[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
REPLACING THE SEQUESTER
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
HEARING HELD IN WASHINGTON, DC, APRIL 25, 2012
Serial No. 112-25
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COMMITTEE ON THE BUDGET
PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho Ranking Minority Member
JOHN CAMPBELL, California ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri LLOYD DOGGETT, Texas
TOM COLE, Oklahoma EARL BLUMENAUER, Oregon
TOM PRICE, Georgia BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma TIM RYAN, Ohio
DIANE BLACK, Tennessee DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin GWEN MOORE, Wisconsin
BILL FLORES, Texas KATHY CASTOR, Florida
MICK MULVANEY, South Carolina HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas KAREN BASS, California
TODD C. YOUNG, Indiana SUZANNE BONAMICI, Oregon
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia
Austin Smythe, Staff Director
Thomas S. Kahn, Minority Staff Director
C O N T E N T S
Hearing held in Washington, DC, April 25, 2012................... 1
Hon. Paul Ryan, Chairman, Committee on the Budget............ 1
Letter, dated April 23, 2012, from CBO Director Elmendorf 2
Prepared statement of.................................... 3
Letter, dated May 25, 2012, from Jeffrey D. Zients,
Acting Director, Office of Management and Budget....... 50
Hon. Chris Van Hollen, ranking member, Committee on the
Prepared statement of.................................... 5
Susan A. Poling, Deputy General Counsel, Government
Accountability Office...................................... 6
Prepared statement of.................................... 8
Daniel I. Werfel, Controller, Office of Management and Budget 18
Prepared statement of.................................... 20
REPLACING THE SEQUESTER
WEDNESDAY, APRIL 25, 2012
House of Representatives,
Committee on the Budget,
The committee met, pursuant to call, at 10:06 a.m. in room
210, Cannon House Office Building, Hon. Paul Ryan [chairman of
the committee] presiding.
Present: Representatives Ryan, Calvert, Price, Chaffetz,
Stutzman, Lankford, Black, Mulvaney, Huelskamp, Young, Woodall,
Van Hollen, Kaptur, Doggett, Blumenauer, Yarmuth, Pascrell,
Wasserman Schultz, and Bonamici.
Chairman Ryan. The committee will come to order. Our
attendance is taken.
I want to thank our witnesses for appearing today to
witness the looming sequester that has been hanging over the
Nation's fiscal debate since the enactment of the Budget
Control Act since August of last year.
The 2013 sequester is a $109 billion across-the-board
inflexible and arbitrary cut in spending that will occur under
current law on January 2, 2013. The 10 percent across-the-board
cut in defense spending from the sequester would, quote,
``hollow out our national defense.'' Those aren't my words;
those are the quotes from the Secretary of Defense as he
The 8 percent across-the-board cut in nondefense
discretionary spending from the sequester would, quote,
``inflict great damage on critical domestic priorities.''
Again, those aren't my words. Those words come from the
The only way to avoid these dire results is for Congress to
pass, and the President to sign, new legislation. This
committee and this House have passed a budget that provides a
plan for doing exactly that. In the coming weeks, this
committee and this House will continue to lead by proposing
legislation that will achieve more than 100 percent of the
savings of the sequester that it would have achieved, while
doing so in a responsible, priority driven way, rather than
driving through the arbitrary meat-axe approach that is
obtained in the sequester.
We are joined by Danny Werfel, the controller and head of
the Office of Financial Management at the OMB.
Mr. Werfel, thank you for joining us today. It is great to
have you here. We hope that your testimony will move beyond the
vague generalities of the President's budget and offer specific
proposals that the President is making to avoid the
consequences of sequester.
We are also joined by Susan Poling, deputy general counsel
at the GAO.
Ms. Poling, we look forward to your testimony on the legal
regime in which the agencies are operating as they prepare for
the possibility of the sequester.
Before turning it over to my friend, Mr. Van Hollen, I want
to quote the White House chief of staff who wrote in August of
last year, quote, ``Make no mistake, the sequester is not meant
to be policy,'' close quote. Whatever the intention, the
sequester will take effect. It is law, and we will see abrupt
and indiscriminate cuts in government spending unless we act.
This is coming. It is there.
So the smart, rational thing to do is to prepare for that.
I don't believe this is in the national interest, and the
President claims that he agrees. There is no reason why we
cannot work together to help replace the sequester. House
Republicans are bringing specific proposals to the table, and
we invite the administration to do the same.
At this time, I ask unanimous consent to insert in the
record a letter from the CBO director cataloguing recent work
they have done with respect to the sequester. Without
objection, so ordered.
[The information follows:]
Congressional Budget Office,
Washington, DC, April 23, 2012.
Hon. Paul Ryan, Chairman,
Committee on the Budget, U.S. House of Representatives, Washington, DC
Dear Mr. Chairman: In response to your request, the Congressional
Budget Office has prepared a list of its publications that analyze the
budgetary impact of the Budget Control Act of 2011 (P.L. 112-25).
letters related to the consideration of the budget control act
On July 26, 2011, CBO estimated the effect on the deficit
of the Budget Control Act as posted on the Web site of the Committee on
Rules on July 25, 2011.
On July 27, 2011, CBO published an updated estimate of the
effect on the deficit of the legislation as amended by the Faster FOIA
Act of 2011.
Also on July 27, 2011, CBO estimated the effect on the
deficit of the Budget Control Act as proposed in the Senate on July 25,
2011 (as an amendment to S. 1323).
On August 1, 2011, CBO estimated the effect on the deficit
of the Budget Control Act as posted on the Web site of the Committee on
Rules that day. That version of the legislation was ultimately enacted.
sequestration reports and related publications
On August 12, 2011, CBO published its Sequestration Update
Report for Fiscal Year 2012. That report detailed the caps on new
discretionary budget authority established by the Budget Control Act,
including applicable adjustments and the limits on security and
nonsecurity budget authority for 2012 and 2013.
On September 12, 2011, CBO published the Estimated Impact
of Automatic Budget Enforcement Procedures Specified in the Budget
Control Act. That report detailed the changes in discretionary and
mandatory spending that would ensue if lawmakers did not enact
legislation originating from the Joint Select Committee on Deficit
Reduction that would reduce projected deficits by at least $1.2
trillion over a 10-year period.
On January 12, 2012, CBO published its Final Sequestration
Report for Fiscal Year 2012. In that report, CBO estimated that a
sequestration of budgetary resources, as prescribed by the Budget
Control Act, will not be required in 2012.
On September 13, 2011, CBO's testimony entitled
Confronting the Nation's Fiscal Policy Challenges before the Joint
Select Committee on Deficit Reduction included a comprehensive
discussion of the Budget Control Act and its estimated effect on the
budget deficit and CBO's baseline budget projections, including the
potential impact of the enforcement procedures of the law (see pages 22
On October 26, 2011, CBO's testimony entitled
Discretionary Spending before the same committee highlighted the Budget
Control Act's estimated effect on discretionary budget authority and
total outlays, again including the potential impact of the enforcement
procedures of the law (see pages 14 to 23 and 33 to 36).
In August 2011, CBO published The Budget and Economic
Outlook: An Update, which discussed the budgetary effects of the Budget
Control Act (see Box 1-1 and Table 1-6) and presented baseline budget
projections that incorporated those effects.
In January 2012, CBO published The Budget and Economic
Outlook: Fiscal Years 2012 to 2022, which updated the estimated effects
of the Budget Control Act to reflect the fact that lawmakers did not
enact legislation originating from the Joint Select Committee on
Deficit Reduction that would reduce projected deficits by at least $1.2
trillion over a 10-year period. (The enforcement procedures are
highlighted on pages 12, 13, 18, 20, 103, and 104.)
In March 2012, CBO published Updated Budget Projections:
Fiscal Years 2012 to 2022, which continued to incorporate the budgetary
effects of the enforcement procedures of the Budget Control Act.
Also in March 2012, CBO published An Analysis of the
President's 2013 Budget, which included CBO's assessment of the
President's proposal to eliminate the automatic spending reductions
that are scheduled to occur under the Budget Control Act.
I hope this information is useful to you.
Douglas W. Elmendorf,
cc: Hon. Chris Van Hollen, Ranking Member.
[The statement of Chairman Ryan follows:]
Prepared Statement of Hon. Paul Ryan, Chairman,
Committee on the Budget
I want to thank our witnesses for appearing today to address the
looming sequester that has been hanging over the nation's fiscal debate
since the enactment of the Budget Control Act in August of last year.
The 2013 sequester is a $109 billion across-the-board, inflexible,
and arbitrary cut in spending that will occur under current law on
January 2, 2013.
The 10% across-the-board cut in defense spending from the sequester
would quote, ``hollow out'' our national defense. Those aren't my
words. That is how the Secretary of Defense describes it.
The 8% across-the-board cut in non-defense discretionary spending
from the sequester would ``inflict great damage on critical domestic
priorities.'' Those aren't my words. Those words come from the
The only way to avoid these dire results is for Congress to pass
and the President to sign new legislation. This committee and this
House have passed a budget that provides a plan for doing just that.
In the coming weeks, this committee and this House will continue to
lead by proposing legislation that will achieve more than 100% of the
savings the sequester would achieve while doing it in a responsible,
priority-driven way rather than through the arbitrary, meat-ax approach
that is the sequester.
We are joined today by Danny Werfel, the Controller and head of the
Office of Federal Financial Management at the Office of Management and
Mr. Werfel, thank you for joining us today. We hope that your
testimony will move beyond the vague generalities of the President's
budget and offer the specific proposals the President is making to
avoid the consequences of the sequester.
We are also joined by Susan Poling, the Deputy General Counsel of
the Government Accountability Office. Ms. Poling, we look forward to
your testimony on the legal regime in which agencies are operating as
they prepare for the possibility of the sequester.
Before turning it over to my friend, Mr. Van Hollen, I want to
quote the White House Chief of Staff, who wrote in August of last year,
quote, ``make no mistake: the sequester is not meant to be policy.''
Whatever the intention, the sequester will take effect, and we will
see abrupt and indiscriminate cuts in government spending, unless we
I do not believe this is in the national interest, and the
President claims that he agrees. There is no reason why we cannot work
together to replace the sequester. House Republicans are bringing
specific proposals to the table and we invite the administration to do
At this time, I ask unanimous consent to insert in the record a
letter from the CBO Director cataloging recent work they have done with
respect to the sequester. Without objection, so ordered.
With that, I recognize the ranking member, Mr. Van Hollen of
Maryland for his opening statement.
Chairman Ryan. And with that, I recognize the ranking
member, Mr. Van Hollen, for any statement he may have.
Mr. Van Hollen. Thank you, Mr. Chairman.
I want to join the chairman in welcoming the witnesses
I think this hearing is an important opportunity to examine
the budget sequester and how we got to this point. I think we
all know that the Budget Control Act was a difficult compromise
designed to avert an economic crisis and to avoid the default
on the country's debt. It reduced spending over the next decade
by about $900 billion and set in place an agreement to reduce
the deficit by another $1.2 trillion.
The sequester was included in the legislation as a last
resort to encourage, to pressure the Congress to develop a
bipartisan alternative to achieve long-term deficit reduction.
However, as is well known, our Republican colleagues continue
to resist the balanced approach to deficit reduction that has
been recommended by every bipartisan group that has looked at
the budget challenge. Our Republican colleagues continue to
oppose the idea that we should close even one special interest
tax loophole for the purpose of deficit reduction.
This means that, come January, as the chairman said, the
Sword of Damocles will go into effect, imposing indiscriminate
across-the-board cuts of almost a trillion dollars, 50 percent
from defense and 50 percent from nondefense spending. It is a
meat-axe approach to deficit reduction that we should avoid.
There is no question that we need to reduce our deficit. I
think we all agree, as the chairman has said, that the meat-axe
approach is not the way to go. The cuts would be both too deep
and too arbitrary. That is why both the President's budget and
the House Democratic alternative budget would replace those
deep cuts with a plan to achieve greater deficit reduction from
targeted, balanced policy choices.
We have seen a number of proposals that are coming out of
the process that was set up by our Republican colleagues to
deal with the first year of the sequester, and unfortunately we
continue to see that lopsided approach.
The Ways and Means Committee has proposed eliminating the
social services block grant, which helps 23 million children
and adults get essential services, including the Meals on
Wheels program, prevention of child abuse and neglect, and
child care for low-income parents returning to work. Eliminate
In the Ag Committee--in the Ag Committee, Mr. Chairman, not
one ag subsidy was cut. Not one penny. Instead, the Republican
proposal emerging from the Ag Committee will significantly cut
food and nutrition programs for millions of families. Three
hundred thousand children will lose their free lunch programs
at school; and millions of Americans will see reduced support
for food and nutrition, again at a time when not one subsidy
for a major agribusiness was cut. That, Mr. Chairman, I think
is a twisted result.
Finally, in the Financial Services Committee, they proposed
to eliminate the early intervention authority to shut down
nonbank financial firms whose failures would have a significant
negative impact on the economy. The consequence of this will be
the next time around taxpayers will have to pick up the bill.
We saw what happened last time. The Wall Street reform bill
designed a process to make sure that the big banks and
financial institutions pay for any future failure. Apparently,
our Republican colleagues decided to put the taxpayer at risk
So, Mr. Chairman, I would just say that, unfortunately,
what we have seen through the process so far is more of the
same, more of the same meaning cutting important investments,
shredding the social safety net, and again protecting tax
breaks for the wealthiest Americans and for special interests.
We can do a lot better. I hope we will all take the same
balanced approach to reducing the deficit as has been
recommended by bipartisan commissions, meaning combining tough
cuts with cuts to tax breaks and tax loopholes for special
I thank you.
[The statement of Mr. Van Hollen follows:]
Prepared Statement of Hon. Chris Van Hollen, Ranking Member,
Committee on the Budget
This hearing is an important opportunity to examine the budget
sequester--and how it is we got to this point.
The Budget Control Act (BCA) was a difficult compromise to avert
economic crisis and avoid a default on the country's debt. It reduced
spending over the next decade by about $900 billion and set in place an
agreement to reduce the deficit by another $1.2 trillion. The sequester
was included in the legislation as a last resort to encourage the
Congress to develop a bipartisan alternative to achieve long-term
deficit reduction. However, our Republican colleagues continue to
resist the balanced approach to deficit reduction that has been
recommended by every bipartisan group that has looked at the budget
challenge. Republicans continue to oppose the idea that we should close
even one special interest tax loophole for the purpose of deficit
This means that come January, this ``Sword of Damocles'' will go
into effect, imposing indiscriminate, across-the-board cuts of almost
$1 trillion--50 percent from defense and 50 percent from non-defense
spending. It is a meat-ax approach to deficit reduction that we should
There is no question that we need to reduce our deficit--and I
think we all agree that the BCA's slash-and-burn approach does not make
sense for our country. These cuts would be too deep and too arbitrary.
That's why both the President's budget and the House Democratic
alternative budget would replace these deep cuts with a plan to achieve
greater deficit reduction from targeted, balanced policy choices.
But instead of working on a bipartisan solution to address these
pending cuts, Republicans have doubled down on their lopsided approach
to deficit reduction that protects the very wealthy and special
interests at the expense of everyone else. Their solution is further
cuts to vital services imposed through both the reconciliation
instructions and the additional cuts in discretionary spending mandated
by the Republican budget that violated the spending levels agreed upon
in the Budget Control Act.
The process is not yet complete, but three of the six committees
have already recommended cuts to vital services that will affect
Americans in many ways. In fact, some of the cuts will hurt millions of
low-income and disabled Americans at a time when millions remain out of
work through no fault of their own and are struggling to make ends
meet. They include:
Eliminating the Social Services Block grant, which helps
23 million children and adults get essential services. This includes
support for the Meals on Wheels program, prevention of child abuse and
neglect, and child care for low-income parents returning to work.
Cutting the Supplemental Nutrition Assistance Program
(SNAP) that helps low-income households put food on the table--while
not cutting a single unnecessary subsidy for big agri-business. The
Republican plan reduces assistance to every single household receiving
SNAP benefits almost immediately and cuts 1.8 million people off of
food assistance entirely. 75% of these households are families with
children. In addition, nearly 300,000 children would lose free school
meals, on top of losing the SNAP benefits that provide food at home.
Once again, special interests win out over American families.
Repealing the FDIC's early intervention authority to shut
down non-bank financial firms whose failures would have a significant
negative impact. The Wall Street Reform law designed this early
intervention authority to pay for itself over time, and repealing this
authority will ensure that taxpayers will likely have to pay the price
if we ever have to bail out financial firms in the future.
This is all more of the same. The Republican budget ends the
Medicare guarantee, raises the costs of student loans, increases the
tax burden on middle-income Americans, and guts important investments
in our economy--all to protect and expand tax breaks for the wealthy
and special interests.
Democrats have taken a different approach--one that preserves the
promises we've made to seniors, boosts job growth, and makes critical
investments in our nation's future. Both the President's budget and the
very similar Democratic alternative budget include specific and
balanced deficit reduction plans, replacing the meat-ax cuts in the
sequester with a combination of reductions from mandatory programs and
revenues generated by eliminating tax loopholes and asking millionaires
to return to the same top tax rate they paid during the Clinton
I hope our Republican colleagues will ultimately choose to take the
approach recommended by every bipartisan commission--a balanced
approach to reducing the deficit and replacing the sequester.
Chairman Ryan. Thank you.
Ms. Poling, why don't we start with you?
STATEMENTS OF SUSAN A. POLING, DEPUTY GENERAL COUNSEL,
GOVERNMENT ACCOUNTABILITY OFFICE; AND DANIEL I. WERFEL,
CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF
MANAGEMENT AND BUDGET
STATEMENT OF SUSAN A. POLING
Ms. Poling. Good morning, Chairman Ryan, Ranking Member Van
Hollen, and members of the committee. Thank you for inviting me
to speak with you today.
I am the deputy general counsel of the Government
Accountability Office. Before assuming this position, I was
responsible for GAO's appropriations law decisions and
opinions, the Red Book, and legal support for, among other
teams, our budget issues group.
You asked GAO to speak about two topics today. First, you
asked us to discuss the application of two fiscal laws, the
Antideficiency Act and the Impoundment Control Act, as agencies
prepare for a possible sequestration under the Budget Control
Act. And, second, you asked us to discuss the meaning of
``program, project, and activity'' under the Budget Control
Act. GAO has an oversight role with regard to fiscal laws and
is statutorily responsible for publishing and maintaining
standard terms related to the Federal budget process.
The Budget Control Act of 2011, which amended the Balanced
Budget and Emergency Deficit Control Act of 1985, more commonly
known as the Gramm-Rudman-Hollings Act, established a process
to achieve a deficit reduction target of $1.2 trillion by the
end of fiscal year 2021. Among other things, the Budget Control
Act requires that the Office of Management and Budget
calculate, and the President order, a sequestration of
discretionary and direct spending on January 2, 2013, to
achieve reductions for that fiscal year.
Despite the possible impact of any sequestration, agencies
must continue to comply with the requirements of the
Antideficiency Act and the Impoundment Control Act. The Budget
Control Act does not waive the application of these two very,
very important fiscal laws, both of which underscore Congress's
constitutional power of the purse.
These two laws act in concert. The Antideficiency Act
prohibits agencies from spending in excess of or in advance of
their appropriation or an apportionment, while the Impoundment
Control Act bars agencies from refusing to use the amounts that
Congress has appropriated.
Congress enacted the Impoundment Control Act to tighten
congressional control over Presidential impoundments and to
establish a procedure by which Congress could consider the
merits of impoundments proposed by Presidents. Thus, the agency
must carry out their appropriations regardless of the
possibility of reductions in budget authority that could take
place at the beginning of the second quarter of fiscal year
Agencies do have some experience in maintaining operations
in uncertain budget times. In the past decade, agencies have
continued to carry out their missions with temporary
appropriations under continuing resolutions for many months
into the fiscal year.
The Budget Control Act also provides that sequestration for
fiscal year 2013 will reduce each nonexempt account by a
uniform percentage necessary to achieve the calculated
reduction for that fiscal year. OMB is required to implement
the sequestration such that the same percentage reduction
applies across all programs, projects, and activities in a
Programs, projects, and activities are to be identified
with reference to the relevant appropriation act, the relevant
committee reports, any report of the relevant fiscal year, or
for accounts that are not included in the appropriations acts
with reference to the most recently submitted President's
budget. Under this framework, each budget account must be
analyzed separately to determine its component programs,
projects, and activities.
In 1986, when agencies had to implement the same language
in the first sequestration, GAO found that, despite the variety
of definitions, most agencies had little difficulty in
identifying information sources needed to determine what
program, projects, or activities existed within a given
account. We did identify in 1986 some ambiguities in various
definitions and some oversights and omissions and some very
practical problems, where the language of the appropriations
act or the committee reports did not coincide with functional
program or project information used by the agency budget
officials for the actual program execution.
In the final analysis, the Budget Control Act vests OMB
with the authority to implement sequestration. The execution
and impact of any spending reductions will depend on the legal
interpretations and actions taken by OMB. To date, OMB has not
issued guidance to agencies on preparing for the implementation
of the Budget Control Act or how it would construe program,
project, or activity.
This concludes my prepared statement, and I would be happy
to answer any questions that you or other members of the
committee have at this time.
[The prepared statement of Susan A. Poling follows:]
Chairman Ryan. Great. Thank you.
STATEMENT OF DANIEL I. WERFEL
Mr. Werfel. Mr. Chairman, Ranking Member Van Hollen,
members of the committee, good morning.
I am here at your request to provide input on issues
related to the Budget Control Act of 2011 and the sequester,
the President's proposal to replace the sequester, and OMB's
role in implementing the sequester should it take effect on
January 2, 2013.
Currently, I serve in the position of controller at OMB.
This position was created by the Chief Financial Officer's Act
of 1990, with responsibilities for coordinating government-wide
policy and reform efforts related to financial management.
Historically, the controller, working with agency CFOs, plays
an important role supporting the director of OMB in preparing
for both ordinary and extraordinary financial circumstances
across government. It is in this capacity that I am speaking
before the committee today.
The BCA, passed on a bipartisan basis, established caps on
discretionary spending for fiscal years 2012 through 2021. The
Act also created a Joint Select Committee on Deficit Reduction,
instructed to develop a bill to reduce the Federal deficit by
$1.5 trillion over a 10-year period ending in fiscal year 2021.
If the joint committee failed to propose and Congress failed to
enact a bill including at least $1.2 trillion in deficit
reduction, the BCA put into place an automatic process of
across-the-board cuts to reduce spending known as the
The President has made clear that Congress can and should
act to avoid the sequester. The intention of the sequester was
to drive Congress to a compromise through the threat of
mutually disagreeable cuts to both defense and nondefense
discretionary funding. If allowed to occur, the sequester would
be highly destructive to national security and domestic
priorities and core government functions. The administration
believes that taking action to avoid the sequester in a full
and balanced and fiscally responsible manner must be the
primary focus of Congress's deliberations in the coming months.
OMB plays a central role in the management, oversight, and
execution of appropriations and authorities provided to the
executive branch. On occasion, congressional action or inaction
requires OMB to plan for extenuating circumstances.
Recently, this has included planning for potential
government shutdowns and operating under continuing
resolutions, as well as other contingencies. On these
occasions, OMB, in coordination with other executive branch
agencies, has demonstrated an ability to plan appropriately,
provide required guidance to agencies, and take the necessary
steps to implement plans of action.
OMB will be prepared to draw on these experiences in
implementing the sequester if Congress does not act to avoid
it. But as the administration has made clear, it is our firm
belief that the sequester is not an appropriate mechanism for
deficit reduction and should not occur. The adverse impacts of
the sequester cannot be substantially mitigated with advanced
planning and executive action. In this sense, the sequester
called for in the BCA can still operate as designed, a blunt
instrument that is intended to spur action by imposing
sweeping, across-the-board cuts.
A CBO report released last November estimated the magnitude
of the cuts that would be required by the sequester. It found
that base defense discretionary spending would be cut by
approximately 10 percent, while nondefense discretionary
spending would be cut by almost 8 percent. These cuts would be
generally applied in equal percentages, indiscriminately
affecting programs without regard to priorities or function.
For defense, this means that all operations, from procurement
to programmatic activities, will be affected. For nondefense,
the cuts would be equally harmful and wide ranging, for
example, cutting funding for education, law enforcement,
infrastructure, and research and development.
That is why the administration believes that avoiding the
sequester, not trying to mitigate its effects, should be the
focus of responsible policymakers. To this end, the President
has put forward a balanced deficit reduction package to avoid
the sequester. This package achieves more than enough deficit
reduction to avoid the sequester if Congress chooses to act and
Last September, to support the work of the joint committee,
the administration released the President's plan for economic
growth and deficit reduction. This package identified specific
proposals from across the spectrum that far exceeded the
deficit reduction target set by Congress. When the joint
committee announced last November that it would be unable to
achieve its mandate for deficit reduction, the President made
clear that he would veto any legislation that attempted to
cancel the sequester in part or in full without achieving at
least the minimum $1.2 trillion of deficit reduction agreed to
in the BCA.
In February of this year, the President transmitted the
2013 budget, which again included a deficit reduction package
that would not only meet but exceed the mandate given to the
Importantly, unlike the sequester scheduled in current law,
both of the President's proposals would achieve deficit
reduction in a balanced, responsible way by making clear policy
choices and targeted reductions. The administration has
repeatedly provided a blueprint for Congress to avoid the
sequester, while meeting the Nation's fiscal challenges. Now,
responsibility rests with Congress, and ample time remains for
such action. OMB stands ready to coordinate government-wide
planning and activities for any contingency, but today the more
pressing need is for Congress to act to avoid the sequester.
Thank you, and I am happy to answer any questions you may
[The prepared statement of Daniel Werfel follows:]
Prepared Statement of Daniel I. Werfel, Controller,
Office of Management and Budget
Mr. Chairman, Ranking Member Van Hollen, members of the Committee,
I am here at your request to provide input on issues related to the
Budget Control Act of 2011 (BCA) and the sequester, the President's
proposal to replace the sequester, and the Office of Management and
Budget's (OMB) role in implementing the sequester should it take effect
on January 2nd, 2013.
Currently, I serve in the position of Controller at OMB. This
position was created by the Chief Financial Officers (CFO) Act of 1990,
with responsibilities for coordinating government-wide policy and
reform efforts related to financial management. This includes, for
example, coordinating financial reporting, audits, financial systems,
and other accounting and internal control functions of agency CFOs.
Historically, the Controller, working with agency CFOs and other
related officials, has played an important role supporting the Deputy
Director of Management and the Director of OMB in preparing for both
ordinary and extraordinary financial circumstances across government.
It is in this capacity that I am speaking before the Committee today.
The BCA, passed on a bipartisan basis, established caps on
discretionary spending for fiscal years (FY) 2012 through 2021. The Act
also created a joint Select Committee on Deficit Reduction instructed
to develop a bill to reduce the federal deficit by $1.5 trillion over
the 10 year period ending in FY2021. If the Joint Committee failed to
propose (and Congress failed to enact) a bill including at least $1.2
trillion in deficit reduction, the BCA put into place an automatic
process of across-the-board cuts to reduce spending, known as the
The President has made clear that Congress can and should act to
avoid the sequester. The intention of the sequester was to drive
Congress to a compromise through the threat of mutually disagreeable
cuts to both defense and non-defense discretionary funding. If allowed
to occur, the sequester would be highly destructive to national
security and domestic priorities, and core government functions. The
Administration believes that taking action to avoid the sequester in
full in a balanced and fiscally responsible manner must be the primary
focus of Congress's deliberations in the coming months.
As noted above, OMB plays a central role in the management,
oversight, and execution of appropriations and authorities provided to
the Executive Branch. As a matter of course, this involves managing the
normal operations of the government as funded through annual
appropriations and existing mandatory authorities. However, on
occasion, Congressional action or inaction requires OMB to plan for
Recently, this has included planning for potential government
shutdowns, operating under continuing resolutions, and managing
operations when the government's borrowing limit was nearly reached. On
these occasions, OMB, in coordination with other Executive Branch
agencies, has demonstrated an ability to plan appropriately for
necessary contingencies, provide required guidance to agencies, and, as
needed, take the steps necessary to implement plans of action. OMB will
be prepared to draw on these experiences in implementing the sequester
if Congress does not act to avoid it. As the Administration has made
clear, it is our firm belief that the sequester is not an appropriate
mechanism for deficit reduction and should not occur.
Sequesters serve as the enforcement mechanism for the two budget
controls currently in place: PAYGO and discretionary caps. Many of the
statutory principles underlying their enforcement are longstanding.
They rely on the framework first established in the Balanced Budget and
Emergency Deficit Control Act of 1985 (BBEDCA) and modified in the
Budget Enforcement Act of 1990 (BEA), Statutory Pay-As-You-Go Act of
2010 (PAYGO), and most recently in the BCA.
Like many of the circumstances described above, the sequester would
be severely disruptive to normal government operations and will have
far reaching consequences. The adverse impacts of the sequester cannot
be substantially mitigated with advance planning and executive action.
In this sense, the sequester called for in the BCA can still operate as
designed--a blunt instrument that is intended to spur action by
imposing sweeping across-the-board cuts.
A CBO report released last November estimated the magnitude of the
cuts that would be required by the sequester. It found that base
defense discretionary spending would be cut by approximately 10 percent
while non-defense discretionary spending would be cut by almost 8
percent. These cuts would generally be applied in equal percentages,
indiscriminately affecting programs without regard to priorities or
function. For defense, this means that all operations, from procurement
to programmatic activities will be affected. For non-defense, the cuts
would be equally harmful and wide-ranging, for example, cutting funding
for education, law enforcement, infrastructure, and research and
development. In his March 28 testimony before the House Committee on
Education and the Workforce, Secretary Duncan explained:
A 7.8 percent reduction in funding for large State formula grant
programs that serve over 21 million students in high poverty schools
and 6.6 million students with special needs could force States, school
districts, and schools to slash teacher salaries, lay off teachers, or
reduce services to these needy children. More specifically, the
resulting cut of more than $1.1 billion to Title I could mean denying
funding to nearly 4,000 schools serving more than 1.6 million
disadvantaged students, and more than 16,000 teachers and aides could
lose their jobs.
These types of deep cuts undercut critical government programs that
the American people rely on and eliminate investments needed for future
economic growth. These cuts are not the result of policy decisions.
That is why the Administration believes that avoiding the sequester--
not trying to mitigate its effects--should be the focus of responsible
To this end, the President has put forward a balanced deficit
reduction package to avoid the sequester. This package achieves more
than enough deficit reduction to avoid the sequester if Congress
chooses to act and pass it. Last September, to support the work of the
Joint Select Committee on Deficit Reduction that the bipartisan BCA
established, the Administration released the President's Plan for
Economic Growth and Deficit Reduction. This package identified specific
proposals from across the spectrum that far exceeded the deficit
reduction target set by Congress for the Joint Committee. When the
Joint Committee announced last November that it would be unable to
achieve its mandate for deficit reduction, the President made clear
that he would veto any legislation that attempted to cancel the
sequester--in part or in full--without achieving at least the minimum
$1.2 trillion of deficit reduction agreed to in the BCA. In February of
this year, the President transmitted his 2013 Budget, which again
included a deficit reduction package that would not only meet but
exceed the mandate given to the Joint Committee. Specifically, the 2013
President's Budget implements the discretionary spending caps that were
negotiated and agreed to as part of the BCA, generating more than $1
trillion in deficit reduction over the next decade, and reducing
discretionary spending to 5 percent of Gross Domestic Product (GDP) in
2022. With these discretionary savings and other deficit reduction
policies, including reforms to mandatory programs and new revenue, the
President's Budget would cut the deficit by well over $4 trillion over
the next decade. Importantly, unlike the sequester scheduled in current
law, his proposals would achieve deficit reduction in a balanced,
responsible way by making clear policy choices and targeted reductions.
The Administration has repeatedly provided a blueprint for Congress
to avoid the sequester while meeting the nation's fiscal challenges.
Now responsibility rests with Congress and ample time remains for such
OMB stands ready to coordinate government-wide planning and
activities for any contingency. But today, the more pressing need is
for Congress to act to avoid the sequester.
Therefore, the Administration urges the Committee and this Congress
to take action to enact balanced and significant deficit reduction.
Thank you, and I am happy to answer any questions you may have.
Chairman Ryan. Thank you.
First off, I want to get the scoring right. CBO estimates
that in the first year reductions of $55 billion in defense
discretionary programs, which is a 10 percent reduction; $43
billion in nondefense discretionary, an 8 percent reduction;
and then $12 billion from mandatory accounts. Does that jibe
with your interpretation of the sequester?
Mr. Werfel. I think the CBO analysis is roughly correct. I
think it provides a general framework that I think----
Chairman Ryan. That is what we are basing our----
Mr. Werfel. I think it is appropriate to rely on the CBO
analysis in terms of getting a sense of what the anticipated
impact of the sequester would be.
Chairman Ryan. So the sequester formula--in no way is there
a tax increase assumed or explicitly required as part of the
sequester formula. Is that correct?
Mr. Werfel. In terms of the sequester formula, I am not
aware that a change in taxes, whether increase or decrease in
revenue, is relevant to the sequester analysis.
Chairman Ryan. Well, okay, but the sequester says--what--55
from defense, 43 from nondefense, and then 12 from mandatory.
And it is those three components that make up the sequester.
Mr. Werfel. That is correct. It is defense, nondefense,
roughly $55 billion a year across both categories. That is
Chairman Ryan. Right. Okay. Okay.
Then the President's comments, that is where I am a
little--they seemed a little ambiguous. He threatened to veto
turning the sequester off. Any effort to get rid of those
automatic spending cuts to domestic and defense spending he
will veto. Is he saying he is going to veto it in the absence
of not replacing it, and therefore is he in favor of replacing
it? Or is he in favor of keeping it?
Mr. Werfel. The President is in favor of avoiding the
Chairman Ryan. And replacing the savings, not just allowing
the $1.2 trillion to occur?
Mr. Werfel. That is correct. He has put together a plan
that includes sufficient deficit reduction to more than meet
the original mandate of the BCA for $1.2 trillion in deficit
reduction over 10 years.
Chairman Ryan. That is what I want to get to. Okay, so you
are claiming that his budget is his plan. But where in the
budget is the specific proposal to ensure that the sequester
won't happen? Where is in the budget the specific plan to deal
with the sequester?
Mr. Werfel. The President's framework would work as
follows: Based on the fact that enactment of the President's
policies, when building on already enacted legislation and
activities, would create $4 trillion in deficit reduction over
a 10-year window----
Chairman Ryan. I understand.
Mr. Werfel. Based on that framework, that is sufficient to
avoid the sequester. And, therefore, if Congress were to pass
legislation that could pass both Houses of Congress and the
President can sign that has a balanced approach to deficit
reduction, then the President would further sign any
legislative language that would cancel the sequester at that
point. But he is not going to do it before that point.
Chairman Ryan. Okay, so that is the plan. Pass the
We had a vote on it about 4 weeks ago, and it got zero
votes. It was 414 to 0. I don't know if the Senate is even
going to have a vote or not, but last year they had a vote on
the President's budget, and it was 97 to 0. So if that is the
plan to prevent the sequester, just pass my budget, that is not
much of a plan. That is already done.
So knowing that this is happening, knowing that the law is
the law, I think it would be wise for the Commander in Chief to
at least have a plan B, knowing that his budget isn't going to
pass. It has already failed. It hasn't passed.
So January is coming, and I think it is probably in our
interest to show how we are going to turn this off so that we
are not in the middle of the fiscal year and all of a sudden we
have a cliff. That is just a statement to OMB and to the
The balanced approach, I hear this quite a bit these days.
The President already has a pretty steep tax increase in his
budget. That didn't pass. The BCA deal did not say raise taxes;
it said cut spending. It actually had a specific formula
backing up those spending cuts to achieve the deficit
reduction. And so it strikes me that the President is changing
the definition of the deal or that he is sort of moving the
goalposts by going from spending cuts to tax increases.
Now, I know we can claim that either achieve deficit
reduction, but the spirit of the deal of the BCA for sure, but
I think the law of the BCA also is focused on spending cuts. So
is he now saying we can't cut spending to replace the
sequester; we must raise taxes in order to replace the
sequester? Is that what the new definition of success is or
replacing the sequester is?
Mr. Werfel. Several responses, Mr. Chairman, if you will
First, I must go back and indicate that it is the
administration's understanding that the President's budget has
never been voted on by Congress. If you were referring to the
amendment introduced by Congressman Mulvaney, it is our
understanding that it did not include the various elements of
the President's budget. It included some top-line numbers, but
did not have all the specific policies.
So I just wanted to get that on the record.
Chairman Ryan. Sure.
Mr. Werfel. In response to your second question regarding
spending versus taxes, it is our belief that the deal that was
agreed to in the Budget Control Act was for deficit reduction.
And deficit reduction is going to have multiple components to
it. In some cases, obviously, there will be spending cuts. In
other cases, there will be revenue increases.
The President's overall plan has a mixture. In fact, it has
$2.50 of spending reductions for every dollar of revenue
increase. So that is the type of balance that the President has
been talking about, and that is the type of balance that the
President is hoping Congress can work towards and get him a
bill that he can sign so we can avoid the sequester.
Chairman Ryan. So, well, those savings, by the way, are
already enacted in law. So you can't say that your budget
achieves those savings when they are already previously enacted
savings by law. So I would just say a different definition.
With respect to the vote we had, what Mr. Mulvaney did--I
will try to speak for him; correct me if I am wrong, Mr.
Mulvaney--is he took the CBO's score of the President's budget
and simply put that into legislative text. So, as you know,
budget resolutions are a series of numbers and totals of budget
functions. We took CBO's interpretation of the President's
budget, and that was the vote we took. It is the closest you
can get to actually voting on a proposal. The point being the
proposal didn't pass.
So that plan for preempting and avoiding the sequester is
not a viable plan anymore, and now we have do something else.
And it sounds like the administration has not come up with
their position as to how they would solve the sequester. That
is the point we are trying to make here.
And I also say you have a $2 trillion tax increase proposed
in the President's budget, and are we now to conclude that this
sequester won't happen unless we have a big tax increase, at
least a $1.2 trillion tax increase?
Mr. Werfel. Let me go back to one earlier point, and then
we will quickly move past it.
Again, I think it may be an issue of semantics, but the
administration does not believe that the President's budget was
truly voted on. But I think more importantly, whether the
President's budget was voted on from a technical standpoint or
not, what is more important to the American people is that we
have a solution to the issue, and therefore the primary focus
has to be that both Houses of Congress come together and send
the President a bill he can sign.
Now, to your second question in terms of whether the plan
needs--did you say $2 trillion in tax-created revenue?
Chairman Ryan. From the CBO score of your budget.
Mr. Werfel. The President's budget--I just want to clarify,
the net revenue impact of the President's tax proposals is $1.5
trillion in increased revenue.
And the other point that I would make is that the President
has asked for balance, and I think the President is ready to
work with Congress on a balanced approach. And so, you know, I
don't know that we need to draw any lines in the sand on any
particular elements here, but the guiding principle is balance,
and that is what we should be focused on.
Chairman Ryan. Just because I am running out of time and I
want to be mindful of that, we use CBO's interpretation. Just
like you say, the CBO interpretation of the formula for the
sequester is pretty accurate. It is the same CBO interpretation
we used for the revenues.
I have got a technical question I want to ask you. There
has been a discussion about the sequester base. I think you
recently put out a letter yesterday on veterans' programs. We
want to get a good understanding of this.
So here is my question: Will you provide for the record in
an electronic format a listing of each budget account,
organized by its classification, that is exempt from the
sequester, including the statutory basis for the exemption--
again, to clarify these concerns--nonexempt, or subject to a
special rule in the event of a sequestration, including the
statutory basis for this rule?
So we want to make sure we are operating off the same
understanding of what is and what is not in the sequester, what
is the base, and what is the statutory basis for that. That is
really--I mean this in a real technical way, so that as we
prepare for our sequester mitigation efforts we are talking the
Mr. Werfel. So if I could respond, what we certainly can
commit to is an explanation and a listing of those programs and
activities that are explicitly exempt from sequester in the
law, and I can go through some of those with you right now.
Chairman Ryan. And your interpretation. Just give it to me
in electronic format if you can, because we want to get the
Mr. Werfel. We can certainly provide that.
Chairman Ryan. By account.
Mr. Werfel. But what I want to clarify, because I don't
want there to be any mistake about what I am indicating here,
is that there are certain categories of activities that I
think, and I believe, require further review before
determination can be made in terms of whether they are exempt
or not. And those reviews have not taken place in all cases and
will likely not take place until some point in the future.
Because the key is--and I want to, if I could, just key in
on something that you said in your question. You said something
associated with planning to mitigate. And I can't overstate
enough it is so important to understand that planning, while we
will do it when necessary and if necessary, is not going to
mitigate the impacts of this sequester.
Chairman Ryan. That is right. But we want know what it is
so we can prepare for it.
Mr. Werfel. Absolutely. But what our position is on the
issue of planning for the sequester is that there are certain
activities that would need to take place, but some of those
activities are premature. There is still 8 months to go before
the sequester would take place. And we want to make sure that
the primary focus of everyone's efforts is on passing a bill
and getting it to the President's desk to avoid the sequester.
We don't want to create a scenario in which we are prematurely
running a lot of different activities and drills for something
that is 8 months in the future.
Chairman Ryan. So you are saying you are not going to
provide it, basically.
Mr. Werfel. Saying what we will provide is those programs
that are explicit in statute. But I cannot commit to provide
you the programs that require further review because those
reviews have not taken place yet.
Chairman Ryan. So we don't know what is going to be
affected in totality by an account basis by the sequester.
Mr. Werfel. At this time there are still activities that
need to be reviewed to determine their application under a
Chairman Ryan. All right. When should we expect it?
Mr. Werfel. I don't know that there is a specific time
frame here. I mean, again, I think our position would be the
activities should be rendered moot by a plan that the President
can sign to avoid the sequester. But at the appropriate time we
will review the activities and we will provide Congress with
Chairman Ryan. So we don't even know how it is going to
work when it hits. How can we prepare in Congress to replace it
if we don't know what is going to happen? I don't understand
Mr. Werfel. There is a couple of elements here, if you will
Chairman Ryan. No, I am running out of my time.
Mr. Van Hollen.
Mr. Van Hollen. Well, thank you, Mr. Chairman.
As you indicated in your opening statement, we know
certainly in broad strokes what the impact will be both on
defense and nondefense; and I think we all agree that that
meat-axe, indiscriminate approach is the wrong way to go.
Let's start by putting aside the phony baloney stuff about
the President's budget. It was one of those, you know,
congressional games. The reality is that they put up something
that didn't contain any of the backup that the President
provided in his extensive budget, and the White House made
clear that that did not represent the President's budget.
Moreover, the White House made clear that the Democratic
alternative that we provided closely hewed in most respects,
closely followed in most respects, the President's plan, and in
that sense said that that was a better marker for support for
the President's approach. And in fact, we got a very strong
support, vote, Mr. Chairman, on that proposal.
Just with respect to whether or not the $1.2 trillion is
deficit reduction or just cutting, it is very clear that it is
deficit reduction. The Supercommittee went through a number of
efforts to try and get there. We could not get there because
our Republican colleagues continue to take the position that we
are not going to take one penny of revenue for the purpose of
And, Mr. Chairman, during the negotiations over the design
of that sequester, it was proposed by the administration and
others that, instead of some of the cuts on defense, we instead
cut some special interest tax loopholes so that that is the way
the sequester would operate. And, unfortunately, our Republican
colleagues decided it was more important to protect some of
those special interest tax loopholes than it was to protect the
defense portion of the spending.
Now, if you are going to take the position that sequester
calls for spending only, which it doesn't, I don't see how you
can't also take the position that 50 percent of that spending
has to come from defense. That is the way it is written.
I don't think either is true. I think that the sequester
calls for $1.2 trillion in deficit reduction. The President has
put forward a plan to get rid of that over 10 years and replace
it with a balanced approach. The Democratic alternative did the
And I would point out that both the President's proposal
and the Democratic alternative replaced the sequester for the
entire 10 years of the budget, whereas the Republican proposal
only gets rid of the sequester for the first year. You leave
defense exposed for the remaining 9 years. You leave everything
else exposed for 9 years.
So if you really want to protect against those across-the-
board and indiscriminate cuts for the 10-year period, you
should embrace the Democratic alternative or something like the
I would also point out that the process that we are seeing
play out right here in the House shows why it was so important
to come up with a balanced approach.
Let's take the Ag Committee, for example. The sequester was
designed to protect vulnerable populations during economic
downturn. The sequester does not touch the food and nutrition
programs. The sequester would hit some of the big ag subsidies,
right? But in what is coming out of the Ag Committee, they
flipped it on its head. The President's budget proposes cuts to
Chairman Ryan. So does ours.
Mr. Van Hollen. But not what is being reported out of the
Ag Committee. What you did was hit food and nutrition programs,
about close to 100 percent of the cuts coming out of the ag,
and not one penny from ag subsidies. So you were asking whether
the administration has put anything on the table as part of its
budget on the cutting side. Well, there is an example. They put
ag subsidies on the table. So what we are seeing out of this
process is a totally unbalanced approach.
Now, we obviously at some point have to prepare for the
worst, but first we want to avoid the worst. And that is what
we hope we can do by taking the balanced approach we have had.
Now, we also may face another issue as a result of the
House Republican budget. That deals with discretionary
spending. Because we all know that the Budget Control Act set a
level of discretionary spending. Now, our Republican colleagues
take the position, well, that spending is anywhere from $1.047
billion to zero. Now, that would make a mockery of an
agreement. Right? Why would you enter into an agreement where
our Republican colleagues can come back and say well, hey, we
can spend $1 billion on all the operations of the U.S.
Government, and that is true to the agreement.
And we have seen this sort of--we have seen this violation
exposed. We just saw on the Senate side the other day
Republican Senators, Senator Cochran, Senator McConnell, they
all endorsed the level that was agreed to for discretionary
spending under the Budget Control Act.
So let's get the sequencing right here. I hope we are not
going to be driven to a government shutdown by our Republican
colleagues on the House side saying that we got to adopt their
spending levels, which are a violation of the Budget Control
Act, and if we don't they are going to threaten to shut down
the government. I know you have had experience having to
prepare for that last summer. But I assume that is the kind of
thing you don't go into all the details about until you get to
that point. But what kind of measures are you going to have to
take if our Republican colleagues in the House continue to
insist on violating that agreement when even their Senate
Republican colleagues have said, you know, the levels are what
they were in the Budget Control Act?
Mr. Werfel. Thank you, Ranking Member Van Hollen.
I think one of the major lessons learned of any government-
wide planning exercise like we saw in advance of the potential
shutdown in April, 2011, is that that planning can be
disruptive to ongoing government activities. In many measures,
it involves pulling technical experts in the way in which the
Federal Government runs, chief financial officers, chief
acquisition officers, budget execution experts, and pulls them
out of their normal rhythm and operations to plan for the types
of contingencies that are involved in the event of a funding
lapse like what we saw in April of 2011.
That is what makes it so important, because of how
disruptive that planning can be, to make sure that we don't do
it prematurely and that we time and calibrate it effectively.
Because, as we all know, we have a limited resource
environment. And every asset, every individual that we pull off
their current mission-critical activities and priorities to do
planning for certain contingencies has a cost associated with
It is really, really important I think for Congress and
others to understand that there is a cost associated with these
planning efforts. For shutdown, it involves bringing
communities together to understand what are the common
questions around things like technical accounting questions,
systems, personnel, acquisition. We have to make sure that we
are providing clear and consistent guidance. There is important
interpretations of the Antideficiency Act in terms of what
activities would be accepted or not and a lot of logistical
implications. All of them, I believe, we successfully sorted
through in advance of April.
So we have done some of the groundwork, but that doesn't
change the fact that we would have to reup that planning and it
would be disruptive. So it is something that certainly I think
everyone can agree is important to avoid.
Mr. Van Hollen. Thank you.
Mr. Chairman, I just want to close on this because I know
your budget proposed cuts to ag subsidies.
Chairman Ryan. Yes.
Mr. Van Hollen. But that is not what the Ag Committee chose
to do. What they chose to do was to cut food nutrition programs
that will cut food assistance immediately to every single
household receiving those food nutrition programs. It cuts $1.8
million off of food assistance entirely. Seventy-five percent
of those households are families with children. And, in the
process, it will knock about 300,000 kids off the school lunch
Now, that is not a balanced approach. Not one penny from
big agribusiness, not one penny from ag subsidies. All of it
from food and nutrition programs, almost all of it. At a time
when the very thing we are talking about here, the sequester,
was specifically designed to protect the most vulnerable
populations in our country, especially at a tough economic
time. So what we are seeing coming out of this process is the
exact opposite of the balanced approach that we need.
In addition to making those kind of cuts, we also should be
cutting some of the big tax subsidies that are out there and
asking the wealthiest Americans to go back to paying the same
share that they were paying during the Clinton years, which was
a time we know the economy was doing well.
Chairman Ryan. When we mark up the reconciliation bill, I
think we will have plenty of time to talk about these other
I would say for the record this category, nutrition, has
grown by over 200 percent. We just had testimony last week that
said if it was just adjusted for the recession, it would have
only grown 40 percent. What the Ag Committee said is you have
to be eligible for the benefit to actually receive the benefit.
That is hardly draconian.
And with respect to the commodity programs, we do propose
to cut ag subsidies at the same level, I think, the White House
did. And the reason they didn't do it now is because they are
trying to write a farm bill. And that is where the budget gives
them the instructions to go after farm subsidies, because they
are going do that in the farm bill.
So I think first things first here.
Mr. Van Hollen. If I could, Mr. Chairman, just on that. As
you know, the farm bill includes the food nutrition programs,
and so the same rule would apply with respect to cuts to the
food and nutrition programs.
Chairman Ryan. Right. But farm programs didn't increase by
270 percent like food stamps.
Mr. Van Hollen. A majority in this body, Mr. Chairman, on
the Budget Control Act, voted to make sure that the programs
like food and nutrition programs for the most vulnerable were
not subject to these deep cuts; and now you are proposing to
replace the sequester deep cuts with deep cuts in an area where
a majority in this House voted to protect.
Chairman Ryan. Two hundred seventy percent increase to me
is just not sustainable. And, more importantly, let's make sure
that people are actually eligible for the benefit if they
receive it. These are common-sense reforms.
Mr. Akin. Thank you, Mr. Chairman.
On August 2, 2011, the President signed the Budget Control
Act of 2011. And my question is, do you agree that section 302
of the law requires a reduction of approximately about $109
billion in spending on January of this next year? Is that
Mr. Werfel. That is correct.
Mr. Akin. Okay. Thank you.
Then the second thing is, does the Budget Control Act
include any tax increases? Does it include any tax increases?
Simple question. Yes or no.
Mr. Werfel. I just want to make sure that you--I can't see
you, and I want to make sure you are directing the question to
Mr. Akin. Okay.
Mr. Werfel. I thought I would give it a try.
No, I am not aware that the Budget Control Act includes tax
increases within it.
Mr. Akin. Well, I am not, either. I just wanted to make
sure of the facts.
So it sounds like to me this thing that we keep calling the
balanced approach, the President's balanced approach, it seems
like it breaks the Budget Control Act's deal. Because there
aren't any tax increases in it. It seems to me like we are kind
of getting whipsawed. And it is almost like a blackmail. We are
not going to do anything to help protect the national defense
if you guys don't go along with a big tax increase. And so, to
me, that doesn't seem like a balanced approach. It seems like
breaking an agreement.
But I appreciate your answering my questions.
I yield back, Mr. Chairman.
Chairman Ryan. That was fast.
Mr. Blumenauer. Thank you very much.
I view this as sort of a continuing effort to kind of talk
past each other. With all due respect, if I am catching the
drift of your testimony, Mr. Werfel, you are suggesting that
maybe we get on with our business, getting a budget enacted,
working going forward. That if we spent all the time and energy
like we have on hearings like this where nothing is
accomplished, that maybe we wouldn't be dealing with
sequestration in the fall. Is that the gist of what you----
Mr. Werfel. That is correct.
And if I could, Congressman----
Mr. Blumenauer. I will come back to you in just a second. I
will give you a chance to sum up.
Mr. Werfel. Please.
Mr. Blumenauer. But I am concerned, you know, that we have
an exercise where the President's budget, absent the policy
framework that would make it come alive, give it texture, give
people reason to evaluate it, not just something to make out
what they will and shoot at it, was defeated. I voted against
I support the President's efforts. Mr. Van Hollen pointed
out that we actually did something that had more of the policy
detail that you can put your arms around. I think virtually
every President's budget has been offered up in an unflattering
way by people year in, year out. Reagan budgets were voted
against by Republicans. I mean, this is something we do.
But getting to the point where, you know, the fact is the
Republican budget that has passed the House and embraced by the
presumed Presidential nominee, Mr. Romney, people are running
away from the details there. You know, we get a little whisper,
Romney in a fundraiser talks about, well, we are going to go
after certain departments and the mortgage home deduction
because there is no detail that has been given to us about all
these tax preferences that are going to be scaled down so that
you can have a massive tax reduction for people who need it the
least and make it deficit neutral.
People run away from details, and we are putting off the
day where we roll up our sleeves and get to work.
The Senate has made a decision, Republicans, that they are
going to stick by the deal, and we are going to be getting a
budget from them, Democrats and Republicans, that at least has
the same top line number so we can move forward. And I think
that is important. Because I really believe in the heart of
hearts of a number of my friends on the other side of the
aisle--I know because I have had conversations with some of
them--that they absolutely know that we can scale down defense
spending and still have the most powerful military in the
world. No question about it. Significantly. Would that, instead
of playing this game, we get into doing that.
I, Mr. Chairman, have worked with you on agriculture reform
for a decade. I think we are closer to doing that than we have
ever had before. But, instead, we have this missile launched up
that is going to have real consequences on real people. You
know, they tried to rewrite the farm bill in the committee of
12. It wasn't up for reauthorization then, but they had a
chance to try and work something through.
And, again, that is sort of beside the point. We could have
the Budget Committee actually get into the weeds and help
provide momentum for doing things that I think we actually
agree on, agriculture reform and reform of defense spending.
But the longer we spend time like this and we have
reconciliation instructions that will never be enacted but are
really draconian, it complicates everybody's job, and it makes
it less--it makes it actually more likely that the default of
the sequester comes into play.
Chairman Ryan. Would you yield just in a friendly way on
Mr. Blumenauer. I would yield.
Chairman Ryan. You say reconciliation instructions that
will never be enacted. I think that is true given this current
Congress. But I also think it is irresponsible for us not to
show how we would replace the sequester if we don't think it
should--the formula should be impacted as it is.
So what we are doing is we are saying here is how we will
fix this issue that everybody acknowledges needs to be fixed,
and what we are not seeing from the administration, from the
Senate is their solution on how to fix this issue before this
moment comes. And that is what is frustrating to us.
Mr. Blumenauer. Mr. Chairman, I really want to foster--I
guess I only have 15 seconds left--I want to foster this
discussion. I want you to be able to express your thoughts. But
I truly think that there are areas here where we could have
solutions if it isn't all about the next election, if it isn't
all about positioning artificially with the Senate, running up
to a deadline where there might be a shutdown, which could
Look what happened with the FAA. We put 70,000 people out
of work last summer, furloughed 4,000 people before we ended up
accepting what was essentially a bipartisan compromise that was
supported by 90 Senators.
And I just hope that we minimize this and get to the
details, where I think we can avoid sequestration, I think we
can an avoid a shutdown, and I think we can show that we
actually agree on some stuff. But I appreciate what you do in
Chairman Ryan. Likewise, appreciate your work as well.
Mr. Lankford. Thank you, Mr. Chairman.
Ms. Poling, let me ask a quick question on just some
clarification on the nonexempt question. Veterans, some
conversation about that. Would you consider the veterans,
veterans' benefits as a nonexempt area that would avoid
Ms. Poling. GAO has a congressional request at this point
in time for an opinion on whether the VA programs are exempt
from sequestration; and as part of our process we reach out to
the agencies involved, VA and Office of Management and Budget.
And so we are working the issue right now. We expect to issue
an opinion on this in the next several weeks.
Mr. Lankford. Okay. What about transportation?
Ms. Poling. We don't have any requests on transportation.
Mr. Lankford. Okay. What about the payroll of our troops?
Ms. Poling. The MILPERS appropriation, if the President
chooses, he can exempt that.
Mr. Lankford. Okay. It would just increase the sequester in
Ms. Poling. That is exactly right.
Mr. Lankford. Payroll can be protected based on the
President's decision whether he is going to protect the payroll
of military personnel, but it increases the sequester amount in
other areas if that is done.
Ms. Poling. That is true.
Mr. Lankford. Okay. Mr. Werfel, good to see you. We have
been in multiple Oversight and Government Reform meetings
together. It is good to be able to see you again.
The House budget makes a proposal, the one that we had
passed, makes a proposal to bring down spending now, earlier
and faster, starting to prepare for the sequester, and to get
ready for that and its total reduction on that, reducing our
spending in the nondefense area by about $28 billion. The BCA
reduces it by $43 billion. So what we don't see is the budget
as irresponsible. We see it as preparing for what is law at
Now, we may have some disagreements on what needs to be cut
and what doesn't need to be cut, but the law does include the
sequester. We can either ignore the law or abide by the law. We
are in the process of preparing for that in that.
So as we go through that process of preparation, are there
areas the President--that you have that you would specifically
suggest, the President is suggesting a cut in nondefense area?
We have seen the cuts in the defense areas, but in the
Mr. Werfel. The President's budget for 2013 includes cuts
associated with meeting the agreements that were made in the
Budget Control Act. And the President's budget meets all of the
relevant budget caps that were put in place for fiscal year
We don't agree with the premise that you can mitigate the
impacts of the sequester. We don't agree that now is the time
to be diverting resources away from an approach and a proposal
that can avoid the sequester with steps to try to mitigate it.
And we can go through the litany of different programmatic
impacts on both the defense and nondefense side of the
sequester. I am not aware of any activity, and nothing in the
House Republican budget, that would create any kind of ramp
downward that is going to help.
The reality is that the implications of such reductions are
going to be harsh; and, therefore, we can only reach the
conclusion that, given the harshness of those realities and
given that there is no way to mitigate it, that the best thing
we can do on behalf of the American people is avoid it.
Mr. Lankford. That is what I am trying to understand. We
can't mitigate it, so we have got avoid it.
Your previous statement was there has to be within this
framework of a balanced approach that the only way the
President is going to agree to any cuts in spending in any area
is if we also agree to be able to raise taxes. So it has to be
this framework that you have mentioned multiple times, if we
are going to reduce spending, which you are saying he is
willing to agree to, we have to also increase taxes.
Is there some magic number the President is looking for? If
we will just increase $5 billion in taxes? Ten billion? What is
balanced? Because balanced has never been defined. Will it hit
balance if we will increase taxes this many billion? Can you
help us with that?
Mr. Werfel. I think--in response to that, I think there is
a couple of important points. First----
Mr. Lankford. I am running short on time, so be as specific
as you can. I am sorry.
Mr. Werfel. I will try to be.
There is no line in the sand. The President's proposal
Mr. Lankford. So if we increase taxes $5 million, that is a
balanced approach? It just--it has to be something? Somewhere
somebody has got to get hit?
Mr. Werfel. The President's budget provides a framework
that we think is an important starting point to discuss the
parameters of appropriate balance. It has $2.50 in spending
Mr. Lankford. A lot of it is the war cuts. It is proposing
10 years of spending out of the war--we all know we are not
going to spend at the same level for the next 10 years. We
could just say we are going to spend $500 billion in 2020, and
then we will cut it, and then suddenly we just saved $500
billion. It is not a real cut.
With that, I yield back.
Chairman Ryan. Thank you.
Ms. Bonamici. Thank you, Mr. Chairman.
I want to start by reiterating the comments from my good
colleague, Mr. Blumenauer, about the importance of avoiding the
sequester. And I have no doubt that the public would like us to
work together and get that done. I have no doubt about that at
Mr. Werfel, you talked about an approximate 8 percent
reduction in nondefense discretionary programs in your
testimony. And in your written testimony you mentioned that in
his March 28 testimony before the House Committee on Education
and the Workforce Secretary Duncan explained that a 7.8 percent
reduction in funding for large State formula grant programs
that serve over 21 million students and high poverty schools
and 6.6 million students with special needs could force States,
school districts, and schools to slash teacher salaries, lay
off teachers, or reduce services to those needy children.
More specifically--and this is again Secretary Duncan--the
resulting cut of more than $1.1 billion to Title 1 could mean
denying funding to nearly 4,000 schools serving more than 1.6
million disadvantaged students, and more than 16,000 teachers
and aides could lose their jobs.
Now, in my district I know school districts are already
eliminating teaching positions. They have fewer counselors,
they are cutting music and librarians, and that is especially
challenging for low-income students. And, frankly, our children
don't get those early years back. And what is going to happen
to our efforts to rebuild the economy and our long-term
competitiveness in a global market when we are doing this to
our future leaders? And I am struggling to understand how
protecting agriculture subsidies and tax breaks for
millionaires can be more important than our children's
So I wonder, Mr. Werfel, if you could tell me--I know
Secretary Duncan talked about the numbers for Title 1. Could
you tell me what these cuts in the sequester would mean for
programs like the IDEA, Individuals with Disabilities Education
Act, and the important Head Start programs across our State and
Mr. Werfel. Absolutely, Congresswoman.
As I have mentioned and as has been articulated many times
throughout the hearing, the sequester, if it is not avoided,
will have severe impacts on domestic investments, on national
security, and on core government services. To give more color
into the impact on domestic investments, you asked about the
Individuals with Disabilities Education Act program within the
Education Department. Secretary Duncan has indicated that over
10,000 special ed teachers, aides, and other staff serving
children with disabilities could lose their job. That is 10,000
jobs lost. And it is not just the job loss, which is obviously
a significant economic impact, but also obviously the children
with disabilities that they are serving are also impacted by
those job losses as well.
You mentioned Title 1. Four thousand schools serving 1.6
million disadvantaged students could be denied funding; and, as
you mentioned, 16,000 teachers and aides could lose their job.
And, again, that is a double-edged impact of both job loss and
economic impacts, as well as the students and the educational
outcomes that those teachers are trying to and working hard to
Head Start, 100,000 low-income children would lose access
to early childhood education, 100,000 low-income children.
So that is a good way of providing real meaning to what the
sequester would create, and that is why I think it gives more
urgency for Congress to come together and work together and put
a bill that both Houses can pass and the President can sign.
And going back to the questions of Congressman Lankford,
there is no bridge to try mitigate the impact of these job
losses and the students and the student services that will be
impacted. Those will occur whether there are bridges in place
or not. And we must take action to avoid it.
Ms. Bonamici. While I appreciate that funding education is
primarily a State function, these important programs like IDEA,
Title 1, Head Start fill a very critical need; and in our
districts that are already struggling the impact that these
further cuts would cause I fear will be devastating to the
Thank you very much for your important testimony.
I yield back.
Chairman Ryan. Thank you.
Mrs. Black. Thank you, Mr. Chairman.
Mr. Werfel, I want to go to page 28 of the President's
budget, and in there where it states that the sequester--and I
quote here--``would inflict great damage on critical domestic
priorities as well as the country's national security.'' So I
am concerned about what it will do to our national security.
The Secretary of Defense was here, and he testified as well to
this committee that these cuts would hollow out our military.
Do you agree that the sequester cuts would be detrimental to
our national security and our military in particular?
Mr. Werfel. Well, I would certainly rely on Secretary
Panetta to provide the subject matter expertise and the input.
And I have read his comments, and I have no reason to disagree
Mrs. Black. So can you tell us what the President's plans
are to not hollow out our military and where we can go to make
sure we sustain our strong military and national defense?
Mr. Werfel. The President has put forward a framework that
would avoid the sequester. Setting up a priority, things that
we need to do and take action. And it is clear, and I think
Secretary Panetta has been clear about this, we must make it a
priority to avoid the sequester, given its impacts. And to
avoid the sequester, the President is holding firm to the
agreements that were made in the Budget Control Act, that we
have to identify $1.2 trillion over 10 years of balanced
deficit reduction in order to do that. And that is the
framework of which we are operating under.
I think the President's budget, advised closely by
Secretary Panetta and other leaders, makes the right
investments to have a sustainable military and a sustainable
defense operation going forward.
But if the sequester is triggered, that will certainly
compromise that important objective. So priority one has to be
avoiding the sequester. The President has a put forward a plan,
and we would really like Congress to act and send a bill to the
President's desk that he can sign.
Mrs. Black. Let me also go to the question of whether the
sequester is going to also affect--does the OMB consider funds
appropriated for the war to be subject to the sequester?
Mr. Werfel. If you are referring to the overseas
contingency operations fund, we are examining--earlier, in
response to a question from the chairman, I referenced that
there are certain activities and programs that are explicit in
law as being exempt, and there are certain activities that
warrant further examination. The overseas contingency
operations is one of those activities that warrant further
examination. Once those reviews are complete, we would be happy
to provide that answer and that conclusion back to the
Mrs. Black. Well, I am waiting to hear that. Because this
is coming about and will come about very quickly. So we would
like to hear a plan and like to know what the President plans
Let me go to another subject which has been in the news a
lot, and that is the GSA. As the comptroller, you have the lead
responsibility for determining accounting and financial
controls and management of asset policies government-wide. Of
course, we know about the $800,000 Las Vegas party, suggesting
those policies may not be adequate or certainly not being
followed if they are there. Can you help us with some of the
steps that you are taking to review these policies and increase
the compliance with this scandal?
Mr. Werfel. Yes. Let me start by saying that the findings
that you are referring to and what occurred with respect to
this conference are both offensive and unacceptable. They are
offensive to me as the controller. And I think, as you
mentioned, one of my primary responsibility is to work across
the Federal Government in mitigating instances of government
waste and error and fraud and other activities. And we take
that job and the President takes that job very seriously for
both big items and small items that are involved in that
portfolio mitigating fraud, error, and waste.
In the case of the GSA, as I said, what occurred was
offensive and unacceptable. The people involved have been held
accountable and are being held accountable on an ongoing basis.
We are taking steps in a variety of different ways to learn
from this and make sure that we move forward in a capacity
where this does not happen again.
I think it is important to know that we have been taking
steps from day one in the administration to tackle this issue
and have had critical successes. Obviously, the GSA issue is an
unacceptable outcome and we have to make sure that those things
don't happen again.
But the President has dedicated significant attention, his
attention, to things like improper payments. He worked on a
bipartisan basis on new legislation that would reduce improper
payments, and we are making effective results there.
Mrs. Black. Reclaiming my time--and I know I am out of
time--but, with the limited dollars we have, this is something
that, as the public looks at what is happening, they are
outraged. Because we are talking about sequesters for our
military and our national security and yet we have this going
on. I hope we will hear more from you and the President on the
seriousness of this issue.
Chairman Ryan. Thank you.
Mr. Mulvaney. Thank you, Mr. Chairman, and I thank the
witnesses for being here today.
I wasn't going to talk about my amendment, but since it got
a little bit of attention at the outset of hearing I thought I
would make a couple of points about it.
We recognize that it didn't have everything that the
President's budget has in it because the President's budget
isn't presented to us in a fashion that could be submitted as a
bill. The same is true, by the way, of the Simpson-Bowles
proposal. But the closest that we had a chance to vote to the
President's budget was my amendment.
The White House--and I think you referenced it, as did Mr.
Van Hollen--released a statement encouraging Democrat members
to vote for Mr. Van Hollen's budget. And I was going to ask
you, Mr. Werfel, where is the statement from the White House
encouraging the Democrats in the House to vote for his budget?
Mr. Werfel. To vote for the President's budget?
Mr. Mulvaney. Yes, sir. Did he ask any Democrats in the
House to introduce his budget or vote for his budget?
Mr. Werfel. I am not aware of a particular moment in time
other than the President submitting his budget in February to
Congress. And I think by both explicit and implicit nature of
submitting his budget to Congress, he is submitting it for
Mr. Mulvaney. If it is his plan, though, for turning off
the sequester, do you think he should have been pushing his
budget a little bit more during the budget process?
Mr. Werfel. I don't know that it is fair for me to comment
on how hard we are pushing.
I know, for example, that this committee has received
testimony from both Acting Director Jeff Zients, from Secretary
Tim Geithner. I have watched those hearings. They were
emphatically urging the passage of the President's policies and
Mr. Mulvaney. Reclaiming my time, let me ask it a different
Did the President like Mr. Van Hollen's budget better than
his budget? Mr. Van Hollen's budget doesn't raise taxes by as
much as the President's does. It doesn't raise spending by as
much as the President's does. Does the President like Mr. Van
Hollen's budget better than his own?
Mr. Werfel. The President is ready to roll up his sleeves
and work on a plan that can pass both Houses of Congress and
that he can sign. He has set out guiding principles for such a
plan, and I don't think it is a question of like one versus the
other. He wants to get to a point where we are in serious
working mode towards a plan that can serve the American people
Mr. Mulvaney. I agree, and that is why we are here today
having this hearing.
You mentioned let us roll up our sleeves. It is a priority
to get the sequester turned off because of its impacts. I think
one of the thing you said today was that all of your activities
are focused on getting a bill that the President can sign in
order to turn off the budget.
The President was at our school yesterday. You and I both
attended the University of North Carolina Chapel Hill Law
School, and he was there talking about student loans. Do you
think that was helping turn off the sequester?
Mr. Werfel. That is a very good question, if I can respond
We have existing actions and priorities that we need to
take on behalf of the American people on a day-to-day basis,
and there are things that we need to be focused on in multiple
capacities. We have to work to make college more affordable.
From my standpoint in my job, I have to work to make sure that
funds are spent to the right people in the right amount for the
right purpose and that we mitigate fraud, waste, and error.
The President has submitted his budget. The plan is there.
Congress now needs to act and send him a bill. You have heard
testimony from multiple witnesses about the President's budget
and about our plans. I think we are working as hard as we can
on a variety of different priorities. But I would actually
greatly support and endorse the President taking the steps that
he is taking to improve college affordability. It is one of
many priorities that we need to be working toward.
Mr. Mulvaney. That is fair enough, Mr. Werfel.
Later that same day he taped Late Night with Jimmy Fallon.
Do you think that was helping us get to a bill that we could
pass in order to turn off the sequester that you say is going
to dramatically, severely impact domestic investments, national
defense, and cut core government services?
Mr. Werfel. I think the President's message here is that he
is ready to roll up his sleeves and work. He has submitted a
plan to Congress. It contains $4 trillion in deficit reduction
over 10 years. It is a balanced approach.
Mr. Mulvaney. Has he asked Secretary Panetta to roll up his
sleeves to prepare for the sequester?
Mr. Werfel. Secretary Panetta has a wide-ranging set of
responsibilities. I am certainly not the subject matter expert
on all of them.
What I do know as a general matter is that Secretary
Panetta, like others, have to make judgments about where they
need to be deploying their resources at any given time. The
sequester is 8 months away. The planning for it will not
mitigate its impacts. We believe, based on our expertise, both
at OMB--and we have decades of experience with this--and in
consultation with Secretary Panetta, that we will find the
right time between now and January 2, if necessary, to initiate
a more formal planning exercise.
But, right now, I think everyone needs to understand that
there are costs associated with doing that type of planning. In
particular, that is as clear as it can be in the Defense
Department where they have ongoing, mission-critical priorities
that need Secretary Panetta's attention and need the leadership
attention at the Pentagon.
Mr. Mulvaney. Mr. Chairman, I yield back the balance of my
time, but I broke the microphone.
Chairman Ryan. We will get on that.
Mr. Huelskamp. Thank you, Mr. Chairman.
When Secretary Panetta appeared before this committee, I
asked him if the DOD had put in place any plans for dealing
with the sequester. And he answered no, which is a little
different than what you suggested to my colleague. I asked him
that, since this was the law of the land, why had they not
planned for such contingency? And he responded that OMB
directed him not to. Is this true, Mr. Werfel?
Mr. Werfel. I am not aware of that testimony. I don't think
I can comment on it. I have no personal knowledge of that. I
will say that what I have provided and what I have talked about
is a responsibility for us to meet our current priorities.
Mr. Huelskamp. You are not aware of the OMB actually
telling Secretary Panetta to ignore the sequester? Because
that's what he told the committee, and I have a letter in hand
that confirms that.
Mr. Werfel. I am not aware of any direction to ignore the
Our direction, that I am aware of, has been to carry out
your mission-critical functions as effectively as we can, and
that we will work together to determine the appropriate time to
initiate planning for the sequester.
Mr. Huelskamp. My question is whether or not OMB told the
Secretary of the Department of Defense to ignore the law of the
land. You say you do not know. Who would make that decision if
not you? How high are you up in OMB as comptroller? Are you
just in the press office, or do you actually make decisions?
Mr. Werfel. I am definitely not in the press office. I am a
division director. I report to the deputy director for
management at OMB, who reports to the director of OMB.
Mr. Huelskamp. So you are here today, and you are telling
us that you do not know if someone above you, which is just a
couple people, actually told the Department of Defense to
ignore the sequester in their budget plans. This is pretty
serious. It is not about a budget issue. It is if the House and
Senate and Congress, along with the President, do not come to a
decision before January 2, these devastating cuts will take
place, and Secretary Panetta says I have made no plans in case
that would occur.
Mr. Werfel. And my answer is not only am I not aware of
that communication but I am aware of communications that run
inconsistent with what you are indicating.
Mr. Huelskamp. Would you provide me with a copy of those
Mr. Werfel. I am not aware of any written communications.
Mr. Huelskamp. What kind of communications do you have that
suggest that perhaps Secretary Panetta misled the committee--
which I don't think he did. He actually sent a letter, and I
presume that he is in communication with OMB when he sends that
communication to the committee.
Mr. Werfel. I am talking from my own personal knowledge.
From my personal knowledge, I am unaware of a communication,
written or otherwise, that would instruct the Defense
Department to ignore the sequester. I am aware of general
verbal communications that we provide to the Defense Department
that revolves around back-and-forth discussions on planning for
a variety of different contingencies. And at this time we have
discussed that, with 8 months before the sequester would take
place, formal planning is not initiated.
I think what Secretary Panetta said specifically when asked
was that planning would likely initiate in the summer. It is
April 25. It is not yet the summer. I think the plan would be
to consult with Secretary Panetta over time to find out when
the right time is to initiate planning.
But again, I have to emphasize: Planning will not mitigate
the impacts. Secretary Panetta has been very vocal about the
impacts of the sequester, and planning will not mitigate those
Mr. Huelskamp. I appreciate that. But I am very concerned.
Apparently, there is a lack of communication in OMB as far as
the devastating sequester, and that is the language that comes
from Mr. Panetta and others.
My other question is more along the lines of you continue
to use the words ``revenue increase.'' Is there a difference
between revenue increase and tax increase in your mind, Mr.
Mr. Werfel. Well, there are many ways to generate revenue
for the Federal Government. Taxes is one of them. I think it is
important to point out that the generic concept of a tax
increase is something that the President's budget is very
specific with in terms of the individuals that are impacted by
any tax increase, and those are individuals who are earning
more than $250,000 a year. But revenue has many elements to it.
The President's proposal has a revenue plan.
Mr. Huelskamp. I appreciate that. I think 90-some percent,
maybe 99 percent of it includes tax increases, not fee
You talk about the $250,000 threshold. In the President's
budget, does it raise taxes on anyone, any families that makes
less than $250,000?
Mr. Werfel. It is my understanding that, overall, there is
a net tax cut for the middle class and small businesses under
the President's plan.
Mr. Huelskamp. In the next decade? Over the 10-year plan?
It will raise $1.5 trillion or $2 trillion in tax increases,
and it all will be on the top 1 percent?
Mr. Werfel. The way it works, as I understand it, it is
$1.5 trillion in revenue. It includes the expiration of the
2001 and 2003 tax cuts for the highest earners, it eliminates
inefficient and unfair tax breaks, and there are, within that
$1.5 trillion, net reduced revenue due to tax cuts for middle
class and small businesses.
Mr. Huelskamp. Thank you, Mr. Chairman. I yield back.
Chairman Ryan. Mr. Young.
Mr. Young. Thank you, Mr. Chairman.
Thank you, Ms. Poling and Mr. Werfel, for being here today.
I do appreciate it very much.
Mr. Werfel, as far as the funds appropriated for this war
that we continue to fight overseas, let me be clear, do you
regard those funds as exempt from the sequester or not?
Mr. Werfel. As I indicated, the overseas contingency
operations funding is an area where more review needs to be
taken before determination can be made on its applicability to
the sequester. So my answer is it is premature for me to
provide a definitive answer at this time. At the point in which
the review is completed, we will provide our response to the
Mr. Young. Have you given any order of priority to
different programs that might require the attention of OMB in
making this determination?
Mr. Werfel. I don't know that there has been an order of
priority. I think it was mentioned earlier in the hearing that
there was a determination made with regard to veterans affairs.
It is my understanding that the issues associated with VA
programs presented a very straightforward legal question that
OMB general counsel was able to answer, and that is why we
But in terms of other issues I am not aware right now of
the nature of the complexity of those reviews. I do know that
those reviews have not been initiated or completed, so it would
be premature for me to comment on them.
Mr. Young. You spoke with some level of specificity with
respect to certain programs of government that would be
adversely impacted, at least as characterized by you, by a
sequester. For example, the Head Start program. You told us
exactly the number of estimated people that would be impacted
adversely through a sequester. Yet no attention whatever within
OMB to the OCO function, to fighting a war overseas. It strikes
me as this ought to be an urgent priority. Because as of
January 2, it is conceivable that moneys will be pulled away
from our fighting men and women, and our commander in chief has
no plan. Right now, the plan seems to be to leave them in the
Now I think your counter, of course, will be--and I will
give you an opportunity to respond--is that we within Congress
need to pursue a balanced approach. Before I give you an
opportunity to respond, I am still trying to wrap my brain
around what is meant by a ``balanced approach''. Because under
the Budget Control Act, there were no tax increases; is that
Mr. Werfel. Yes. And hopefully you will give me an
opportunity to respond more broadly. Because I understand,
based on receiving this question several times, the question of
whether there were tax cuts in the Budget Control Act, the
particular point that is being made, and if I can have an
opportunity to respond to it, I think I can give you some
context to it.
Mr. Young. I will. I will give you an opportunity both to
respond to the fact that the President has not prepared for
this contingency that moneys could be pulled away from the
fight over in Afghanistan, leaving our men and women in the
lurch, and the fact that the President signed on to a Budget
Control Act without tax increases, thus seemingly violating his
own mantra of a balanced approach.
Please respond, Mr. Werfel.
Mr. Werfel. I will take the issues in turn.
First of all, when I outlined the implications of IDEA and
Title 1, I didn't do so in a way that indicated that Secretary
Panetta and others at the Defense Department aren't looking
very closely at what the implications of the sequester would be
in terms of programmatic impact. It is important for us to
understand those programmatic impacts. Because I think if you
know about it, if the American people know about it, then it
will incentivize action.
The President is very committed to a sustainable and an
effective Defense Department going forward, and we have great
leadership there, and they are doing everything they can. And
no one is taking their eye off the ball on any issue. I can
assure you of that.
With respect to the question that I have received multiple
times on whether there are tax increases in the Budget Control
Act, my understanding of the framework and the parameters that
surrounded the Budget Control Act was that the parties came
together to come up with a deficit reduction plan, and the
parties could not reach agreement on certain elements. And so
what was put in place, the sequester, was intended to
incentivize compromise, an agreement, across a broad set of
The fact that there is no tax increases in there does not
mean in any way, shape, or form that a parameter of the Budget
Control Act is no agreement going forward can have a tax
increase or a revenue impact. The sequester and the Budget
Control Act set up a framework to compromise and negotiate and
discuss a balanced approach that would meet the interests and
the needs of both parties going forward. It is that type of
balance that is needed.
And the President has been clear the approach needs to have
a revenue component to it. He has put forward a plan in the
President's budget that has a revenue component. It has revenue
generated by taxes to the highest earners in the country, and
that is his plan.
Chairman Ryan. Thank you.
Ms. Kaptur. Thank you, Mr. Chairman and Mr. Van Hollen.
The way I look at this, the hearing today is really about
whether Congress is going to kill the patient to test a radical
budget procedure here, given a name that most Americans really
can't define, called sequester. If we fail to reach a
reasonable budget compromise just 8 months from now, killing
the patient with a meat axe will mean that nearly a trillion
dollars of indiscriminate decisions will occur across
discretionary spending, which accounts for a little less than
40 percent of all Federal spending.
People are not talking about mandatory spending. They are
not talking about the tax side of the equation. They are just
trying to solve the problem through one set of accounts.
You know, you might recall we are in this pickle because
about a year ago the world sat in disbelief when the Republican
caucus rejected plan after plan after plan to raise the debt
ceiling, and the sequester ended up being the last option to
keep the government of the United States and the greatest
Nation in the world from actually defaulting.
We don't need meat axes in this country. We need to grow
this economy and not give any more bad starts or fitful starts
to harm growth and to rein in the deficit and restore our
We have examples in the past, including under President
Clinton, when this Congress measured up to its
responsibilities. Truthfully, the Republican budget is not a
serious proposal to do so. Republican math actually ends up
hurting people; and their whole idea is that, in cutting the
deficit, they are going to protect expanded tax cuts for the
most wealthy and then cut programs for the most needy. We have
seen them do that before.
But, for me, that is morally and civilly unacceptable. Why
should we give millionaires special tax rates, significantly
lower for many of them, than what average working Americans pay
and then say we are going to cut food assistance to people who
are trying to hold it together out there across this country
where unemployment still remains unacceptably high, hurting
seniors, hurting children, and hurting the disabled? You just
need to go to any food bank to see what is going on out there.
This country needs a balanced approach to budget balancing.
I wanted to ask Mr. Werfel, if you might, CBO estimated
that the sequester, the meat axe, would result in a 7.8 percent
cut to discretionary programs. Do you have any specifics on how
individual programs on the discretionary side would be
And then I also wanted to ask Ms. Poling, the GAO has
examined the impact that the sequester would have on programs
that I view as contributing to economic growth, the Patent
Office and a host of other functions that the American people
depend on, the FAA. I would like to ask you: Where in the
Republican proposal will we see the biggest economic
Those are my two questions, starting with Mr. Werfel.
Mr. Werfel. Thank you, Congresswoman.
We mentioned earlier--and I will summarize briefly--that in
the area of education and Head Start the impact of the
sequester would have 10,000 special ed teachers, aides, and
other staff serving children with disabilities losing their
We would have 4,000 schools serving more than 1.6 million
disadvantaged students would be denied funding. Sixteen
thousand teachers and aides would lose their job.
In Head Start, 100,000 low-income children would lose
access to early childhood education.
In other areas, FAA cuts would have deleterious impacts on
In the area of global health, approximately 1.5 million at-
risk people would be denied treatment for the preventions and
interventions from malaria, jeopardizing thousands of lives.
Food safety inspections would be cut.
Nine hundred and fifty thousand women and children being
served by WIC would lose or be denied their benefits.
At NIH, the number of grants awarded would be cut by 700,
slowing research that would lead to new treatments to cure
diseases such as cancer and Alzheimer's.
The National Science Foundation would have 1,650 fewer
competitive basic research and education grants, supporting
almost 20,000 researchers, students, and teachers.
Roughly 300 national parks would either be closed in full
OSHA would reduce approximately 4,000 workplace
inspections, leading to diminished protections for workers.
And over 120,000 people with disabilities would be delayed
in their decision or determination for SSA benefits.
Mr. Kaptur. I guess my metaphor that the Republican budget
kills the patient is absolutely true.
Mr. Chairman, Ms. Poling wasn't able to answer the
question. Could she spend 15 seconds at least on that?
Ms. Poling. It will be very short.
I am not aware of any specific work that GAO has in this
area. You have a lawyer sitting here instead of a program
Ms. Kaptur. Thank you.
Chairman Ryan. Mr. Stutzman.
Mr. Stutzman. Thank you, Mr. Chairman.
Thank you to both of you for being here.
I want to follow up real quickly to the question that Ms.
Kaptur asked and the answer that you gave regarding all of the
statistics of those folks who would be cut from services. It
sounds like a pretty long list. I want to focus in a little bit
on the SNAP program, and could you give us an idea of what the
cuts would be to the SNAP program, Mr. Werfel?
Mr. Werfel. Yes. That is a program where there is an
explicit exemption in statute. So, in terms of SNAP, there
would not be a direct impact on the SNAP program as a result of
the sequester, because it is exempt.
Mr. Stutzman. Okay. But I am assuming, just like every
other program that you mentioned, we have seen increases in
these particular programs over the past decade. SNAP has
expanded over 270 percent over the past decade; and in the
House Agriculture Committee, which I serve on, we have put
forward a 4 percent spending reduction on that particular
There seems to be a disconnect between the unemployment in
this country and also the caseloads for programs like this. We
are seeing unemployment fall between 2003 and 2007, but the
caseloads go up over 20 percent. I am trying to figure out, if
we are going to see such great cuts within these particular
programs--as was mentioned earlier, the President's budget
proposes to cut ag subsidies. But if you look at the
administration line, there are no cuts to any of the
bureaucracy that administers the program. Will there be any
bureaucrats that lose their jobs due to these cuts?
Mr. Werfel. Well, let me start by saying that it is
important again to reiterate the premise that these cuts and
these implications would occur. They don't need to occur. There
is a path forward here to prevent them from occurring.
Mr. Stutzman. You listed off the children, the women, the
people who will be losing services. Is the bureaucracy, is the
administration going to take any of the hit from these cuts?
Mr. Werfel. The President's budget has numerous proposals
in it that relate to cutting infrastructure and administrative
expenses. In fact, there is a page in the President's budget
that demonstrates--it is in the Cuts, Consolidations and
Savings volume--that shows a commitment to reduce
administration expenses by $8 billion between base year 2010
and 2013. That's part of our overall effort to do more with
less, to streamline our infrastructure. In fact, the Cuts,
Consolidations and Savings volume has numerous examples of
where government is becoming leaner and more efficient under
the President's policies to move forward in a sustainable way.
Mr. Stutzman. Can you share any of those with the Budget
Committee in writing?
Mr. Werfel. Absolutely.
Mr. Stutzman. That would be helpful.
What I see happening is there is this rhetoric of where we
are going to be cutting services from children, from seniors,
and those people who are out there receiving these benefits.
And with the SNAP program, if there are going to be cuts, if
these cuts even reach any children--I went to the USDA Web site
and looked at the programs that are listed. You have Child and
Adult Care Food Program; you have the Commodities Supplement
Food Program; you have Eat Smart, Play Hard; Farmers' Market
Nutrition Program; Food Distribution Program on Indian
reservations, and a plethora of others. Do you believe any of
those programs overlap where we can start consolidating some of
these programs, making sure there is no waste in programs like
Mr. Werfel. Certainly the President is interested in
exploring a lot of different avenues for streamlining and
reducing duplication. Within the budget volume that I
mentioned, the Cuts, Consolidation, we have a variety of
different efforts. We are consolidating 38 K-12 education
programs. We are closing offices for both USDA and NOAA. We are
consolidating 16 different Department of Homeland Security
grant programs into one.
If this committee or anyone in Congress has ideas for
further consolidations, we are ready to work with you.
Mr. Stutzman. What bothers me is the Federal Government has
grown by 100,000 employees since President Obama has taken
office. There seems to be more of an emphasis on hiring
government employees rather than really focusing on making the
cuts necessary and streamlining programs and making them more
efficient. Just like I mentioned earlier with the ag cuts, I
think there is bipartisan support to eliminate ag subsidies,
but there is no cut within the workforce in the Federal
Thank you, and I yield back.
Chairman Ryan. Ms. Wasserman Schultz.
Ms. Wasserman Schultz. Thank you, Mr. Chairman.
Mr. Werfel, welcome to the committee.
Let me just emphasize again, Democrats and Republicans
clearly both believe that sequestration is something that we
should avoid and the path we are headed down needs to be
altered. The difference, as you pointed out, is that Democrats
believe that the Republicans through the Romney Ryan budget,
their cuts-only approach to deficit reduction is irresponsible.
It is not balanced. It makes sure that the social safety net is
shredded. It makes sure that we end the Medicare guarantee. It
reaches deficit reduction by giving more tax breaks to
millionaires and billionaires, and it slashes key investments
that are crucial to continuing our economic development and
You have already detailed the really harmful impact that a
cuts-only approach to deficit reduction--how it would affect
children in Head Start programs. I want to ask you about
something--some details that the National Education Association
has talked about. Sequestration would effect 1.5 million low-
income kindergarten through 12th grade students who would be
affected by harmful program cuts in Title 1 if sequestration
happened. That would be at least a $1.1 billion cut in 2013.
And if you apply CBO's estimated percentage cut, that is what
that comes out to. That would also result in the loss of 16,000
teachers and other education staff jobs.
So do you agree with the NEA on those statistics, and how
would a cut like that, again, an additional cuts-only approach
to deficit reduction, affect the efforts of our school systems
to improve the quality of education for low-income students?
Mr. Werfel. Thank you, Congresswoman.
The facts and figures that you referenced are the same ones
that I have seen and understand to be further validated by
Secretary Duncan as well, who is certainly concerned and
certainly the administration's expert on these issues.
As I testified earlier, the sequester, should it take
place, would have its intended impact of serving as a blunt
instrument and having both programmatic impacts such as
significant deterioration in the current services that
disadvantaged children are receiving in schools across the
country but also job impacts, tens of thousands of teacher and
aide jobs lost.
I said that the sequester is having its intended impact. It
was intended to be a blunt instrument to bring the parties
together to come up with an approach that can pass both Houses
of Congress and the President can sign. To do that, it is going
to have to be multidimensional in its approach. An approach
that only cuts spending and does not impact revenue is one that
the President has indicated is not part of a path forward that
he sees, a bill that he can sign.
Ms. Wasserman Schultz. So let us be clear. In the
President's budget, he proposed cuts to discretionary programs.
So we are not suggesting that we achieve deficit reduction
without cuts. In fact, Democrats have repeatedly voted for
painful cuts. I can tell you I have voted for cuts in
discretionary spending programs that I have opposed for my
whole career. So we understand that compromise and working
together is important. Unfortunately, we only have one side of
the table willing to do that.
Let's take a quick look at the reconciliation process that
the Republicans have initiated. Republicans have put forth cuts
in the reconciliation process, which is their alternative to
actually achieving this balanced approach, that are going to
hurt millions of low-income and disabled Americans. The
Republican plan, through reconciliation, eliminates the social
services block grant, which helps 23 million children and
adults get services that they need to survive. And that
includes support for the Meals on Wheels program, prevention of
child abuse and neglect, and child care for low-income parents
returning to work. It also includes cuts to the Supplemental
Nutritional Assistance Program. Their plan reduces assistance
to every single household receiving SNAP benefits and cuts 2
million people off of food stamps entirely. So can you detail
how harmful the reconciliation approach would be that the
Republicans have been pursuing?
Mr. Werfel. It is my understanding that when you take the
House budget resolution and the reconciliation there is roughly
$6 trillion in additional spending cuts above and beyond what
the President's budget included. And if I understand it
correctly, the way it is structured, it is taken on almost
exclusively on the nondefense side of the ledger, going right
at fundamental issues such as education, research,
infrastructure, and many of the things you raised.
Ms. Wasserman Schultz. The bottom line here is we are
careening down an unsustainable path. The solution is to work
together and take a balanced approach, not take a meat axe to
important programs that are going to hurt people unless we work
Chairman Ryan. Thank you.
Mr. Price. Thank you, Mr. Chairman.
We look forward to working with anybody who is positively
interested in solving the challenges that we face, and we hope
that we have the President's input on that.
You mentioned in your testimony: ``The sequester is not
appropriate and should not occur.'' You stand by that position?
Mr. Werfel. Absolutely.
Mr. Price. The sequester--and I apologize for being out of
the room if this was covered--the sequester was included in the
Mr. Werfel. It was included in the BCA as a mechanism to
put in place mutually disagreeable cuts to bring the parties
together to find a path forward that can work.
Mr. Price. And the President signed the BCA?
Mr. Werfel. The President signed the BCA on the
understanding that we would have efforts, including through the
joint committee and other efforts, to bring together a plan
again that both Houses can pass and the President can sign.
Mr. Price. And those have moved forward. Sometimes they
haven't been successful. We are working on hopefully what will
be a successful plan as we move forward. But it is important to
appreciate, I think, and for the American people to appreciate,
that the President signed the Budget Control Act that included
the sequester that the administration now says should not
Mr. Werfel. That is correct. The President wants to work
with Congress to make sure that we avoid the sequester. His
budget would do so.
Mr. Price. I appreciate you saying that. The President has
a budget that he has put forward. Has anybody introduced that
budget in the Congress?
Mr. Werfel. I am not aware of the procedural issues within
the Congress in terms of whether it has been introduced or not.
We talked earlier in the hearing about particular amendments,
but I am not aware of a particular vote that has occurred on
the President's budget in full.
Mr. Price. But the fact of the matter is, on the
President's budget, that nobody from his party has even
introduced that budget?
Mr. Werfel. Again, I am not aware of the congressional
procedures on that.
Mr. Price. I understand that you also said that the
President's position is that the Democrat alternative in the
House most closely paralleled and mirrored his budget; is that
Mr. Werfel. It is my understanding that the Democrats in
the House have a proposal that is closer, particularly in terms
of the balance between spending cuts and revenue.
Mr. Price. And are you aware of the vote on that that
occurred in the House?
Mr. Werfel. I am not aware of the particular congressional
procedures that occurred, no.
Mr. Price. That budget was brought to the House floor and
lost by about 100 votes. So, as the chairman has said, it is
time to move forward positively and together to make it so, on
these cuts and the sequester, that both sides, the President
agrees ought not occur and we agree ought not occur.
So what I am troubled by is, as the chairman mentioned
early on, that we need to know the consequences. Everyone needs
to know the consequences of the sequester so that we can plan.
I was here early on and understand that you mentioned that the
administration at ``the appropriate time'' will divulge what
the consequences of the sequester are. When would the
appropriate time be?
Mr. Werfel. There are a couple of things within your
question, if I can respond to them.
We have looked at some of the programmatic impacts of the
sequester, and I have outlined some of those in some detail
There is a second question that revolves around the type of
planning that would be necessary to implement or initiate the
extraordinary circumstance of this type of sequester, and
having decades of experience within OMB and having personal
experience in these types of financial events we work to make
sure that we are calibrating those planning activities as
appropriate to make sure that we are planning at the right time
and not planning prematurely.
Mr. Price. But is it your understanding that the
President's budget cannot pass the House?
Mr. Werfel. I can't opine on that. I am not an expert on
the congressional element of that.
Mr. Price. The closest budget to it lost by nearly 100
votes. The Senate has refused to bring up a budget. Let me
assure you, the President's budget is not going to pass the
House of Representatives.
So let us move forward. Can we count on OMB to be able to
give us the plan, the plan B, the working together option that
allows us to move forward in a positive way so that these
draconian cuts don't take place?
Mr. Werfel. A couple of key points. The President has set
up a proposal that would avoid the sequester. As I have
mentioned, we need to roll up our sleeves.
Mr. Price. It has failed, sir.
Mr. Werfel. I understand. We need to roll up our sleeves.
Congress needs to put together a package that can pass both
Houses and the President can sign.
Mr. Price. Unless we know what the administration believes
are the consequences of the sequester, it is hard to get to
that common ground; isn't it?
Mr. Werfel. We can tell you, and I have done on several
occasions during this hearing, some of the programmatic
implications of the sequester.
If you want to talk about the logistics associated with
planning for sequester, I am happy to do that. That is
different than the programmatic implications. The logistics of
planning to sequester involve technical issues surrounding
budget execution, accounting, acquisition. Again, it is our
expertise that leads us to the conclusion that, with 8 months
to go before the sequester would take place, diverting
resources now to tackle those accounting and technical budget
execution questions is not the right decision. We have enough
time to handle those issues in advance of the sequesters.
Mr. Price. I look forward to those meetings and would
respectfully suggest that the American people expect us to come
up with a plan. I hope that the administration is positively
involved in that.
Mr. Werfel. Our hope is that those meetings will not need
to occur because we can avoid the sequester. But, if necessary,
OMB will be ready.
Chairman Ryan. So the takeaway is you don't have a specific
proposal, and you are not going to tell us how it is going to
be affected. It is clear as mud to us. The purpose of this
hearing was to try to get more clarity. I think we have even
less now. The sooner you can provide us with clarity, the
better off everybody is going to be.
Thank you very much. This hearing is adjourned.
[Additional submission of Chairman Ryan follows:]
[Whereupon, at 11:49 a.m., the committee was adjourned.]