The perils of sequestration

The idea of an automatic across-the-board spending cut that would take effect once spending exceeded specific caps originally developed out of Congress’s frustration; in the mid-1980s, Congress was frustrated over its inability to effectively manage federal spending and the impact of that spending on the deficit. It passed the Balanced Budget and Emergency Deficit Control Act of 1985, primarily the product of three influential U.S. senators of that era, now no longer in Congress: Senators Phil Gramm, Warren Rudman, and Ernest Hollings (The law is often referred to as Gramm-Rudman-Hollings.) It was designed to encourage future Congresses to make appropriate decisions by codifying an alternative that was thought to be so objectionable that legislators would never let it occur. Across-the-board “automatic cuts,” or sequestration, were part of the 1985 Act, which was signed into law by President Reagan.

Fast-forward to 2011—specifically, to the Budget Control Act (BCA) of 2011. As a condition for increasing the federal debt ceiling, Congress and President Obama agreed on the mechanics of the BCA, which resurrected the Gramm-Rudman-Hollings concepts of spending caps and automatic cuts. The BCA also included the creation of a special Congressional committee that was directed to produce legislation that would further reduce the federal debt by $1.2 trillion, or automatic cuts of the same amount would occur. As with Gramm-Rudman-Hollings, the BCA automatic cuts were designed to be so punitive and unacceptable that Congress would take definitive action to prevent them from happening. It was hoped that the bipartisan “super-committee” would reach an agreement on spending cuts, but it failed to do so. Therefore, in accordance with the 2011 law, automatic cuts will go into effect on January 2, 2013. Their effects will be far-reaching, and will be felt by public health laboratories.

While substantial, the cuts are only the spending part of the fiscal story. The rest of the story involves the expiration of several current tax laws. There will be an increase in tax revenue of almost $400 billion in 2013 once those tax laws expire after December 31, 2012. An August Congressional Budget Office report states that, taken together, the spending cuts and tax increases will cause a recession in 2013, the growth in the gross domestic product will go down to 0.5%, and unemployment will increase to nine percent.¹ It is the position of the Association of Public Health Laboratories that these effects must be avoided.

Because of the increasing public interest in the automatic cuts, it is likely many have lost sight of the almost $1 trillion in federal spending reductions between 2012 and 2022 that are already being implemented through the spending caps included in the BCA. These caps reduced federal spending $62 billion in fiscal year 2013 and have created downward spending pressure on all federal agencies, including the Centers for Disease Control and Prevention (CDC)—which provides significant direct and indirect support for the state and local governmental public health laboratories.

Beyond the current impact of the caps, the automatic cuts in federal spending will cause spending in fiscal year 2013 to be reduced by an additional $110 billion. These automatic cuts will cause a $31 billion cut in funding for domestic programs in fiscal year 2013, like those operated by CDC, starting on January 2. While there are a number of alternative scenarios that forecast somewhat differing percentage reductions that the automatic cuts will cause, it is not unreasonable to presume they will amount to a 10% reduction.

Taking CDC’s funding for the governmental public health laboratory system down 10% will result in huge reductions of direct support for the system through the Epidemiology and Laboratory Capacity (ELC) program and through the Public Health Emergency Preparedness (PHEP) program. Combined, these programs provide in excess of $100 million annually in direct laboratory support, and a reduction on the order of $10 million will dramatically reduce the surveillance and detection capability of the laboratory system. It is more difficult to determine the amount of indirect spending by CDC on behalf of the laboratory system, but the impact of a 10% reduction on CDC operational support will likely be very similar.

Timing of the PHEP and ELC grant awards could come into play favorably, as both awards are scheduled for release later in the 2013 calendar year, conceivably giving Congress sufficient time to produce an alternative that stops the automatic cuts. Nonetheless, it will be nearly impossible to plan or budget beyond federal fiscal year 2013, until the cuts are suspended.

The ELC and PHEP grants are not the sole source of CDC’s direct and indirect work with the governmental public health laboratory system. CDC also works collaboratively with the governmental public health laboratory system on newborn screening, environmental health, tuberculosis, and HIV/AIDS. The common thread in all of this work is that it improves the public’s health and leads to better individual health outcomes and reduced expenditures on the provision of healthcare through both public sector and private sector payers. It is disappointing that the activities of CDC and its state and local governmental health laboratory partners have been put at risk in this manner while Congress attempts to craft a solution to the size of the federal deficit.