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1 1 (October 15, 2019)

handle is hein.crs/govbbjn0001 and id is 1 raw text is: 1 Congressional Research Service hfo1krin the legisiaive debate since 1914 October 15, 2019 FY2020 Mandatory Sequester Reduces Medicare $15.3 Billion, Other Mandatory Spending $5.39 Billion On October 1, 2019, the first day of FY2020, the FY2020 mandatory sequester order became effective. Sequestration is a budgetary mechanism that requires automatic cancellation of budgetary authority-the legal authority Congress grants agencies to enter into financial obligations. The FY2020 mandatory sequester order reduced Medicare payments by $15.31 billion and other (nonexempt) mandatory spending by $5.392 billion. The reductions are required by the Budget Control Act of 2011 (BCA; P.L. 112-25). The BCA, as amended, requires similar reductions on the first day of each fiscal year through FY2029. (For an in-depth analysis of the mandatory sequester, see CRS Report R45941, The Annual Sequester of Mandatory Spending through FY2029, by Charles S. Konigsberg.) Mandatory Spending and Sequestration There are two types of budgetary authority (BA): discretionary spending provided in annual appropriations bills, which makes up about 30% of federal spending; and (2) mandatory or direct spending-the other 70%-where the BA flows directly from multiyear authorizing laws enacted outside the annual appropriations process. Examples of mandatory spending programs include entitlement programs, nutrition assistance, and multiyear highway bills. Since the creation of the sequester mechanism in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177), it has been used to enforce a variety of fiscal policy goals. Sequestration is generally implemented through across-the-board (uniform percentage) reductions to programs, projects, and activities. BCA and the Mandatory Sequester The BCA included discretionary spending caps to save about $900 billion through FY2021 and a Joint Committee process aimed at saving another $1.5 trillion. For the initial tranche of budgetary savings, the BCA placed statutory limits on discretionary spending for each fiscal year from FY2012 through FY2021. To accomplish the second tranche of savings, the BCA established a bipartisan, bicameral Joint Select Committee on Deficit Reduction (Joint Committee). The committee was to negotiate a broad deficit reduction package, and as a fallback, automatic spending reductions would be triggered if Congress failed to enact at least $1.2 trillion in budget savings by January 15, 2012. The deadline was not met, triggering the BCA's $1.2 trillion in automatic reductions. Most of the $1.2 trillion was to be achieved through annual reductions in discretionary spending by reducing the defense and nondefense spending caps below their initial BCA levels. However, subsequent legislation-the Bipartisan Budget Acts of 2013, 2015, 2018, and 2019-have partially or fully rolled back the additional discretionary savings. The remainder of the $1.2 trillion in savings was to be achieved through annual across-the-board cuts (sequestration) in all nonexempt mandatory spending. This portion of the automatic reductions has been fully implemented-and extended for an additional eight fiscal years through FY2029. Calculating the Mandatory Sequester The BCA includes detailed statutory directions for the Office of Management and Budget (OMB) to calculate, and the President to implement, the Joint Committee reductions for each fiscal year through FY2021 (see Figure 1). To achieve the required $1.2 trillion of deficit reduction, the BCA first subtracts an amount for debt service savings, then divides the remainder over nine years to arrive at an annual required reduction of $109.3 billion for each fiscal year through FY202 1. That amount is split equally between defense and nondefense spending, and each half is then allocated on a mostly proportional basis between discretionary and mandatory spending. The resulting reductions in discretionary spending were to be implemented by lowering the BCA discretionary spending limits-although the required cap reductions have been superseded by four Bipartisan Budget Acts (2013, 2015, 2018 and 2019) that have raised the caps. The required reductions in mandatory spending in the defense and nondefense categories are achieved through a mandatory sequester (across-the-board cuts)-subject to numerous exemptions and special rules. OMB refers to the mandatory reductions as the Joint Committee sequester. 2% Limit for Medicare and Other Special Rules; Sequester Exemptions The annual Joint Committee mandatory sequester generally applies reductions across the board but is subject to special rules and exemptions. The most significant special rule is the 2% limit on Medicare reductions. Medicare is the largest mandatory spending program subject to sequestration, although special rules limit the sequestration of Medicare benefit payments to 2%. Most Medicare spending-$765.5 billion in FY2020-is subject to the 2% sequester, including payments to health care ps:!icrsreporscong esg

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