Special Analysis 12-02
July 20, 2012

When Congress enacted the Budget Control of 2011 (BCA, P.L. 112-25), it included automatic spending reductions, known as sequester, to ensure $1.2 trillion in deficit reduction even if Congress and the president failed to enact a Joint Select Committee (JSC) bill by January 15, 2012, which reduced the deficit by that same amount. The JSC did not reach a deficit-reduction agreement, and a bill was not enacted. As such, the BCA sequester is scheduled to occur on January 2, 2013, for fiscal year (FY) 2013 spending. In recent months, the president and members of Congress have proposed alternatives to reverse some or all of the automatic cuts. However, any change to the sequester would require enactment of explicit legislation modifying the BCA. Absent a new law, the sequester will take place next January.

This Special Analysis is intended to give states a sense of potential spending reductions resulting from the BCA sequester. It estimates state-by-state funding levels in FY 2013 for the 214 programs tracked by FFIS. While 73% of the programs that FFIS tracks are covered by the sequester, most of the funding states receive via federal grants (82%) would be exempt from sequester. This is because Medicaid (which accounts for almost half of federal aid to states), several highway programs, and a host of other mandatory programs targeting low-income individuals are not subject to sequester. To give states a more complete picture of the effect of sequester on their economies, this analysis also provides estimates of the sequester’s impact on defense spending and National Institute of Health (NIH) funding.  

Compared to previous FFIS estimates, these estimates rely on the Congressional Budget Office’s (CBO) estimated FY 2013 sequester percentage of 7.8% for nondefense discretionary and mandatory programs and 10% for defense programs. It is still not possible to determine the precise implications of a sequester on federal funding for the reasons outlined in this analysis. However, FFIS will continue to update its estimates as additional information becomes available.