing Agencies’ Reserves, and Maintenance and Other Housing Services

		The Number of Households Receiving Vouchers Declined Even As PHAs Used Voucher Reserves to Mitigate Effects

HUD data indicated that about 1.86 million very low-income households  were receiving rental housing assistance through the Housing Choice  Voucher program at the end of calendar year 2013, a decline of about  41,000 (2.2 percent) compared to the end of calendar year 2012,  primarily due to sequestration (see figure 9). Appendix V: Objectives, Scope, and Methodology

This report examines: (1) the effects of fiscal year 2013 sequestration on  the operations, performance, and services to the public for selected  components within federal agencies; and (2) how selected components  planned and prepared for and implemented fiscal year 2013  sequestration. This report builds off of our previously issued report that  evaluated how 23 federal agencies, including the Departments of  Defense (DOD), Education, Health and Human Services (HHS),  Homeland Security (DHS), and Housing and Urban Development (HUD),  prepared for and implemented the fiscal year 2013 sequestration at the  agency level, and the effects of sequestration on agencies’ operations,  performance, and services to the public. Case Study Selection

To achieve these objectives, we selected six case study components  within federal agencies for review. Based on these criteria, which are discussed in more detail  below, we selected the following components:
DOD’s Operation and Maintenance accounts;
DOD’s Procurement accounts;
DHS’s U.S. Customs and Border Protection (CBP);
Education’s Office of Elementary and Secondary Education (OESE);
HHS’s Centers for Medicare & Medicaid Services (CMS); and
HUD’s Public and Indian Housing (PIH). Overall, these six case study components accounted for roughly $48  billion, or more than 56 percent, of the total sequestration ordered on  March 1, including roughly 77 percent of sequestered defense spending  and almost 36 percent of sequestered nondefense spending. Results  from selected case studies, however, cannot be generalized. We reviewed additional documents—provided by agency officials at the  selected components—related to planning for and implementing  sequestration in fiscal year 2013. To examine the extent to which selected components identified their  PPAs in accordance with the criteria set out in section 256(k)(2) of the  Balanced Budget and Emergency Deficit Control Act of 1985, as  amended, we reviewed a purposeful sample of five PPAs from each of  the four nondefense components discussed in this report.
Why GAO Did This Study

On March 1, 2013 the President ordered a sequestration of $85.3 billion across federal government accounts. Final appropriations enacted on March 26, 2013 reduced this amount to $80.5 billion. Under current law, a sequestration of direct spending will occur through fiscal year 2024 and another sequestration of discretionary appropriations could occur in any fiscal year through 2021.
GAO was asked to evaluate how agencies prepared for and implemented sequestration in fiscal year 2013. GAO's March 2014 report broadly examined fiscal year 2013 sequestration at 23 large federal agencies. This report examines in greater depth: (1) the effects of fiscal year 2013 sequestration on the operations, performance, or services to the public for selected components within federal agencies; and (2) how those selected components planned for and implemented the fiscal year 2013 sequestration.
GAO reviewed programs and activities operated by four components of federal agencies: CBP, CMS, OESE, and PIH. GAO selected these case studies based on factors such as the share of total sequestered funds and level of direct services provided to the public. GAO also incorporated findings from a November 2013 report that addressed similar objectives for select operations at DOD. GAO's case study selections account for about 77 percent of the total defense funding sequestered and 36 percent of the total nondefense funding sequestered in fiscal year 2013.

What GAO Found

Fiscal year 2013 sequestration reduced funding to selected components of federal agencies and their program partners—such as state and local governments—that assist in carrying out agency missions. As a result, the selected components and their partners reduced or delayed some services to the public and operations in 2013. For example:
Public housing authorities reported providing rental assistance to about 41,000 fewer very low-income households compared to 2012—a 2.2 percent reduction—because the authorities received less program funding from the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH).
The Department of Health and Human Services' Centers for Medicare & Medicaid Services (CMS) reported reducing the frequency of surveys to determine quality of care and compliance with federal standards at psychiatric hospitals from once every three years to once every four to five years and specialized organ transplant centers from once every three years to once every four to six years.
The Department of Homeland Security's U.S. Customs and Border Protection (CBP) reported that sequestration reductions did not leave them with sufficient funds to provide the overtime necessary to fully staff inspection booths which resulted in increased average wait times for international passengers. From fiscal years 2012 to 2013, wait times increased from 19.7 minutes to 22.8 minutes at one airport and from 20.9 minutes to 26.8 minutes at another.
School districts GAO spoke with reported that reduced funding from the Department of Education's Office of Elementary and Secondary Education (OESE) resulted in less resources for specialists providing extra instruction to students and an increase in the average number of students per elementary school class. For example, one district reported an average increase of two or three students per elementary school class from the prior school year.
The Department of Defense (DOD) reported that canceled or limited military training and readiness activities could increase the number of nondeployable units, decrease surge capacity to meet additional requirements with ready forces, and lead to skills gaps.
In some cases, program partners reported increasing reliance on other federal, state, and local funding sources, where available, to mitigate sequestration's effects on their services to the public. Certain state agencies reported that they relied on additional state funds to inspect and investigate health care facilities on behalf of CMS. However, in other cases, program partners reported that reductions in other funding sources magnified sequestration's effects on services to the public. For example, officials at 7 school districts that receive federal education grants reported that sequestration compounded prior-year reductions in state funding.
However, GAO found in some cases the effects of sequestration could not be isolated from the effects of other changes in funding. For example:
The effects of the 2 percent sequestration of Medicare payments are difficult to quantify due to the challenge of isolating the effects of sequestration from other factors that increased or decreased payments to providers, as well as possible changes in provider behavior to compensate for the sequestration reductions.
It is difficult to isolate the specific effects of sequestration on Title I school districts because Title I funding typically makes up a small portion of the school district's total funding compared to state and local sources. A district's Title I formula allocation could also be reduced as a result of factors other than sequestration.
GAO found that sequestration planning and implementation varied among the selected components. In some cases, agencies directed components' efforts, while in others components provided guidance and set priorities for program offices. Consistent with GAO's March 2014 report, officials from all federal agency components reported that uncertainty regarding the timing and amount of sequestration and technical questions about how to apply sequestration to certain complex accounts presented challenges for planning and implementation. For example:
CMS officials had difficulty determining all of the types of provider payments that would need to be cut and which funding was subject to special sequestration rules.
According to CBP budget officials, applying sequestration to fee-based accounts was more difficult than applying sequestration to other accounts.
In addition, uncertainty surrounding the timing and amount of sequestration limited some components' ability to substantively communicate with program partners and recipients, making it difficult for partners to plan and execute their budgets during the fiscal year. For example, recipients of Indian Housing Block grants from PIH did not receive the full amount of funds until several months into the calendar year.
Components that had initiated efficiency efforts prior to sequestration reported that they were better positioned to plan for and implement sequestration in fiscal year 2013. For example, CMS officials reported that savings from a 2011 initiative to improve the efficiency of its facility inspections helped the component plan for and implement sequestration.
In reviewing how agencies implemented sequestration, GAO also selected five programs, projects, and activities (PPAs) from each of the four nondefense case study components based on the specific programs or activities reviewed within each component and other factors and found that components complied with the provision in the Balanced Budget and Emergency Deficit Control Act of 1985 that specifies how PPAs should be identified for the purpose of sequestration.
In cases where officials had some discretion in implementing sequestration reductions, components reported that they sought to protect higher priority activities, either by using funding flexibilities or modifying or canceling contracts or other ongoing activities. For example, within DOD, the military services sought to protect training requirements for deployed and next-to-deploy forces by canceling or limiting training for forces not preparing to deploy in fiscal year 2014.
However, for some programs, officials reported having limited options to implement sequestration. For example, some of the case study components' largest programs—such as HUD's Housing Choice Voucher Program and Education's Title I grants—are based on eligibility formulas and the funds are disbursed to program partners to provide services to the public. As a result, these program partners had to identify specific actions—such as limiting the number of housing vouchers issued and increasing classroom size—to absorb the reductions and mitigate their effects on the public.

What GAO Recommends

GAO is not making new recommendations in this report.
We provided a draft of this product to the selected case study agencies and the Office of Management and Budget (OMB) for comment. DHS, Education, HHS, and HUD provided technical comments that were incorporated, as appropriate. OMB did not provide comments.