The Effect of Sequestration on Texas

May 08, 2013
By Paul K. Emerson, TAC State Financial Analyst
Legislative News

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In 2011, Congress passed the Budget Control Act (BCA), designed to impose a $1 trillion funding cap for discretionary programs over a 10-year period.  In addition, the BCA created the Joint Select Committee on Deficit Reduction – a bipartisan “super committee” of Democrats and Republicans to come up with a compromise that would reduce the spending deficit by another $1.2 trillion over the same period. 

Because the super committee was unable to reach a compromise, the BCA triggered sequestration – a mechanism that automatically cuts federal programs across the board. This occurred on March 1.  Sequestration consists of equal reductions to defense and non-defense aspects of the federal budget, including discretionary and mandatory programs. However, a wide majority of mandatory programs are exempt from sequestration, such as Social Security, Medicaid, federal retirement programs and other programs that assist low-income individuals. Only a few discretionary programs are exempt, including Pell Grants and Department of Veterans Affairs programs.

Budget Impact
Millions of dollars at the state level are at stake. According to the Legislative Budget Board (LBB), sequestration will affect the state budget, but due to the timing of select federal funding distributions to states, it may not be felt until fiscal year 2014. LBB also noted in the report linked below that if the BCA across-the- board reductions were not delayed or modified by Congress, the reductions would total $1 billion for the fiscal years 2014-15.

  • The LBB noted that at least 13 agencies will be affected in fiscal year 2013 – totaling $334.6 million. 
     
  • The Texas Department of Education and the Health & Human Services Commission are expected to be hit the hardest.
     
  • The percentage reduction for most programs will be between 5.3 percent and 5.8 percent.
     
  • Programs with the most significant reductions include: the Title 1- Education for Disadvantaged Children; Special Education Basic State Grants; the Nutrition Program for Women, Infants, and Children (WIC); and the Child Care and Development Fund.
     
  • Locally administered programs also subject to sequestration include Head Start, Community Development Block Grants (Entitlements) and the Public Housing Capital Fund. 

Counties may also be impacted by the sequestration due to cuts in various programs. The Department of Interior, for instance, recently sent a letter to counties detailing the proposed reductions to the Payment in Lieu of Taxes (PILT) program.

For additional information on sequestration see the following report:  The House Committee on Texas Response to Federal Sequestration prepared an interim report for the 83rd Texas Legislature, January 2013.