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Sequester cuts in play in Washington funding battle

House Intelligence Committee Chairman Mike Rogers speaks at the Reuters Cybersecurity Summit in Washington May 15, 2013. REUTERS/Yuri Gripas
House Intelligence Committee Chairman Mike Rogers speaks at the Reuters Cybersecurity Summit in Washington May 15, 2013. REUTERS/Yuri Gripas

By David Lawder

WASHINGTON (Reuters) - As if the Capitol Hill battle over Obamacare were not messy enough, some lawmakers are hoping to add one more layer to the mix: turning off the much-bemoaned, across-the-board spending cuts known as the "sequester."

Their chances of succeeding are slim, in part because Republicans who control the House of Representatives are almost completely consumed with halting President Barack Obama's signature health care law.

And deep partisan differences exist over which programs should get relief from the cuts - the social services favored by Democrats or the defense-related programs favored by Republicans.

How to replace them is also at issue. Democrats want to raise taxes on the wealthy and Republicans would cut so-called entitlement programs such as Medicare, government health insurance for older Americans.

And many House conservatives simply will not give up any of the cuts, which they say are the only real budget savings that Congress has achieved in recent years.

The effects of $85 billion in cuts that started in March continue to build up and a new round of $109 billion in additional sequester cuts launches in January.

Over a decade, sequester would lop $1.2 trillion from spending on programs - from the military to education and national parks.

While Democrats have been demanding an end to sequester for months, some moderate Republicans are now expressing worry that the issue has become lost in the dust kicked up over Obamacare, and it will soon prove to be a big problem.

"We're headed for some troubled waters on the sequester issue," said Representative Mike Rogers, chairman of the House Intelligence Committee.

The sequester was the product of an August 2011 face-off between Democrats and Republicans, who were demanding big cuts as a condition of raising the government's borrowing power, also known as the debt ceiling.

When the parties and President Barack Obama deadlocked, they came up with the sequester, but put off the effective date of the cuts to give Congress an incentive to replace them with more thoughtful, targeted reductions.

The idea was that if Congress could not agree on $1.2 trillion in budget savings, the across-the-board cuts would be so painful as to force action.

Congress tried to agree on a substitute but failed, and the first cuts took effect in March.

The Obama administration made dire predictions of massive job losses at defense contractors, meat rotting in processing plants due to lack of federal inspectors, and thousands of poor children shut out of the Head Start preschool program.

But the effects, other than a few days of airline delays caused by furloughed flight controllers, thus far have been hardly noticed by much of the American public.

Some temporary "fixes" were made by Congress in some areas, including the Federal Aviation Administration, in response to highly visible inconveniences such as the flight delays.

Workers at government agencies and Defense Department contractors have been forced to take several unpaid days off in recent months. Some national park campgrounds were closed and grant money for medical and scientific research has been cut.

Many Republican conservatives view sequester as the new normal and it is baked into their current negotiating positions on the debt limit and next year's budget.

If left in place, Rogers said, the cuts will put U.S. national security at risk because a larger portion is shouldered by the military and intelligence services.

"We'll have some intelligence operations around the world that will have to shut down. We'll have to curtail certain operations," Rogers told Reuters. "And that information that's collected is highly important to protecting the United States, so I do worry about it significantly."

Some Republicans on the House Appropriations committee are hoping that a solution to replace sequestration with savings elsewhere will emerge as part of a negotiation between the White House and Congress over raising the $16.7 trillion debt ceiling.

A senior House Republican aide said that narrative goes like this: the House passes a debt limit bill with a laundry list of Republican demands, ranging from a one-year delay of Obamacare provisions to approval of the Keystone pipeline.

After it is rejected by the Democratic-controlled Senate, high-level talks will be needed to avoid an historic U.S. default on at least some government obligations, the aide said. At that point, an end to the sequester could be put on the table as part of a compromise.

It is a long-shot, considering the continuing divisions about the sequester.

Any solution gets back to the problem of where to find other savings. Democrats want to raise taxes on the wealthy, while Republicans, including Rogers and Representative Michael Grimm, want to cut spending on expensive federal benefits programs such as Medicare and Social Security.

"The House position is very clear. Sequester stays in," said Republican Representative Tim Huelskamp of Kansas, one of the House's most conservative members.

EASY FIXES GONE

A temporary budget arrangement passed in March allowed the Defense Department and some other security agencies some flexibility to move money between some budget accounts to avoid the worst effects of the cuts. It allowed the Defense Department to shift some $10 billion from unwanted programs to its all-important training and maintenance budget.

But that money is now spent, and agencies and defense companies that found some wiggle room in their budgets to avoid layoffs are now facing deeper and more permanent cuts in 2014.

"You can't really, to use an industry term, salami-slice it to death and get to where you need to go," BAE Systems Inc chief executive Linda Hudson has told Reuters Insider television. "I think it's reasonable to assume that some (defense) programs will go away and some others will have to be restructured."

Newly confirmed FBI director James Comey said this month that the agency halted training for new agents at its facility in Quantico, Virginia. He is considering a furlough of 10 days or more for each of the bureau's 36,000 employees.

If the sequester is to be killed, Congress will need to overcome the common perception outside Washington that the government can easily absorb more cuts.

"My constituents believe that the government is bloated and spending should be cut. I agree completely with them," said Representative Kerry Bentivolio, a Republican freshman.

(Additional reporting By Richard Cowan; Editing by Fred Barbash and Mohammad Zargham)

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