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United States Government Accountability Office: 
GAO:  

Report to the Chairman, Committee on the Budget, House of 
Representatives:  

March 2014:  

2013 Sequestration:  

Agencies Reduced Some Services and Investments, While Taking Certain 
Actions to Mitigate Effects:  

GAO-14-244:  

GAO Highlights:  

Highlights of GAO-14-244, a report to the Chairman, Committee on the 
Budget, House of Representatives.  

Why GAO Did This Study:  

On March 1, 2013, pursuant to the Balanced Budget and Emergency
Deficit Control Act of 1985, the President ordered an across-the-board
cancellation of budgetary resources—-known as sequestration-—to achieve
$85.3 billion in reductions across federal government accounts. GAO 
was asked to evaluate how agencies prepared for and implemented 
sequestration. This report examines (1) the effects of fiscal year
2013 sequestration on agency operations, performance, or services to 
the public; (2) how agencies prepared and planned for sequestration; 
and (3) how agencies implemented sequestration. GAO collected standard
information from and interviewed chief financial officers or their 
designee in 23 federal agencies and OMB, and reviewed documents when 
available to corroborate the information reported. GAO did not assess 
the appropriateness of actions taken.  

What GAO Found:  

Fiscal year 2013 sequestration reduced or delayed some public services 
and disrupted some operations in the 23 federal agencies GAO reviewed, 
even though agencies took actions to minimize the effects. For 
example, agencies reported that sequestration reduced assistance for 
education, housing, and nutrition, as well as health and science 
research and development grants. Agencies also reported delaying 
investments such as information technology and facilities projects. 
Some federal services also experienced backlogs and delays as a result 
of personnel actions including limiting hiring and furloughing 
employees. However, many of the effects of sequestration could not be
quantified or will not be known until future years, if at all, for a 
number of reasons including the timing of when funds are disbursed 
(such as grant cycles that start late in the fiscal year), challenges 
in isolating the effects from other factors, and the lack of currently 
available performance data for some programs. Moreover, congressional 
and agency actions mitigated some potential effects by shifting
funds to higher priorities while deferring or reducing funding for 
lower priorities.  

Most agencies began sequestration preparation and planning in 2012, but
uncertainty over if and when it would occur, and how to implement it, 
delayed resource allocation decisions. While the Office of Management 
and Budget (OMB) identified exemptions and special rules relevant to 
certain accounts in a September 2012 report, issues regarding 
application of sequestration continued to be reviewed after the March 
1, 2013, sequestration order. In some cases, agencies said they lacked 
sufficient information to determine whether funds sequestered from 
certain user fees and trust fund accounts were temporarily canceled in 
fiscal year 2013 but would be available in fiscal year 2014, creating
uncertainty about available budgetary resources. The Sequestration
Transparency Act of 2012 required OMB to report data and explanations to
enhance public understanding of sequestration. However, OMB did not make
publicly available its criteria for determining which programs were 
exempt. Further, because this was the first sequestration in more than 
two decades, agencies said they lacked institutional knowledge about 
applying sequestration to certain programs, such as those funded 
through fees and trust funds, which created planning challenges and 
delayed resource allocation decisions. Federal internal control 
standards indicate that to ensure communications are relevant, 
reliable, and timely, agencies should identify and record pertinent 
information needed to carry out their duties.  

To implement sequestration, most agencies reported using funding 
flexibilities to balance mission protection and required sequestration 
reductions. These flexibilities included reprogramming funds within an 
account, transferring funds between accounts, and using unobligated 
balances from prior years. However, funding flexibilities may be more 
limited in future years. Nevertheless, 19 agencies reported curtailing 
hiring; 16 reported rescoping or delaying contracts or grants for core 
mission activities; 19 reported reducing employee training; 20 
reported reducing employee travel; and 7 reported furloughing more than
770,000 employees from 1 to 7 days. GAO's report includes summary 
results for the 23 agencies reviewed as well as individual agency 
sections.  

What GAO Recommends:  

GAO recommends that the Director, OMB (1) publish the criteria used to
determine which accounts and programs, projects, and activities were
exempt from sequestration, and which accounts contain funds that are
temporarily sequestered and available for obligation in future years; 
and (2) direct agencies to record their decisions and principles used to
implement sequestration for potential future application. OMB agreed 
with GAO's recommendations and plans to publish its criteria and 
reiterate to agencies the importance of recording decisions.  

View [hyperlink, http://www.gao.gov/products/GAO-14-244]. For more 
information, contact Michelle Sager at (202) 512-6806 or 
sagerm@gao.gov or Edda Emmanuelli Perez at (202) 512-2853 or
emmanuellipereze@gao.gov.  

[End of section]  

Contents:  

Letter:  

Background:  

Agencies' Actions in Response to Sequestration Resulted in a Range of 
Immediate and Longer-Term Effects:  

Most Agencies Began Formal Planning for Sequestration in 2012 While 
Continued Uncertainty Delayed Decisions Regarding Resource Allocation:  

Agencies Used Funding Flexibilities and Congress Took Actions to 
Mitigate Some Effects on Core Mission While Still Achieving 
Sequestration Reductions:  

Conclusions:  

Recommendations for Executive Action:  

Agency Comments and Our Evaluation:  

Overview of Sequestration at 23 Federal Agencies: 
U.S. Department of Agriculture: 
Department of Commerce: 
Department of Defense: 
Department of Energy: 
Department of Health and Human Services: 
Department of Homeland Security: 
Department of Housing and Urban Development: 
U.S. Department of Interior: 
Department of Justice: 
Department of Labor: 
Department of State and U.S. Agency for International Development 
Operations and Foreign Assistance: 
Department of Transportation: 
Department of the Treasury: 
U.S. Environmental Protection Agency: 
General Services Administration: 
National Aeronautics and Space Administration: 
National Science Foundation: 
Nuclear Regulatory Commission: 
Office Personnel Management: 
Small Business Administration: 
Social Security Administration:  

Appendix I: Objectives, Scope, and Methodology197:  

Appendix II: Comments from the Department of Education:  

Appendix III: Comments from the Department of Treasury:  

Appendix IV: Comments from the Social Security Administration:  

Appendix V: Glossary of Budget Terms:  

Appendix VI: GAO Contacts and Staff Acknowledgments:  

Tables:  

Table 1: Report Sections on Sequestration at Selected Federal 
Agencies:  

Table 2: Sequestered Funds, Budget Accounts, and Programs, Projects, 
and Activities (PPA) by Agency, Fiscal Year 2013:  

Table 3: Funding Actions Agencies Reported Taking in Fiscal Year 2013 
to Mitigate the Effects of Sequestration:  

Table 4: Personnel and Related Actions Agencies Reported Taking to 
Achieve Reductions Required by Sequestration in Fiscal Year 2013:  

Table 5: Summary of Furloughed Federal Employees As a Result of 
Sequestration in Fiscal Year 2013:  

Table 6: Non-personnel Actions Agencies Reported Taking to Achieve 
Reductions Required by Sequestration in Fiscal Year 2013:  

Table 7: Report Sections on Sequestration at Selected Federal 
Agencies:  

Table 8: Names of GAO Staff Contributing to Information on Selected 
Agencies:  

Figures:  

Figure 1: OMB Calculation of Sequestration Amounts for Fiscal Year 
2013 (Dollars in Billions)A:  

Figure 2: Fiscal Year 2013 Joint Committee Sequestration: Related 
Legislative and OMB Actions:  

Abbreviations:  

ACF: Administration for Children and Families:  

ATF: Bureau of Alcohol, Tobacco, Firearms, and Explosives:  

ATRA: American Taxpayer Relief Act of 2012:  

BBEDCA: Balanced Budget and Emergency Deficit Control Act of 1985:  

BCA: Budget Control Act of 2011:  

BWPMO: Balanced Workforce Program Management Office:  

CBP: Customs and Border Protection:  

BLS: Bureau of Labor Statistics:  

BOP: Federal Bureau of Prisons:  

CDBG: Community Development Block Grants:  

CDC: Centers for Disease Control and Prevention:  

CDFI: Community Development Financial Institutions Fund:  

CFO: Chief Financial Officer:  

CMS: Centers for Medicare & Medicaid Services:  

Coast Guard: U.S. Coast Guard:  

Commerce: Department of Commerce:  

CR: continuing resolution:  

CSR: customer service representatives:  

CSRS: Civil Service Retirement System:  

DEA: Drug Enforcement Administration:  

DHS: Department of Homeland Security:  

DOD: Department of Defense:  

DOE: Department of Energy:  

DOJ: Department of Justice:  

DOL: Department of Labor:  

DOT: Department of Transportation:  

Education: Department of Education:  

EM: Office of Environmental Management:  

EPA: Environmental Protection Agency:  

ETA: Employment and Training Administration:  

FAA: Federal Aviation Administration:  

FAMS: Federal Air Marshals Service:  

FEMA: Federal Emergency Management Agency:  

FERS: Federal Employees Retirement System:  

FBI: Federal Bureau of Investigation:  

FDA: Food and Drug Administration:  

FEVS: Federal Employee Viewpoint Survey:  

FSIS: Food Safety and Inspection Service:  

Ginnie Mae: Government National Mortgage Association:  

GPRA: Government Performance and Results Act of 1993:  

GPRAMA: The GPRA Modernization Act of 2010:  

GSA: General Services Administration:  

HHS: Department of Health and Human Services:  

HUD: Department of Housing and Urban Development:  

ICE: U.S. Immigration and Customs Enforcement:  

Interior: Department of Interior:  

IG: Inspector General:  

IHS: Indian Health Service:  

IRS: Internal Revenue Service:  

ISS: International Space Station:  

IT: Information technology:  

Joint Committee: Joint Select Committee on Deficit Reduction:  

MSHA: Mine Safety and Health Administration:  

NASA: National Aeronautics and Space Administration:  

NIH: National Institutes of Health:  

NIST: National Institute of Standards and Technology:  

NextGen: Next Generation Air Transportation System:  

NNSA: National Nuclear Security Administration:  

NOAA: National Oceanic and Atmospheric Administration:  

NSF: National Science Foundation:  

NRC: Nuclear Regulatory Commission:  

OIG: Office of the Inspector General:  

OMB: Office of Management and Budget:  

OPM: Office of Personnel Management:  

OSHA: Occupational Safety and Health Administration:  

PBGC: Pension Benefit Guaranty Corporation:  

PHA: public housing agencies:  

PPA: programs, projects, and activities:  

Recovery Act: American Recovery and Reinvestment Act of 2009:  

SBA: Small Business Administration:  

SFOAA: Department of State, Foreign Operations, and Related Programs 
Appropriations Act, 2012:  

SSA: Social Security Administration:  

SSI: Supplemental Security Income:  

STA: Sequestration Transparency Act of 2012:  

State: Department of State:  

State/F: Department of State Office of U.S. Foreign Assistance 
Resources:  

Treasury: Department of Treasury:  

TTB: Alcohol and Tobacco Tax and Trade Bureau:  

USPTO: U.S. Patent and Trademark Office:  

USAID: Agency for International Development:  

USDA: Department of Agriculture:  

USMS: U.S. Marshals Service:  

VA: Department of Veterans Affairs:  

WARN Act: Worker Adjustment and Retraining Notification Act:  

WHD: Wage and Hour Division:  

WIC: Women, Infants, and Children:  

[End of section]  

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548:  

March 6, 2014:  

The Honorable Paul Ryan: 
Chairman: 
Committee on the Budget: 
House of Representatives:  

Dear Mr. Chairman:  

Through most of fiscal year 2013, federal agencies faced uncertainty 
about funding levels associated with the automatic, across-the-board 
cancellation of budgetary resources, known as sequestration. 
Sequestration was first established in the Balanced Budget and 
Emergency Deficit Control Act of 1985 (BBEDCA) to enforce 
discretionary spending limits and control the deficit.[Footnote 1] 
This budgetary enforcement mechanism was recently revived by the 
Budget Control Act of 2011 (BCA),[Footnote 2] which provided the legal 
basis for the fiscal year 2013 sequestration. Accordingly, on March 1, 
2013--5 months into the fiscal year--the President ordered the 
sequestration of budgetary resources to achieve $85.3 billion in 
reductions across federal government accounts and their subunits, 
known as programs, projects, and activities (PPA).[Footnote 3] Because 
these cuts were to be achieved during the 7 remaining months of the 
fiscal year, the Office of Management and Budget (OMB) estimated that 
the effective percentage reductions to fiscal year 2013 spending over 
that time period were approximately 13 percent for defense programs 
and 9 percent for nondefense programs. Reductions were required to be 
applied uniformly, across the board, to nonexempt accounts within the 
defense and nondefense spending categories.[Footnote 4] This was the 
first sequestration in more than two decades.[Footnote 5] Under 
current law, a sequestration of direct spending will occur through 
fiscal year 2024 and another sequestration of discretionary 
appropriations could occur in any fiscal year through 2021.[Footnote 6] 

You asked that we evaluate how agencies prepared for and implemented 
sequestration.[Footnote 7] This report examines: (1) the effects of 
sequestration in fiscal year 2013 on agency operations, performance, 
or services to the public; (2) how agencies prepared and planned for 
sequestration; and (3) how agencies implemented sequestration. 

To achieve these objectives, we gathered information from 23 of 24 
chief financial officers (CFO) in CFO Act agencies. We excluded the 
Department of Veterans Affairs, because its accounts were exempt from 
sequestration.[Footnote 8] The CFO Act agencies covered by the CFO Act 
of 1990, as amended, are the Departments of Agriculture (USDA), 
Commerce (Commerce), Defense (DOD), Education (Education), Energy 
(DOE), Health and Human Services (HHS), Homeland Security (DHS), 
Housing and Urban Development (HUD), the Interior (Interior), Justice 
(DOJ), Labor (DOL), State (State), Transportation (DOT), the Treasury 
(Treasury), and Veterans Affairs (VA), as well as the Agency for 
International Development (USAID), Environmental Protection Agency 
(EPA), General Services Administration (GSA), National Aeronautics and 
Space Administration (NASA), National Science Foundation (NSF), 
Nuclear Regulatory Commission (NRC), Office of Personnel Management 
(OPM), Small Business Administration (SBA), and Social Security 
Administration (SSA).[Footnote 9] The agencies covered by the CFO Act 
are generally the largest federal agencies. They accounted for 
approximately 98 percent of the total sequestration for fiscal year 
2013. They also accounted for the majority of federal spending in 13 
of the federal government's 17 broad mission areas, or budget 
functions. 

We reviewed agency documents on the effects of sequestration and 
conducted structured interviews with the CFO (or his or her designee) 
and other officials at each of the 23 agencies. We reviewed supporting 
documents to assess the reasonableness of agencies' estimates of the 
effects of sequestration on agency operations, performance, and 
services to the public. Specifically, we reviewed the data and 
methodology used to calculate these estimates and we reported the 
estimates when they met our evidentiary standards. In some cases we 
found it appropriate to report agency estimates, as long as we also 
included significant contextual information and information about 
limitations regarding the estimates. In other cases, if agency 
explanations of the data and methodologies used to estimate the 
effects of sequestration indicated significant uncertainty surrounding 
the estimates, we did not report the estimates. In our communications 
with agencies we asked them to isolate the effects of sequestration 
from other factors such as operating under a continuing resolution and 
the rescission enacted in the Consolidated and Further Continuing 
Appropriations Act, 2013 to the degree possible. We recognize that 
these other factors could also contribute to budget uncertainty and 
affect agency operations, performance, and services to the public. 

To assess how agencies prepared and planned for sequestration and 
ultimately implemented it we used a structured questionnaire and 
information request for agency documents, such as operating and 
spending plans. Based on this information, we evaluated whether the 
actions agencies took were broadly consistent with OMB guidance. 
However, we did not assess the appropriateness of actions agencies 
took to implement sequestration. We assessed whether OMB's actions 
were broadly consistent with BBEDCA and other related laws and 
regulations in terms of providing information and guidance that 
enhanced public understanding of sequestration. We also assessed 
whether the guidance was distributed at the appropriate time to enable 
efficient and effective decision making. 

As part of the structured information request, we asked agencies to 
identify the source of information provided and any known limitations 
or purposes for which the data being provided should not be used. To 
further assess the reliability of the data provided by agencies we 
interviewed knowledgeable officials as needed. We also reviewed 
existing reports by inspectors general on the databases or systems 
that produced any data provided. We sent an e-mail questionnaire to 
federal inspectors general offices at the agencies included in our 
review, asking for information related to the effects of sequestration 
on each office's budget and its oversight activities. 

We conducted our work from April 2013 to March 2014 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. For additional details on 
our scope and methodology, see appendix I. 

This report first provides an overview of our findings for the 
objectives outlined above for fiscal year 2013 sequestration, 
including key themes and illustrative examples pertaining to the 23 
agencies included in our work. For purposes of this report, 
information on State and USAID is reported together because State's 
Office of U.S. Foreign Assistance Resources jointly manages both 
agencies' budgets. Therefore, we report summary results of our review 
in terms of 22 rather than 23 agencies. Next, this report presents 
specific findings for our objectives at the agencies we reviewed. 
These findings are presented in individual agency sections. For each 
agency, we present contextual information, including a brief 
description of the agency's mission as well as information on fiscal 
year 2013 funding, sequestered amount, PPAs, and transfer and 
reprogramming authorities. We also present information on each 
agency's planning and implementation actions, as well as the effects 
of sequestration on the agency's operations, performance, or services 
to the public. In addition, a glossary of budget terms is included in 
appendix V. Table 1 shows where information on individual agencies is 
located in this report. 

Table 1: Report Sections on Sequestration at Selected Federal 
Agencies:  

Agency: Department of Agriculture (USDA); 
Page: 64.  

Agency: Department of Commerce (Commerce); 
Page: 71.  

Agency: Department of Defense (DOD); 
Page: 76.  

Agency: Department of Education (Education); 
Page: 83.  

Agency: Department of Energy (DOE); 
Page: 88.  

Agency: Department of Health and Human Services (HHS); 
Page: 97.  

Agency: Department of Homeland Security (DHS); 
Page: 104.  

Agency: Department of Housing and Urban Development (HUD); 
Page: 112.  

Agency: Department of the Interior (Interior); 
Page: 119.  

Agency: Department of Justice (DOJ); 
Page: 126.  

Agency: Department of Labor (DOL); 
Page: 133.  

Agency: Department of State (State); 
Page: 138.  

Agency: Department of Transportation (DOT); 
Page: 143. 

Agency: Department of the Treasury (Treasury); 
Page: 149.  

Agency: Agency for International Development (USAID); 
Page: 138. 

Agency: Environmental Protection Agency (EPA); 
Page: 155.  

Agency: General Services Administration (GSA); 
Page: 162. 

Agency: National Aeronautics and Space Administration (NASA); 
Page: 166. 

Agency: National Science Foundation (NSF); 
Page: 171. 

Agency: Nuclear Regulatory Commission (NRC); 
Page: 177. 

Agency: Office of Personnel Management (OPM); 
Page: 182. 

Agency: Small Business Administration (SBA); 
Page: 187. 

Agency: Social Security Administration (SSA); 
Page: 192. 

Source: GAO.  

[End of table]  

Background:  

In August 2011, Congress and the President enacted the BCA, amending 
BBEDCA. Among other things, the BCA established the Joint Select 
Committee on Deficit Reduction (Joint Committee), which was tasked 
with proposing legislation to reduce the deficit by $1.2 trillion or 
more through fiscal year 2021. The Joint Committee was directed to 
report its proposal by December 2, 2011, and Congress and the 
President were to enact legislation by January 15, 2012. The Joint 
Committee did not report a proposal, and Congress and the President 
did not enact legislation. This failure triggered the sequestration 
process in section 251A of BBEDCA, known as the Joint Committee 
sequestration, which is the subject of this report.[Footnote 10] 

Changes to the Timing and Amount of Fiscal Year 2013 Sequestration:  

During fiscal year 2013, several laws changed the timing and amount of 
sequestration, contributing to uncertainty regarding agencies' total 
funding for the fiscal year. As originally enacted in August 2011, if 
a Joint Committee bill failed to achieve $1.2 trillion in deficit 
reduction by its statutory deadline, the BCA required fiscal year 2013 
cuts totaling $109.3 billion to be ordered on January 2, 2013. In 
September 2012, OMB estimated that sequestration would require the 
following reductions: [Footnote 11] 

* 9.4 percent in defense discretionary appropriations, 

* 10 percent in defense direct spending, 

* 8.2 percent in nondefense discretionary appropriations, 

* 2 percent in Medicare payments and certain health programs, and:  

* 7.6 percent in other nondefense direct spending. 

On January 2, 2013, the American Taxpayer Relief Act of 2012 (ATRA) 
reduced the amount of sequestration to $85.3 billion and delayed 
implementation until March 1, 2013.[Footnote 12] Later in January 
2013, the Disaster Relief Appropriations Act, 2013, was enacted to 
provide supplemental appropriations to respond to Hurricane Sandy. 
According to the Congressional Budget Office, this law increased 
nondefense discretionary appropriations for fiscal year 2013 by more 
than $50 billion, which significantly increased the amount of budget 
authority subject to sequestration--known as the sequestrable base--
for the nondefense budget function. As a result, nondefense 
discretionary appropriations were ultimately subject to a smaller 
percentage reduction. The Disaster Relief Appropriations Act, 2013, 
increased defense discretionary appropriations by more than $100 
million. This did not significantly increase the sequestrable base for 
the defense budget function, and therefore did not change the 
percentage reduction to these accounts.[Footnote 13] 

In accordance with BBEDCA, as amended, on March 1, 2013, OMB 
calculated and the President ordered a sequestration of discretionary 
appropriations and direct spending to achieve an $85.3 billion 
reduction for fiscal year 2013. At that time, agencies were operating 
under a part-year continuing resolution (CR) and did not yet know 
their final funding levels for the fiscal year. OMB calculated 
sequestration based on the annualized funding level set by the CR that 
was currently in effect. OMB calculated percentage sequestration 
reductions of:  

* 7.9 percent for direct defense spending, 

* 7.8 percent for defense discretionary spending, 

* 5.1 percent for nondefense direct spending--other than Medicare 
payments and certain health programs, which are limited to 2 percent 
sequestration under BBEDCA, and:  

* 5 percent for nondefense discretionary spending. 

On March 26, 2013, Congress and the President enacted the Consolidated 
and Further Continuing Appropriations Act, 2013, which provided full-
year appropriations to federal agencies.[Footnote 14] This law had the 
effect of reducing the sequestered amount for fiscal year 2013 from 
$85.3 billion to $80.5 billion,[Footnote 15] because BBEDCA provides 
for a reduction to the amount of sequestration for accounts funded by 
discretionary appropriations when the full-year appropriation is less 
than the annualized CR amount minus the sequestration amount.[Footnote 
16] Under this provision, the sequestered amount for those accounts 
was reduced by the amount of savings achieved by the full-year 
appropriation. The appropriations act also required an across-the-
board cancellation of budget authority--known as a rescission--to 
eliminate any amount by which the new budget authority provided in the 
act exceeded the fiscal year 2013 discretionary spending limits. 
[Footnote 17] Accordingly, OMB calculated a rescission of 0.032 
percent for all security PPAs and 0.2 percent for all nonsecurity 
PPAs.[Footnote 18] Figure 1 shows how OMB calculated the sequestration 
percentages that were applied on March 1, 2013, and the final amount 
of sequestration cuts reflecting the full-year appropriation enacted 
on March 26, 2013. 

Figure 1: OMB Calculation of Sequestration Amounts for Fiscal Year 
2013 (Dollars in Billions)[A]:  

[Refer to PDF for image: illustration]  

$109.3 billion (as of August 2, 2011): Reduction required by the Joint 
Committee sequestration, under the Balanced Budget and Emergency 
Deficit Control Act of 1985 (BBEDCA).  

$85.3 billion (as of January 2, 2013): Minus savings achieved under 
the American Taxpayer Relief Act of 2012 (ATRA)[B]: 
-$24 billion = $85.3 billion.  

Split evenly between defense and nondefense functions[C]: 
$42.7 billion defense reduction; 
$42.7 billion nondefense reduction.  

Under BBEDCA, sequestration of direct spending for Medicare payments 
is limited to a 2 percent rate: 
Nondefense reduction: 
A 2 percent sequestration of the $567.3 billion; 
Medicare payments base yields an $11.3 billion Medicare reduction; 
$31.3 billion reduction in other nondefense spending[D].  

Defense and nondefense cuts are both allocated proportionally between 
discretionary appropriations and direct spending: 
Defense reduction: 
$0.1 billion from direct defense spending; 
$42.6 billion from discretionary defense appropriations; 
Nondefense reduction: 
$5.5 billion from direct spending other than Medicare; 
$25.8 billion from discretionary appropriations.  

The percentage reduction is calculated by dividing the sequester 
amount by the sequestrable base[E]: 
Defense reduction: 
$0.1 billion reduction divided by $0.7 sequestrable base yields a 7.9 
percent reduction; 
$42.6 billion reduction divided by the $549.3 billion sequestrable 
base yields a 7.8 percent reduction; 
Nondefense reduction: 
$5.5 billion reduction divided by $105.5 base yields a 5.1 percent 
reduction; 
$25.8 billion reduction divided by $511.8 base yields a 5.0 percent 
reduction.  

$85.3 billion (as of March 1, 2013): Amount of fiscal year 2013 
sequestration (under the annualized continuing resolution): 
Defense reduction: 
$0.1 billion defense direct spending reduction; 
$42.6 billion defense discretionary reduction; 
Nondefense reduction: 
$11.3 billion Medicare reduction; 
$5.5 billion nondefense direct spending (other than Medicare) 
reduction; 
$25.8 billion nondefense discretionary reduction.  

$80.5 billion (as of March 26, 2013) Actual amount of fiscal year 2013 
sequestration (reflects full-year appropriation)[F]: 
Defense reduction: 
$0.1 billion defense direct spending reduction; 
$38.9 billion defense discretionary reduction; 
Nondefense reduction: 
$11.3 billion Medicare reduction; 
$5.5 billion nondefense direct spending (other than Medicare) 
reduction; 
$24.6 billion nondefense discretionary reduction.  

Source: GAO analysis of OMB data.  

Notes:  

[A] Numbers may not add due to rounding. 

[B] On January 2, 2013, ATRA reduced the total amount of sequestration 
by about $24 billion, which was offset by $12 billion of revenue 
increases and $12 billion in total reductions to discretionary 
spending limits in fiscal years 2013 and 2014. ATRA also changed the 
effective date of sequestration to March 1, 2013. 

[C] The defense spending category consists of budgetary resources in 
the national defense budget function. In addition to the Department of 
Defense, several other agencies received appropriations classified 
under the national defense budget function, including the Departments 
of Energy and Homeland Security. The nondefense spending category 
consists of budgetary resources in budget functions other than 
national defense. 

[D] The $31.3 billion reduction to nondefense spending other than 
Medicare payments includes $0.027 billion from other health programs 
that were limited to 2 percent sequestration and $0.082 billion 
savings from increased student loan fees. 

[E] For discretionary programs, the sequestrable base equals total 
discretionary appropriations (including the annualized continuing 
resolution, the Disaster Relief Appropriations Act, and any advance 
appropriations for fiscal year 2013), plus available defense 
unobligated balances from previously enacted appropriations, minus 
funding in exempt accounts. 

[F] The total amount of fiscal year 2013 sequestration was reduced 
under the full-year appropriation because BBEDCA provides for a 
reduction in the amount of sequestration in fiscal year 2013 for 
accounts where the full-year appropriation is less than the annualized 
continuing resolution amount minus the sequestration amount. 2 U.S.C. 
§ 903(f).  

[End of figure]  

Funding Flexibility Available through Reprogramming, Transfers, and 
Unobligated Balances:  

BBEDCA requires sequestration cuts to be uniformly applied by the same 
percentage to all PPAs, which are generally sub-elements within 
accounts.[Footnote 19] BBEDCA provides that PPAs are identified by 
appropriation acts or accompanying reports for the relevant fiscal 
year or, for accounts not included in appropriation acts, with 
reference to the most recently submitted President's budget. 

Agencies had various reprogramming and transfer authorities, as well 
as unobligated balances in some instances, to respond to 
sequestration. Reprogramming is the shifting of funds from one program 
activity to another within an appropriation account for purposes other 
than those contemplated at the time of appropriation. Generally, no 
statutory authority is necessary for agencies to reprogram funds, but 
in some instances the ability to reprogram funds may be limited by law 
for certain purposes or amounts. Further, the agency may be required 
to notify the congressional appropriations committee or subcommittee 
of jurisdiction in advance of any reprogramming action. Congressional 
committees may express disagreement via formal letters to agencies and 
informal conversations with agencies. As a result, agencies may 
ultimately choose not to pursue the reprogramming action. 

A transfer is the shifting of funds between appropriation accounts. 
Agencies must have statutory authority in order to transfer funds, and 
that authority may also be limited by purpose or amount. For example, 
some agencies have the authority to transfer up to 5 percent of funds 
from an account, as long as the receiving account is not increased by 
more than 10 percent. In other words, the total amount transferred 
from an account may not exceed 5 percent of the agency's total 
appropriation for the fiscal year, and the receiving account may be 
increased by a maximum of 10 percent of that account's appropriation. 

Unobligated balances that remain legally available from prior year 
appropriations could provide agencies with funding flexibility to 
respond to sequestration. An unobligated balance is a type of 
carryover balance.[Footnote 20] If a multiyear or no-year 
appropriation is not fully obligated by the end of the fiscal year, 
the unobligated balance may be carried forward into the next fiscal 
year and remain available for obligation.[Footnote 21] Defense 
unobligated balances that remain available for spending are subject to 
sequestration; nondefense unobligated balances are exempt. Agencies 
may have unobligated balances from multiyear or no-year funding for 
long-term projects, such as military construction; supplemental 
funding, such as funding for natural disasters and other emergencies; 
and unobligated user fee collections. Unobligated balances in some 
instances support an agency's ability to carry out its mission by 
providing flexibility for the agency to respond to contingencies or 
emergencies. For example, for agencies funded by user fees, reserve 
funds can sustain operations in the event of a sharp downturn in fee 
collections or increase in costs.[Footnote 22] 

OMB's Role in Sequestration:  

OMB played an important role in interpreting BBEDCA and calculating 
the sequestration for fiscal year 2013. In August 2012, the 
Sequestration Transparency Act of 2012 (STA) required the President to 
report to Congress on the potential sequestration.[Footnote 23] In 
response to the STA, on September 14, 2012, OMB reported to Congress 
on the breakdown of exempt and nonexempt budget accounts, the 
estimated funding reductions that would be required across nonexempt 
accounts, and how it calculated these reductions.[Footnote 24] On 
March 1, 2013, when the President ordered a sequestration of budgetary 
resources, OMB issued a report detailing the amount and percentage of 
these cuts for each nonexempt account.[Footnote 25] As such, OMB had 
an active role in interpreting BBEDCA and determining how the cuts 
required under sequestration would ultimately apply to individual 
accounts. OMB also provided guidance and direction to agencies at 
several points in the sequestration planning and implementation 
process. Figure 2 shows the timing of legislative and OMB actions 
related to sequestration. 

Figure 2: Fiscal Year 2013 Joint Committee Sequestration: Related 
Legislative and OMB Actions:  

[Refer to PDF for image: timeline]  

Legislative Action: August 2, 2011: 
Budget Control Act (BCA) of 2011 enacted. Created the Joint Select 
Committee on Deficit Reduction, which was tasked with proposing budget 
reductions of at least $1.2 trillion to avert automatic deficit 
reduction procedures in fiscal years 2013 through 2021.  

Legislative Action: January 15, 2012: 
Deadline for legislation originating from the Joint Select Committee 
to be enacted to avoid automatic procedures.  

OMB Actions and Other Key Dates: July 31, 2012: 
Notified Congress of the President's intent to exercise the legal 
option to exempt all military personnel accounts from sequestration 
for fiscal year 2013, as authorized under BCA. This action increased 
sequestration in other defense programs.  

Legislative Action: August 7, 2012: 
Sequestration Transparency Act of 2012 enacted. Required the President 
to report to Congress on the potential sequestration, including a 
breakdown of exempt and nonexempt budget accounts.  

OMB Actions and Other Key Dates: August 7, 2012: 
Requested information from agencies on sequestrable budgetary 
resources by budget account and other information to prepare a report 
pursuant to the Sequestration Transparency Act of 2012.  

OMB Actions and Other Key Dates: September 14, 2012: 
Issued a breakdown of exempt and non-exempt budget accounts and 
additional information on the potential implementation of 
sequestration (pursuant to the Sequestration Transparency Act of 
2012).  

Legislative Action: September 28, 2012: Continuing Appropriations 
Resolution, 2013, enacted, providing funding through March 27, 2013.  

OMB Actions and Other Key Dates: October 1, 2012: 
Beginning of fiscal year 2013.  

OMB Actions and Other Key Dates: December 3, 2012: 
Requested information from agencies on sequestrable budgetary 
resources to prepare for a potential January 2, 2013 sequestration 
order.  

Legislative Action: January 2, 2013: 
American Taxpayer Relief Act of 2012 enacted. Reduced the 
sequestration amount scheduled for 2013 from $109 billion to roughly 
$85 billion and delayed the sequestration order until March 1, 2013.  

OMB Actions and Other Key Dates: January 14, 2013: 
Directed agencies to plan for and manage budget uncertainty but to 
postpone implementation of reductions specifically designed to respond 
to sequestration.  

Legislative Action: January 29, 2013: 
Disaster Relief Appropriations Act of 2013 enacted. Provided funding 
for Hurricane Sandy disaster assistance and other purposes, thereby 
increasing the sequestrable base and reducing the percentage for 
nondefense programs necessary to achieve the required budget 
reductions in the future.  

OMB Actions and Other Key Dates: February 8, 2013: 
Requested information from agencies on sequestrable budgetary 
resources to prepare for the March 1, 2013 sequestration order.  

OMB Actions and Other Key Dates: February 27, 2013: 
Issued a memorandum discussing the implementation of sequestration and 
addressing questions regarding certain categories of planning 
activities, such as communication, acquisition, and financial 
assistance.  

OMB Actions and Other Key Dates: March 1, 2013: 
Provided the final percentages for across-the-board reductions in 
funding.  

OMB Actions and Other Key Dates: March 1, 2013: 
Sequestration of $85.3 billion ordered government-wide.  

Legislative Action: March 26, 2013: 
Consolidated and Further Continuing Appropriations Act of 2013 
enacted. Provided full-year appropriations to federal agencies and 
lowered the total sequestration amount to roughly $80 billion.  

OMB Actions and Other Key Dates: April 11, 2013: 
Provided specific instructions to agencies on applying the 
sequestration against the full-year appropriations.  

Legislative Action: May 1, 2013: 
Reducing Flight Delays Act of 2013 enacted. Provided the Secretary of 
Transportation with the flexibility to transfer certain funds to 
prevent reduced operations and staffing of the Federal Aviation 
Administration.  

OMB Actions and Other Key Dates: September 30, 2013: 
End of fiscal year 2013.  

Source: GAO analysis of legislation and OMB guidance.  

Note: OMB actions consist of memorandums and data requests to 
agencies, as well as letters and reports to Congress.  

[End of figure]  

Agencies' Actions in Response to Sequestration Resulted in a Range of 
Immediate and Longer-Term Effects:  

Sequestration Reduced Some Public Services and Agency Operations in 
Fiscal Year 2013:  

Sequestration reduced or delayed some services to the public, 
including benefit payments, and disrupted agency operations, despite 
actions taken by agencies to minimize sequestration's effects. For 
example, sequestration reduced the size and number of grants, 
vouchers, and other forms of assistance provided to states and 
localities, nonprofits, and other partner entities that assist in 
carrying out federal missions.[Footnote 26] Agencies reported that the 
actual effects of these and other reductions on services to the public 
remain difficult to measure in part because the recipients may have 
some discretion on how the reductions are implemented or may use other 
sources of funding to temporarily offset a decline in federal funding. 
Some of the agencies that we reviewed did not systematically monitor 
the specific effects of sequestration on agency operations and 
services to the public. Nonetheless, agencies were able to provide 
some estimates of these effects, including the following examples:  

* DOL estimated that long-term unemployed workers would receive 11 
percent less in Emergency Unemployment Compensation benefits. About 
2.6 million long-term unemployed workers who have exhausted other 
forms of unemployment compensation receive benefits from this program. 
[Footnote 27] 

* USDA estimated that the number of participants in the Women, 
Infants, and Children Farmers' Market Nutrition Programs, which 
provides fresh, unprepared, locally grown fruits and vegetables to 
eligible women and children, was reduced by about 142,000 in fiscal 
year 2013 from its fiscal year 2012 levels of 1.56 million.[Footnote 
28] 

* HUD estimated, based on data reported by the state and municipal 
housing authorities that administer the Housing Choice Voucher 
program, that the number of very low-income households that received 
rental housing assistance through the program at the end of calendar 
year 2013 was about 42,000 (2.2 percent) lower than at the end of 
calendar year 2012, primarily due to sequestration. HUD also estimated 
that sequestration's cuts to Homeless Assistance Grants led states and 
localities to remove 60,000 formerly homeless persons from housing and 
emergency shelter programs. HUD officials told us that this estimate 
was based on the amount of funding sequestered and the average cost 
per person served by these grants, because initial data on the number 
of persons served will not be available until after the grants from 
fiscal year 2013 funding are disbursed in 2014. 

* HHS estimated, based on planning data collected from Head Start 
program grantees, that Head Start programs, which promote the school 
readiness of children up to age 5 from low-income families, served 
approximately 57,000 fewer children as a result of lower funding 
levels.[Footnote 29] However, HHS will not know the final effects 
until grantees submit final data after the end of the 2013-2014 school 
year. 

Furthermore, federal agencies that fund grants that support research 
and development awarded fewer or smaller grants in fiscal year 2013 as 
a result of sequestration. While agencies anticipated that the 
reductions will result in fewer innovations and advancements in areas 
such as emerging technologies, biomedical research, and cybersecurity, 
it is difficult to measure what actual benefits might have resulted 
from proposals if they had been funded. Further, some proposals might 
have received funding from non-federal sources and could therefore 
proceed with their work. NSF, for example, reported awarding 690 fewer 
grants in fiscal year 2013 compared to fiscal year 2012 as a result of 
sequestration but could not determine what proposals would have been 
funded in the absence of sequestration because the agency does not 
rank proposals in a specific order of funding priority.[Footnote 30] 
Other federal agencies made similar reductions. HHS's National 
Institutes of Health (NIH), which funds biomedical research, planned 
to reduce funding for all of its noncompeting research project grants 
by an average of 4.7 percent below the fiscal year 2013 amounts. 
Additionally, NIH ultimately funded 750 fewer competing research 
project grants in 2013 compared to 2012--an 8.3 percent reduction. 
USDA estimated that it provided approximately 100 fewer grants for 
university scientists and private partners to conduct research across 
a variety of topics.[Footnote 31] DOE officials said that the 
department cut $85 million in funding for the Office of Science's 
Basic Energy Sciences Research program, which funds research to 
support new energy technologies, as well as construction and operation 
of major scientific research facilities. 

In addition, some federal services experienced greater backlogs and 
delays as a result of federal agencies responding to sequestration by 
limiting hiring, restricting overtime, furloughing employees, and 
taking other personnel actions. For example, at SSA sequestration 
contributed to growing backlogs of hearings for Disability Insurance 
and Supplemental Security Income benefit disputes. According to SSA 
officials, on average, applicants waited almost a week longer for a 
decision on an initial disability claim and nearly a month longer for 
a disability hearing decision to determine if they were eligible for 
benefits compared to 2012. Similarly, at OPM final processing of 
federal retirement benefits was delayed due in part to the elimination 
of overtime. The number of retirement claims that OPM processed each 
month dropped from more than 15,000 in February 2013 (prior to the 
elimination of overtime) to less than 8,000 by July 2013. The number 
of claims processed increased to more than 10,000 per month after a 
year-end budget review allowed Retirement Services to resume limited 
overtime in mid-August. DOJ's U.S. Attorneys' Offices had 45 fewer 
attorneys in fiscal year 2013 compared to fiscal year 2012, and filed 
more than 1,600 fewer criminal and civil cases (about a 1 percent 
reduction). DOJ stated this will, among other things, reduce the 
monies in criminal fines, restitution for victims, or debt owed to the 
government collected by the U.S. Attorneys' Offices. Agencies also 
reported increased wait times for customer support services and 
reductions in public training and outreach. 

Sequestration Reduced Some Oversight and Monitoring Activities:  

Sequestration also led to a reduction in oversight and monitoring 
activities by federal agencies and their inspectors general (IG). For 
example, according to SSA officials, resource constraints have made it 
more difficult to remain current on the number of continuing 
disability reviews the agency is required to conduct. When these 
reviews are not conducted as scheduled, beneficiaries may receive 
benefits for which they are no longer eligible, and the agency may 
forgo future program savings, which SSA officials estimate are about 
$9 for every $1 spent conducting the reviews over a 10-year period. 
[Footnote 32] 

Federal IGs, who perform congressionally mandated reviews and other 
important oversight functions, were also subject to sequestration. In 
an April 4, 2013, memorandum, OMB advised agencies to be mindful of 
IGs' independence and the provisions of the Inspector General Act of 
1978, as amended, which outline the need for IGs to maintain the 
appropriate resources and services necessary to perform their 
statutory duties.[Footnote 33] Still, many IGs reported that 
sequestration cuts diminished their ability to conduct audits and 
investigations, largely due to lower staffing levels stemming from 
attrition and hiring freezes. For example, the DOT IG delayed or 
curtailed several planned audits, including audits on FAA 
implementation of modernization programs related to the Next 
Generation Air Transportation System, and oversight of major transit 
projects in New York City and on the West Coast.[Footnote 34] In 
addition, the HUD IG said that losing critical staff through attrition 
and being unable to replace them due to sequestration will directly 
affect its ongoing investigations related to the financial crisis. 
Prior HUD IG work in this area resulted in the return of $471 million 
to the Federal Housing Administration insurance fund from a 
Countrywide and Bank of America settlement.[Footnote 35] Some IGs also 
reported that reduced travel spending due to sequestration limited 
their oversight capacity. For example, the State IG reported that 
sequestration limited its ability to travel to high-threat overseas 
posts to evaluate their physical security, which has been a high 
priority since the 2012 attack on the U.S. embassy in Benghazi, Libya. 
[Footnote 36] The DOE IG also reported that sequestration-related 
travel constraints directly affected its ability to conduct audits, 
inspections, and investigations due to the need to travel to remote 
DOE sites and facilities. 

Budget Reductions May Result in Forgone Revenue:  

Given the across-the-board nature of sequestration reductions, there 
were also reductions to programs and activities that produce revenue 
for the federal government. However, it is difficult to quantify the 
amount of potential revenue that the federal government did not 
collect as a direct result of sequestration. Treasury estimates that 
reductions to the Internal Revenue Service (IRS) budget from 
sequestration will likely result in billions of dollars in lost 
revenue due to fewer tax return reviews and diminished fraud 
detection.[Footnote 37] In the past, for example, Treasury has 
collected roughly $4 in enforcement-related revenue for each dollar 
spent on the IRS.[Footnote 38] This estimate does not include the 
revenue effect of the deterrence value of these investments and other 
IRS enforcement programs. In addition, an estimate such as this that 
assumes a constant rate of return across all spending does not take 
into account the potential for the marginal return on investment to 
decline as spending on enforcement increases. These and other factors 
make estimating the return on spending difficult. Further, Treasury 
also noted that enforcement-related revenue is typically generated 
through processes that can take several years. Therefore, the complete 
effects of these reductions on revenue may not be captured until 
future years and will be difficult to isolate from other factors. 

In another example, Interior planning documents showed that 
approximately 300 fewer onshore oil and gas leases would be issued 
than originally planned in fiscal year 2013 due to sequestration. 
Issuance of fewer leases will likely delay prospective production and 
additional revenues for the federal government. Revenue generated from 
federal oil and gas production is a significant nontax source of 
federal government funds. In calendar year 2012, Interior issued more 
than 1,700 new leases. 

Agencies Delayed Some Capital Investments and Other Activities Planned 
for Fiscal Year 2013:  

To achieve sequestration's near-term reductions, agencies reported 
delaying a number of activities originally scheduled for fiscal year 
2013, such as awarding contracts or conducting training. In some 
instances, agencies altered the timing of contracts, thereby reducing 
agency budgets in the near term by shifting expenses to future fiscal 
years. For example, DOD reported that it may have pushed the costs of 
some weapon system programs into future years. Specifically, DOD 
reduced the fiscal year 2013 procurement quantities for some weapon 
system acquisitions, but those actions may have only deferred the 
acquisition to future years. State noted that in order to mitigate the 
effects of sequestration on its efforts to increase security for 
overseas facilities, the Bureau of Overseas Building Operations had to 
reprioritize its planned projects, which may result in the deferral of 
awarding some contracts intended to improve the safety and security of 
existing diplomatic facilities, as well as other contracts for new 
facilities. 

Agencies reported that potential effects of these delays are difficult 
to determine, particularly for projects spanning multiple years, and 
will depend in large part on funding decisions in future fiscal years. 
Agencies reported that further delaying these activities could affect 
their abilities to carry out their mission. For example, the Census 
Bureau canceled or modified more than 40 existing and planned 
contracts, some of which were related to testing, development, and 
management for the 2020 Census. While this affected Commerce's ability 
to research and develop lower-cost options for the census in fiscal 
year 2013, according to Commerce officials, additional funding in 
future years could still allow this work to be done in time to be 
useful for the next census. 

Similarly, although the National Oceanic and Atmospheric 
Administration's (NOAA) COSMIC-2 satellite system--a multiyear joint 
program with DOD and Taiwan to increase the accuracy of weather 
forecasting--was not funded in fiscal year 2013 due in part to 
sequestration, Commerce believes the project could stay on track for 
deployment in 2015 depending on future funding. Delays in the 
deployment of COSMIC-2 would lessen forecasting accuracy that is 
needed to mitigate the risk of a gap in polar satellite data that 
could occur as early as 2014.[Footnote 39] According to NASA 
officials, additional budget reductions and delays may result in NASA 
missing certain deadlines, such as the first launch for the Space 
Launch System program scheduled for December 2017. Furthermore NASA 
officials said that if further cuts occurred the agency would miss 
milestone payments in the Commercial Crew program and the resulting 
delays could prolong the nation's reliance on Russia to transport 
crews to and from the International Space Station. Agency officials 
said that these and other similar investments cannot be delayed 
indefinitely without affecting the agencies' ability to perform its 
mission. 

Agency officials reported that some of the delays could, in some 
instances, result in increased costs over the longer term for the 
federal government and its program partners. For example, DOD deferred 
some depot maintenance of equipment from fiscal year 2013 until future 
years, and military service officials expressed concerns that they 
could face equipment readiness shortfalls and increases in the rates 
that depots charge their customers for work performed--leading to more 
expensive maintenance costs. The officials were also concerned they 
could face reduced depot workforce capabilities.[Footnote 40] 
According to DOT, reduced funding for existing grant agreements under 
the New Starts and Smart Starts program in fiscal year 2013 could lead 
to increased costs for project sponsors such as state and local 
governments for transit projects supported by these grants or delays 
in other projects. Project sponsors have contractual arrangements with 
design and construction firms that include schedule and payment 
requirements and can incur contractor claims for delay penalties if 
these requirements are not met. According to DOT, some sponsors may 
borrow additional funds, which could increase their project costs, 
while other sponsors may choose to reprioritize where they put their 
limited funds, which could delay projects. 

Sequestration Affected Progress toward Achieving Some Agency 
Performance and Priority Goals:  

The GPRA Modernization Act of 2010 (GPRAMA) requires agencies to 
report annually on their progress in achieving their performance goals 
and, in cases in which agencies failed to meet their goals, describe 
why they did not meet the goals.[Footnote 41] GPRAMA also requires 
certain agencies to identify the performance goals that reflect their 
highest priorities--known as agency priority goals--every 2 years. 
Agency priority goals are intended to be ambitious targets that can be 
achieved within a 2-year period, with clearly defined quarterly 
milestones. They should be informed by broad government-wide priority 
goals and input from relevant congressional committees. Focusing on 
these priority goals as well as other important performance goals can 
help agencies implement sequestration in a way that protects their 
missions to the greatest extent possible. GPRAMA requires agencies to 
report quarterly on progress toward achieving their priority goals. 
This quarterly progress data can show the effects of sequestration on 
agency priority goals. For example, OPM was unable to meet its 
priority goal of processing and finalizing 90 percent of all incoming 
federal retirement claims within 60 days of receipt by July 2013 due 
in part to a temporary freeze in overtime resulting from 
sequestration.[Footnote 42] 

Commerce's U.S. Patent and Trademark Office (USPTO) anticipated that 
sequestration will likely require it to adjust its longer-term 
performance goals. USPTO had set a goal of reducing patent application 
review times and the backlog of patents waiting to be reviewed to an 
average of 10 months by 2016, but with the reduced funding from 
sequestration as well as potentially lower-than-planned collections 
and other factors, Commerce officials told us this goal likely will 
not be met until 2019. In some cases, however, the effects of 
sequestration on performance measures are difficult to isolate because 
they represent long-term performance goals that depend on 
interconnected activities, such as EPA's goals for improving the 
quality of air, water, and land. Final data on the effects of 
sequestration on agencies' performance goals for fiscal year 2013 were 
not reported in some instances until as late as February 2014. 

Sequestration Along with General Uncertainty May Have Weakened 
Workforce Morale and Planning:  

Officials at several agencies raised concerns about how sequestration 
affected the morale of current employees. This includes agencies that 
both did and did not furlough employees in response to sequestration. 
Overall, more than 770,000 federal employees were furloughed for 
between 1 and 7 days in response to sequestration, resulting in 
reduced wages. For example, many of the more than 640,000 affected DOD 
civilian staff experienced a 20 percent pay reduction in each of the 6 
weeks they were furloughed. It is difficult to measure the effects of 
sequestration on employee morale and isolate sequestration from other 
factors, such as the 3-year pay freeze and ongoing uncertainty about 
agencies' budgets, which can affect an employee's job satisfaction. 
While not specific to sequestration, OPM's annual Federal Employee 
Viewpoint Survey (FEVS) captures employees' general perceptions about 
their work experiences, their agency, and other areas that could be 
affected by sequestration. The results of the 2013 FEVS showed a 
notable decline in employee morale as measured by the global 
satisfaction index. This index, which captures employees' satisfaction 
with their work, pay, and organization, was down 4 points government-
wide from 63 percent to 59 percent in 2013.[Footnote 43] The declines 
were particularly large at agencies that experienced widespread 
furloughs of federal employees. For example, the global satisfaction 
index for HUD, EPA, and DOD declined by 10 points, 9 points, and 6 
points, respectively.[Footnote 44] There was also a statistically 
significant decrease government-wide in the percentage of employees 
reporting positively that they "have sufficient resources (for 
example, people, materials, and budget) to get my job done"--from 48 
percent positive in 2012 to 44 percent positive in 2013.[Footnote 45] 

Agency officials also raised concerns about the longer-term 
implications of sequestration reductions on the federal workforce and 
on agencies' ability to retain, recruit, and train personnel with the 
necessary skill sets. We have previously reported that current budget 
and long-term fiscal pressures, coupled with a potential wave of 
employee retirements that could produce gaps in leadership and 
institutional knowledge, threaten the government's capacity to 
effectively address evolving national issues.[Footnote 46] Closing 
ongoing and emerging critical skills gaps will require agencies to 
continue to address their specific human capital needs, as well as 
work with others to address critical skills gaps that cut across 
several agencies. According to agency officials, the initial 
uncertainty over if and when sequestration would occur and the timing 
of the cuts 5 months into the fiscal year affected their ability to do 
more strategic long-term workforce planning and make use of tools such 
as offering voluntary early retirement and voluntary separation 
incentive pay (buyouts) to employees. Voluntary separation incentives 
generally produce greater savings when they are offered earlier in the 
fiscal year. 

The inability to do replacement hiring and training can have a 
negative long-term effect on strategic workforce planning. Strategic 
workforce planning addresses two critical needs: (1) aligning an 
organization's human capital program with its current and emerging 
mission and programmatic goals and (2) developing long-term strategies 
for acquiring, developing, and retaining staff to achieve programmatic 
goals. According to State, the continuation of a hiring slowdown and a 
50 percent attrition replacement plan will damage the progress made 
over the last 4 years to close gaps in hiring and training to meet 
State's mission requirements. DOL officials also stated sequestration 
could have an effect on maintaining the functions of the various 
components within the agency as they are not replacing departing staff 
and it can take more than a year to train new staff once funding 
becomes available. 

Some agencies expressed concerns about the effects of a reduction in 
training on future agency operations. For example, DHS's U.S. Customs 
and Border Protection (CBP) stated that, in response to sequestration, 
it canceled training classes in fiscal year 2013, including those 
related to detecting potential terrorists and high-risk air cargo, 
identifying weapons of mass effect in the land border environment, and 
managing critical incident response. DHS officials noted that the 
effect of canceled training classes may not be felt for several years. 
For example, these officials expressed concerns about how effectively 
the workforce will be able to respond to future mission-critical 
needs. Due to actions taken to cancel or curtail training for a 
portion of their force, the military services identified potential 
future effects which would take time to reverse, such as increases in 
the number of non-deployable units, diminished ability to provide 
ready forces to quickly surge to meet additional operational 
requirements, and delays in implementing plans for rebuilding core 
readiness after more than a decade of ongoing operations. DOJ reported 
that the U.S. Attorneys' Office of Legal Education reduced the total 
number of its sponsored courses from 183 in fiscal year 2012 to 114 in 
fiscal year 2013, which could result in fewer opportunities to train 
attorneys in new and emerging areas of law. 

Agency officials also expressed concerns about the effects of 
sequestration for the non-federal workforce, such as contractors and 
grant recipients that help the agencies achieve their mission. For 
example, DOE estimated that "prime" contractors furloughed 
approximately 3,600 of their employees for some amount of time in 
fiscal year 2013 as a result of sequestration.[Footnote 47] DOE 
officials also estimated that contractors reduced or left vacant 
approximately 1,000 positions in fiscal year 2013, including laying 
off or voluntarily separating more than 300 of their employees. These 
figures do not include subcontractor employees, university 
researchers, and others who do not have a direct contractual 
relationship with DOE. Most of the affected contractors work at DOE's 
national laboratories or on defense environmental cleanup activities. 

Many Effects Will Not Be Known Until Future Years If at All:  

Many of the effects of sequestration will not be known until future 
years, if at all, for a number of reasons including the timing of when 
funds are disbursed, challenges in isolating the effects of 
sequestration from other factors, and the availability of data. For 
some grants administered by Education, for example, the cuts did not 
occur for the recipients until the 2013-2014 school year. In addition, 
it will be difficult in many cases to clearly identify the effects of 
sequestration on grantees such as schools and their students because 
school district budgets are determined by many factors, including 
local taxes and state government contributions that could compensate 
for cuts in federal funding. HHS, the largest grant-making agency in 
the federal government, also said that the immediate effect of fewer 
and reduced grant awards on services to the public will not be known 
until the next year because grant funding cycles typically provide 
funds late in the fiscal year and grantees will not submit 2013 
performance data until fiscal year 2014. Information on the total 
amount of sequestered Medicare payments will not be available until 
after March 2014 when HHS reconciles final payments for the program. 
Further, because Medicare providers were subject to various payment 
changes for fiscal year 2013, it will be difficult to isolate the 
effect of the 2 percent cut in payments due to sequestration.[Footnote 
48] 

Some potential effects of sequestration were minimized or avoided 
through various actions taken by agencies, including cost saving 
initiatives begun in prior years and the use of funding flexibilities 
such as reprogramming and transfers. These actions are discussed in 
the next two sections of this report. 

Most Agencies Began Formal Planning for Sequestration in 2012 While 
Continued Uncertainty Delayed Decisions Regarding Resource Allocation:  

Most Agencies Began Planning and Preparation for Sequestration in 
2012:  

All agencies engaged in some initial preparation in calendar year 2012 
for sequestration. However, the timing and level of planning varied by 
agency (see textbox for definitions of preparation and planning for 
the purposes of this report).OMB's July 2012 guidance instructed 
agencies to continue normal spending and operations and informed 
agencies that OMB would be holding discussions on issues related to 
preparing for a sequestration order.[Footnote 49] 

In August and December 2012, OMB requested that agencies provide 
information about sequestrable budgetary resources to inform OMB's 
anticipated reports on sequestration. For example, during the summer 
of 2012, OMB directed agencies to identify exempt and nonexempt 
accounts to prepare for the OMB Sequestration Transparency Act Report 
pursuant to the Sequestration Transparency Act of 2012 (STA).[Footnote 
50] Agency officials reported that these efforts helped them to 
resolve some but not all of the technical details that later helped 
them implement sequestration. 

Side bar:  

For the purposes of this report, we define the terms preparation, 
informal planning, and formal planning as follows:  

Preparation: Procedural steps taken to prepare for potential 
sequestration, such as defining PPAs, identifying exempt accounts or 
clarifying special rules. It can also include other technical steps 
such as making modifications to agency systems. Unlike planning, 
preparation does not involve management decisions about how reductions 
will be allocated. 

Informal planning: High-level discussions in an agency or bureau 
related to sequestration and any estimates or scenarios involving 
possible sequestration amounts and alternative actions. This may 
include internal e-mail correspondence, informal communication with 
OMB, Congress, or both, internal meetings or conference calls, or data 
calls to bureaus or other subcomponents on potential effects. 

Formal planning: Written plans and formal correspondence (internal and 
external) involving management decisions about how sequestration would 
be implemented and how reductions will be allocated. Formal planning 
may have occurred in response to legislation, OMB guidance, or other 
events.  

[End of side bar] 

Beyond the periodic requests for budgetary data, OMB did not issue any 
formal guidance to assist agencies in their planning efforts before 
January 2, 2013, when the Joint Committee sequestration was originally 
scheduled to occur. According to OMB, sequestration planning and 
implementation activities would have diverted scarce resources from 
other important agency activities and priorities. Further, OMB did not 
want agencies to take actions prematurely that would be difficult to 
reverse or could trigger negative economic consequences, such as 
reductions in force,[Footnote 51] employee furloughs, or cancellation 
of contracts or longer-term investments. In addition, in early fiscal 
year 2013, the administration continued to advocate for an alternative 
deficit reduction package to replace sequestration. However, by 
December 2012, OMB was providing more regular informal guidance to 
agencies. For example, OMB staff and agency officials told us that 
they communicated about sequestration regularly, including weekly or 
biweekly conference calls, between December 2012 and March 2013. 
According to OMB officials, the discussions included updates on the 
state of congressional action, on communicating with personnel, on 
when and how to coordinate with OMB, and on OMB's calculations of the 
percentage reductions. 

More than half of the 22 agencies reported intensifying planning 
efforts in the months and weeks leading up to January 2, 2013. These 
formal planning efforts involved management decisions about how 
sequestration could be implemented and how reductions and resources 
could be allocated for particular components and programs. For 
example, USDA officials told us that beginning in September 2012 they 
conducted four separate evaluations--using different assumptions--of 
the effect of sequestration on agency programs and employees. DOD 
officials reported that in December 2012 they began to identify 
certain areas to protect and held initial discussions about the use of 
civilian furloughs to reduce spending. Similarly, DOL officials told 
us they began developing agency-wide budget plans for sequestration in 
early December 2012. Later plans included estimates of the required 
reductions for each account and PPA and potential actions required to 
achieve the reductions. 

Some agencies reported delaying formal planning actions until January 
2013--after the enactment of ATRA--or later. On January 14, 2013, OMB 
issued a memorandum directing agencies to intensify efforts to prepare 
for sequestration but noted that agencies generally should not take 
actions that would implement reductions specifically designed as a 
response to sequestration.[Footnote 52] HUD began formal planning for 
sequestration in January 2013 when it assembled a committee of senior 
officials to evaluate the effect of sequestration on programs and 
employees. HUD officials told us the committee focused its planning 
efforts on reducing the cost of personnel actions funded by accounts 
that had transfer authority, such as salaries and expenses, because 
larger programs, such as housing vouchers and grants, have limited 
transfer authority, restricting HUD's options for how to implement 
reductions for those programs. EPA officials told us that in January 
2013 they began formal planning efforts, which included coordinating 
with contract offices to consider contracting options. During this 
time, EPA human resources officials and union officials began pre-
decisional meetings to discuss the number of planned furlough hours 
and the grants office discussed reducing funding levels to EPA's 
grantees. 

Some Agencies Were Better Positioned for Sequestration Because of Cost 
Saving Initiatives Begun in Prior Years and the Timing of Obligations:  

Some agencies began cost saving initiatives in prior years--unrelated 
to sequestration--that they reported helped them to minimize the 
effects of sequestration on their missions. Some of these initiatives 
included efficiency efforts, consolidations, workforce restructuring, 
and hiring restrictions. 

Efficiency efforts: Some agencies reported that actions previously 
undertaken to achieve efficiencies and cost savings, including 
government-wide initiatives established by the administration, 
[Footnote 53] helped their agencies respond to sequestration. For 
example, Interior officials stated that as part of a 2011 government-
wide efficiency initiative, the department had begun efforts to reduce 
travel costs, which according to officials, helped the department 
mitigate some effects of sequestration. USDA officials said that in 
2012, the department initiated a broad review of administrative 
functions at the request of the Secretary of Agriculture. As a result 
of this review, USDA outlined steps to cut costs and modernize 
operations, including workforce reductions, closing offices and 
laboratories, centralizing purchasing contracts, consolidating cell 
phone services, and offering early retirement and voluntary 
separation. USDA estimated that it saved $920 million since 2012, 
which according to officials, helped mitigate some effects of 
sequestration. DHS reported that it began implementing various cost 
savings initiatives prior to August 2011, when the BCA was enacted. 
For example, in April 2013, DHS reported that its department-wide, 
employee-driven efficiency review, implemented in 2009, identified 
more than $4 billion in cost avoidances and reductions, which were 
then redeployed to mission critical initiatives across the department. 
According to DHS officials, these initiatives helped the department 
mitigate some, but not all, of the reductions required by 
sequestration. 

Consolidations and workforce restructuring: Some agencies had recently 
initiated or completed restructuring of field operations or 
consolidation of operations in order to help reduce operating costs. 
For example, in 2011, Commerce began reducing the number of Census 
Bureau field offices from 12 to 6, and in 2012 the Minority Business 
Development Agency began closing its field offices, leading to 
vacancies that helped Commerce implement sequestration. Prior to 
fiscal year 2013, Treasury began consolidating the functions of the 
Bureau of Public Debt and Financial Management Services into the 
Bureau of the Fiscal Service. According to Treasury officials, this 
consolidation resulted in efficiencies and cost savings that better 
positioned the bureau to absorb the $19.6 million in budget reductions 
required by sequestration and to minimize effects on the bureau's 
mission. 

Restricted hiring: Many agencies strictly limited or froze hiring at 
the beginning of fiscal year 2013 or earlier, which helped them absorb 
sequestration's reductions. In some cases, agencies reported that 
hiring restrictions, along with the additional loss of federal 
employees through attrition, helped to minimize the size and scope of 
personnel actions, such as furloughs, needed to achieve the required 
budget reductions. For example, SBA officials implemented a partial 
hiring freeze, which resulted in $9.5 million in savings in fiscal 
year 2013 and, along with other personnel actions, helped SBA achieve 
the required reductions without furloughing employees. In its 
operating plan from April 2013, Education reported that it had reduced 
the number of potential furlough days through savings from reduced 
hiring over the last year and by not filling many positions vacated 
through attrition and retirements. Some agencies had hiring 
restrictions in place earlier to respond to budget reductions. For 
example, SSA reported that in 2011, in response to budget reductions 
from the previous 2 years, it implemented a hiring freeze with limited 
hiring in critical areas. According to SSA officials, these efforts 
helped the agency avoid furloughs and mitigate some of the challenges 
in implementing sequestration. 

In addition, we found that agencies that historically obligate most of 
their funding in the latter half of the fiscal year were able to 
postpone decisions about how to allocate resources until final funding 
was determined. For example, DOE officials said that several large 
program offices, such as the Office of Energy Efficiency and Renewable 
Energy, historically have obligated most of their funds in the second 
half of the fiscal year because grant decisions are often made in the 
third and fourth quarters, which allowed DOE to use some of the grant 
funding for other activities. Similarly, NSF officials said the 
agency's program budget is about 95 percent research grant awards and 
cooperative agreements, and more than 70 percent of the grant awards 
are disbursed in the third and fourth quarters of the fiscal year. As 
a result, according to NSF officials, they had the ability to 
implement sequestration largely by reducing the amount and number of 
awards granted in the latter half of fiscal year 2013. 

Uncertainty about If and When Sequestration Would Occur Delayed 
Agencies' Planning Efforts and Limited Stakeholder Communication:  

Despite their preparation and planning efforts, agencies were unable 
to finalize operational plans and they delayed resource decisions 
because of the considerable uncertainty over if, and when, 
sequestration would occur and how it would be implemented. The 
uncertainty was magnified by the fact that agencies were operating 
under a continuing resolution (CR) and therefore did not know the 
funding amounts and authorities that would be available through the 
remainder of the fiscal year.[Footnote 54] Moreover, agencies did not 
know the extent to which there would be agreement about their proposed 
use of certain funding flexibilities such as reprogramming or 
transferring funds within and between accounts. This uncertainty 
affected agencies' abilities to make final resource decisions, 
identify necessary actions to achieve required cuts in spending, and 
communicate with employees and stakeholders about the implementation 
of sequestration. 

Agencies repeatedly had to adjust their sequestration plans because 
ATRA, the Disaster Relief Appropriations Act, and the Consolidated and 
Further Continuing Appropriations Act, 2013 changed the timing of 
sequestration, the total amount sequestered, or both. Twelve agencies 
reported that they did not know their final sequestered amount for 
some time after the Consolidated and Further Continuing Appropriations 
Act, 2013 was enacted on March 26, 2013. For example, according to OMB 
staff, determining the change in the amount of sequestration 
reductions for DOD accounts after passage of the Consolidated and 
Further Continuing Appropriations Act, 2013 required conversations 
between DOD and OMB to resolve technical issues that resulted from 
differences between DOD's funding provided by the full-year 
appropriation and the annualized amount set forth in the continuing 
resolution in place prior to the enactment of the full-year 
appropriation. While OMB outlined the process used to adjust required 
sequestration reductions as a result of the enactment of full-year 
appropriations in an April 11, 2013, memo, according to DOD officials 
issues were not officially resolved until after OMB released technical 
guidance on May 15, 2013. As a result, DOD officials reported that 
they did not know the final amount subject to sequestration until May 
2013, which affected their ability to finalize decisions on allocating 
funding reductions. Further, for some agencies the Consolidated and 
Further Continuing Appropriations Act, 2013 made changes to their 
account structures which caused delays as agencies consulted with OMB 
about how to apply sequestration to the new structure. 

The uncertainty over if and when sequestration would occur also 
affected agencies' ability to provide timely communication to program 
partners and recipients of federal funding such as contractors, 
grantees, and state and local governments. Although DOL and OMB 
provided some general guidance to stakeholders and agencies regarding 
the federal contractor workforce in July and September 2012,[Footnote 
55] uncertainty continued with regard to how each agency would 
implement sequestration if it occurred and how their employees or 
projects would be affected. OMB did not direct agencies to communicate 
with stakeholders, such as program recipients and grantees, regarding 
elements of the agency's planning directly affecting stakeholder 
groups until its February 27, 2013, guidance on implementing 
sequestration.[Footnote 56] For example, HHS did not direct components 
to begin informing grantees, contractors, and states of their 
sequestration planning until after the March 1 sequestration order. 
DOE waited to notify states regarding estimated direct reductions to 
contractors until March 2013 and NSF notified academic institutions 
and other NSF-funded organizations about the potential effects of 
sequestration on NSF awards on February 27, 2013. 

Stakeholder groups we met with--representing scientific researchers, 
defense and service contractors, and state budget offices--reported 
anecdotally that their constituents faced their own planning 
challenges due to the uncertainty faced by federal agencies. For 
example, scientists conducting research with federal grant money 
reported challenges with how to manage the finances of the project 
when future funding investments were so uncertain. Similarly, 
government contractors working in national defense reported that they 
were not involved in any sequestration planning with federal agencies 
and the contractors did not receive any specific sequestration-related 
information to inform their planning and operations. 

Uncertainty about How to Apply OMB Guidance to Certain Accounts 
Delayed Agencies' Decision Making and a Lack of Transparency Limited 
Public Understanding:  

In addition to overall uncertainty, agencies faced challenges in 
determining how sequestration would be applied to certain programs and 
accounts, contributing to delays in planning efforts and resource 
allocation decisions. This was the first time that sequestration had 
occurred in more than two decades, and agencies and the public faced 
challenges in understanding how the law would be applied and its 
implications. Agency officials reported that in some cases there was a 
lack of institutional knowledge about how to apply the required 
reductions and some agencies reported challenges identifying PPAs. 
Further, the public generally did not have access to OMB's 
implementation guidance and the various challenges agencies faced in 
planning for sequestration delayed substantive communication about 
implementation actions with the public and stakeholders. 

Some agencies faced challenges identifying PPAs for the purpose of 
implementing sequestration which limited their ability to effectively 
plan for allocating the required reductions to each PPA. Nine agencies 
reported that they encountered challenges determining PPAs for the 
purpose of sequestration. These challenges included conflicting 
sources, sources not consistent with how the agency executes its 
budget, and unclear or conflicting guidance, among others. Moreover, 8 
agencies reported that they did not determine their PPAs for the 
purpose of sequestration until after Congress enacted the Consolidated 
and Further Continuing Appropriations Act, 2013 on March 26. For 
example, the Act provided a new appropriation and PPA structure for 
DHS's U.S. Customs and Border Protection (CBP), which according to 
officials further complicated CBP's planning process. On April 11, 
2013, OMB provided instructions on how to apply sequestration to the 
newly enacted funding levels. CBP officials told us they relied on 
OMB's guidance, as well as subsequent conversations with OMB, to 
determine how to apply sequestration to the new account structure. 

Agencies with programs or accounts funded primarily through fees or 
permanent indefinite budget authority cited challenges preparing and 
planning for sequestration based on technical questions about how to 
calculate the reduction. For example, HHS officials told us that they 
required extensive communication with OMB to determine whether drug 
and medical device review user fees collected by the Food and Drug 
Administration (FDA) were subject to sequestration and how to apply 
the reductions. Proper understanding of these rules was necessary for 
FDA to plan appropriately for sequestration. Commerce officials told 
us that for USPTO, which is fee-funded, they were uncertain whether 
sequestration would apply to the amount it collected or the amount 
USPTO was appropriated. This issue was not resolved until April 2013, 
after sequestration was ordered, when it was determined that 
sequestration would apply to the amount collected. This made it 
difficult to effectively estimate and plan USPTO's budget for the year. 

Moreover, in some cases, agencies and the public did not know whether 
some funds sequestered in fiscal year 2013 would be available for 
obligation in subsequent years. Although most sequestered funds are 
permanently canceled and unavailable for future obligations, BBEDCA 
provides an exception for certain types of budgetary resources such as 
revolving, trust, and special fund accounts and offsetting collections 
sequestered in appropriation accounts.[Footnote 57] OMB staff told us 
that they and agency general counsel are currently undergoing an 
extensive review process for each of these special accounts to 
determine whether or not the sequestered funds will be permanently or 
temporarily canceled, and therefore available for obligation in 
subsequent fiscal years. For example, Interior officials told us that 
the Interior Solicitor and OMB reviewed the account that funds the 
revenue sharing payments to states under the Mineral Leasing Act, 
[Footnote 58] which was subject to sequestration, and by October 2013 
determined that the sequestered payments could be disbursed to states 
in fiscal year 2014.[Footnote 59] According to OMB staff, OMB is 
monitoring the review process in an internal database and as of 
December 6, 2013, had made determinations for 145 accounts and was 
still reviewing or awaiting additional information from agencies for 
97 accounts (OMB staff said they expect to receive more accounts for 
adjudication as agencies complete their review). As a result, the 
budgetary resources available to some agencies for fiscal year 2014 
remain uncertain. 

Although OMB worked extensively with agencies to resolve technical 
issues with planning for how to implement sequestration, in some cases 
the issues delayed agencies' resource allocation decisions. As a 
result, agencies were limited in their ability to respond in a timely 
manner to questions or concerns from stakeholders and policymakers 
about specific implementation actions. Further, OMB did not issue any 
formal public guidance outlining certain elements of its 
implementation of BBEDCA, including its criteria for determining which 
programs and accounts would be subject to sequestration and how to 
apply the reduction to certain accounts.[Footnote 60] The 
Sequestration Transparency Act required OMB to report data and 
explanations that enhance public understanding of BBEDCA and actions 
taken under it.[Footnote 61] However, stakeholders did not have access 
to the administration's guidance to agencies for planning for and 
implementing the law and in some cases did not have a clear 
understanding of how the law was being applied. As a result, well 
after the March 1, 2013, sequestration order, policymakers and 
stakeholder groups had different interpretations than OMB about how 
the provisions were being applied. 

Agencies Identified Lessons for Planning for a Potential Sequestration 
in the Future:  

Some agency officials told us that it could be technically easier to 
implement future sequestrations because the decisions and principles 
used for fiscal year 2013 would provide a framework for future 
decision making. However, OMB has not publicly released key internal 
decisions and has not directed agencies to formally document these 
decisions and principles. According to OMB staff, OMB documented 
internal decisions related to implementing the fiscal year 2013 
sequestration, in part because the process was not well documented for 
sequestration in the 1990s. As a result of the lack of prior 
documentation, current OMB employees were not able to rely on prior 
experience as they implemented the fiscal year 2013 sequestration. 
Similarly, some agency officials reported that the lack of 
institutional knowledge about how to implement sequestration presented 
a challenge. Federal internal control standards indicate that agencies 
should identify, record, and distribute pertinent information to the 
right people in sufficient detail, in the right form, and at the 
appropriate time to enable them to carry out their duties and 
responsibilities and ensure that communications are relevant, 
reliable, and timely.[Footnote 62] Under current law, sequestration of 
discretionary appropriations could take place in any year through 2021 
if spending limits are breached. Without formal documentation of 
agencies' decisions and principles for implementing sequestration, 
agencies and OMB could lack information that would help to efficiently 
implement any future sequestrations. 

Agencies identified some specific lessons from the planning and 
implementation of sequestration in fiscal year 2013. For example, DOD 
had begun some activities that informed its planning for fiscal year 
2014 and may better position it to make more strategic choices should 
sequestration occur in the future. Among other actions, on May 29, 
2013, the Deputy Secretary of Defense issued guidance directing the 
military services and other components to develop budget options that 
were 10 percent below the President's fiscal year 2014 budget request. 
OMB also issued guidance directing agencies to develop similar options 
when planning for their fiscal year 2015 budgets. HUD officials told 
us that longer planning and more flexibility to transfer funds between 
accounts would have been helpful in planning for and implementing 
sequestration. DOL officials said they learned that it is important to 
set up clear communication channels throughout the agency to ensure 
that guidance can be quickly disseminated before misinformation is 
spread, and NSF officials reported that in the future they would try 
to improve communication with staff and stakeholders by communicating 
more often and in a timelier fashion. 

Agencies Used Funding Flexibilities and Congress Took Actions to 
Mitigate Some Effects on Core Mission While Still Achieving 
Sequestration Reductions:  

Most Agencies Used Funding Flexibilities to Mitigate Some Effects on 
Core Mission and Limit Furloughs:  

Agencies reported following OMB's guidance in implementing the 
reductions required by sequestration and using any available 
flexibility to protect the agencies' core missions in service to the 
public.[Footnote 63] Agencies also reported they sought to minimize 
the effects on their federal workforce in part because the federal 
workforce is instrumental in executing the agencies' missions. OMB's 
January 14, 2013, planning guidance directed agencies to "use any 
available flexibility to reduce operational risks and minimize impacts 
on the agency's core mission." While the percentage reduction required 
by sequestration applied across-the-board at the PPA level, most 
agencies reported using funding flexibilities to mitigate some effects 
of sequestration on mission-critical activities and to avoid or limit 
the number of furlough days and the need for a reduction in force. 
Such funding flexibilities included using reprogramming to shift funds 
between PPAs within an account and transfers to shift funds between 
accounts. Funding flexibilities also included using multiyear funding 
carried over from previous fiscal years. However, agencies' abilities 
to reallocate resources to mitigate the effects of sequestration 
varied, depending in part on agencies' PPA structures and existing 
transfer and reprogramming authorities. 

Narrowly Defined PPAs Limited Actions Available to Achieve Reductions:  

The BBEDCA requirement that the percentage reduction be applied evenly 
across an agency's PPAs limited the options that agencies had 
available to achieve sequestration reductions. In general, PPA 
structures are intended to provide a meaningful representation of the 
operations financed by a specific budget account--usually by project, 
activity, or organization. For example, it is not uncommon for a 
department to have a Salaries and Expenses account, and that account 
could have PPAs that are specific to certain activities such as 
management and administration, employee benefits, or training. 
Accounts and PPAs can also have a program orientation. For example, 
the IRS's Taxpayer Services account contains two PPAs which correspond 
to distinct types of taxpayer services, such as taxpayer assistance 
and education and filing and account services. In other cases an 
agency's PPAs may be synonymous with its accounts, meaning that each 
account contains one PPA and the reduction would be taken at the 
account level, which provides a greater degree of flexibility and 
reduces the need for many reprogramming and transfer actions. For 
example, GSA, NASA, OPM, and SBA reported that all of their PPAs were 
synonymous with their budget accounts. Table 2 shows the number and 
amount of sequestered funds, accounts, and PPAs for each agency we 
reviewed. 

Table 2: Sequestered Funds, Budget Accounts, and Programs, Projects, 
and Activities (PPA) by Agency, Fiscal Year 2013:  

Agency: USDA; 
Total 2013 funding: $176.2 billion; 
Sequestered funds: $1.9 billion; 
Sequestered budget accounts[A]: 90; 
Sequestered PPAs[B]: 923. 

Agency: Commerce; 
Total 2013 funding: $8.15 billion; 
Sequestered funds: $555 million; 
Sequestered budget accounts[A]: 53; 
Sequestered PPAs[B]: 214. 

Agency: DOD[C]; 
Total 2013 funding: $621.2 billion; 
Sequestered funds: $37.255 billion; 
Sequestered budget accounts[A]: 467; 
Sequestered PPAs[B]: 3.905. 

Agency: Education; 
Total 2013 funding: $53 billion; 
Sequestered funds: $2.5 billion; 
Sequestered budget accounts[A]: 23; 
Sequestered PPAs[B]: 120. 

Agency: DOE; 
Total 2013 funding: $26.8 billion; 
Sequestered funds: $1.9 billion; 
Sequestered budget accounts[A]: 31; 
Sequestered PPAs[B]: 252. 

Agency: HHS; 
Total 2013 funding: $983.1 billion; 
Sequestered funds: $15.8 billion; 
Sequestered budget accounts[A]: 40; 
Sequestered PPAs[B]: 582. 

Agency: DHS; 
Total 2013 funding: $60 billion; 
Sequestered funds: $2.4 billion; 
Sequestered budget accounts[A]: 56; 
Sequestered PPAs[B]: 150. 

Agency: HUD; 
Total 2013 funding: $106 billion; 
Sequestered funds: $3 billion; 
Sequestered budget accounts[A]: 29; 
Sequestered PPAs[B]: 62. 

Agency: Interior; 
Total 2013 funding: $21.3 billion; 
Sequestered funds: $856 million; 
Sequestered budget accounts[A]: 84; 
Sequestered PPAs[B]: 546. 

Agency: DOJ; 
Total 2013 funding: $30.8 billion; 
Sequestered funds: $1.6 billion; 
Sequestered budget accounts[A]: 40; 
Sequestered PPAs[B]: 127. 

Agency: DOL; 
Total 2013 funding: $102.5 billion; 
Sequestered funds: $3.1 billion; 
Sequestered budget accounts[A]: 27; 
Sequestered PPAs[B]: 115. 

Agency: State/USAID; 
Total 2013 funding: $54.3 billion; 
Sequestered funds: $2 billion; 
Sequestered budget accounts[A]: 45; 
Sequestered PPAs[B]: 527. 

Agency: DOT; 
Total 2013 funding: $91 billion; 
Sequestered funds: $1.9 billion; 
Sequestered budget accounts[A]: 38; 
Sequestered PPAs[B]: 100. 

Agency: Treasury; 
Total 2013 funding: $619.3 billion; 
Sequestered funds: $1.335; 
Sequestered budget accounts[A]: 51; 
Sequestered PPAs[B]: 96. 

Agency: EPA; 
Total 2013 funding: $8.95 billion; 
Sequestered funds: $455 million; 
Sequestered budget accounts[A]: 8; 
Sequestered PPAs[B]: 91. 

Agency: GSA; 
Total 2013 funding: $22.2 billion; 
Sequestered funds: $13 million; 
Sequestered budget accounts[A]: 9; 
Sequestered PPAs[B]: 9. 

Agency: NASA; 
Total 2013 funding: $17.5 billion; 
Sequestered funds: $627 million; 
Sequestered budget accounts[A]: 9; 
Sequestered PPAs[B]: 9. 

Agency: NSF; 
Total 2013 funding: $7.36 billion; 
Sequestered funds: $361 million; 
Sequestered budget accounts[A]: 7; 
Sequestered PPAs[B]: 8. 

Agency: NRC; 
Total 2013 funding: $1.049 billion; 
Sequestered funds: $52 million; 
Sequestered budget accounts[A]: 2; 
Sequestered PPAs[B]: 4. 

Agency: OPM; 
Total 2013 funding: $169.9 billion; 
Sequestered funds: $9 million; 
Sequestered budget accounts[A]: 6; 
Sequestered PPAs[B]: 6. 

Agency: SBA; 
Total 2013 funding: $1.9 billion; 
Sequestered funds: $93 million; 
Sequestered budget accounts[A]: 6; 
Sequestered PPAs[B]: 6. 

Agency: SSA; 
Total 2013 funding: $930.5 billion; 
Sequestered funds: $391 million; 
Sequestered budget accounts[A]: 4; 
Sequestered PPAs[B]: 6. 

Source: GAO analysis of agency data.  

Notes:  

Numbers may not add due to rounding. 

Table 2 displays data for 22 agencies instead of 23 agencies. For 
purposes of this report, information on State and USAID is reported 
together because State's Office of U.S. Foreign Assistance Resources 
jointly manages both agencies' budgets. 

[A] Under BBEDCA, an account is defined as an item for which 
appropriations are made in any appropriation act or, for items not 
provided for in appropriation acts, an item with a designated budget 
account identification code in the President's budget. 

[B] PPA refers to program, project, or activity and is an element 
within a budget account. 

[C] Except for its military personnel accounts, which totaled 
approximately $149.7 billion, and certain other funds, all of DOD's 
fiscal year 2013 funding, as well as available unobligated balances 
from prior years, were subject to sequestration. DOD estimated these 
available unobligated balances to be about $62.2 billion.  

[End of table] 

Agency officials described some of the challenges they faced because 
of the way PPAs are defined or what activities they fund. USDA 
officials told us that some of the department's 923 PPAs are defined 
very narrowly which limited officials' flexibility and available 
actions for implementing sequestration. For example, some of USDA's 
PPAs are defined at the level of specific research locations, county 
offices, or flood prevention or watershed projects. As a result, 
according to USDA officials, the agency had to sequester funding for 
each location, office, or project without regard to size or demand for 
services. 

Further, some agency officials told us that PPAs or accounts composed 
of funding for salaries or other fixed costs, such as rent, presented 
limited options outside of direct employee costs for achieving 
reductions. As a result, some agencies had to cut employee costs 
through furloughs or other personnel actions to achieve the required 
reductions at the PPA level. For example, Interior officials stated 
that some of the staff-intensive PPAs--the U.S. Park Police and the 
Office of the Inspector General--had virtually no funding flexibility 
and were therefore more likely to experience staffing reductions or 
furloughs. Similarly, EPA officials told us that the agency's PPA 
structure was constraining because certain PPAs are made up almost 
entirely of personnel costs. In addition, EPA reported that it 
generally has no transfer authority and the agency already had hiring 
restrictions in place. Accordingly, officials told us there were few 
actions available, beyond reducing staff costs through furloughs or 
other personnel actions, to achieve the required reductions. 
Ultimately, Interior furloughed U.S. Park Police employees for 3 days 
and EPA furloughed employees for almost 6 days in fiscal year 2013. 

Agencies Reprogrammed and Transferred Funds to Protect Mission 
Priorities:  

In some cases, agencies used available funding flexibilities to 
protect mission priorities and mitigate the effects of sequestration 
on federal employees. For example, as table 3 shows, 13 agencies 
reported transferring funds from one budget account to another and 12 
agencies reported reprogramming funds within a budget account during 
fiscal year 2013 to mitigate the effects of sequestration. 

Table 3: Funding Actions Agencies Reported Taking in Fiscal Year 2013 
to Mitigate the Effects of Sequestration:  

Agency: USDA; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Agency: Commerce; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: DOD[A]; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: Education; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Agency: DOE; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: HHS; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Agency: DHS; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: HUD; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: Interior; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: DOJ; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: DOL; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: State/USAID; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: DOT; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Agency: Treasury; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: EPA; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: GSA; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: NASA; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Check]. 

Agency: NSF; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Agency: NRC; 
Reprogrammed funds within a budget account: [Check]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: OPM; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: SBA; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Empty]. 

Agency: SSA; 
Reprogrammed funds within a budget account: [Empty]; 
Transferred funds from one budget account to another: [Check]. 

Number of agencies that reported taking this action to mitigate 
the effects of sequestration: 
Reprogrammed funds within a budget account: 12; 
Transferred funds from one budget account to another: 13. 

Source: GAO analysis.  

Note:  

[A] According to DOD officials, the department did not use its 
reprogramming and transfer authority to directly mitigate the effects 
of sequestration. However, the flexibility to transfer or reprogram 
funds to cover expenses for overseas contingency operations that 
otherwise would have been funded by other areas in the budget allowed 
DOD to reverse some actions taken to achieve spending reductions.  

[End of table]  

Agencies with broader transfer and reprogramming authorities had 
greater flexibility to execute their budgets and implement 
sequestration. DOD historically has been provided broad authority to 
transfer funds between accounts, which gives DOD officials greater 
flexibility in executing DOD's budget. For fiscal year 2013, subject 
to certain restrictions, DOD had the broad statutory authority to 
transfer $7.5 billion between appropriation accounts and reprogram 
funds within an account within certain thresholds. DOD's transfer 
authority included $3.5 billion in special transfer authority for 
overseas contingency operations-related purposes and $4 billion in 
general transfer authority that could be used to, among other things, 
minimize the effects of sequestration.[Footnote 64] 

Other agencies reported that they have limited authority to transfer 
funds between accounts. For example, DOE does not have authority to 
transfer funds between non-defense accounts. For DOE accounts that are 
authorized in national security authorization bills, DOE is allowed to 
transfer up to 5 percent of the account.[Footnote 65] Interior has no 
transfer authority for general operations and is only authorized to 
transfer no-year, indefinite appropriations for wildland fire response 
and other emergency purposes. EPA also reported that it generally does 
not have authority to transfer funds between accounts for general 
operations. Agencies also reported that there are restrictions on the 
amount of funds they can reprogram within an account without notifying 
appropriations committees. 

In contrast, agencies that were able to take reprogramming and 
transfer actions were able to protect priority projects, including the 
following examples:  

* NASA transferred and reprogrammed funds to ensure the agency 
continued to focus on its key priorities--establishing a space launch 
system to support travel beyond Earth's orbit, exploring Mars, 
supporting commercial crew transportation to the International Space 
Station, and providing technologies and instruments for further space 
research. Specifically, according to the operating plans submitted to 
Congress, NASA transferred $100.2 million from its Space Operations 
account and $6.1 million from its Education accounts to its Space 
Technology ($14.7 million) and Exploration ($91.6 million) accounts to 
help restore funding cut by sequestration. NASA reported that these 
actions allowed it to continue the development and testing of space 
technologies, support the operation of the International Space Station 
and its research, and continue development of the Orion crew vehicle 
for beyond low-Earth orbit exploration. Within the Science account, 
NASA reprogrammed $48.7 million from the Planetary Science and 
Astrophysics programs to the Heliophysics program ($4.9 million) to 
sustain missions in development, and to the James Webb Space Telescope 
(JWST) program ($43.8 million) to ensure the JWST, which is intended 
to advance understanding of the origin of the universe, remains on 
schedule to launch in 2018. 

* In June 2013 State notified Congress of plans to reprogram at least 
$64 million within the Diplomatic and Consular Programs account to 
offset the effects of sequestration. State's notification also said it 
planned to reprogram about $180 million to preserve high-priority 
activities, such as the Bureau of Administration's real property 
acquisition for a permanent location of the Diplomatic Security 
Worldwide Command Center. 

* USDA transferred an estimated $155.6 million from the Farm Service 
Agency's direct payments program to a variety of other programs, such 
as the Supplemental Revenue Assistance Payments Program, Noninsured 
Crop Disaster Assistance Program, and the Milk Income Loss Contract 
Payments Program. According to USDA documents, the transfer allowed 
several Farm Service Agency programs to cover payments for contracts 
and agreements entered into in prior years, including financial 
assistance to farmers and ranchers. 

DOD officials told us that although the department did not use its 
reprogramming and transfer authority to directly mitigate the effects 
of sequestration, the flexibility to transfer or reprogram funds to 
cover expenses for overseas contingency operations that otherwise 
would have been funded by other areas in the budget allowed DOD to 
reverse some actions initially planned to achieve spending reductions. 
DOD reported that it carried out reprogramming and transfer actions in 
large part to address funding priorities related to ongoing overseas 
contingency operations. For example, on August 6, 2013, the Secretary 
of Defense reduced the number of civilian furlough days from 11 to 6. 
According to DOD officials, this reduction was possible because 
additional funding became available through transfers, reprogramming 
actions, and other DOD management actions. In addition, Air Force 
officials stated that they were able to resume flight operations in 
July 2013 for combat air force units whose flying operations had been 
previously suspended due to spending reductions. 

According to agency officials, some of the reprogramming and transfer 
actions also allowed the agencies to avoid furloughing employees or to 
limit the number of furlough days. Several agencies considered 
furloughing employees but were able to use other measures to avoid 
furloughs. Examples included the following:  

* DHS reported that 7 of its 15 components planned up to 22 furlough 
days for employees in 2013. For example, in February 2013, DHS's 
Customs and Border Protection (CBP) notified employees of the 
possibility of 14 furlough days, but ultimately required no furlough 
days. According to agency officials, CBP was able to avert furloughs 
in part because the agency transferred $7 million from its Border 
Security Fencing Infrastructure and Technology accounts to its 
Salaries and Expenses account and reprogrammed at least $69 million 
between various PPAs within the Salaries and Expenses account. 

* Commerce's National Oceanic and Atmospheric Administration (NOAA) 
initially planned to furlough its employees for 4 days, because a 
large proportion of its budget was dedicated to personnel and its 
numerous PPAs limited the ways in which sequestration cuts could be 
implemented. In consultation with congressional committees, Commerce 
canceled the furlough by reprogramming across multiple PPAs, enabled 
in part by using the $13.7 million previously planned to fund the 
COSMIC-2 satellite program, a multiyear joint program with DOD and 
Taiwan to increase the accuracy of weather forecasting. 

* DOJ reported that more than 97,000 DOJ employees faced potential 
furloughs due to sequestration. Consistent with DOJ's notification to 
the appropriations committees, DOJ's CFO reported that, in March DOJ 
transferred a total of $150 million to the Bureau of Prisons (BOP) 
from the Drug Enforcement Administration's Salaries and Expenses 
account; the Federal Bureau of Investigation's Construction and 
Salaries and Expenses accounts; DOJ's Fees and Expenses of Witnesses 
account; and the U.S. Marshals Service's Construction account to avoid 
furloughs of correctional officers. 

Some agencies told us that reprogramming and transferring funds within 
and between accounts is a routine part of operations. As a result, in 
some instances, it may be difficult to isolate those reprogramming and 
transfer actions that were specifically intended to offset the 
sequestration reductions. 

Agencies Used Prior Year Unobligated Balances to Offset Reductions:  

Agencies with multiyear funds and access to prior year unobligated 
balances reported using them to protect mission-critical activities 
and to minimize effects on employees. However, not all agencies had 
access to carryover balances to mitigate the effects of the required 
reductions. In general, Congress provides funds for one year. For 
programs, projects, or activities related to long-term projects, such 
as research and development or the construction of physical 
facilities, Congress may provide multiyear or no-year funds. For 
example, although at least one HHS operating division used unobligated 
funds to offset reductions, HHS officials said that, agency-wide, such 
action was limited because most discretionary HHS funds are 
appropriated for one year and unobligated multiyear funds were 
available only for specific purposes. 

Overall, 14 agencies reported using funds from multiyear 
appropriations carried over from prior years in order to mitigate the 
effects of sequestration. These funds include unobligated balances. 
Examples of agencies using such funds included the following:  

* DOD achieved some of the spending reductions required in its 
procurement and research, development, testing, and evaluation 
accounts by using approximately $5 billion in available prior year 
unobligated balances.[Footnote 66] For the remaining reductions, DOD 
officials stated that they typically made short-term adjustments to 
programs (such as changes to system quantities), deferred 
modifications, or delayed system development and testing, rather than 
making more severe changes, such as canceling programs. 

* DOE officials said that having no-year funding provided flexibility 
to respond to sequestration by allowing the department to offset 
reductions by using carryover balances from prior fiscal years. For 
example, DOE officials told us that for the Fossil Energy Research and 
Development account, the National Energy Technology Laboratory's Coal 
Research and Development program used $925,000 of unobligated prior-
year budget authority to help mitigate the effects of sequestration. 
According to DOE officials, this action averted the possible 
termination of contractor support services in Pennsylvania and West 
Virginia. 

* Consistent with DOJ's notification to the appropriations committees, 
DOJ reported that it transferred $116 million in unobligated balances 
to replace funding for its information technology and capital 
equipment requirements that had previously been transferred to BOP to 
alleviate the need for furloughing correctional officers. 

* In its operating plan, State reported that it planned to use $18.8 
million of carryover balances from its Worldwide Security Protection--
Overseas Contingency Operations account to offset required 
sequestration reductions and preserve its ability to support 
extraordinary security costs in Afghanistan and Pakistan and invest in 
security enhancements in high-threat, high-risk posts. 

Agencies Used Additional Funding Flexibilities When Available:  

Four agencies reported that they used other funding flexibilities to 
respond to sequestration. These funding flexibilities, such as the 
ability to use expired appropriations, are not available to many 
agencies and programs. For example, DOJ had the authority to use 
expired appropriations (i.e., budget authority that has not been 
obligated by the end of its period of availability), which it used to 
help avoid furloughs.[Footnote 67] Treasury and HUD had limited 
preexisting authority to use as much as 50 percent of their salary and 
expense unobligated balances from fiscal year 2012 for specified 
purposes. Treasury officials told us that the IRS used roughly $52 
million of fiscal year 2012 unobligated balances to offset the 
required reductions and reduce the number of furlough days for IRS 
employees. According to HUD officials, in August 2013, HUD used 
available unobligated balances to begin a planned closing of some 
small field offices. USAID officials said they reviewed all of USAID's 
available authorities and the agency was able to deobligate--or 
recover--about $32.5 million and use these funds to help offset the 
need for furloughs.[Footnote 68] 

Flexibilities Used to Mitigate the Effects of Sequestration in Fiscal 
Year 2013 May Be More Limited in Future Years:  

Agencies reported some funding actions that were used to mitigate the 
effects of sequestration in fiscal year 2013 will not be available or 
will be more limited in the future. For example, several agencies 
reported using carryover balances from prior year appropriations to 
meet short-term funding needs caused in part by sequestration. In one 
instance DOE officials told us that each year since fiscal year 2010, 
the department has reduced the amount of certain carryover balances, 
and that some individual offices within DOE greatly reduced these 
balances in fiscal year 2013 to minimize the effects of sequestration. 
The officials explained that reducing carryover funds to mitigate 
sequestration reduces DOE's ability to absorb large budget reductions 
in subsequent years. Similarly, unobligated carryover balances 
represented more than one-third of the amount DHS transferred in 
fiscal year 2013. These balances had been set aside for other purposes 
such as emerging requirements and pilot programs at CBP. In February 
and April 2013 memorandums, OMB cautioned against using such balances 
in a manner that would leave the agency vulnerable to future risk. 
[Footnote 69] 

Some temporary transfer authority used to meet short-term funding 
needs in fiscal year 2013 may not be available in future years. For 
example, DOT was able to minimize the number of furlough days for 
Federal Aviation Administration (FAA) personnel and restore air 
traffic control and other aviation services when it obtained statutory 
authority to transfer funds between accounts in fiscal year 2013 in 
the Reducing Flight Delays Act of 2013. However, FAA would need to 
seek statutory authority to make similar transfers in future years. 
Further transfers would also continue to delay infrastructure 
investments. The transfer of $253 million from the Airport Improvement 
Program will mean that FAA must curtail funding for eligible airport 
projects, such as airport planning, equipment, construction, and noise 
mitigation. FAA estimated about 170 projects--most of them associated 
with either runway or taxiway construction or both--will be delayed. 
Some of these projects were scheduled to start in fiscal year 2013 and 
were deferred, while other phased projects may take longer to complete. 

Congressional Action Helped Mitigate Sequestration Effects for Some 
Selected Programs:  

Legislation enacted after the sequestration order helped mitigate the 
effects of sequestration for some selected programs by providing funds 
above the level enacted in the CR or providing enhanced flexibility. 
An increased appropriation effectively reduced the percentage 
reduction for the year. For example, Congress increased funding levels 
for the Food Safety and Inspection Service (FSIS) and Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC). 
According to USDA officials, the additional funding for FSIS enabled 
USDA to cancel 15 days of planned furloughs of meat and poultry 
inspectors. The furloughs would have caused a nationwide shutdown of 
meat and poultry plants, which USDA projected would have cost about 
$10 billion in production losses and $400 million in lost wages for 
industry workers. In addition, USDA officials projected that without 
the additional funding for WIC, the department would not have been 
able to provide benefits to about 600,000 WIC participants and the 
level of support would likely have been reduced. The Consolidated and 
Further Continuing Appropriations Act, 2013 appropriated approximately 
$87 million more to DOJ for BOP's Salaries and Expenses account 
compared to the fiscal year 2013 Continuing Resolution. According to 
NSF officials, NSF also received an additional $300 million for its 
full-year appropriation. This resulted in an effective 2 percent 
reduction of its annualized funding level from sequestration because 
the dollar amount of the required reduction did not change. 

As previously mentioned, the Reducing Flight Delays Act of 2013, 
enacted on May 1, 2013, provided DOT authority to transfer up to $253 
million from the Airport Improvement Program, an exempt account, to 
FAA's Operations and Facilities and Equipment accounts. DOT 
implemented the transfer, and, according to DOT officials, prevented 
reduced operations and furloughs of air traffic controllers, among 
other employees. The act was the only new legislation enacted after 
the Consolidated and Further Continuing Appropriations Act, 2013 in 
fiscal year 2013 to provide an agency with additional authority to 
mitigate the effects of sequestration. 

Agencies Used Personnel and Related Actions to Achieve Required 
Reductions:  

Although agency officials reported that minimizing the effects of 
sequestration on the federal workforce was a guiding principle in 
implementing sequestration, all agencies reported taking some actions 
that affected employees. The depth and breadth of the actions varied, 
as shown in table 4. For example, most agencies reported that they 
took actions such as restricting training, overtime, and travel to 
achieve the required reductions:  

* Nineteen agencies reported that they restricted employee training, 

* Fifteen agencies reported that they reduced employee overtime, and:  

* Twenty agencies reported that they reduced employee travel. 

According to agency officials, significant savings were achieved 
through hiring freezes or curtailed hiring. Nineteen agencies reported 
limiting or freezing hiring to achieve the required reductions. For 
example, according to HUD officials, the hiring freeze implemented in 
March 2013 saved the agency $34 million, which was more than the 
savings achieved from its 5 furlough days. To mitigate sequestration's 
effect on the American Salaries account for the Diplomatic and 
Consular Program, State curtailed hiring by conducting a smaller 
Foreign Service officer orientation class in March 2013. In April 2013 
they instituted a plan to slow down attrition hiring, allowing one 
hire for every two new vacancies. 

Table 4: Personnel and Related Actions Agencies Reported Taking to 
Achieve Reductions Required by Sequestration in Fiscal Year 2013:  

Agency: USDA; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: Commerce; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: DOD; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: Education; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: DOE; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: HHS; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: DHS; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: HUD; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: Interior; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: DOJ; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: l. 

Agency: DO[Check]; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: State/USAID; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: DOT; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: Treasury; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: EPA; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Check]; 
Implemented reduction in force[C]: [Empty]. 

Agency: GSA; 
Canceled/limited monetary awards: [Empty]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Empty]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: NASA; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Empty]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: NSF; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Empty]; 
Reduced employee training: [Empty]; 
Curtailed external hiring: [Empty]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: NRC; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Empty]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: OPM; 
Canceled/limited monetary awards: [Empty]; 
Reduced employee travel: [Empty]; 
Reduced employee training: [Empty]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: 
[Check]; Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: SBA; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Empty]; 
Curtailed internal hiring[A]: [Empty]; 
Offered VERA/VSIP[B]: [Empty]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: SSA; 
Canceled/limited monetary awards: [Check]; 
Reduced employee travel: [Check]; 
Reduced employee training: [Check]; 
Curtailed external hiring: [Check]; 
Reduced overtime: [Check]; 
Curtailed internal hiring[A]: [Check]; 
Offered VERA/VSIP[B]: [Check]; 
Furloughed employees: [Empty]; 
Implemented reduction in force[C]: [Empty]. 

Agency: Number of agencies that reported taking this action to achieve 
reductions required by sequestration; 
Canceled/limited monetary awards: 20; 
Reduced employee travel: 20; 
Reduced employee training: 19; 
Curtailed external hiring: 19; 
Reduced overtime: 15; 
Curtailed internal hiring[A]: 13; 
Offered VERA/VSIP[B]: 9; 
Furloughed employees: 7; 
Implemented reduction in force[C]: 1. 

Source: GAO analysis.  

Notes:  

Table 4 displays data for 22 agencies instead of 23 agencies. For 
purposes of this report, information on State and USAID is reported 
together because State's Office of U.S. Foreign Assistance Resources 
jointly manages both agencies' budgets. 

[A] This includes reassignments, transfers, and promotions. 

[B] Voluntary Early Retirement Authority and Voluntary Separation 
Incentive Payments. 

[C] DOJ officials reported that one DOJ component--the U.S. Parole 
Commission--implemented a reduction in force of one employee to 
achieve partial savings required by sequestration in fiscal year 2013.  

[End of table]  

Seven of the agencies that we reviewed furloughed a combined total of 
more than 770,000 federal employees for 1 to 7 days (see table 5). All 
of these agencies were able to limit the number of furlough days 
relative to their initial estimates by achieving savings through other 
actions or making use of funding flexibilities. For example, HUD 
reduced the number of furlough days from 7 to 5, which, according to 
HUD officials, was possible due to greater-than-expected savings from 
a general hiring freeze and by using funds allocated for a project to 
reorganize the Office of Multifamily Housing and small office closures. 

Table 5: Summary of Furloughed Federal Employees As a Result of 
Sequestration in Fiscal Year 2013:  

Agency: DOD; 
Actual furlough days: 6; 
Approximate number of employees furloughed: 640,500; 
Component(s) affected: Civilian employees[A]; 
Estimated spending reductions: $1.2 billion. 

Agency: HUD; 
Actual furlough days: 5; 
Approximate number of employees furloughed: 8,000; 
Component(s) affected: Agency-wide[B]; 
Estimated spending reductions: $19 million. 

Agency: Interior; 
Actual furlough days: 3; 
Approximate number of employees furloughed: 766; 
Component(s) affected: U.S. Park Police; 
Estimated spending reductions: $0.827 million. 

Agency: DOL; 
Actual furlough days: 0.5--7; 
Approximate number of employees furloughed: 4,000; 
Component(s) affected: Various[C]; 
Estimated spending reductions: $3.7 million. 

Agency: DOT; 
Actual furlough days: 1; 
Approximate number of employees furloughed: 21,100; 
Component(s) affected: Federal Aviation Administration[D]; 
Estimated spending reductions: $8.7 million. 

Agency: Treasury; 
Actual furlough days: 3; 
Approximate number of employees furloughed: 84,000[E]; 
Component(s) affected: Internal Revenue Service; 
Estimated spending reductions: $89 million. 

Agency: EPA; 
Actual furlough days: 6[F]; 
Approximate number of employees furloughed: 16,000; 
Component(s) affected: Agency-wide[G]; 
Estimated spending reductions: $29 million. 

Source: GAO analysis of agency data.  

Notes:  

Figures are as reported by the agency. 

[A] There were some exceptions and not all DOD civilian employees were 
furloughed. Specifically, approximately 126,000 DOD civilian employees 
were not affected by furloughs. 

[B] HUD reported that some employees were not furloughed, including 
employees within the Office of the Inspector General and Ginnie Mae, 
among others. 

[C] DOL furloughed employees in 11 components for between 4 hours and 
7 days based on the account that funded the component. For example, 
employees in the Office of Labor Management Standards were furloughed 
for 2.5 days and employees in the Benefits Review Board and the 
Employees' Compensation Appeals Board were furloughed for up to 7 days. 

[D] DOT initially planned to furlough FAA's 47,000 employees for one 
day per pay period for the remainder of the fiscal year, beginning 
April 21, 2013. DOT expected that each employee would take up to 11 
furlough days. However, DOT suspended furloughs on April 27, 2013 
pending enactment of the Reducing Flight Delays Act of 2013. 
Consequently, some employees were never furloughed, and of those that 
were, few were furloughed more than 8 hours. 

[E] The number of IRS employees furloughed by Treasury on each day 
ranged from roughly 84,000 to 90,000. 

[F] EPA furloughed employees for 47 hours. 

[G] EPA reported that the Office of Inspector General was able to 
avoid the need to furlough employees by applying carryover balances 
from prior fiscal years.  

[End of table]  

Of the employees furloughed government-wide, about 640,500 were DOD 
employees. DOD officials reported that the President's exemption of 
military personnel accounts from sequestration--as authorized by 
BBEDCA--and DOD's decisions to protect certain programs, such as 
overseas contingency operations, had the effect of reducing the number 
of areas where spending reductions could be applied. One of the 
actions DOD implemented to achieve the required spending cuts was to 
furlough civilian personnel; DOD estimated that a spending reduction 
of approximately $1.2 billion was ultimately achieved through 
furloughs of about 640,500 civilian personnel for 6 days. 

Agencies Reduced Grant Awards, Rescoped Contracts, and Delayed Other 
Actions to Implement Sequestration:  

Most agencies reported that they adjusted the scope of contracts or 
delayed contracts as a result of sequestration. As shown in table 6, 
the most common types of contracts affected were for program 
management and support services (19 agencies) and information 
technology (18 agencies). For example, State reported that it cut or 
delayed several contract-funded IT initiatives to facilitate internal 
and external communication and collaboration. Fifteen agencies 
reported revising planned maintenance or repairs or delaying these 
tasks until a future fiscal year. For example, some of DOD's military 
services deferred depot maintenance that had been planned for fiscal 
year 2013 until future years. Specifically, Air Force officials 
estimated that about $100 million of maintenance for the active duty 
force would be deferred from its public depots. In addition, military 
service installation commands and other organizations identified areas 
where spending reductions at military bases could be implemented 
without sacrificing the protection of life, health, and safety--such 
as deferring building maintenance and delaying the renewal of 
contracts. 

Sixteen agencies reported canceling or adjusting the scope of grants 
or other actions related to core mission activities. This could 
include reducing grants to states and localities, nonprofits, and 
other organizations. For example, NSF reported that its primary action 
to implement sequestration was to reduce the number of new awards for 
research and development projects in fiscal year 2013. HHS's National 
Institute of Health (NIH) reported in May 2013 that it planned to 
reduce funding for all of its non-competing research project grants 
and award fewer competing research project grants in 2013 compared to 
2012. NRC reported reducing support for licensing of new reactors and 
approval of designs for advanced reactors--an estimated reduction of 
$12.7 million, which, according to NRC officials, is a core function 
of the agency. 

Table 6: Non-personnel Actions Agencies Reported Taking to Achieve 
Reductions Required by Sequestration in Fiscal Year 2013:  

Agency: USDA; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Empty]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: Commerce; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Check].  

Agency: DOD; 
Rescoped contracts for: 
IT[A]: [Empty]; 
Program management/support services: [Empty]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: 
Core function-related actions[B]: 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: Education; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: 
Core function-related actions[B]: [Empty]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: DOE; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: HHS; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Check].  

Agency: DHS; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Empty]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Check].  

Agency: HUD; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Check]; 
Core function-related actions[B]: 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: Interior; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: DOJ; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Check].  

Agency: DOL; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: State/USAID; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Empty]; 
Core function-related actions[B]: [Empty]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: DOT; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: Treasury; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: EPA; 
Rescoped contracts for: 
IT[A]: [Empty]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: 
Core function-related actions[B]: 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Check]; 
Contracts related to core functions: [Empty].  

Agency: GSA; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Empty]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: NASA; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Check]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: NSF; 
Rescoped contracts for: 
IT[A]: [Empty]; 
Program management/support services: [Empty]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Empty]; 
Core function-related actions[B]: [Empty]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: NRC; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Check]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Check]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Empty]; 
New grants: [Check]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: OPM; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Empty]; 
Core function-related actions[B]: [Check]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: SBA; 
Rescoped contracts for: 
IT[A]: [Check]; 
Program management/support services: [Check]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Check]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Check]; 
Core function-related actions[B]: [Empty]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Agency: SSA; 
Rescoped contracts for: 
IT[A]: [Empty]; 
Program management/support services: [Empty]; 
Facilities/building services: [Empty]; 
Hardware procurement: [Empty]; 
Rescoped or delayed: 
Planned maintenance or repairs: [Empty]; 
Other contracts: [Empty]; 
Core function-related actions[B]: [Check]; 
New grants: [Empty]; 
Canceled: 
Grants/other core function-related activities: [Empty]; 
Contracts related to core functions: [Empty].  

Number of agencies that reported taking this action to achieve 
reductions required by sequestration: 
Rescoped contracts for: 
IT[A]: 18; 
Program management/support services: 19; 
Facilities/building services: 15; 
Hardware procurement: 14; 
Rescoped or delayed: 
Planned maintenance or repairs: 15; 
Other contracts: 16; 
Core function-related actions[B]: 12; 
New grants: 13; 
Canceled: 
Grants/other core function-related activities: 16; 
Contracts related to core functions: 4.  

Source: GAO analysis.  

Notes:  

Table 6 displays data for 22 agencies instead of 23 agencies. For 
purposes of this report, information on State and USAID is reported 
together because the Office of U.S. Foreign Assistance Resources 
jointly manages both agencies' budgets. 

[A] Information technology. 

[B] This includes rescoping the production, development, or testing of 
new products, or delaying these activities until a future fiscal year.  

[End of table]  

Agencies Identified Lessons for Implementing a Potential Sequestration 
in the Future:  

To respond to sequestration in fiscal year 2013, agencies implemented 
some new policies or processes to create efficiencies. Agencies also 
enhanced reviews of spending in order to achieve the required 
reductions. Some agency officials told us that these processes or 
policies will remain in place in fiscal year 2014 or would be 
implemented again in the event of another sequester. For example, 
Education officials said they instituted a process for approving any 
personnel actions that could increase the agency's salary expenses. 
This process was coordinated across Education's Office of Management, 
Budget Service, and Office of the Deputy Secretary. Approval was based 
on processing only high-priority personnel actions that allowed 
Education to operate within post-sequestration budget levels. DOE 
officials told us that to enhance internal efficiency they are 
automating some of the department's data collection processes for 
tracking and monitoring certain budgetary elements, such as carryover 
balances. Further, DOE officials noted that the agency is working to 
execute reprogramming actions more efficiently so that the resources 
can be allocated in a timelier manner. Treasury officials reported 
that they are working to leverage technology in order to achieve 
efficiencies and cost savings. For example, IRS shifted to virtual 
training, which reduced travel costs. Although this process was under 
way prior to sequestration, Treasury officials plan to continue to 
identify ways to use technology to reduce costs. Further, Treasury's 
departmental offices instituted a centralized travel review process in 
response to sequestration and plan to continue the effort. The process 
encouraged more scrutiny of travel needs and expenses and also 
provided more consistency around travel policy in various departmental 
offices. 

Conclusions:  

Sequestration reduced public benefits, delayed services, and resulted 
in lost wages for more than 770,000 furloughed federal employees. 
While agencies were able to mitigate some effects on mission, the full 
effects are still unknown in part because some of the actions taken by 
agencies made the effects of sequestration less disruptive and 
therefore less visible. Many of these actions, however, were short-
term responses--not sustainable long-term budget reduction strategies. 
For example, agencies that relied on one-time actions to mitigate the 
effects of sequestration in fiscal year 2013 may find it more 
difficult to implement similar budget reductions in the future without 
significant disruptions in services to the public. In addition, 
personnel actions used to implement budget reductions--particularly 
curtailing hiring--are generally not the best approach for reshaping 
the federal workforce and could contribute to skills gaps in future 
years. 

In general, budget cuts that occur later in the fiscal year leave an 
agency with fewer options because less time is available to take 
action, leading to reduced flexibility in the types of actions 
available. The timing of the sequestration reductions--more than 5 
months into the fiscal year--limited agencies' cost-cutting and cost-
avoidance options. Agencies' fiscal year 2013 experiences demonstrate 
that longer-term strategies to identify efficiencies and cost savings 
can be helpful for implementing budget reductions. Those agencies that 
had begun cost savings or cost avoidance initiatives in previous years 
in response to the prospect of continued declines in agency budgets or 
administration initiatives reported being better positioned to absorb 
the additional budget cuts required by sequestration. 

There is, however, a limit to agencies' ability to achieve 
efficiencies and budget reductions by doing more with less. Agencies 
reprioritized many activities in fiscal year 2013 to address 
sequestration but their lower priority activities could remain 
important, mandated by law in many cases. Agencies have limited 
authority to reprioritize many activities and may not be able to defer 
or reduce funding for lower priority activities indefinitely. 
Implementing future budget reductions will likely require Congress and 
the executive branch to reexamine federal agencies' missions--what 
they do and how they do it--for more than a single fiscal year. 

Timely and transparent guidance can also help facilitate more 
effective decision making by agencies and better inform policymakers 
and the public about how the law is being implemented. As the first 
sequestration in more than two decades, such guidance was particularly 
important in fiscal year 2013 because of the lack of institutional 
knowledge at federal agencies about the technical details of how to 
implement sequestration. OMB worked with agencies to resolve a number 
of technical details associated with sequestration. However, in some 
circumstances, decisions were not reached until well into the fiscal 
year. In some cases, agencies were still unclear at the start of 
fiscal year 2014 whether certain funds sequestered in fiscal year 2013 
would be available in fiscal year 2014. This added to the uncertainty 
already surrounding sequestration, affecting agencies' and 
policymakers' ability to effectively plan and make decisions about 
resource allocation. 

Further, because the information on how OMB implemented key provisions 
in the law was not made publicly available, the public still lacked 
access to information necessary to fully understand how some of the 
provisions of BBEDCA were being interpreted for the purpose of 
sequestration, such as why certain fee-funded programs were not 
exempt. Greater transparency would have helped enhance the public's 
and key stakeholders' understanding of the law, reduced confusion 
about the effects of sequestration on program constituents and 
stakeholders, and helped policymakers carry out their oversight 
responsibilities. Absent changes to current law, sequestration of 
discretionary appropriations could occur again in future years if 
either defense or nondefense discretionary appropriations exceed the 
current statutory limits established through fiscal year 2021. OMB and 
agencies have an opportunity to leverage their experiences 
implementing sequestration in 2013 to help inform future efforts to 
plan for sequestration and to minimize some of the confusion and 
uncertainty should sequestration be ordered again in the future. 

Recommendations for Executive Action:  

To help inform agencies' efforts to plan for and potentially implement 
sequestration in future years and also to enhance public understanding 
of the law and how it was implemented, we recommend that the Director, 
OMB, document and make publicly available OMB's decisions regarding 
how sequestration was implemented. This includes:  

* the criteria that OMB used to determine which accounts contain funds 
that were temporarily sequestered and available for obligation in 
future fiscal years pending congressional action, and:  

* the criteria that OMB used to determine which accounts and PPAs were 
exempt from sequestration, including those that were exempt from 
sequestration under section 255(g)(1) of BBEDCA. 

We also recommend that the Director, OMB, issue guidance directing 
agencies to formally document the decisions and principles used to 
implement sequestration for potential future application. 

Agency Comments and Our Evaluation:  

We provided a draft of this report to OMB, USDA, Commerce, DOD, 
Education, DOE, HHS, DHS, HUD, Interior, DOJ, DOL, State, DOT, 
Treasury, USAID, EPA, GSA, NASA, NSF, NRC, OPM, SBA, and SSA. We 
received written responses from Education, Treasury, and SSA. These 
comments are reprinted in appendices II through IV. 

OMB staff provided comments via e-mail on February 12, 2014, 
indicating that OMB concurs with our recommendations. OMB agreed that 
the criteria used for making determinations about how sequestration 
was implemented should be published and indicated that OMB is planning 
to do so in its guidance to agencies, OMB Circular No. A-11, 
Preparation, Submission, and Execution of the Budget. OMB also said 
that it would reiterate to agencies the importance of recording their 
decisions with respect to sequestration. 

OMB also had two general comments. First, OMB said the report 
overstated the issue of determinations made after the sequestration 
order was issued on March 1, 2013. OMB stated that it had made 
determinations with respect to all accounts by March 1, 2013. 
According to OMB, in a few very limited circumstances, agencies raised 
questions about specific accounts after issuance of the sequestration 
order. OMB stated that in some cases, these issues were caused by 
subsequent events, such as passage of full-year appropriations, or 
were raised a significant period of time after the sequestration order 
was issued. In all cases, OMB said that it worked with agencies to 
resolve these issues as quickly as possible, and did so in a timely 
manner. In our report, we acknowledge that there were a number of 
factors that made it difficult for agencies to plan for and then 
implement sequestration--including changes to the timing and amount of 
sequestration and the complexity of certain types of accounts. We also 
noted that OMB worked extensively with agencies to resolve technical 
issues. We highlight those instances where decisions were not made 
until after March 1, 2013, because such delays were generally more 
disruptive to agencies' efforts to plan for and implement 
sequestration. Further, as indicated in the report, as of December 
2013, OMB staff still had more than 90 accounts undergoing review to 
determine whether or not the sequestered funds would be permanently or 
temporarily canceled, and OMB still expected to receive more accounts 
for adjudication. This indicates that some determinations were not 
made until later in the fiscal year and that issues were not isolated 
to a few accounts or a few agencies. 

Second, OMB also said that the report, in some circumstances, 
suggested that OMB guidance was unclear when it appeared that those 
circumstances arose from particularly complicated accounts or, in one 
instance, a computational error. According to OMB, given that 
sequestration applied to almost every budget account, it is not 
surprising that the application of general OMB guidance was more 
complicated in certain unusual circumstances. We agree that in some 
circumstances, rather than being unclear, OMB guidance may have been 
too broad to sufficiently resolve specific issues about how agencies 
should plan for and implement sequestration, particularly for 
complicated accounts. We revised certain passages in the report 
accordingly. Again, our work indicates that these issues were not 
isolated to a few accounts or a few agencies. This underscores the 
need for OMB to document and make publicly available its decisions and 
the underlying criteria applied for determining how to implement 
sequestration as we have recommended. 

EPA also provided general comments via e-mail on February 12, 2014. 
First, EPA stated that consensus almost never exists within 
organizations or among major stakeholders about what are lower 
priority items or even what criteria should be used to determine that 
programs are considered lower priority. EPA and other departments or 
agencies have to organize long-term performance and budget formulation 
processes to inform these difficult choices each year. We recognize 
that identifying and setting agencies' priorities is a subject of 
ongoing debate among policymakers, agency officials, and stakeholders. 
We did not independently identify or evaluate agencies' priorities. 
Rather we reported what agency officials said were higher or lower 
priorities. Further, in our conclusions, we state that lower priority 
activities could remain important, mandated by law in many cases. EPA 
also noted that the final outcome of agencies' efforts to reprogram 
funds is not always certain. We revised the report to acknowledge this 
point. For example, we note that congressional committees may express 
disagreement via formal letters and informal conversations with 
agencies. Agencies may ultimately choose not to pursue a reprogramming 
action. 

EPA and NSF also provided comments specific to our overview of 
sequestration at their agencies. Summaries of those comments along 
with our evaluation appear in the following agency sections of this 
report. 

DOD, Education, and SSA indicated in their responses that they 
concurred with the findings in our report related to their agencies. 
OMB, USDA, Commerce, Education, DOE, HHS, DHS, HUD, Interior, DOJ, 
DOL, DOT, Treasury, EPA, GSA, NSF, NRC, SBA, and SSA also provided 
technical or clarifying comments, which we incorporated as 
appropriate. State, USAID, NASA, and OPM did not provide comments. 

We are sending copies of this report to OMB, USDA, Commerce, DOD, 
Education, DOE, HHS, DHS, HUD, Interior, DOJ, DOL, State, DOT, 
Treasury, USAID, EPA, GSA, NASA, NSF, NRC, OPM, SBA, SSA, and other 
interested parties. In addition, the report will be available at no 
charge on GAO's website at [hyperlink, http://www.gao.gov].  

If you or your staff have any questions about this report, please 
contact Michelle Sager at (202) 512-6806 or sagerm@gao.gov or Edda 
Emmanuelli Perez at (202) 512-2853 or emmanuellipereze@gao.gov. 
Contact points for our work at individual agencies are shown in the 
agency sections of this report. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. 

Sincerely yours,  

Signed by:  

Michelle Sager: 
Director, Strategic Issues:  

Signed by:  

Edda Emmanuelli Perez: 
Managing Associate General Counsel:  

[End of section]  

Overview of Sequestration at 23 Federal Agencies:  

This section presents specific information on fiscal year 2013 
sequestration at each of the agencies covered by this report.[Footnote 
70] For each agency, we include a "Mission and Budget Overview" that 
contains the following information:  

* 2013 Funding Prior to Sequestration. Provides the agency's reported 
amounts of discretionary and direct funding for fiscal year 2013 prior 
to sequestration.[Footnote 71] Discretionary appropriations are 
budgetary resources provided in appropriation acts. By contrast, 
direct spending, often referred to as mandatory spending, consists of 
budgetary resources provided by entitlement authority and laws other 
than appropriation acts. Total fiscal year 2013 funding includes 
budget authority that was exempt from sequestration. (For more 
information, see appendix V for a detailed glossary of budget terms.)  

* Sequestered Amount. Shows the agency's reported share of the total 
$80.5 billion sequestration in fiscal year 2013. 

* Programs, Projects, and Activities (PPA). Lists the total number of 
sequestrable PPAs and accounts that the agency reported.[Footnote 72] 
Sequestration reductions were uniformly applied to all nonexempt PPAs, 
which are generally sub-elements within accounts. While some accounts 
represent a single PPA, many contain numerous PPAs. In some instances, 
PPAs correspond to individual grants, specific projects, or local 
branch offices. 

* Transfer Authority. Provides a description of the transfer 
authorities that were available to the agency in fiscal year 2013. A 
transfer is a funding flexibility that allows for the shifting of 
funds between accounts. Agencies must have statutory authority in 
order to transfer funds. 

* Reprogramming Limitations. Provides an overview of any limitations 
to an agency's ability to reprogram. Reprogramming is a funding 
flexibility that allows for the shifting of funds from one PPA to 
another within an appropriation account for purposes other than those 
contemplated at the time of appropriation. Generally, no statutory 
authority is necessary for agencies to reprogram funds, but in some 
instances the ability to reprogram funds may also be limited by law 
for certain purposes or amounts. Further, the agency may be required 
to notify the congressional appropriations committee or subcommittee 
of jurisdiction in advance of any reprogramming action. Congressional 
committees may express disagreement via formal letters to agencies and 
informal conversations with agencies. As a result, agencies may 
ultimately choose not to pursue the reprogramming action. 

* Other Funding Flexibilities. Provides a description, where 
applicable, of other authorities that were available to the agency to 
help mitigate the effects of fiscal year 2013 sequestration. 

In addition, for each agency we describe the following:  

* Planning. Describes how each agency prepared and planned for 
sequestration. For the purposes of this report, preparation includes 
procedural steps taken in preparation for potential sequestration, 
such as defining PPAs, identifying exempt accounts, or clarifying 
special rules. It can also include other technical steps such as 
making modifications to agency systems. Formal planning for 
sequestration includes written plans and formal correspondence 
involving management decisions about how sequestration would be 
implemented and how reductions would be allocated. Informal planning 
includes high-level discussions in an agency or bureau related to 
sequestration and any estimates or scenarios involving possible 
sequestration amounts and alternative actions. This may include 
internal email correspondence; informal communication with OMB, 
Congress, or both; internal meetings or conference calls; or data 
calls to bureaus or other subcomponents on potential effects. 

* Implementation. Describes the specific actions that were taken to 
achieve the reductions required by sequestration. 

* Effects on Operations, Performance, or Services to the Public. 
Describes the effects of sequestration, such as producing fewer 
outputs, failing to achieve a desired outcome, serving fewer people, 
or providing a reduced level of service. 

Table 7 shows where information on individual agencies is located in 
this report. 

Table 7: Report Sections on Sequestration at Selected Federal 
Agencies:  

Agency: Department of Agriculture (USDA); 
Page: 64.  

Agency: Department of Commerce (Commerce); 
Page: 71.  

Agency: Department of Defense (DOD); 
Page: 76.  

Agency: Department of Education (Education); 
Page: 83.  

Agency: Department of Energy (DOE); 
Page: 88.  

Agency: Department of Health and Human Services (HHS); 
Page: 97.  

Agency: Department of Homeland Security (DHS); 
Page: 104.  

Agency: Department of Housing and Urban Development (HUD); 
Page: 112.  

Agency: Department of the Interior (Interior); 
Page: 119.  

Agency: Department of Justice (DOJ); 
Page: 126.  

Agency: Department of Labor (DOL); 
Page: 133.  

Agency: Department of State (State); 
Page: 138.  

Agency: Department of Transportation (DOT); 
Page: 143. 

Agency: Department of the Treasury (Treasury); 
Page: 149.  

Agency: Agency for International Development (USAID); 
Page: 138. 

Agency: Environmental Protection Agency (EPA); 
Page: 155.  

Agency: General Services Administration (GSA); 
Page: 162. 

Agency: National Aeronautics and Space Administration (NASA); 
Page: 166. 

Agency: National Science Foundation (NSF); 
Page: 171. 

Agency: Nuclear Regulatory Commission (NRC); 
Page: 177. 

Agency: Office of Personnel Management (OPM); 
Page: 182. 

Agency: Small Business Administration (SBA); 
Page: 187. 

Agency: Social Security Administration (SSA); 
Page: 192. 

Source: GAO.  

[End of table]  

[End of section]  

U.S. Department of Agriculture:  

Mission and Budget Overview:  

Mission:  

USDA's mission is to provide leadership on food, agriculture, natural 
resources, rural development, nutrition, and related issues based on 
sound public policy, the best available science, and efficient 
management. In support of this mission, over 74 percent of USDA's 
funding was used to support programs related to nutrition assistance. 
The rest of USDA's funding supported a range of programs related to 
conservation and forestry, farm and commodity support, and food 
safety, among others.  

2013 Funding Prior to Sequestration:  

USDA received a total of $176.1 billion for fiscal year 2013, 
including $148.9 billion in direct spending and $27.2 billion in 
discretionary appropriations. Of this amount, USDA received $228.4 
million in supplemental appropriations related to Hurricane Sandy.  

Sequestered Amount:  

The estimated sequestered amount was almost $2 billion—$1.2 billion in 
discretionary appropriations and $775.6 million in direct spending. 
These amounts included different types of collections that were 
subject to sequestration. Nearly $11.4 million in supplemental 
appropriations related to Hurricane Sandy were also sequestered. 
However, USDA will not know its final amount of sequestered funds 
until December 2013 because some of its programs operate on a crop 
year basis, which varies by commodity and may extend beyond the 
federal fiscal year. About $137.4 billion was exempt from 
sequestration, largely consisting of Supplemental Nutrition Assistance 
and Child Nutrition Programs.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 923 PPAs across 90 accounts at USDA. USDA's 
PPAs varied in the extent to which they represented discrete programs 
versus staff salaries and expenses or other costs that might be 
associated with multiple programs. Often the PPAs corresponded to 
individual projects or local branch offices of USDA agencies.  

Transfer Authority:  

Section 7 U.S.C. § 2257 provides USDA with authority to transfer— 
which USDA refers to as interchange authority—up to 7 percent of funds 
appropriated for any fiscal year from one account in a bureau, 
division, or office to another account in the same bureau, division, 
or office subject to certain restrictions. For fiscal year 2013, USDA'
s transfer authorities were subject to certain additional 
restrictions, such as those described below.  

Reprogramming Limitations:  

USDA may generally reprogram funds within an account. For fiscal year 
2013, however, USDA's reprogramming and transfer authorities were 
subject to two sets of limitations. First, USDA was required to notify 
the Appropriations Committees of any reprogramming or transfer that 
would fund certain new initiatives. Second, USDA's ability to 
reprogram or transfer funds was limited, in certain scenarios, to 
$500,000 or 10 percent.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

U.S. Department of Agriculture (USDA) officials identified a number of 
challenges in planning for sequestration. For example, USDA's 923 PPAs 
were defined in a way that limited its flexibility to implement 
sequestration. USDA officials also had difficulty understanding how to 
apply sequestration law and guidance to certain USDA programs, which 
required extensive analysis and communication with OMB. Several 
actions helped USDA to mitigate the most significant effects of 
sequestration. For example, the Consolidated and Further Continuing 
Appropriations Act provided funding in addition to what had been 
provided in the continuing resolution, which helped to avert a 
potential nationwide furlough of meat and poultry plant inspectors and 
to maintain the level of support provided through the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC). 
USDA officials said sequestration may affect the public through a 
reduction in services or other benefits, such as fewer agricultural 
research grants and reduced assistance across all programs that may 
affect water quality and quantity, soil erosion, and wildlife habitat. 
USDA officials have yet to determine the magnitude of these effects.  

Planning:  

According to information provided by USDA officials, the department 
began planning for sequestration in December 2011. Between September 
2012 and March 2013, USDA evaluated four alternatives for implementing 
sequestration. The September 2012 effort showed that the three USDA 
components facing the greatest potential effects on employees and 
programs (e.g., furloughs and office closures) were the Food Safety 
and Inspection Service (FSIS), Rural Development, and the Farm Service 
Agency. For example, these three components considered furloughing a 
total of almost 27,000 employees for up to 23 days and the Farm 
Service Agency considered closing 500 county offices. Officials in 
four other USDA components—the Foreign Agricultural Service, Animal 
and Plant Health Inspection Service, National Agricultural Statistics 
Service, and the National Appeals Division—also considered a total of 
267 employee reductions in force. After the September 2012 effort, 
USDA officials said that the Secretary of Agriculture directed the 
department's components to reevaluate alternatives for implementing 
sequestration to minimize disruption to daily operations, including 
avoiding furloughs, based on varying estimates of the level of 
sequestration and the funding available. The final reevaluation in 
March 2013 resulted in two operating plans—one for all of USDA except 
for the Forest Service, and one for the Forest Service which receives 
its funding through a separate appropriation. USDA's guiding 
principles in planning for sequestration consisted of implementing OMB 
guidance in a fair and equitable manner with the least disruption (no 
furloughs, employee reductions in force, or office closures) and of 
protecting USDA's mission.  

According to USDA officials, the department encountered several 
challenges in planning for sequestration, which included the 
following.  

* Limited Flexibility. Many of USDA's 923 PPAs were narrowly defined. 
In particular, PPAs for USDA's Agricultural Research Service (100 
PPAs), Farm Service Agency (501 PPAs), and Natural Resources 
Conservation Service (18 PPAs), were defined at the level of specific 
research locations, county offices, or flood prevention or watershed 
projects, respectively. Thus, funding for each location, office, or 
project was subject to sequestration without regard to size or demand 
for services. USDA officials reported that this significantly limited 
USDA's flexibility in deciding how to implement sequestration. 

* Difficulty in Applying General Guidance to Complex Programs. USDA 
operates a number of programs, for which USDA officials said the costs 
can only be estimated during the budget process because actual 
spending depends upon a variety of economic, environmental and other 
conditions that may fluctuate over the course of a year. For example, 
the cost of the Milk Income Loss Contract Program, which provides 
countercyclical payments directly to farmers during periods of low 
milk prices, depends on a number of economic factors and other 
conditions. USDA officials stated that it was difficult to understand 
how to apply sequestration law and guidance to these programs and 
planning required extensive communication with OMB and detailed 
calculations to implement sequestration.  

* Rescissions. The Consolidated and Further Continuing Appropriations 
Act, 2013 included two across-the-board rescissions totaling $487.8 
million for agricultural discretionary programs (excluding the Forest 
Service). These rescissions reduced the level of resources available 
to manage programs. The rescissions and sequestration reductions 
occurred at a time when, according to USDA's operating plan, there was 
a greater number and complexity of programs and higher participation 
levels.  

* Authorization. The Food, Conservation, and Energy Act of 2008— 
which, at the time that USDA was planning for sequestration, was the 
most recent Farm Bill—authorizes many of USDA's activities. [Footnote 
1] This authorization expired in 2012, and reauthorization was 
uncertain until the American Taxpayer Relief Act of 2012 extended 
certain Farm Bill provisions through September 30, 2013. Since many of 
USDA's activities are mandatory programs authorized through the Farm 
Bill, USDA officials reported that it was difficult to plan for 
sequestration without knowing exactly what programs the department 
would be required to implement.  

Implementation:  

To implement sequestration, USDA reported taking a wide range of 
administrative actions, such as:  

* actions affecting personnel: curtailing hiring, reducing overtime, 
offering voluntary early retirement authority or voluntary separation 
incentive payments;  

* contracting actions: rescoping or delaying contracts for facilities 
and building services and program management and support services, and 
reducing environmental clean-up activities; and;  

* other actions: reducing employee training and travel, renegotiating 
or delaying new grants, and canceling or reducing the scope of work 
and amount of funding for cooperative agreements with state agencies 
conducting federal program activities.  

The Forest Service operating plan identified a number of specific 
national or regional priority construction projects for which planned 
fiscal year 2013 work would be either reduced or deferred. According 
to the Forest Service's plan, priority was given to projects that were 
ready to be implemented, were most critical to its mission, and which 
receive the highest use by the public and agency personnel. For 
instance, the plan indicated that certain projects were canceled or 
reduced in favor of maintaining funding for a project to address 
cracks in the tarmac at a Forest Service air center that could not 
accommodate the necessary firefighting aircraft.  

USDA officials identified a number of developments or actions that 
increased the department's ability to mitigate the most significant 
effects of sequestration. First, the Consolidated and Further 
Continuing Appropriations Act provided additional funding for FSIS and 
WIC for fiscal year 2013. USDA officials stated that the additional 
funding for FSIS allowed USDA to avoid furloughing meat and poultry 
inspectors for as many as 15 days as originally planned. Avoiding the 
furloughs averted a potential nationwide shutdown of meat and poultry 
plants, which USDA projected would have cost about $10 billion in 
production losses and $400 million in lost wages for industry workers. 
Further, additional funding for WIC, combined with fewer applications 
to participate in the program, helped to maintain the level of support 
for each WIC participant, according to USDA officials. Without the 
additional funding, USDA projected it would not have been able to 
provide benefits to about 600,000 WIC participants.  

Second, to further mitigate the effects of sequestration, USDA 
officials said an important part of the department's strategy was to 
use its transfer authority to support prior commitments made to 
program participants. USDA took the following transfer actions:  

* USDA transferred an estimated $155.6 million from the Farm Service 
Agency's direct payments program to a variety of other programs, such 
as the Supplemental Revenue Assistance Payments Program, Noninsured 
Crop Disaster Assistance Program, and the Milk Income Loss Contract 
Payments Program. According to USDA documents, after applying 
sequestration reductions, several Farm Service Agency programs had 
insufficient funds to cover payments for contracts and agreements 
entered into in prior years. The documentation stated that, by 
transferring funds to these programs, USDA would avoid requiring 
repayment of financial assistance already received by about 350,000 
agricultural producers (e.g., farmers and ranchers), and would also 
prevent USDA from incurring administrative costs to recoup these 
payments. 

* USDA transferred $5.4 million from the Natural Resources 
Conservation Service's Farm and Ranch Lands Protection Program to the 
Conservation Security Program. According to a USDA document, the 
Conservation Security Program is required to pay program participants 
as soon as practicable after October 1 of each fiscal year and nearly 
all of the fiscal year 2013 financial assistance had been paid as of 
April 2013. The document stated that, after applying sequestration, 
the program had insufficient funds to cover these payments and the 
transfer avoided the need to request reimbursement from program 
participants who had signed 12,362 multi-year contracts with USDA. • 
USDA transferred $8.3 million from various Rural Development 
programmatic accounts to its Salaries and Expenses account to provide 
adequate funds for staffing and associated costs for delivering the 
programs and managing the portfolio.  

Third, USDA officials said that another important factor was USDA's 
broad review of administrative functions that was initiated in 2012 by 
the Secretary of Agriculture. As a result of this review, USDA 
outlined steps to cut costs and modernize operations. USDA estimates 
that it has saved a total of about $920 million to date by carrying 
out the steps called for in its plan, including workforce reductions, 
closing offices and laboratories, centralizing purchasing contracts, 
consolidating cell phone services, and offering early retirement and 
voluntary separation.  

Figure 3 shows USDA's key actions to plan for and implement 
sequestration.  

Figure 3: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the U.S. Department of Agriculture:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

USDA Actions and Other Key Dates:  

December 2011: Provided the classification of mandatory and 
discretionary budget accounts related to sequestration to OMB.  

August 2012: Worked with OMB to identify changes to the sequestrable 
or exempt classification of accounts.  

September 2012: Began developing plans for implementing estimated 
sequestration reductions.  

October 1, 2012: Sent a letter to the departmental staff on the 
expiration of authority and funding for programs provided under the 
2008 Farm Bill.  

October 1, 2012: Beginning of fiscal year 2013.  

December 20, 2012: Provided a memorandum to staff discussing certain 
issues concerning the potential for sequestration, including possible 
furloughs.  

December 31, 2012: Sent a letter to the departmental staff on the 
expiration of authority and funding for programs provided under the 
2008 Farm Bill.  

February 8, 2013: Provided a memorandum to staff discussing certain 
issues concerning the potential for sequestration, including possible 
furloughs.  

February 12, 2013: Sent a letter to industry on potential effects of 
sequestration on the federally inspected meat and poultry industry.  

February 19, 2013: Provided a memorandum to staff discussing certain 
issues concerning the potential for sequestration, including possible 
furloughs.  

February 27, 2013: Sent guidance to regional directors regarding the 
Special Supplemental Nutrition Program for Women, Infants, and 
Children.  

March 1, 2013: Provided a memorandum to staff discussing certain 
issues concerning the potential for sequestration, including possible 
furloughs.  

March 1, 2013: Sent a letter to Congress on potential effects of 
sequestration on meat and poultry inspections.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 8, 2013: Sent a letter to Congress on potential effects of 
sequestration on meat and poultry inspections.  

March 19, 2013: Sent letters notifying Congress of intent to use 
transfer authority to transfer funds between Farm Service Agency 
programs.  

March 26, 2013: Made a final determination of its PPAs for purposes of 
sequestration.  

April 23, 2013: Sent letters notifying Congress of intent to use 
transfer authority to transfer funds between Natural Resources 
Conservation Service programs and from Rural Development program 
accounts to the Salaries and Expenses account.  

May 7, 2013: Submitted its fiscal year 2013 operating plans (one for 
all of USDA except for the Forest Service and one specifically for the 
Forest Service which receives its funding through a separate 
appropriation) to the Appropriations Committees.  

May 14, 2013: Sent a letter to a governor addressing sequestration and 
actions taken to mitigate its effects on the federally inspected meat 
and poultry industry.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
obtained from USDA officials and documentation.  

[End of figure]  

USDA officials identified several lessons learned from implementing 
sequestration in fiscal year 2013, including the importance of 
critically examining the department's budget over a period of time. 
Specifically, prior to sequestration, USDA had already undertaken a 
variety of measures that allowed for savings, cost avoidances, and 
efficiencies. Through these and other planning measures USDA was able 
to adjust to reduced budgets which helped to offset the effects of 
sequestration.  

Should sequestration occur again in a future fiscal year, USDA 
officials indicated that they could replicate the fiscal year 2013 
actions without changes to the agency's mission or authorization 
language.  

Effects on Operations, Performance, or Services to the Public:  

USDA documents and officials indicated that the public was likely 
affected by sequestration through a reduction in services and benefits 
provided by the department. Although USDA officials have not yet 
determined the extent to which these effects actually occurred, USDA 
documents provided examples of how the public might have been 
affected.  

* The WIC Farmers' Market Nutrition Program for fiscal year 2013 was 
projected to have been reduced by about 142,000 participants from its 
fiscal year 2012 level of 1.56 million.[Footnote 2]  

* About 3,500 fewer farmers and ranchers were expected to receive 
assistance in developing conservation plans, resulting in less;  

* Approximately 100 fewer grants were estimated to have been provided 
for university scientists and private partners to conduct research 
across a variety of topics.[Footnote 3]  

In addition, USDA officials estimated that about 11,000 fewer 
agricultural producers and landowners were provided technical and 
financial assistance from across a number of programs, which may 
affect water quality and quantity, soil erosion, and wildlife habitat. 
[Footnote 4]  

USDA officials also stated that sequestration affected the 
department's human capital planning. Specifically, as a result of 
sequestration, USDA agencies will be less able to carry out the kind 
of succession planning necessary to manage attrition of staff. 
However, the officials were unable to provide specific information on 
this effect.  

According to USDA officials, USDA made good progress toward meeting 
its performance goals. Further, USDA's goal to ensure that children 
have access to safe, nutritious, and balanced meals is unlikely to be 
affected by sequestration because the Supplemental Nutrition 
Assistance Program is exempt from sequestration.[Footnote 5] However, 
officials were unsure of USDA's ability to achieve other agency 
performance goals, and indicated that the data are not yet available 
to understand potential performance effects. USDA officials said that 
the effects of sequestration would be contained in an annual 
performance report that will be issued in February 2014. Even then, 
they said the effects of sequestration may be difficult to separate 
from other effects of ongoing budget constraints.  

Agency Comments:  

We provided a draft of this report to USDA. USDA provided technical 
comments, which we incorporated as appropriate.  

GAO Contact  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of USDA section]  

Department of Commerce:  

Mission and Budget Overview:  

Mission:  

The U.S. Department of Commerce promotes job creation, economic 
growth, sustainable development and improved standards of living for 
all Americans.  

2013 Funding Prior To Sequestration:  

Commerce received a total of $8.15 billion in funding for fiscal year 
2013, including $8.07 billion in discretionary appropriations and $81 
million in direct spending. Of this, $326 million was provided in 
supplemental funding after Hurricane Sandy for the National Oceanic 
and Atmospheric Administration to assess the hurricane's effect, to 
repair or replace damaged equipment and facilities, and to improve 
weather forecasting, among other activities. USPTO is funded by patent 
and trademark fees. Congress appropriated $2.9 billion, of which USPTO 
could spend as much as it collected that was not sequestered. In 
fiscal year 2013, within certain requirements, any amount collected 
beyond the appropriated amount could be made available and treated as 
a reprogramming under appropriations law. In fiscal year 2013, USPTO 
collected $2.8 billion.  

Sequestered Amount:  

$408 million of Commerce's funding was sequestered, nearly all of 
which were discretionary funds. In addition, USPTO's authority to 
spend the fees it collects was reduced by $148 million.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 214 PPAs at Commerce within 53 accounts. 
Agency officials reported that they did not encounter any challenges 
in identifying their PPAs.  

Transfer Authority:  

In fiscal year 2013, Commerce had general authority to transfer up to 
5 percent of funds from an account, provided that no account was 
increased by more than 10 percent by transfers, among other 
restrictions.  

Reprogramming Limitations:  

In fiscal year 2013, Commerce had general authority to reprogram funds 
within an account, though it had certain limitations in specific 
situations such as if the reprogramming augmented an existing PPA in 
excess of $500,000 or 10 percent, whichever was less, or reduced 
funding or personnel for an existing PPA by 10 percent.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

Sequestration Planning, Implementation, and Effects:  

Department of Commerce:  

The actions the Department of Commerce (Commerce) took to implement 
sequestration varied across its components. Some components had begun 
early retirement offerings in fiscal year 2012 or restructured field 
offices in 2011 or 2012, which provided savings that were used to 
address fiscal year 2013 sequestration cuts. Commerce also used 
funding flexibilities to respond to sequestration. The National 
Oceanic and Atmospheric Administration (NOAA) initially planned to 
furlough its employees for 4 days, but canceled the furlough in late 
May 2013 after reprogramming funds across numerous PPAs. According to 
Commerce officials, sequestration led to a delay of one quarter for a 
next-generation weather satellite program and hindered the development 
of lower-cost options for conducting the 2020 Census. Further, 
officials told us sequestration delayed U.S. Patent and Trademark 
Office (USPTO) information technology upgrades and field office 
openings. Along with reduced hiring, this increased the number of 
years USPTO estimates it will take to meet its goals for the average 
time to process patent applications.  

Planning:  

Commerce began planning its sequestration implementation in January 
2013 after OMB‘s January 14 memorandum on planning for uncertainty in 
fiscal year 2013. Commerce officials told us that the only planning 
they had done before that date was to determine which accounts would 
be subject to sequestration. Commerce officials also told us that they 
had determined their PPAs for sequestration purposes before January 2, 
2013, the originally scheduled date for sequestration. In March 2013, 
Commerce developed a written overview of the actions it would take in 
2013. This document also served as Commerce's operating plan submitted 
to Congress pursuant to the Consolidated and Further Continuing 
Appropriations Act, 2013.  

According to agency officials, Commerce's goals in implementing 
sequestration were to follow OMB guidance; correctly apply 
sequestration to accounts and PPAs; and keep high-priority, long-term 
projects moving forward. Commerce officials reported that the greatest 
challenge they faced was determining which accounts would be subject 
to sequestration, which took them 2 months and involved frequent 
discussions with OMB.  

Concerning USPTO, which is funded by the fees it collects as part of 
the patent application and trademark registration process, Commerce 
officials told us they were initially uncertain whether sequestration 
would apply to the amount it collected or the amount it was 
appropriated. This issue was not resolved until April 2013, when it 
was determined that sequestration would apply to the amount 
collected.[Footnote 6] Commerce officials also told us that they were 
also initially uncertain as to whether and how the sequestered fees 
would be available in future years. They reported that in March 2013 
OMB informed them that the sequestered fees would not be available to 
USPTO without additional appropriations.[Footnote 7] Officials told us 
these issues made it difficult to effectively estimate and plan 
USPTO's budget for the year.  

Implementation:  

In general, according to officials, Commerce's components reduced 
personnel costs by curtailing hiring, reducing overtime, and canceling 
or strictly limiting monetary awards. Commerce also reduced employee 
training and travel, and reduced facility maintenance costs by 
canceling some projects.  

The specific actions Commerce took to implement sequestration varied 
across its components, depending on the budget situation of each 
component. For example, Commerce reported that several offices 
participated in an early retirement offering in fiscal year 2012. By 
delaying hiring to fill the vacated positions, the offices obtained 
substantial savings. Some components also had restructured their field 
offices in recent fiscal years. While not directly related to 
sequestration, these restructurings provided savings that were helpful 
in implementing sequestration. For example, in 2011, according to 
officials, the Census Bureau began reducing the number of field 
offices it operated from 12 to 6, and in 2012 the Minority Business 
Development Agency began closing its field offices, leading to 
vacancies that helped it implement sequestration.  

NOAA initially planned to furlough its employees for 4 days, because a 
large proportion of its budget was dedicated to personnel and its 
numerous PPAs limited the actions available to achieve the required 
sequestration reduction. In consultation with congressional 
committees, Commerce canceled the furlough by reprogramming funds 
across multiple PPAs, including $13.7 million it intended to use for 
the COSMIC-2 satellite program, a multiyear joint program with the 
Department of Defense and Taiwan to increase the accuracy of weather 
forecasting.  

According to officials, the Economic Development Administration also 
avoided furloughing its employees by, in consultation with 
congressional committees, transferring $1.1 million in funding for 
grants and cooperative agreements from its Economic Adjustment 
Assistance and Public Works programs to its Salaries and Expenses 
account. Commerce estimated that without these transfers it would have 
needed to furlough this component's employees for 20 days.  

In addition to cuts to salaries and expenses accounts across the 
department, sequestration reduced funding for many Commerce programs, 
including the following:  

* Funding for NOAA's next-generation Geostationary Operational 
Environmental Satellites was cut by $54 million.  

* The $47 million required reduction to the Census Bureau's $887 
million budget was achieved in part by canceling or modifying over 40 
existing and planned contracts, some of which were related to 
development, management, and testing for the 2020 Census, totaling 
about $32 million.  

* The National Institute of Standards and Technology's (NIST) funding 
was reduced by $37.8 million. NIST officials said that reprogramming 
actions mitigated the effects of this reduction on core laboratory, 
standards coordination, and special programs in part by reprogramming 
$20 million from a portion of the funds appropriated to create 
interdisciplinary Centers of Excellence and the Innovations in 
Measurement Science grant program.  

* Funding for the Bureau of Industry and Security, which, among other 
activities, regulates the export of dual-use items that have both 
commercial and military applications, was reduced by $8.2 million. 
Commerce mitigated some of the effects of this cut, in consultation 
with congressional committees, by transferring $3 million from NIST's 
Advanced Manufacturing Technology Consortia program, which provides 
grants for manufacturing research. According to officials, this 
transfer will enable the bureau to complete the migration to a new 
export licensing information technology system.  

Sequestration reduced USPTO's authority to spend the fees it collects 
by $148 million. Commerce officials told us that in recent years, 
USPTO has begun using new authority from the Leahy-Smith America 
Invents Act of 2011 to reduce average patent application review times 
and the backlog of applications. The sequestered portion of the fees 
USPTO collects remains in its account but cannot be spent by USPTO 
without additional appropriations. In response to sequestration, USPTO 
delayed plans to fully open and staff three new regional offices as 
mandated by the America Invents Act.[Footnote 8] In addition, it 
scaled back plans to hire 1,000 new patent examiners; instead it hired 
559 new patent examiners, which led to a net increase of 116 patent 
examiners after attrition. USPTO also reduced spending on IT 
modernization contracts by $80 million. The new offices as well as 
other programs to improve services were to be funded by a 15 percent 
surcharge on many patent fees added in 2011 and a March 2013 
restructuring of patent fees.[Footnote 9]  

The Consolidated and Further Continuing Appropriations Act, 2013 
reduced funding for the Economic Development Administration's program 
account by about $37 million—from $220 million to $183 million. As a 
result, that account's funding was not sequestered.[Footnote 10]  

See figure 4 for a timeline of key events in Commerce's planning for 
and implementation of sequestration.  

Figure 4: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Commerce:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

Commerce Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

January 2013: Began developing plans for implementing sequestration.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 2013: Determined final sequestrable amount.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

April 15, 2013: Commerce's National Oceanic and Atmospheric 
Administration (NOAA) announced that it planned to furlough employees 
for 4 days.  

May 31, 2013: NOAA notified employees that it had canceled its 
furlough plans.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and documentation 
from Commerce.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

Commerce officials stated that the effects of sequestration on some of 
its programs would depend on future funding. For example, they stated 
that although the reduced funding decreased their ability to research 
and develop lower cost ways to conduct the Census, additional funding 
in future years could allow this work to be conducted. Similarly, 
although NOAA's COSMIC-2 satellite system was not funded in fiscal 
year 2013, officials stated the project could stay on track for 
deployment in 2015 with appropriate future funding. Delays in the 
deployment of COSMIC-2 would lessen forecasting accuracy that is 
needed to mitigate the risk of a gap in polar satellite data that 
could occur as early as 2014. We designated potential gaps in 
satellite capacity as a high-risk area in 2013, because such gaps 
would lead to less accurate and timely weather forecasting that can 
reduce the advance warning of extreme events.[Footnote 11]  

Commerce estimated sequestration cuts led to a delay of one quarter in 
the development of the first of its next-generation Geostationary 
Operational Environmental Satellites, which are expected to more than 
double the clarity of satellite imagery and provide more frequent 
images after their anticipated launch in 2016. In September 2013, 
however, we reported that the development of these satellites had 
experienced delays in planned dates for program-wide milestones, which 
could have contributed to the delay. Moreover, we reported the project 
was experiencing technical issues that could cause further delays. 
[Footnote 12] Commerce officials told us that they could not determine 
the effect of sequestration on the development of the Joint Polar 
Satellite System because the project was recently reformulated to 
address risks in the program. The system is needed to replace current 
polar satellites nearing the end of their service life.  

Regarding USPTO, Commerce officials told us that reduced hiring and 
the delay in completing IT upgrades would increase the number of years 
it takes USPTO to reach its goals for reducing patent application 
review times and the backlog of patents waiting to be reviewed. 
USPTO's performance data showed that in fiscal year 2012 it reduced 
the average time it took to take first action on a patent application 
review by 6 months, to 22 months, while in fiscal year 2013 it reduced 
this by 4 months, to 18 months. USPTO had set a goal for reducing this 
average to 10 months by 2016, but with the reduced funding from 
sequestration as well as potential lower than planned collections and 
other factors, Commerce officials told us they likely will not meet 
this goal until 2019.  

Agency Comments:  

We provided a draft of this report to Commerce. Commerce provided 
technical comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Orice Williams Brown at (202) 512-
8678 or williamso@gao.gov.  

[End of DOC section]  

Sequestration Planning, Implementation, and Effects:  

Department of Defense:  

Mission and Budget Overview:  

Mission:  

DOD's mission is to provide the military forces needed to deter war 
and to protect the security of the United States.  

2013 Funding Prior to Sequestration:  

In fiscal year 2013, DOD received about $621.2 billion, including 
about $614.8 billion in discretionary appropriations and about $6.4 
billion in direct spending. About 73 percent of DOD's discretionary 
appropriations were devoted to its operation and maintenance, 
procurement, and research, development, testing, and evaluation 
accounts.  

Sequestered Amount:  

All of DOD's funding was subject to sequestration, except for its 
military personnel accounts, which totaled approximately $149.7 
billion, and certain other funds. Available unobligated balances from 
prior years were also subject to sequestration. DOD estimated these 
balances to be about $62.2 billion. Of DOD's total funding subject to 
sequestration, approximately $37.2 billion in discretionary 
appropriations and about $37.6 million in direct spending funds were 
sequestered.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 3,905 PPAs across 467 of DOD's total 
appropriation accounts. The agency's direct spending PPAs are 
synonymous with its appropriation accounts for the purposes of 
sequestration and the only direct spending accounts subject to 
sequestration were trust fund accounts receiving offsetting 
collections. The structure of PPAs varied across DOD's discretionary 
appropriations accounts. For example, for operation and maintenance 
accounts, PPAs were defined at the appropriation account level. 
However, PPAs for other accounts, such as procurement and military 
construction accounts, were defined as the most specific budget item 
identified in the Consolidated and Further Continuing Appropriations 
Act, 2013, classified annexes and explanatory statements to that act, 
or certain agency budget justification materials, which would include 
individual acquisition programs and military construction projects. As 
a result of differences in how PPAs were defined, DOD officials stated 
they had more flexibility to identify spending reductions in operation 
and maintenance accounts than they did for procurement and research, 
development, testing, and evaluation accounts.  

Transfer Authority:  

Subject to certain restrictions, DOD has the authority to transfer 
funds between appropriation accounts.  

For fiscal year 2013, DOD had the broad statutory authority to 
transfer $7.5 billion between appropriation accounts and reprogram 
funds within an account within certain thresholds. DOD's transfer 
authority included $3.5 billion in special transfer authority for 
overseas contingency operations-related purposes and $4 billion in 
general transfer authority that could be used to, among other things, 
minimize the effect of sequestration. These amounts were generally 
consistent with DOD's broad transfer authority in fiscal years 2011 
and 2012.  

Reprogramming Limitations:  

Subject to certain limitations, DOD also has the authority to 
reprogram funds within an appropriation account.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

As we previously reported, spending reductions affected the Department 
of Defense's (DOD) civilian workforce and many programs and functions, 
and required DOD to accept some risk in maintaining the readiness of 
military forces.[Footnote 13] However, DOD was able to mitigate some 
near-term effects of sequestration on its mission. Reduced spending 
levels required DOD to take actions such as furloughing most civilian 
employees for 6 days, canceling or curtailing training for units that 
were not preparing to deploy by early in 2014, postponing some planned 
equipment maintenance at its depots and repairs or renovations of 
facilities, reducing some weapon systems quantities or deferring 
modifications, and delaying system development and testing. DOD's 
approach to sequestration was a short-term response focused on 
addressing the immediate funding reductions for fiscal year 2013. DOD 
was able to reduce spending levels for the remainder of fiscal year 
2013 without making permanent changes, such as adjusting the size of 
its forces or canceling weapon systems programs. We reported that by 
setting priorities for funding and using available prior year 
unobligated balances to help meet required reductions, DOD was able to 
protect or minimize disruptions in certain key areas, such as 
maintaining support for ongoing operations and adhering to plans for 
major weapon systems acquisitions. In addition, because of the 
flexibility afforded from its reprogramming and transfer authorities, 
DOD was able to manage and, in some cases, later reverse some initial 
actions taken to implement the spending reductions, such as resuming 
some aircraft training. DOD officials reported that some effects of 
the spending reductions were felt in fiscal year 2013 but that the 
full effect of sequestration would likely not be realized until fiscal 
year 2014 and beyond, and may vary by service.  

Planning:  

DOD reported that it began actively planning for sequestration in 
December 2012. Prior to that time, DOD issued guidance but did not 
initiate formal planning activities. Specifically, in September 2012, 
based in part on OMB's initial July 2012 guidance that instructed 
federal agencies to continue normal spending and operations, DOD 
issued its first sequestration-related guidance. At that time, DOD 
instructed its components to spend at normal levels and not to take 
steps to plan for the implementation of sequestration. DOD officials 
reported that they began some planning activities for sequestration in 
December 2012, such as identifying certain areas that would be 
protected and discussing the use of civilian furloughs to reduce 
spending, and that planning efforts intensified early in 2013. On 
January 10, 2013, the department issued additional guidance, 
instructing its components to begin implementing near-term actions, 
reversible if possible, to mitigate risks caused by the continuing 
resolution in place at the time and potential sequestration. In 
addition, DOD established certain funding priorities to minimize 
harmful effects on operations and unit readiness. For example, the 
guidance instructed DOD components to protect programs such as funding 
for ongoing operations, selected family programs, and Wounded Warrior 
programs focused on the health of service members. Among other things, 
DOD's near-term actions included imposing freezes on hiring civilians, 
reducing spending for operating expenses at military bases, and 
curtailing travel, training, and conferences.  

DOD officials reported various challenges in planning for 
sequestration. One challenge was the limited amount of time they had 
to plan and implement spending reductions. Specifically, DOD officials 
stated they initially assumed that sequestration would not occur, and 
as a result did not initiate planning efforts until the end of 2012. 
Furthermore, officials noted that the President's sequestration order 
was not issued until 5 months into the fiscal year. As a result they 
were limited in the number and types of options available to implement 
the reductions. DOD officials said that planning for sequestration 
earlier in the fiscal year would have provided the department with 
more time and greater flexibility to execute spending reductions.  

While DOD officials told us they did not encounter any challenges in 
determining PPAs, DOD did face difficulty in determining the total 
funding subject to sequestration. Specifically, on March 1, 2013, OMB 
initially calculated DOD's total funding subject to sequestration 
based on the annualized amount set forth in the continuing resolution 
then in effect and an estimate of available unobligated balances. OMB'
s initial estimate was based on a 7.8 percent reduction to nonexempt 
defense discretionary funding, or approximately $41 billion. OMB 
revised this estimate primarily based on different budget amounts 
provided in the Consolidated and Further Continuing Appropriations 
Act, 2013. According to OMB staff, determining the change in the 
amount of sequestration reductions for DOD accounts after passage of 
the appropriations act required conversations between DOD and OMB to 
resolve technical issues. According to DOD officials, the issues were 
not officially resolved until OMB released technical guidance on May 
15, 2013, at which point it was ultimately decided that DOD's 
reduction would be $37 billion. DOD officials stated that not knowing 
the final amount subject to sequestration until May 2013 affected 
their ability to finalize decisions on allocating funding reductions.  

DOD officials stated that another factor that complicated planning 
efforts was the interrelationship among the types of activities that 
had to be considered when implementing spending reductions. For 
example, to be able to execute training, the services need equipment 
that has been maintained and is available for use. Also, DOD depends 
on a significant number of civilians to maintain bases, perform depot 
maintenance, operate training ranges and simulators, and serve as 
instructors at training locations. Service officials told us that 
reduced depot maintenance funds and civilian furloughs could affect 
the services' ability to effectively execute training. Specifically, 
while funding could be available for flying hours, flying hours might 
not be executed if aircraft are grounded for maintenance or if 
training ranges are closed due to furloughs of civilian instructors or 
simulator operators. In addition, service officials reported that many 
installation support services, such as legal support and financial 
management, would be affected by civilian furloughs.  

Implementation:  

Following the President's March 1, 2013, sequestration order, DOD 
issued guidance on allocating the spending reductions across PPAs and 
identifying actions to implement sequestration. DOD officials reported 
that the President's exemption of military personnel accounts from 
sequestration—as allowed by legislation—and DOD's decisions to protect 
certain programs had the effect of narrowing the number of areas where 
spending reductions could be applied. Based on the overall priorities 
it identified, DOD components, including the military services, 
prioritized certain areas for funding and identified alternatives for 
applying spending reductions. We reported that to do this DOD relied 
on existing governance structures and processes or it established new 
processes to obtain the input of senior officials to formulate 
proposed actions and reach decisions on spending reductions.[Footnote 
14] For example, DOD relied on the Deputy Secretary of Defense's 
Defense Management Advisory Group, consisting of senior-ranking 
officials, to evaluate proposals and coordinate implementation of 
sequestration across the department. In addition, the military 
services used task forces or other approaches to develop funding 
priorities and options for spending reductions.  

We reported that ultimately, DOD's approach to sequestration was a 
short-term response focused on addressing the immediate spending 
reductions for fiscal year 2013. In general, this response did not 
reflect a comprehensive review of potential long-term implications 
should sequestration occur in subsequent years. Following the 
sequestration order, DOD identified and began implementing various 
actions to reduce spending levels for the remainder of the fiscal 
year, such as curtailing training for certain units, postponing some 
planned maintenance, reducing installation support services, reducing 
procurement quantities for some weapon system acquisitions, and 
delaying system development and testing. DOD reported that it did not 
make permanent changes such as adjusting force structure or canceling 
weapon systems programs. The following are examples provided by DOD 
officials on of the actions taken to reduce spending levels:  

* The military services prioritized training programs for deployed and 
next-to-deploy forces and took actions to cancel or limit training for 
forces that were not preparing to deploy in early fiscal year 2014, 
and to shorten, cancel, or modify some scheduled deployments. For 
example, the Army curtailed training for all units except those 
deployed, stationed overseas, or preparing to deploy in fiscal year 
2013 or early in fiscal year 2014, and canceled combat training center 
exercises for all but those units that were preparing to deploy for 
ongoing operations. In addition, the Air Force initially ceased flight 
operations for about one-third of its active duty combat Air Force 
units. It resumed flight operations in July 2013.  

* Some of the military services deferred depot maintenance that had 
been planned for fiscal year 2013 until future years. For example, Air 
Force officials estimated that about $100 million of maintenance for 
the active duty force would be deferred from its public depots.  

* Military service installation commands and other organizations 
identified areas where spending reductions at military bases could be 
implemented without sacrificing the protection of life, health, and 
safety, such as deferring building sustainment, delaying the renewal 
of contracts, and reducing electricity usage.  

* To achieve the spending reductions required in its procurement and 
research, development, test, and evaluation funds, DOD's actions 
included reducing some weapon systems procurement quantities, 
deferring modifications, and reducing or delaying research projects or 
system development and testing. To cover some of the reductions, DOD 
used approximately $5 billion in available prior year unobligated 
balances.  

In our prior work, we reported that DOD also relied on civilian 
furloughs to achieve spending reductions.[Footnote 15] On May 14, 
2013, DOD issued guidance directing its components to prepare to 
furlough most DOD civilians for up to 11 days beginning the week of 
July 8, 2013. As part of the guidance, DOD identified exemptions to be 
granted across the department for specific personnel, including 
shipyard and National Intelligence Program personnel and employees who 
were necessary to protect life and property. On August 6, 2013, the 
Secretary of Defense reduced the number of furlough days to 6. 
According to DOD officials, this reduction was possible because 
additional funding became available through transfers, reprogramming 
actions, and other DOD management actions. As of September 2013, DOD 
estimated that 640,592 of 767,062 civilian personnel had been 
furloughed for 6 days, for an estimated spending reduction of 
approximately $1.2 billion. DOD officials stated that the calculations 
of the actual number of civilians furloughed and the associated 
spending reduction would not be finalized until after the end of 
fiscal year 2013.  

Following the President's sequestration order on March 1, DOD made use 
of available reprogramming and transfer authorities in large part to 
address funding needs related to ongoing overseas contingency 
operations. Officials told us that although the department did not use 
its reprogramming and transfer authority to directly mitigate the 
effects of sequestration, the flexibility to transfer or reprogram 
funds to cover expenses for overseas contingency operations that 
otherwise would have been funded by other areas in the budget allowed 
DOD to reverse some actions taken to achieve spending reductions. For 
example, in addition to DOD reducing the number of civilian furlough 
days from 11 to 6 in August 2013, Air Force officials stated that they 
were able to resume flight operations in July 2013 for combat air 
force units whose flying operations had been previously suspended due 
to spending reductions. Figure 5 provides a detailed timeline of DOD, 
OMB, and legislative actions taken to plan for and implement 
sequestration.  

Figure 5: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Defense:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DOD Actions and Other Key Dates:  

September 25, 2012: Instructed components to continue spending at 
normal levels and not to take steps in anticipation of sequestration.  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Began developing plans to implement sequestration.  

January 10, 2013: Instructed components to begin implementing near-
term actions to mitigate risks caused by the continuing resolution and 
potential sequestration, while protecting specific funding priorities.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 2013: Determined PPAs for purposes of sequestration.  

May 14, 2013: Notified components to prepare to furlough most DOD 
civilians for up to 11 days.  

May 15, 2013: Determined its final sequestered amount for fiscal year 
2013.  

May 17, 2013: Provided two submissions to Congress concerning transfer 
and reprogramming of fiscal year 2013 funds.  

July 19, 2013: Provided two additional submissions to Congress 
concerning transfer and reprogramming of fiscal year 2013 funds.  

August 6, 2013: Reduced number of civilian furlough days from 11 to 6.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and documentation 
from DOD.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

DOD officials stated that in general it is difficult to attribute 
specific effects directly to fiscal year 2013 sequestration 
reductions, because other actions have also affected DOD funding 
levels and programs.  

* In May 2010, the Secretary of Defense directed DOD to undertake a 
department-wide initiative to assess how the department is staffed, 
organized, and operated, with the goal of reducing excess overhead 
costs and reinvesting any resulting savings. DOD is still in the 
process of implementing this initiative.  

* DOD operated under a continuing resolution for the first 6 months of 
fiscal year 2013, which limited its budget authority and flexibility 
to move funds.  

* DOD officials stated that changing assumptions for overseas 
contingency operations, such as the increased costs associated with 
contract services to support the drawdown of forces in Afghanistan, 
led to higher than projected costs for fiscal year 2013.  

DOD officials also reported that while some effects of sequestration 
and spending reductions will be felt in fiscal year 2013, a number of 
effects will likely not be fully realized until fiscal year 2014 and 
beyond and may vary by service. For example:  

* Due to cancellations or limitations placed on training for a portion 
of their forces, the military services identified potential future 
effects which would take time to reverse, such as increases in the 
number of nondeployable units, diminished ability to provide ready 
forces to quickly surge to meet additional operational requirements, 
and delays in implementing plans for rebuilding core readiness after 
more than a decade of ongoing operations.  

* Military service officials expressed concerns that as a result of 
deferred depot maintenance, they could face equipment readiness 
shortfalls and delays in resetting the force, increases in depot rates 
that would lead to more expensive maintenance costs, and affect depot 
workforce capabilities.  

* Officials from the military services stated that delaying and 
reducing installation support services in fiscal year 2013 will likely 
lead to higher future costs for these services due to facility 
degradation.  

* As a result of furloughs, most civilian staff experienced 20 percent 
pay reductions during the furlough period; according to DOD officials, 
furloughs have the potential to negatively affect productivity and 
morale in the civilian workforce and negatively affect local 
economies.  

While DOD did not make any permanent changes in fiscal year 2013 as a 
result of sequestration, such as reducing force structure or canceling 
weapon systems programs, its actions have required it to accept risks 
to readiness in the current year and have pushed some costs into 
future years. For example, DOD reported that while the fiscal year 
2013 procurement quantities for some weapon system acquisitions were 
reduced, those actions may have only deferred the acquisition to 
future years. Furthermore, as a result of some of the actions taken in 
fiscal year 2013, DOD reported that it may have to consider 
alternative actions to make spending reductions in fiscal year 2014 
and beyond, should sequestration continue.  

As of September 2013, DOD reported that some activities were under way 
to monitor the effects of actions taken in specific areas. For 
example, DOD and the services have begun conducting some assessments 
of the effects of spending reductions on readiness, such as on DOD's 
ability to meet combatant command requirements, but these efforts are 
in the early phases. Furthermore, DOD has begun conducting some 
activities that may inform its decisions for fiscal year 2014 and 
beyond and may position the department to make more strategic choices 
should sequestration continue. For example, in June 2013, DOD 
completed its Strategic Choices Management Review, which is intended 
to help inform DOD's preparation for alternative funding levels over a 
10-year period. In addition, DOD will soon begin conducting the 2014 
Quadrennial Defense Review, which will be an assessment of U.S. 
defense strategy, force structure, and budget plans.  

Agency Comments:  

We provided a draft of this report to DOD. DOD concurred with our 
report.  

GAO Contact:  

For additional information, contact John Pendleton at (202) 512-3489 
or pendletonj@gao.gov or Michael Sullivan at (202) 512-4841 or 
sullivanm@gao.gov.  

[End of DOD section]  

Sequestration Planning, Implementation, and Effects:  

Department of Education  

Mission and Budget Overview:  

Mission:  

Education provides grants to support elementary and secondary 
education; grants for career, technical, and adult education; and 
grants and loans for students pursuing postsecondary education, among 
other things.  

2013 Funding Prior to Sequestration:  

Education's total funding for fiscal year 2013 was $53 billion; 
including $66 billion in discretionary appropriations and -$12 billion 
in direct spending. The -$12 billion reflects $16 billion for several 
programs, plus an estimated -$28 billion subsidy amount for new loans 
in the Direct Student Loan program. The negative subsidy amount, 
estimated over the life of the loans, would result in a net gain to 
the federal government.  

Sequestered Amount:  

An estimated $2.5 billion was sequestered from the Education budget—
$2.3 billion from discretionary appropriations and about $200 million 
in direct spending.  

Programs, Projects and Activities (PPA):  

Sequestration applied to an estimated 120 PPAs within 23 accounts at 
Education. The sequestered PPAs and accounts include grants that 
Education provides to states and local educational agencies, and 
Education's administrative accounts, among others. Pell Grants to 
students for postsecondary education, which account for about one 
third of Education's discretionary appropriations, were exempt from 
sequestration.  

Transfer Authority:  

Education was statutorily authorized in fiscal year 2013 to transfer 
up to 1 percent of its discretionary appropriated funds between 
appropriations, provided that no appropriation was increased by more 
than 3 percent by any such transfer, the transfer authority was not 
used to create a new program or fund any project or activity for which 
no funds were provided in the appropriations act, and that the 
Appropriations Committees were notified at least 15 days in advance of 
any transfer.  

Reprogramming Limitations:  

Education may reprogram funds, although for fiscal year 2013 Education 
was required to notify the Appropriations Committees 15 days in 
advance of certain reprogramming; for example, any reprogramming that 
created new programs, or any reprogramming in excess of $500,000 or 10 
percent, whichever was less, that augmented existing PPAs, among 
others.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of Education (Education) reported that it planned for 
and implemented reductions in numerous grant programs designed to aid 
schools and students nationwide, and identified and reduced 
administrative and other costs to achieve spending reductions required 
by sequestration. In part due to unexpected savings in two of its 
contracts, Education reported that it avoided employee furloughs in 
fiscal year 2013. Education officials also described their planning 
and actions for sequestration as a continuation of reductions—for 
example, in hiring, travel, and conferences—undertaken since the last 
of the additional funding made available by the American Recovery and 
Reinvestment Act of 2009 (Recovery Act) was awarded in 2010. While 
Education officials stated that the loss of agency personnel could 
negatively affect the agency's performance, they said it was too soon 
to assess other effects and it might be difficult to determine the 
full and longer-term effects of sequestration on Education's 
operations and services to the public. For example, while some grant 
reductions occurred during the last school year, others occurred 
during the 2013-2014 school year with effects not yet known. In 
addition, because school district budgets are determined by many 
factors, including local taxes and state government contributions, it 
might be difficult, even in the longer term, to assess the effects of 
sequestration independent of other factors.  

Planning:  

According to Education officials, they started developing their first 
plan for sequestration in August of 2011 in response to the enactment 
of the Budget Control Act of 2011. Education officials said that this 
planning involved continuing the budget reductions in its 
administrative spending that Education had been absorbing since the 
agency finished awarding all the funds appropriated under the Recovery 
Act at the end of fiscal year 2010, which involved areas such as 
personnel, travel, and conferences. Additionally, Education officials 
told us they were constrained in how they could allocate reductions 
because much of the agency's spending is determined by statute, such 
as specified formulas for allocating grant funds.  

Furthermore, agency officials told us it was challenging to determine 
the exact amount to be sequestered for some grant programs because of 
other statutory requirements, which in some cases include provisions 
that protect a grantee's allocation from being reduced below a certain 
level, such as those contained in the statute authorizing the Title I 
grant program.[Footnote 16] Agency officials also said that 
uncertainty about the timing and size of the sequestration made 
planning difficult. For example, Education needed to revise its 
planning in response to legislative changes and updated OMB guidance. 
Agency officials told us they regularly consulted with OMB to finalize 
Education's determination of PPAs and the allocations of the 
sequestration cuts.  

Implementation:  

A number of the actions Education took in response to sequestration 
involved adjusting grant funding in order for the programs to absorb 
the sequestration cuts while also providing guidance and information 
to grantees. Education's grant programs comprise a mix of 
discretionary grants, which are typically awarded through a 
competitive review process, and formula grants. For the formula grant 
programs, such as Title I grants, eligibility criteria and the 
distribution of funds to eligible grantees are established by law, 
which limited Education's ability to reduce spending since the agency 
is required to fund grantees that meet the criteria. In contrast, 
Education officials noted that the agency had some flexibility in how 
it implemented reductions for its discretionary grant programs. 
Officials said that the agency's regulations generally require them to 
prioritize funding continuing grants over new grants, so in some cases 
they chose to reduce the number of competitions for new grants 
depending on how much funding remained.  

Although sequestration was ordered on March 1, 2013, reductions to 
some of the formula grants for elementary and secondary education did 
not go into effect until the 2013-2014 school year. For example, this 
was the case for certain formula grant programs within four of Education
's accounts—Education for the Disadvantaged (Title I), Special 
Education, School Improvement Programs, and Career, Technical, and 
Adult Education—which received some of their funding from advance 
appropriations.[Footnote 17] In contrast, a formula grant that did not 
receive funding from advance appropriations experienced some of the 
reductions during the 2012-2013 school year. School districts 
receiving Impact Aid—-a grant program that provides money to school 
districts that educate students residing on federal lands such as 
military bases or Indian lands,[Footnote 18] which did not receive any 
funding from advance appropriations-—received reduced grant payments 
during the 2012-2013 school year.[Footnote 19] In a July 2012 letter, 
Education informed the chief state school officers of the potential 
timing of the sequestration for these formula grant programs and, 
according to Education officials, to help the states plan for 
sequestration should the reductions occur.  

While Education indicated that administrative expenses make up a 
relatively small portion of its overall budget (about 2 percent of its 
discretionary appropriations), the agency took a number of steps to 
absorb $85 million of reductions in its four administrative accounts. 
For example, the agency decreased hiring in order to reduce spending 
on salaries. Education's April 2013 operating plan stated that, as of 
that date, the agency had replaced about 57 percent of the staff that 
had left the agency since the passage of the Budget Control Act in 
2011. In addition, Education reduced its travel budget by about 15 
percent for fiscal year 2013 and its conference budget by about 10 
percent. Education also reported rescoping its contracts in areas such 
as IT and building services. Further, Education officials said that 
the agency received unexpected savings when the cost of two of its 
contracts for Student Aid Administration came in lower than expected 
due, in part, to a lower volume of loans and a legal settlement with a 
former vendor.  

Education considered employee furloughs but did not implement them. 
Education officials told us that they notified employees about 
possible furloughs as early as December 2012. In communications prior 
to the March 2013 sequestration implementation date, Education 
anticipated needing to furlough most personnel for about 5 days. 
However, the savings Education obtained from its Student Aid 
Administration account allowed it to transfer about $10 million in 
funds to the Program Administration, Office of Inspector General, and 
Office for Civil Rights administrative accounts. Transferring these 
funds, along with the savings the agency obtained from rescoping 
contracts and reducing travel, allowed the agency to avoid furloughs, 
which was communicated to employees in May 2013. Education officials, 
however, expressed concern that the unexpected savings in the two 
accounts in fiscal year 2013 may not be available again to help offset 
potential reductions in other accounts in subsequent years.  

In response to sequestration, Education officials told us that the 
agency implemented a process for approving personnel actions in which 
components within the agency were required to submit hiring plans for 
approval that prioritized proposed personnel actions along with a 
description of the effects of not fulfilling the proposed positions. 
The Office of Management, the Budget Service, and Office of the Deputy 
Secretary were required to coordinate in approving high-priority 
personnel actions while also allowing the agency to operate within 
post-sequestration budget levels.  

For further information regarding the timeline of Education's 
sequestration planning and implementation, see figure 6.  

Figure 6: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Education:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

Education Actions and Other Key Dates:  

August 2011: Began developing a plan for responding to the 
sequestration.  

July 20, 2012: Sent a letter to chief state school officers regarding 
the potential effect and timing of the sequestration.  

October 1, 2012: Beginning of fiscal year 2013.  

February 6, 2013: Informed employees of the possibility of furloughs.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

April 25, 2013: Determined final sequestration amount and submitted an 
operating plan to Appropriations Committees.  

May 10, 2013: Informed agency personnel that the agency will not be 
implementing furloughs.  

May 20, 2013: Notified Appropriations Committees of funds transfer 
between appropriation accounts.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from Department of Education.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

For several reasons, it might be difficult to determine the immediate 
and complete effects of sequestration on Education's operations and 
services to the public. For example, some of the cuts to grants did 
not occur for grant recipients until the 2013-2014 school year, which 
is still under way, so it may be too early for effects to be known. 
[Footnote 20] In addition, it will be difficult in many cases to 
clearly identify the effects of sequestration on grantees like schools 
and their students because school district budgets are determined by 
many factors, including local taxes and state government 
contributions. The effects will likely vary greatly for different 
grant programs and for grantees based on their situations, such as the 
availability of other resources to fill any budget gaps. For example, 
Title I generally accounts for a relatively small share of public 
school budgets, about 3 percent nationwide, according to the National 
Center for Education Statistics for fiscal year 2010, although this 
can vary among districts. In contrast, while far fewer school 
districts receive Impact Aid, some relied on these federal grants for 
as much as 88 percent of their budgets, according to Education data 
for fiscal year 2013.  

In addition, Education officials told us it was challenging to do the 
agency's work with fewer personnel. They anticipated the loss of 
personnel would affect the agency's performance measures. Agency 
officials expressed concern about burnout among staff whose workloads 
are increasing due to staffing reductions over time; however, it is 
likely too early to determine any effects on agency performance. 
Agency officials also expressed concern about being able to conduct 
effective workforce planning to help maintain the agency's core 
functions.  

Agency Comments:  

We provided a draft of this report to Education. Education provided 
written comments which are presented in appendix II of this report. In 
its written comments, Education agreed with our findings. Education 
also provided technical comments, which we incorporated as 
appropriate.  

GAO Contact:  

For additional information, contact Melissa Emrey-Arras at (617) 788-
0534 or EmreyArrasM@gao.gov.  

[End of Education section]  

Sequestration Planning, Implementation, and Effects:  

Department of Energy:  

Mission and Budget Overview:  

Mission:  

DOE spends 90 percent of its annual budget on contracts, making it the 
largest civilian contracting agency in the government. DOE spends the 
bulk of its discretionary funds on the National Nuclear Security 
Administration's (NNSA) efforts to maintain the safety, security, and 
effectiveness of the U.S. nuclear weapons stockpile; on the Office of 
Environmental Management's (EM) efforts to clean up sites related to 
past nuclear weapons development, production, and research activities; 
and on the Office of Science's sponsorship of research and oversight 
of 10 national laboratories.  

2013 Funding Prior to Sequestration:  

DOE received $27 billion in discretionary appropriations and $4.9 
billion in direct spending for fiscal year 2013. This funding was 
offset by $5 billion in direct spending receipts, for a total net new 
budget authority of $26.8 billion.  

Sequestered Amount:  

Approximately $1.9 billion was sequestered, consisting almost entirely 
of discretionary appropriations. DOE budgetary resources exempt from 
sequestration generally represented intragovernmental funds and 
voluntary payments across a variety of accounts, as well as certain 
other resources. Intragovernmental funds include certain reimbursable 
work for others, such as that done by the national laboratories. 
Voluntary payments include the Power Marketing Administrations' 
receipts from their customers.  

Programs, Projects, and Activities (PPA)  

Sequestration applied to 252 PPAs within 31 accounts at DOE.  

Transfer Authority  

DOE is authorized to transfer between accounts up to 5 percent of 
funds that are authorized to be appropriated pursuant to a national 
security authorization under 50 U.S.C. § 2745. Among other 
limitations, this authority may be used only to provide funds for 
activities necessary for national security programs that have a higher 
priority than the activities from which the funds are transferred.  

Reprogramming Limitations  

DOE may reprogram funds within an account, subject to certain 
limitations, which the Secretary of Energy may waive in certain 
circumstances. Specifically, DOE is: (1) required to notify the 
Appropriations Committees at least 30 days prior to reprogramming an 
amount that would cause a PPA funding level to increase or decrease by 
$5 million or 10 percent, whichever is less, and (2) prohibited from 
reprogramming funds that create, initiate, or eliminate a PPA or which 
would reduce funding levels prescribed for specific PPAs by its 
appropriation, among other limitations. The fiscal year 2013 
continuing resolution eased these limitations for DOE's Weapons 
Activities account. DOE also may not generally reprogram funds 
authorized to be appropriated pursuant to a national security 
authorization such that a program receives more than 115 percent or $5 
million more than the amount initially authorized for that program, 
under 50 U.S.C. § 2742.  

Other Funding Flexibilities  

DOE generally receives no-year funding for its accounts (i.e., 
appropriations available for obligation without fiscal year 
limitation). As a result, DOE may carry over funds not yet obligated 
or expended from one fiscal year to another, indefinitely. DOE 
officials told us that in past practice, the department has relied on 
these carryover balances to manage its work, particularly for 
multiyear programs and projects.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

Department of Energy (DOE) officials reported some challenges in 
planning for sequestration, but a variety of circumstances and actions 
helped the agency mitigate sequestration's effects. For example, DOE 
officials said that planning for sequestration was a challenge because 
some of DOE's PPAs represented individual projects, such as site-
specific cleanup activities, that were already completed, required 
less funding than DOE received, or were not a priority for fiscal year 
2013. To address this issue, DOE reprogrammed funding from such PPAs 
to higher priority projects. For DOE's Weapons Activities account, 
which funds activities for maintaining the U.S. nuclear weapons 
stockpile, DOE also benefited from a fiscal year 2013 funding increase 
compared to the previous year, as well as greater flexibility to 
reprogram funds. Moreover, DOE officials said that the department's 
ability to use carryover balances from prior fiscal years helped it 
mitigate the effects of sequestration. However, the officials noted 
that decreasing carryover balances reduces DOE's ability to absorb 
large budget reductions in subsequent years. DOE did not furlough its 
employees but estimated that contractors furloughed approximately 
3,600 employees as a result of sequestration reductions.  

Planning:  

DOE officials said that the department conducted informal 
sequestration planning in January and February 2013. However, they 
said that the initial planning efforts of the program offices were 
decentralized across the department, and that there were no detailed 
plans prior to March 2013. DOE officials told us that the department 
began formal planning for sequestration after the March 1, 2013, order 
and determined its final sequestered amount by May 2013.  

In its sequestration planning, DOE officials stated that the 
department sought to follow OMB guidance and to consider long-term 
goals, not just short-term needs. In particular, the department sought 
to preserve: (1) DOE's long-term mission, (2) specialized contractor 
resources that cannot be easily replaced, such as nuclear engineers, 
and (3) the availability of federal employees to maintain oversight of 
contracts. DOE officials also said that the department's planning was 
informed directly by the Budget Control Act of 2011 and subsequent 
legislation and OMB guidance, and that they sought to minimize mission 
disruption using all the tools available.  

DOE officials said that they did not encounter any challenges in 
determining PPAs, but faced challenges in planning for sequestration, 
including:  

* general uncertainty about the agency's overall budget;  

* difficulties in determining or estimating the total funding subject 
to sequestration;  

* uncertainty over the final sequestration percentage;  

* no authority to transfer funds within the department except among 
its national security program accounts; and;  

* the structure of DOE's PPAs.  

DOE officials noted that the structure of DOE's PPAs posed a challenge 
because some of the department's PPAs represented individual projects, 
such as site-specific nuclear cleanup activities. In a February 2013 
letter to the Senate Appropriations Committee, the Secretary of Energy 
noted that the need to apply sequestration equally to each PPA within 
an account severely constrained DOE's ability to prioritize and make 
tradeoffs among activities. DOE was not allowed to reprogram funds in 
such a way as to terminate a PPA from the list of its fiscal year 2012 
PPAs, in accordance with the requirements of the continuing 
resolution.[Footnote 21] As such, DOE officials said that in some 
instances they had to initially plan for spending on projects that 
were completed, required less funding than DOE received, or were not a 
priority for fiscal year 2013. Accordingly, the officials stated that 
DOE reprogrammed funds to support other higher priority efforts.  

Implementation:  

To implement sequestration, DOE took a variety of contracting, 
personnel, and other actions across the department, according to DOE 
officials. For example, officials told us that DOE:  

* rescoped or delayed contracts for information technology, facilities 
and building services, program management and support services, and 
hardware procurement, among others;  

* curtailed external hiring, reduced overtime, offered Voluntary Early 
Retirement Authority or Voluntary Separation Incentive Payments, and 
canceled or strictly limited monetary awards (DOE officials estimated 
that approximately $218 million of the sequestration reduction was 
implemented through reductions to personnel costs-—both for the 
department and for its contractors);[Footnote 22]  

* reduced employee training and travel; and;  

* rescoped, delayed, or canceled grants, planned maintenance or 
repairs, or major activities or events related to agency core 
functions.  

As shown in figures 7 and 8, nearly half of DOE's $1.9 billion in 
sequestration reductions were at NNSA, and the reductions were made 
across a variety of activity types, such as construction, cleanup 
activities, and grants.  

Figure 7: Fiscal Year 2013 Sequestration Reductions by Department of 
Energy Program Area (Dollars, in Millions):  

[Refer to PDF for image: pie-chart]  

National Nuclear Security Administration: $917; 
Environmental Management: $429; 
Office of Science: $245; 
Applied Energy: $176; 
Other: $107.  

Source: GAO analysis of DOE data.  

Note: According to DOE officials, these reductions account for the 
mitigating influence of transfers, carryover funds, and reprogramming. 
However, they noted that these types of mitigating actions are 
generally not visible unless the data are shown at the PPA level and 
below.  

[End of figure]  

Figure 8: Fiscal Year 2013 Sequestration Reductions by Department of 
Energy Activity Type (Dollars, in Millions):  

[Refer to PDF for image: pie-chart]  

Reducing Nuclear Threats: $529. 
Grants and Lab Research, Development and Demonstration: $414; 
Construction: $356; 
Cleanup Activities: $209; 
Management and Oversight: $186; 
Facilities and Operations: $182.  

Note: According to DOE officials, these reductions account for the 
mitigating influence of transfers, carryover funds, and reprogramming. 
However, they noted that these types of mitigating actions are 
generally not visible unless the data are shown at the PPA level and 
below.  

Source: GAO analysis of DOE data.  

[End of figure]  

DOE officials noted that having no-year funding gave DOE some 
flexibility to mitigate the effects of sequestration by enabling the 
department to use funds carried over from prior years. For example, 
DOE officials told us that for the Fossil Energy Research and 
Development account, the National Energy Technology Laboratory's Coal 
Research and Development program used $925,000 of unobligated prior 
year budget authority to help mitigate the effects of sequestration. 
According to DOE officials, this averted the possible termination of 
contractor support services in Pennsylvania and West Virginia, but 
reduced budget authority that would have been available for research 
on the clean use of coal. Department officials also told us that DOE 
used carryover balances to mitigate the effects of sequestration on 
its Weapons Activities account, which they said helped NNSA to avoid 
involuntary separation of employees, among other things.  

In addition to using carryover funding to mitigate sequestration, 
officials said that DOE reprogrammed funds from lower to higher 
priority activities, particularly within the Weapons Activities 
account, where it had increased flexibility.[Footnote 23] A DOE 
official told us that this helped to shift funding towards those PPAs 
that were most affected by sequestration reductions. For example, DOE 
requested approximately $47 million in its fiscal year 2013 budget for 
construction of the National Synchrotron Light Source-II at Brookhaven 
National Laboratory, but under the continuing resolution $151 million 
was allocated for the project, roughly the same amount that was 
allocated in fiscal year 2012. Consequently, according to DOE 
officials, DOE reprogrammed approximately $96 million from this PPA to 
other efforts in fiscal year 2013. According to department officials, 
DOE based its fiscal year 2013 reprogramming actions on its 
determination of mission-critical needs—particularly critical health 
and safety-related activities—and preserving mission-critical staff. 
DOE officials said that they cannot always differentiate between 
actions taken in response to sequestration and actions taken in 
response to the continuing resolution and its constraints on DOE's 
spending. For example, EM program officials reported that, in order to 
minimize the effects of both the year-long continuing resolution and 
sequestration, the office instituted a reprogramming strategy within 
the Defense Environmental Cleanup and Uranium Enrichment 
Decontamination and Decommissioning accounts. They stated that this 
helped to optimize cleanup progress in fiscal year 2013 and reduce 
workforce, programmatic, and regulatory compliance effects. DOE also 
used its transfer authority to help mitigate sequestration but did not 
seek additional transfer authority because, according to DOE 
officials, the department's past requests for additional transfer 
authority had not been approved.  

DOE officials also said that the department's approach to operating 
under a constrained budget in fiscal year 2013, overall, helped it 
mitigate the effects of sequestration. According to DOE officials, 
except for its weapons activities, the department planned to operate 
at lower funding levels during fiscal year 2013 as a result of the 
continuing resolution funding level and its constraints on DOE's 
spending. They said that this planning helped DOE to implement 
sequestration because the terms of the continuing resolution were such 
that DOE's planned level of spending under the resolution was roughly 
consistent with spending under sequestration. The officials also noted 
that in a normal fiscal year, DOE's level of obligation through March 
is about $16 billion, whereas in fiscal year 2013, the level of 
obligation through March was $12 billion as DOE did not, for example, 
issue grants or new contracts and was very conservative about hiring. 
DOE officials said that, because the department did not hire as many 
new employees as it could have earlier in fiscal year 2013, it was 
able to avoid furloughing employees to implement sequestration, which 
it initially considered. The officials reported that DOE had 
approximately 400 fewer full-time employees in fiscal year 2013 
compared to the previous year.  

DOE officials also identified other developments or circumstances that 
helped the department mitigate the effects of sequestration. For 
example, most DOE programs were funded in fiscal year 2013 at their 
fiscal year 2012 levels; however, the continuing resolution provided 
DOE's Weapons Activities account with the amount requested in the 
department's fiscal year 2013 budget request—an increase of $343 
million compared to 2012.[Footnote 24] DOE officials said that this 
helped mitigate the effects of sequestration. In addition, DOE 
officials said that several large program offices, such as the Office 
of Energy Efficiency and Renewable Energy, historically have obligated 
most of their funds in the second half of the year because their grant 
decisions are often made in the third and fourth quarters. DOE was 
able to use some of the grant funding for other activities.  

Figure 9 summarizes DOE's key actions to plan for and implement 
sequestration.  

Figure 9: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Energy:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DOE Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

January and February 2013: Identified PPAs and conducted informal 
sequestration planning.  

March 2013: Began formal sequestration planning and notified 10 states'
governors of estimated direct reductions to contractors.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

May 2013: Determined final sequestered amount.  

September 30, 2013: End of fiscal year 2013. 

Source: GAO analysis of legislation, OMB guidance, and information 
from DOE.  

[End of figure]  

DOE officials told us that if sequestration reoccurs the department 
would again pursue reprogramming actions. However, they said that some 
other actions could not be used again and that the department cannot 
continue to reduce its staff levels and still accomplish its mission. 
Department officials also said that reducing DOE's balance of 
carryover funds, which can include unobligated funds as well as 
unexpended obligations, to mitigate sequestration reduces the department
's future flexibility. They explained that using carryover balances to 
mitigate budget reductions allowed for more gradual reductions, rather 
than drastic cuts, and that decreasing carryover balances reduces DOE'
s ability to absorb large budget reductions in subsequent years. DOE 
officials told us that certain offices greatly reduced their uncosted 
balances—DOE's term for unexpended obligations—in fiscal year 2013 to 
minimize the effects of sequestration.[Footnote 25] For example, the 
officials said that NNSA and DOE's Office of Science reduced their 
uncosted balances by approximately $242 million and $210 million, 
respectively. However, DOE officials said that it is difficult to 
determine the extent to which carryover balances may be used until 
they have more information on sequestration, if it were to occur 
again.  

Effects on Operations, Performance, or Services to the Public  

DOE officials did not identify significant effects on DOE operations, 
performance goals, or services to the public as a result of 
sequestration. They did, however, identify some effects on specific 
activities, including the following:  

* Reductions to DOE's EM program would stop or delay cleanup progress 
at some sites. DOE officials reported that cleanup milestones for 
sites were established in compliance agreements negotiated with the 
Environmental Protection Agency (EPA) and state environmental 
regulators, and in consent orders and decrees settled within the 
judicial system. They noted that these milestones were negotiated with 
assumptions of higher funding levels. Consequently, they said that DOE 
is discussing the possibility of renegotiating those milestones that 
may be in jeopardy with EPA and state regulators because failure to 
meet them can result in fines and penalties. For example, DOE 
officials reported a sequestration reduction of approximately $173 
million at DOE's Hanford site near Richland, Washington: about $80 
million at DOE's Richland office, and about $93 million at its Office 
of River Protection.[Footnote 26] Cleanup activities at the Hanford 
site include cleaning up dangerous waste stored in 177 large 
underground storage tanks, called tank farms, and constructing a waste 
treatment and immobilization plant to stabilize large quantities of 
this waste and prepare it for disposal. As a result of sequestration, 
DOE contractors reduced Hanford's workforce by laying off 226 
employees and furloughing 2,478 employees, according to DOE officials. 
Officials noted that the workforce actions related to the tank farms 
project may affect their ability to meet consent decree milestones. 
However, it is difficult to determine the specific effects of 
sequestration on progress at the site. For example, a DOE official 
noted that reprogramming of funds for the tank farms project after 
contractor employees were laid off or furloughed replaced a $35 
million sequestration reduction incurred by DOE's Office of River 
Protection for this project. Also, we have previously reported 
concerns about DOE's management of contracts for major EM projects, 
[Footnote 27] and legal, technical, and management challenges and 
uncertainties could cause cost increases and schedule delays at the 
Hanford site.[Footnote 28]  

* Reductions to NNSA's Weapons Activities account have, among other 
things, reduced activities to clean out the storage vault at the PF-4 
Plutonium Facility at Los Alamos National Laboratory, according to DOE 
officials. The vault stores excess and waste materials from production 
of nuclear weapons that are radioactive and extremely hazardous to 
human health. However, the vault was not designed to store the large 
amounts of material resulting from large-scale manufacturing 
operations. The vault is of particular concern because, as the Defense 
Nuclear Facilities Safety Board noted in a January 2013 letter to the 
Secretary of Energy, the potential for seismic activity at Los Alamos, 
combined with the facility's proximity to the public and large 
inventory of plutonium, has the potential for very high offsite 
exposures to radiation if the building were to collapse.[Footnote 29] 
Accordingly, the board strongly urged DOE to take additional near-term 
measures to reduce risks, such as accelerating disposition of 
plutonium already designated as waste or surplus. However, according 
to DOE officials, the sequestration reduction for PF-4 activities was 
$6 million, which DOE implemented by deferring some of the waste 
removal and consolidation activities to fiscal year 2014.  

DOE's management of major contracts and projects executed by NNSA and 
EM—those with values of $750 million or greater—is included in our 
biennial report on government operations that we identify as high 
risk.[Footnote 30] As we noted in that report, we have continued to 
document significant cost increases and schedule delays for such 
projects, as well as technical challenges affecting project design. 
DOE officials said that the department does not yet have full 
information on how sequestration will affect this high-risk area, but 
they reiterated that one of the guiding principles for their 
sequestration planning was to maintain federal employees to oversee 
contracts. They stated that this is a priority for the department and 
that the Secretary of Energy is heavily focused on improving contract 
management.  

DOE officials also noted that the effects of sequestration on DOE's 
science and energy programs may not be apparent initially and stated 
that they may be impossible to determine. For example, as a result of 
sequestration, DOE officials said that the department cut $85 million 
in funding for the Office of Science's Basic Energy Sciences Research 
program, which funds research at more than 160 institutions to support 
new energy technologies, as well as construction and operation of 
major scientific research facilities. However, it may not be possible 
to determine if reducing research funding resulted in fewer scientific 
discoveries and technological advancements. Also, it is difficult to 
separate the effects of sequestration from the effects of the 
continuing resolution, according to DOE officials.  

According to DOE officials, sequestration affected DOE contractors 
that carry out much of the department's work and which outnumber DOE 
employees by a ratio of at least 5 to 1. DOE estimated that 
contractors furloughed approximately 3,600 employees as a result of 
sequestration. DOE officials also estimated that contractors reduced 
or left vacant approximately 1,000 positions in fiscal year 2013, 
including laying off or voluntarily separating more than 300 
contractor employees. These estimates did not include subcontractor 
employees, university researchers, and others who do not have a direct 
contractual relationship with DOE. Most of the affected contractors 
work at DOE's national laboratories or on defense environmental 
cleanup activities.  

In considering lessons learned from planning for and implementing 
sequestration, DOE officials noted that they would like to have more 
information on the potential effects of sequestration reductions. They 
said that the department has focused primarily on identifying direct 
financial effects because they are more readily quantifiable. 
According to officials, DOE has not yet identified ways to improve the 
department's ability to evaluate the effects of reductions, but they 
plan to do so in fiscal year 2014.  

Agency Comments:  

We provided a draft of this report to DOE. DOE provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of DOE section]  

Sequestration Planning, Implementation, and Effects:  

Department of Health and Human Services:   

Mission and Budget Overview:  

Mission:  

HHS's purpose is to enhance the health and well-being of Americans. It 
administers Medicare, a federal health insurance program for the aged, 
disabled, and individuals with end-stage renal disease, and Medicaid, 
a federal-state program that finances health care coverage for certain 
low-income individuals as well as various programs related to 
assistance for vulnerable families and underserved populations, 
biomedical research, and food and drug safety, among others.  

2013 Funding Prior to Sequestration:  

HHS received about $983.1 billion in total funding for fiscal year 
2013, including $78.6 billion in discretionary appropriations and an 
estimated $904.5 billion in direct spending.  

Sequestered Amount:  

As of March 2013, the estimated total amount of sequestration for HHS 
was about $15.8 billion—$3.9 billion in discretionary appropriations 
and $11.9 billion in direct spending. HHS will not know its final 
sequestered amount until the agency has reconciled final Medicare 
payments for the period from April 2013 through March 2014.  

By law, the sequestration reductions varied across HHS programs with 
some programs exempt, some partially reduced, and others cut by the 
full amount. Specifically, a number of programs funded by direct 
spending, such as Medicaid, the State Children's Health Insurance 
Program, Temporary Assistance for Needy Families, and payments for 
foster care and permanency, were exempt from sequestration. Medicare 
payments as well as certain direct spending for community and migrant 
health centers and the Special Diabetes for Indians program within the 
Indian Health Service (IHS) were subject to a 2 percent reduction.  

Offsetting collections—those authorized by law to be credited to 
appropriation or fund expenditure accounts and available without 
further appropriation—were among HHS funds subject to sequestration. 
For example, nearly all of the Food and Drug Administration's (FDA) 
user fees, which support FDA's review of medical devices, drugs, 
foods, color additives, and tobacco products and accounted for about 
41 percent of FDA's discretionary appropriations in fiscal year 2013, 
were sequestered. With certain exceptions, sequestration meant that a 
portion of the fees collected were not available for use in fiscal 
year 2013 or subsequent years absent congressional action.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 582 PPAs within 40 accounts at HHS. HHS 
indicated that it made its final determination of PPAs subject to 
sequestration after the March 26, 2013, enactment of the Consolidated 
and Further Continuing Appropriations Act.  

Transfer Authority and Reprogramming Limitations:  

For all but two of its operating divisions—the exceptions being FDA 
and IHS—for fiscal year 2013 as continued from fiscal year 2012, HHS 
was statutorily authorized to transfer up to 1 percent of any 
discretionary appropriations for the fiscal year from one account to 
another, provided that the transfer did not increase that account's 
appropriation by more than 3 percent and that the transfer was not 
used to create any new PPA for which funds were not provided. HHS 
could also reprogram funds within appropriation accounts, subject to 
certain limitations. HHS was required to notify the Appropriations 
Committees in advance of any transfer or reprogramming.  

For FDA for fiscal year 2013, HHS also had the authority to transfer 
or reprogram funds between FDA accounts, subject to certain 
limitations.  

HHS also had the following program-specific transfer authorities:  

* HHS could transfer unobligated balances of expired discretionary 
appropriations into the nonrecurring expenses fund and such funds 
could be obligated for certain infrastructure purposes.  

* In addition, within HHS, the Directors of NIH and its Office of AIDS 
Research could transfer up to 3 percent from the total amounts they 
identified as funding for HIV research among institutes and centers.  

* Finally, HHS was required to transfer amounts from the Prevention 
and Public Health Fund, established by the Patient Protection and 
Affordable Care Act, to other HHS accounts to increase funding, over 
the fiscal 2008 level, for purposes such as prevention, wellness, and 
other public health activities.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

At the Department of Health and Human Services (HHS), a 2 percent 
reduction to Medicare payments accounted for the majority (71 percent) 
of sequestration reductions. Sequestration also reduced funding for a 
variety of public health, social services, and research grant 
programs, according to HHS. HHS reported that it cut administrative 
and personnel-related activities, such as infrastructure contracts and 
employee travel, to achieve required reductions without affecting 
program operations, though the actions varied by HHS operating 
division. HHS also reported that it used its existing transfer 
authority to minimize the effect of sequestration on certain programs, 
such as processing of Medicare appeals. HHS officials told us that 
data needed to demonstrate the immediate effects of sequestration on 
agency operations and services to the public were not available as of 
November 2013 and the longer-term effects may be difficult to isolate 
from other factors.  

Planning:  

In late 2011, HHS began preparing for potential sequestration by 
holding discussions and sharing data with OMB, according to HHS 
officials. OMB used this information to identify the accounts that 
were subject to sequestration and to determine how the law applied to 
such accounts. HHS's Office of the Assistant Secretary for Financial 
Resources was responsible for coordinating sequestration preparation 
and planning. Agency officials said that the office held conference 
calls with the operating divisions prior to sequestration and 
distributed draft guidance to operating divisions and certain 
stakeholders as the guidance became available from OMB. The office 
also asked operating divisions to conduct informal reviews of their 
spending authorities, examine preliminary options for implementing 
sequestration, and produce preliminary impact statements and draft 
contingency plans. Beyond that which was specifically requested by 
OMB, HHS did not collect planning documents from the operating 
divisions or create actionable sequestration planning documents prior 
to March 2013.  

According to officials, HHS began agency-wide planning in January 2013 
and intensified communications with stakeholders in March 2013 when it 
became apparent that sequestration would occur. For example, on March 
4, 2013, HHS directed operating divisions to begin informing grantees, 
contractors, and states of potential cuts due to sequestration.  

Officials reported that the agency adjusted its sequestration 
operating assumptions throughout 2013 as a result of the enactment of 
the American Taxpayer Relief Act and the two fiscal year 2013 
appropriations acts that provided funding to HHS—the Disaster Relief 
Appropriations Act and the Consolidated and Further Continuing 
Appropriations Act. Officials said that, until the latter law was 
enacted, they could not determine their final PPAs or the amount of 
funding subject to sequestration. HHS documented its formal 
sequestration planning decisions in the fiscal year 2013 operating 
plans issued to Congress on April 25, 2013.  

According to officials, the agency's primary guiding principle for 
sequestration planning was to protect its mission. The officials 
stated that they developed their plans in accordance with OMB guidance 
and sought to apply cuts in a balanced manner between administrative 
and programmatic functions. They further noted that given the variety 
of missions carried out across HHS's 11 operating divisions and 
multiple staff offices, HHS provided operating divisions with guidance 
and flexibility to implement sequestration reductions in a way that 
best protected their diverse missions.  

Officials indicated that they faced two significant planning 
challenges. The first was uncertainty related to the timing of 
sequestration and the continuing resolution late in the year. 
Officials reported that the timing of these events 5 months into the 
fiscal year delayed HHS's ability to make planning decisions. The 
second challenge was uncertainty about how to implement sequestration 
rules and how to apply general OMB guidance to complex programs. 
Specifically, questions arose regarding the application of 
requirements to Medicare and the application of OMB guidance for 
implementing reductions to indefinite appropriations. These issues 
added to the challenges of sequestration planning along with the 
variety of HHS accounts, technical complexity of the rules, and lack 
of government-wide institutional knowledge about sequester 
requirements. For example, HHS officials said that the agency 
communicated with OMB extensively to determine whether drug and 
medical device review and other user fees collected by the Food and 
Drug Administration (FDA) were subject to sequestration and about how 
to apply the reductions.[Footnote 31] Proper understanding of these 
rules was necessary for FDA to plan appropriately for sequestration. 
Budget officials said that what they learned through sequestration 
implementation in fiscal year 2013 has helped them plan for 
sequestration in fiscal year 2014.[Footnote 32]  

Implementation:  

HHS operating divisions and staff offices took a variety of 
operational, administrative, and funding actions to meet the estimated 
$15.8 billion sequestration reduction. While some of these actions 
resulted directly from sequestration, some also stemmed from cost-
saving efforts initiated prior to sequestration. The options available 
to HHS operating divisions to absorb the reductions also varied 
depending on their account structures and other budget factors. For 
example, operating divisions and offices such as FDA, the Office of 
Inspector General, and the Office of Medicare Hearings and Appeals had 
accounts primarily composed of funding for salaries or other fixed 
costs, which HHS officials reported limited their options for 
implementing sequestration reductions.  

For Medicare, the agency's largest program, the Centers for Medicare & 
Medicaid Services (CMS) reduced payments by 2 percent as of April 1, 
2013, as required by law. According to estimates in OMB's March 1 
sequestration report, these Medicare payment reductions will account 
for about 71 percent of HHS's total estimated sequestration reductions 
in fiscal year 2013. The payment reduction applied to claims made by 
all types of Medicare fee-for-service providers and suppliers, 
including physicians, hospitals, and durable medical equipment 
suppliers, as well as payments made to Medicare Advantage and Medicare 
prescription drug plans—private plans that CMS contracts with to 
provide services to enrolled beneficiaries.[Footnote 33]  

Much of HHS's mission is carried out through grants or contracts with 
outside entities, according to agency officials. HHS reported that it 
achieved the remaining cuts required by sequestration primarily by 
reducing funding for certain annual grants and reducing the number of 
new grants awarded. Examples of how HHS achieved the required cuts 
include the following:  

* As of May 2013, the National Institutes of Health (NIH), which funds 
biomedical research, planned to reduce funding for its non-competing 
research project grants by an average of 4.7 percent below the 
anticipated fiscal year 2013 award amounts. In addition, NIH 
ultimately awarded 750 fewer competing research project grants, or 8.3 
percent fewer, in 2013 compared to 2012. Each of NIH's 27 institutes 
and centers had discretion to implement the reductions in a manner 
that would balance existing investments and new research, according to 
officials.  

* The Centers for Disease Control and Prevention (CDC) made reductions 
to 128 of its PPAs and various grant programs therein, including those 
that support local and state public health efforts. For example, HHS 
reported that in April 2013, CDC reduced Rape Prevention and Education 
formula grant awards to 55 state governmental entities by 5 percent 
from the total fiscal year 2012 award amount.  

* In April 2013, HHS reported that the Administration for Children and 
Families (ACF) reduced funding for Head Start activities by 5.27 
percent, including Head Start and Early Head Start service grants, 
which promote the school readiness of children up to age 5 from low-
income families, according to officials.  

HHS sought to balance programmatic cuts with administrative or 
personnel-related actions, according to officials. In general, HHS 
operating divisions and staff offices took steps to rescope support 
service and infrastructure contracts and reduce employee training and 
travel, as well as curtail hiring, offer voluntary early retirement 
authority or voluntary separation incentive payments, and cancel 
employee monetary awards. For example, HHS reported that in May 2013, 
CDC and NIH rescoped and canceled contracts for administrative support 
and infrastructure improvements, respectively. As of June 2013, FDA's 
National Center for Toxicological Research had declined or rescinded 
acceptance for 53 invitations to present FDA research or participate 
in collaborative exercises as a result of sequestration. In addition, 
CMS implemented a hiring freeze in late February 2013, which helped 
the operating division avoid a furlough as a result of sequestration, 
according to agency documents. HHS officials stated that HHS had 
implemented some of these cost-saving efforts prior to sequestration, 
such as limitations on employee travel since 2012 per executive order. 
Officials could not estimate the percentage of sequestration 
reductions agency-wide that were achieved through hiring limitations 
or other personnel actions.  

In addition, HHS officials stated that the agency's transfer authority 
offered only limited flexibility in responding to sequestration 
reductions. However, consistent with agency notifications to the 
Appropriations Committees, officials said that HHS used its existing 
transfer authority, in part, to mitigate the effects of sequestration 
on priority areas. For example, HHS transferred $1.2 million from 
various accounts to the Office of Medicare Hearings and Appeals to 
help the office process its backlog of Medicare claims appeals. 
According to officials, the transfer also helped the office avoid a 
furlough. Another transfer of about $30 million to the ACF's refugee 
and entrant assistance account from other ACF accounts helped it to 
process an increased number of unaccompanied alien children coming 
into the country while maintaining services for refugees and other 
entrants.  

Officials stated that not all fiscal year 2013 transfers were made in 
direct response to sequestration and the agency did not use any of its 
program-specific transfer authorities specifically because of 
sequestration. Although sequestration reductions intensified the need 
for reallocations for priority areas, a number of programs were 
already under considerable budgetary constraints. For example, 
officials reported that CMS was not provided the budget authority it 
had requested to implement the Patient Protection and Affordable Care 
Act and in addition sequestration reduced its available funding.  

Other funding flexibilities for certain HHS programs were available to 
mitigate the effects of sequestration. For example, CMS officials 
reported that they were able to use unobligated balances of certain 
multiyear appropriations to mitigate the effects of sequestration on 
some Medicare Integrity Program activities, though they said such 
flexibilities would not be available should sequestration continue in 
the future. HHS officials also told us that agency-wide, use of 
unobligated balances to mitigate sequestration effects was limited 
because most discretionary HHS funds were appropriated for one year 
and those multiyear funds that were unobligated were available only 
for specific purposes. Figure 10 shows the timeline of HHS 
sequestration activities.  

Figure 10: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Health and Human Services:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

HHS Actions and Other Key Dates:  

December 2011: Provided information to OMB to identify accounts 
subject to sequestration.  

August 2012: Provided information to OMB to identify accounts subject 
to sequestration.  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Provided information to OMB to identify accounts 
subject to sequestration.  

January 2013: Began developing plans for sequestrationimplementation 
and conducting conference calls with operating divisions on 
sequestration guidance.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 2013: Determined final amount subject to sequestration.[A] 
Completed several months of conference calls with operating divisions 
on sequestration guidance.  

March 4, 2013: Directed operating divisions to begin notifying 
grantees, contractors, and states of potential cuts due to 
sequestration.  

March 26, 2013: Determined PPAs for purposes of sequestration. 
Provided guidance to operating divisions to develop formal
sequestration operating plans.  

April 1, 2013: Began reducing Medicare payments by 2 percent.  

April 3, 2013: Notified Appropriations Committees of funds transfer 
among appropriations accounts.  

April 25, 2013: Submitted sequestration operating plans to Congress.  

May 17, 2013: Notified Appropriations Committees of funds transfer 
among appropriations accounts.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from HHS.  

Note:  

[A] The sequestered amount reflects estimates as of March 2013. HHS 
will not know its final sequestered amount until the agency has 
reconciled final Medicare payments for the period from April 2013 
through March 2014.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

HHS officials told us that they could not quantify the immediate 
effects of sequestration on agency operations or services to the 
public because performance information was not available at the time 
of our review. In addition, the complete effects of sequestration are 
difficult to isolate from other factors. HHS officials stated that the 
effects were being felt by recipients of HHS funding, such as states 
and other grantees. However, the immediate effect of fewer and reduced 
grant awards will not be known until next year because grant funding 
cycles typically provide funds late in the fiscal year and there is a 
lag in the collection of grantee performance data. When grantees 
submit fiscal year 2013 performance data in fiscal year 2014, HHS 
expects to be in a better position to quantify the effect of 
sequestration. For example, agency officials estimated that Head Start 
programs will serve approximately 57,000 fewer children as a result of 
lower funding levels.[Footnote 34] Their estimate was based on 
planning data collected from Head Start program grantees. However, HHS 
will not know the final effects until grantees submit final data after 
the end of the 2013-2014 school year. Similarly, data to assess the 
effect of a 2.5 to 3 percent reduced allocation to states for Medicare 
provider compliance surveys and inspections will not be available 
until March or April 2014, according to CMS officials. In addition, 
according to officials, states' survey and inspection completion 
performance had declined during the recession, so it will be difficult 
to determine if any performance changes in fiscal year 2013 were due 
entirely to sequestration.  

Regarding reduced payments to Medicare providers and plans, final 
payments will not be reconciled until after the Medicare sequestration 
period ends in March 2014; though even then the potential effect of 
the reductions will be difficult to quantify. For example, research 
examining the effect of previous Medicare payment cuts suggests that 
providers may increase the volume or intensity of Medicare services to 
offset lost revenue. Additionally, Medicare providers were influenced 
by a number of factors in fiscal year 2013, such as payment increases 
or decreases resulting from the annual rate-setting process and the 
implementation of certain statutory provisions. Therefore, it will be 
difficult to isolate the effect that the 2 percent sequestration 
reduction had on providers' revenues.  

Also remaining to be seen is the effect of curtailed hiring and other 
personnel-related actions on agency operations, such as FDA drug and 
medical device review times and foregone savings from reductions to 
the Health Care Fraud and Abuse Control program. For example, HHS 
officials said they anticipated that FDA will likely have difficulty 
meeting performance goals for drug and medical device review times due 
to sequestration, but these performance data were not available as of 
February 2014.  

Agency Comments:  

We provided a draft of this report to HHS. HHS provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Kathleen King at (202) 512-7114 or 
kingk@gao.gov.  

[End of HHS section]  

Sequestration Planning, Implementation, and Effects:  

Department of Homeland Security:  

Mission and Budget Overview:  

Mission:  

In 2002, DHS was established to, among other things, prevent terrorist 
attacks from occurring within the United States, reduce U.S. 
vulnerability to terrorism, minimize resulting damages, and help the 
nation recover from any attacks that may occur.  

2013 Funding Prior to Sequestration:  

In fiscal year 2013, DHS had budget authority of about $60 billion, of 
which approximately $50 billion was discretionary appropriations and 
about $10 billion was direct spending.  

Sequestered Amount:  

The estimated amount of 
sequestration was about $2.4 billion—approximately $2.1 billion in 
discretionary appropriations and the remainder in direct spending. 
Certain retirement accounts, such as Coast Guard Retired Pay, and fees 
paid by other government agencies, such as Federal Protective Service 
fees, were exempt from sequestration as directed by OMB.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 150 PPAs within 56 appropriation accounts at 
DHS. Some accounts consisted of one PPA and others had several PPAs. 
For example, the National Protection and Programs Directorate 
Management and Administration appropriation account had one PPA and 
the Office of the Secretary and Executive Management appropriation 
account had 12 PPAs. Some of DHS's PPAs, such as the Border Security 
and Control Between Ports of Entry PPA within CBP's Salaries and 
Expenses appropriation, consisted largely of personnel-related 
expenses. DHS officials stated that generally the department's PPAs 
are defined within the conference report accompanying its annual 
appropriations act.  

DHS made its final determinations on the PPAs subject to sequestration 
after the enactment of the Consolidated and Further Continuing 
Appropriations Act, 2013 on March 26, 2013.  

Transfer Authority:  

DHS was statutorily authorized to transfer up to 5 percent of an 
appropriation to another appropriation, so long as the receiving 
appropriation was not increased by more than 10 percent, with 15 days 
advance notification to the Appropriations Committees and subject to 
other restrictions.  

Reprogramming Limitations:  

Generally, DHS may reprogram funds, with certain exceptions. DHS was 
not authorized to reprogram funds in excess of $5 million or 10 
percent, whichever is less, if the reprogramming augmented existing 
PPAs, reduced by 10 percent funding for any existing PPA, reduced by 
10 percent the numbers of personnel approved by the Congress, or 
resulted from any general savings from a reduction in personnel that 
would result in a change in existing PPAs, unless DHS notified the 
Appropriations Committees 15 days in advance.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of Homeland Security (DHS) mitigated some potential 
effects of sequestration on its mission in fiscal year 2013, including 
employee furloughs, by using its existing authorities to transfer and 
reprogram funding into various salaries and expenses accounts. In 
addition, DHS reported that prior to fiscal year 2013 it had 
implemented cost savings initiatives, including a department-wide 
efficiency review, which helped to assuage some effects of 
sequestration in fiscal year 2013. Nevertheless, as a result of 
sequestration, components reported effects to their operations. For 
example, from fiscal years 2012 to 2013, the U.S. Coast Guard (Coast 
Guard) observed about a 29 percent reduction in the number of migrant 
interdictions at sea, a 24 percent reduction in the total pounds of 
drugs removed, and about 6,000 fewer vessels boarded and inspected. 
DHS officials stated that spending reductions in future years could 
affect the department's operations, performance, and services to the 
public. Further, DHS officials expressed concerns that such reductions 
could affect the department's ability to continue to meet mission 
priorities, as well as employee morale, in the long term.  

Planning:  

DHS budget officials stated that the department and its components 
began holding high-level, internal discussions on sequestration in 
August 2011 after the Budget Control Act of 2011 was enacted.[Footnote 
35] DHS budget officials stated that the department's planning efforts 
reflected three guiding principles: (1) secure the homeland, (2) 
maintain progress on major acquisition programs, and (3) minimize 
effects on DHS employees. According to DHS officials, various cost 
savings initiatives that DHS had begun implementing prior to August 
2011 informed the planning discussions. These initiatives helped the 
department mitigate some, but not all, of the reductions required by 
sequestration. For example, in 2009, DHS implemented a department-
wide, employee-driven efficiency review to help reduce the department'
s resource requirements. In April 2013, DHS reported that, as a 
result, it had identified more than $4 billion in cost avoidances and 
reductions since 2009, and redeployed those funds to mission critical 
initiatives across the department. DHS also reported that it saved $24 
million through component-level efforts to better use excess 
information technology equipment. In addition to the efficiency 
review, DHS's Office of the Chief Information Officer planned to 
reduce funding in fiscal year 2013 for upgrades to the Homeland Secure 
Data Network, which is used to share and safeguard classified 
information at the Secret level across DHS and its partners.  

In addition to these initiatives, in late 2011, DHS's Balanced 
Workforce Program Management Office (BWPMO), which manages 
departmental workforce planning, reported that it began developing a 
Workforce Planning Budget Modeling Guide that was available to 
components as a voluntary tool to guide DHS sequestration planning. 
[Footnote 36] According to BWPMO, the office developed this guide to 
give components an optional framework and starting point for reviewing 
key workforce factors (such as total population, years of federal 
service, attrition, and salary costs). In addition, DHS provided the 
guide to help components assess possible workforce cost reductions, 
such as the potential cost savings associated with eliminating 
discretionary overtime. BWPMO reported that the guide offered a means 
to estimate potential savings with consistent, historical human 
capital data sets, enabling components to manipulate their data to 
model different scenarios and potential human capital cost savings. 
For example, one scenario from the model could estimate the annual 
cost savings if current retention incentives were terminated, based on 
incentives paid during the past years.  

By December 2012, DHS reported that it had begun formal planning for 
sequestration after receiving a budget data request from OMB. In 
January 2013, DHS reported that the department held several meetings 
as it reviewed the potential effects of sequestration, including a 
presentation from DHS's Budget Division to the department-wide Chief 
Financial Officer Council on the department's plans to implement 
sequestration. Concurrently, DHS components were discussing the 
possibility that furloughs would be necessary. For instance, following 
planning discussions in January 2013, DHS reported that 7 of its 15 
components planned up to 22 furlough days.[Footnote 37] In particular, 
the U.S. Secret Service estimated in January 2013 that 15 furlough 
days would be needed, and the Office of Inspector General estimated 22 
furlough days would be needed. According to DHS budget officials, some 
PPAs in fiscal year 2013 were largely composed of funding for 
salaries, which reduced planning options that did not involve 
furloughs or reductions in force. For example, according to the U.S. 
Customs and Border Protection (CBP), in fiscal year 2013 the Border 
Security and Control Between Ports of Entry PPA within CBP's Salaries 
and Expenses appropriation was composed of approximately 94 percent 
payroll related costs.  

DHS budget officials reported that the department faced challenges 
planning for sequestration because of multiple revisions to the total 
funding subject to sequestration as a result of the enactment of 
several pieces of legislation prior to the sequestration order on 
March 1, 2013, including the American Taxpayer Relief Act of 2012. 
[Footnote 38] In addition, the Disaster Relief Appropriations Act, 
2013, included $12.1 billion for DHS that was to be included in the 
total amount subject to sequestration, pursuant to OMB 
guidance.[Footnote 39]  

Further, DHS reported that guidance for determining PPAs subject to 
sequestration was unclear or conflicting. For example, the 
Consolidated and Further Continuing Appropriations Act, 2013 provided 
a new appropriation and PPA structure for CBP.[Footnote 40] This 
change in PPA structure further complicated CBP's planning process. In 
addition, according to CBP budget officials, planning for and applying 
sequestration to fee accounts was difficult because CBP did not reach 
agreement with OMB on how these accounts would be affected by 
sequestration until August 2013. Regarding the guidance that DHS 
received from OMB, perceptions of the quality of this guidance 
differed within the department. In particular one departmental office 
reported concerns regarding the timeliness of sequestration-related 
guidance from OMB, due in part to the uncertainty of whether 
sequestration would happen. By contrast, officials from another 
departmental office noted that OMB guidance was timely and relatively 
clear given the evolving nature of sequestration.  

Implementation:  

When sequestration was ordered on March 1, 2013, DHS took steps to 
determine what additional cuts could be made to absorb sequestration 
while still meeting the department's priorities. DHS directed its 
components to develop sequestration implementation plans which, among 
other things, ranked the components' proposed actions by priority, 
assessed the operational effect, proposed a mitigation plan, and 
determined whether the action could be applied in other components. In 
addition, DHS encouraged components to apply BWPMO's Workforce 
Planning Budget Modeling Guide to their implementation decisions. 
Although voluntary, DHS officials stated that components that used 
this plan were able to provide DHS leadership with consistent data, 
which aided in making decisions about implementing cuts. Further, 
BWPMO issued data calls to components seeking information on their 
planned efforts to implement sequestration throughout the remainder of 
fiscal year 2013.  

DHS budget officials also reported that the department took the 
following personnel and operational actions to subsequently eliminate 
the need for furloughs: (1) reducing training; (2) reducing overtime; 
(3) canceling monetary awards; (4) rescoping or canceling contracts; 
(5) reducing travel; and, (6) rescoping or delaying planned 
maintenance and repairs. In addition, according to DHS many components 
limited hiring or implemented hiring freezes prior to and during 
fiscal year 2013. For example, the U.S. Secret Service prevented 
furloughs through a number of administrative steps including a hiring 
freeze.  

Additionally, the enactment of the Consolidated and Further Continuing 
Appropriations Act, 2013 changed the total funding available to DHS. 
[Footnote 41] In the full-year appropriations DHS received more than 
it had anticipated based on its calculations using its continuing 
resolution appropriation level. Specifically, as of March 1, 2013, DHS 
anticipated receiving about $43 billion in discretionary 
appropriations for fiscal year 2013.[Footnote 42] However, DHS's full-
year 2013 appropriation was about $46.6 billion in discretionary 
appropriations. As a result, the department received about $3.5 
billion more in fiscal year 2013 than anticipated.  

While overall, the department received a greater full-year 
appropriation for fiscal year 2013, some accounts received less than 
the sequestration base levels in their full-year appropriations. In 
certain instances, DHS's full-year appropriation was less than the 
sequestration base minus the sequestered amount; consequently this 
produced “credits” within certain appropriations for DHS's 
use.[Footnote 43] The total amount of credits produced in DHS 
accounts, as calculated per OMB guidance issued April 11, 2013, was 
about $138 million. For example, the Federal Air Marshals Service 
(FAMS) within the Transportation Security Administration received a 
credit of $17 million, which reduced the final reduction of the FAMS 
appropriation due to sequestration. See figure 11 for a detailed 
description of 
DHS's credit calculation for FAMS.  

Figure 11: DHS's Credit Calculation for the Federal Air Marshals 
Service in Fiscal Year 2013:  

[Refer to PDF for image: table]  

Initial fiscal year 2013 funding: 
Calculated with amounts identified in the Office of Management and 
Budget (OMB) March 1 report; 
Federal Air Marshal Service Credit Calculation: 
OMB March 1 Report Sequestrable Base: $972 million; 
minus: 
Reduction required by March 1, 2013 sequestration order: $49 million; 
equals: 
Initial account level: $923 million.  

Revised fiscal year 2013 funding: 
Calculated with amounts identified in the Consolidated and Further 
Continuing Appropriations Act, enacted March 26, 2013; 
Federal Air Marshal Service Credit Calculation: 
Consolidated and Further Continuing Appropriations Act, 2013: $907 
million; 
minus: 
Reduction required by March 1, 2013 sequestration order: $49 million; 
equals: 
Revised account level: $858 million.  

Credit calculation: 
Calculated by subtracting the account level in the Consolidated and 
Further Continuing Appropriations Act, 2013, from the initial account 
level, based on April 11, 2013 guidance from the Office of Management 
and Budget (OMB); 
Federal Air Marshal Service Credit Calculation: 
Initial account level: $923 million; 
minus: 
Consolidated and Further Continuing Appropriations Act, 2013: $907 
million; 
equals: 
Credit: $17 million.  

Final fiscal year 2013 funding: 
Calculated by summing the revised account level and the credit, based 
on April 11, 2013 guidance from OMB; 
Federal Air Marshal Service Credit Calculation: 
Revised account level: $858 million; 
minus: 
Credit: $17 million; 
Final account level: $875 million.  

Source: GAO analysis of Federal Air Marshal Service information.  

Note: Numbers above are displayed to the nearest million. Totals may 
not equal the sum of the numbers in each row due to rounding.  

[End of figure]  

In addition, pursuant to the requirements and procedures set forth in 
DHS's appropriations act, DHS transferred and reprogrammed funds to 
mitigate the effects of sequestration in fiscal year 2013. According 
to DHS documentation received through November 2013, in June and July 
2013 DHS reprogrammed funds within 5 accounts and transferred 
additional funds from 29 accounts to 7 accounts. DHS budget officials 
explained that, as of August 2013, the department was still in a 
position to meet its performance goals as a result of its ability to 
reprogram and transfer funds in fiscal year 2013. Transfers from 8 of 
the 29 accounts used unobligated carryover balances, totaling about 
$62 million. For example, at the recommendation of the House Committee 
on Appropriations, CBP transferred $7 million in unobligated balances 
from its 2011 and 2012 Border Security Fencing Infrastructure and 
Technology accounts to its Salaries and Expenses account. These 
unobligated balances had been set aside for emerging requirements and 
pilot programs, but were used instead, along with a transfer from the 
DHS Office of Intelligence and Operations account, to maintain minimum 
numbers of Border Patrol agents and CBP officers. CBP was required to 
maintain 21,370 Border Patrol agents in the Consolidated and Further 
Continuing Appropriations Act, 2013 and directed to maintain 21,775 
CBP officers in the explanatory statement accompanying that 
appropriations act.[Footnote 44] In addition, DHS, in consultation 
with the Appropriations Committees, was able to increase its fee 
spending authority in 11 fee accounts, which were used for activities 
such as maintaining salaries, maintenance, and equipment 
costs.[Footnote 45]  

As a result of the personnel actions, operational actions, 
appropriations and credits, and budgetary actions discussed above, DHS 
determined that its components would not require furloughs to 
implement sequestration through the end of fiscal year 2013.  

See figure 12 for a timeline of key events related to DHS's planning 
for and implementation of sequestration.  

Figure 12: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Homeland Security:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DHS Actions and Other Key Dates:  

August 2011: Began holding high-level, internal discussions on 
sequestration.  

August 2012: Budget Division prepared an overview of the effects of 
sequestration on component activities, by PPA, for the department's 
leadership.  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Began formal planning for sequestration.  

January 2013: Budget Division held several internal meetings to review 
the potential effects of sequestration.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 4, 2013: Customs and Border Patrol (CBP) notified the National 
Treasury Employees Union and the National Border Patrol Council of 
potential actions the agency could take to implement sequestration, 
including the possibility of furloughs.  

March 7, 2013: CBP issued notices to its employees that they may be 
furloughed for up to 14 days.  

March 11, 2013: Issued “Sequestration Guidelines for Component 
Consideration.”  

March 27, 2013: Issued fiscal year 2013 sequestration implementation 
plans by component level to facilitate sequestration planning and 
implementation.  

April 2013: Determined final sequestration amount for the agency for 
fiscal year 2013.  

May 2, 2013: Distributed revised guidance to its components.  

May 17, 2013: Initiated correspondence with Appropriations Committees 
regarding reprogrammings and transfers at CBP, U.S. Immigration and 
Customs Enforcement, Transportation Security Administration, the U.S. 
Secret Service, and the Domestic Nuclear Detection Office.  

June 2013: Corresponded with Appropriations Committees regarding 
reprogrammings and transfers, as well as increases in total fee budget 
authority in certain accounts within various components.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from DHS.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

According to DHS officials, some of the effects of sequestration in 
fiscal year 2013 were immediate, but most will be felt long term and 
are difficult to quantify.[Footnote 46 For example, from fiscal years 
2012 to 2013, the Coast Guard observed about a 29 percent reduction in 
the number of migrant interdictions at sea, a 24 percent reduction in 
the total pounds of drugs removed, and about 6,000 fewer vessels 
boarded and inspected. In addition, the DHS Budget Office reported 
that with a $295 million reduction in funding for U.S. Immigration and 
Customs Enforcement (ICE), the component had to implement reductions 
in training, contracts, and other operating expenses to meet ICE's 
legislatively mandated level of beds for 34,000 detainees in fiscal 
year 2013.[Footnote 47]  

In addition, DHS reported that amounts available for several types of 
grants within the Homeland Security Grant Program were decreased in 
fiscal year 2013. This grant program is managed by the Federal 
Emergency Management Agency (FEMA) to support its core mission 
capabilities of prevention, protection, mitigation, response, and 
recovery. Among the funding reductions, the Port Security Grant 
Program reduced the amount of grant funding available by about 4 
percent from $97.5 million in fiscal year 2012 to $93.2 million in 
fiscal year 2013.[Footnote 48] In addition, the Intercity Passenger 
Rail (Amtrak) Grant program reduced the amount of grant funding 
available by about 5 percent from $10 million in fiscal year 2012 to 
$9.5 million in fiscal year 2013.[Footnote 49] According to FEMA Grant 
Programs Directorate officials, sequestration cuts to its Homeland 
Security Grant Program were absorbed by offering fewer recipients 
grant funding through this program in fiscal year 2013.  

Further, an official from CBP's Office of Training and Development 
stated that, in response to sequestration CBP canceled training 
classes in fiscal year 2013, including those related to detecting 
potential terrorists and high-risk air cargo, identifying weapons of 
mass effect in the land border environment, and managing critical 
incident response.[Footnote 50] BWPMO officials noted that the effect 
of canceled training classes may not be felt for several years. For 
example, these officials expressed concerns about how effectively the 
workforce will be able to respond to future mission critical needs.  

In addition, according to DHS budget officials, the department will 
have fewer options to mitigate future potential budget cuts than it 
had in fiscal year 2013. For example, more than one-third of the funds 
transferred in fiscal year 2013 were unobligated carryover balances; 
however, according to DHS, available unobligated balances have been 
substantially depleted. Further, BWPMO officials cautioned that the 
personnel actions taken in fiscal year 2013 to address sequestration 
may not be possible solutions for a continued sequestered budget. For 
example, they said that DHS will not be able to further reduce 
employee awards or hiring because employee awards are canceled and a 
hiring freeze is already in place within many components. This leaves 
the department with limited options as it relates to personnel 
actions, such as furloughing employees or implementing a reduction in 
force. According to DHS documentation, the cumulative effect of 
multiple years of hiring freezes and increased overtime costs 
compromises front-line operations because, for example, mission 
personnel are pulled off the front line to conduct support functions. 
DHS also reported concerns about the long-term effects on morale of 
asking fewer staff to complete the same amount of work.  

Agency Comments:  

DHS reviewed a draft of this report and provided technical comments, 
which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact David C. Maurer at (202) 512-9627 
or maurerd@gao.gov.  

[End of DHS section]  

Sequestration Planning, Implementation, and Effects:  

Department of Housing and Urban Development:  

Mission and Budget Overview:  

Mission:  

HUD administers various programs to assist families with access to 
affordable housing through grants, direct loans, loan guarantees, 
rental subsidies, and funding for public housing.  

2013 Funding Prior to Sequestration:  

HUD received a total of $106 billion in funding for fiscal year 2013, 
including $60 billion in discretionary appropriations and $46 billion 
in direct spending. After Hurricane Sandy, HUD was provided $16 
billion as supplemental funding for disaster assistance. The Mutual 
Mortgage Insurance Fund administered by the Federal Housing 
Administration and the Ginnie Mae mortgage-backed securities guarantee 
program are primarily funded by premiums or fees.  

Sequestered Amount:  

The sequestered amount was $3 billion, nearly all of which was 
discretionary appropriations. Nearly all of HUD's $46 billion in 
direct spending was exempt from sequestration. This includes premiums 
and fees collected for the Federal Housing Administration's Mutual 
Mortgage Insurance Fund and Ginnie Mae's mortgage-backed securities 
guarantee program. However, the salaries and expenses accounts for 
these programs were subject to sequestration. In addition, $253 
million in discretionary funding used for the HUD-Veterans Affairs 
Supportive Housing rental assistance program was exempt from 
sequestration.  

Programs, Projects, and Activities (PPA)  

Sequestration applied to 63 PPAs within 30 budget accounts. HUD has 
separate PPAs for program funding, such as housing vouchers and 
grants, and for personnel and other costs, including salaries, 
expenses, administration, operations, and management.  

Transfer Authority  

In fiscal year 2013, HUD had general statutory authorization to 
transfer appropriations among accounts for administration, operations, 
and management, and also among accounts for program office salaries 
and expenses, although HUD had certain restrictions if any account was 
increased or decreased by more than 5 percent or $5 million, whichever 
is less. HUD could also transfer between these account groups, with 
certain restrictions. In addition, HUD had specific authority for 
several transfers, including transfers of certain amounts from its 
Mutual Mortgage Insurance Program account and salaries and expenses 
accounts to its Working Capital Fund and, subject to certain 
restrictions, transfers between multifamily housing projects.  

Reprogramming Limitations  

HUD may reprogram funds within an account; however, in fiscal year 
2013, funds could not be reprogrammed for certain purposes, such as 
creating a new program, augmenting an existing PPA in excess of $5 
million or 10 percent, whichever was less, or reducing by $5 million 
or 10 percent an existing PPA, among other things, unless HUD met 
certain requirements. HUD can also reprogram funds in its Lead Hazard 
Reduction account if a program funded by the account was 
undersubscribed.  

Other Funding Flexibilities  

In fiscal year 2013, subject to certain restrictions, HUD could carry 
over as much as 50 percent of unobligated balances from salaries and 
expenses accounts from the previous fiscal year. HUD also could use 
unobligated balances, including carryovers and recaptures (funds 
variety of reasons), subject to certain limitations, in its tenant-
based rental assistance, project-based rental assistance, and Housing 
Certificate Fund PPAs.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of Housing and Urban Development (HUD) reported taking 
personnel actions to implement sequestration that included freezing 
hiring, furloughing most employees for 5 days, and reducing overtime. 
Sequestration reduced the funding for housing, community development, 
and rental assistance programs that are administered by state and 
municipal agencies, including public housing agencies (PHA). The 
funding reduction resulted in fewer services and benefits provided. 
For example, HUD estimates that PHAs provided rental assistance 
benefits to about 42,000 fewer very low-income households in 2013. HUD'
s loan guarantee program administered by the Federal Housing 
Administration and the Government National Mortgage Association 
(Ginnie Mae) mortgage-backed securities guarantee program were mostly 
unaffected by sequestration because their credit financing program 
accounts were not sequestered.  

Planning:  

While HUD took steps to restrict spending from the beginning of fiscal 
year 2013, including limiting hiring, HUD began specific planning for 
sequestration in January 2013 when a committee of senior officials was 
assembled to evaluate the effect of sequestration on programs and 
employees. HUD officials told us the committee focused their planning 
efforts on personnel actions because it had transfer and reprogramming 
options for its salaries and expenses accounts. HUD officials told us 
they had few available options for implementing sequestration for some 
of HUD's largest programs, such as housing vouchers and grants, 
because of reprogramming and transfer limitations or restrictions on 
these accounts and because much of the funding in these accounts is 
passed through to intermediaries or beneficiaries. HUD also developed 
an operating plan to execute its budget under sequestration. HUD 
officials told us that their goal in planning for personnel actions 
was to balance the needs of employees with the effects on HUD's 
operations.  

HUD officials told us that delays in determining the final 
sequestration percentage that would apply to their budget made 
planning more challenging. The officials said that the late 
implementation of sequestration also limited their options for 
potential actions, noting that if sequestration had occurred earlier 
in the fiscal year, they might have been better able to mitigate its 
effects, such as reducing the number of furlough days for employees by 
beginning a hiring freeze earlier.  

Implementation:  

HUD reported taking a variety of personnel actions to achieve the 
required reductions in its salaries and expenses accounts. These 
included a general hiring freeze, furloughs, reduced overtime, and 
cancellation of monetary awards. According to HUD officials, the 
hiring freeze, begun in March 2013, resulted in the greatest savings 
to the agency by reducing personnel costs by $34 million. In addition, 
HUD officials told us the agency reduced employee training, travel, 
contracts, and other nonpersonnel services, including spending on 
building services such as consolidation of parking contracts and 
reduction of mail room services.  

HUD furloughed most of the agency's approximately 8,800 employees for 
5 days, achieving a savings of $19 million. Some employees were not 
furloughed, including, among others, employees within the Office of 
the Inspector General and employees of Ginnie Mae, a wholly-owned 
government corporation and unit of HUD that guarantees mortgage-backed 
securities. HUD officials said that Ginnie Mae did not need to 
furlough employees because it had enough open staffing positions that 
it could implement sequestration by not hiring to fill the positions 
and through other actions. HUD officials told us HUD does not have 
authority to transfer funds to or from Ginnie Mae's salaries and 
expenses account.  

In implementing furloughs, HUD officials said they decided to treat 
employees equally by furloughing all employees for the same number of 
days. The agency also achieved some limited cost savings by 
furloughing all employees on the same days, so that it could close 
offices. HUD transferred funds between its Program Office Salaries and 
Expenses account and its Administration, Operations, and Management 
account to furlough all employees for the same number of days.  

HUD notified the unions that represent its employees on February 26, 
2013, of its intent to furlough employees for up to 7 days, and the 
first furlough day was May 24, 2013. In August 2013 HUD reduced the 
furlough days to 5 through an additional transfer of funds between its 
Program Office Salaries and Expenses account and its Administration, 
Operations, and Management account and by using funds it had planned 
to use to reorganize its Office of Multifamily Housing Programs and to 
close 16 of its 80 field offices. However, HUD officials said that 
they were later able to fund some of the field office closures in part 
by using $1.7 million in unobligated fiscal year 2012 salaries and 
expenses funding.[Footnote 51] HUD did not begin the reorganization of 
its Office of Multifamily Housing Programs in fiscal year 
2013.[Footnote 52] HUD's last furlough day was August 2, 2013. HUD 
officials told us they would have liked to have taken more strategic, 
long-term actions such as employee buyouts and changing field office 
leases that would lower their administration, operation, and personnel 
costs in the future. However, HUD officials generally chose not to 
take these actions because they would have entailed certain costs 
(such as buy-out payments to individual employees and penalties for 
early lease terminations) that likely would have necessitated 
additional furlough days.  

For PPAs that fund HUD programs, HUD officials told us that generally 
the funding cuts were directly passed on to HUD partners that 
administer HUD programs or grantees. For example, HUD's Housing Choice 
Voucher Program provides funds to allow state, county, and municipal 
PHAs to make rental housing assistance payments to landlords on behalf 
of very low-income families, the elderly, and the disabled. 
Sequestration reduced funding for these payments from $17.5 billion to 
$16.6 billion and reduced funding available for PHAs to administer the 
program from $1.37 billion to $1.31 billion. PHAs also received lower 
operating subsidies and grants for developing, financing, and 
modernizing public housing.[Footnote 53] HUD officials told us that 
the PHAs had some flexibility in implementing the budget cuts, 
particularly for rental housing assistance, and some PHAs could draw 
on reserves accumulated in prior years to reduce the effect of the 
funding cuts. However, PHAs' reserves had been reduced by $650 million 
for rental housing vouchers and by $750 million for public housing 
operations in fiscal year 2012 due to reductions in funding in HUD's 
fiscal year 2012 appropriation.[Footnote 54] Consequently, to the 
extent a PHA depleted its reserves in fiscal year 2013, the PHA will 
have to absorb any future funding cuts without the reserve funds. HUD 
provided extra funding from a $103 million set-aside to PHAs whose 
reserves were not sufficient to enable them to avoid terminating 
rental housing vouchers for families already participating in the 
program.[Footnote 55] HUD used $83 million of the set-aside for this 
purpose, which was sufficient to prevent voucher terminations in 2013. 
HUD officials told us the remainder of the set-aside will be used for 
other purposes in 2014.  

Sequestration reduced funding for HUD's project-based housing 
assistance program, through which HUD makes payments to owners of 
multifamily rental housing on behalf of about 1.2 million low- and 
very low-income households. Available funding to renew contracts for 
this program decreased from $9 billion to $8.6 billion. To reduce the 
effect of sequestration on this program, HUD “short-funded” about 
8,000 contracts, representing about 49 percent of all housing units 
funded. That is, the agency shifted the cost of renewing contracts 
that span fiscal years to fiscal year 2014, allowing HUD to avoid 
having contracts expire. On average, HUD shifted the costs by about 
3.5 months. According to HUD officials, without additional funding in 
future years, HUD may exhaust its capacity to short fund, and then 
would need to allow some contracts to expire, putting some occupants 
at risk of homelessness.  

Sequestration also reduced funding for most other HUD programs, 
including:  

* Community Development Block Grants (CDBG) to states and localities 
to meet community development needs,  

* Homeless Assistance Grants to address homelessness, 

* HOME Investment Partnerships grants to states and localities to 
create affordable housing for low-income families, and,  

* Housing Counseling grants to organizations that provide foreclosure 
prevention, pre-purchase, rental, or homeless counseling.  

The Mutual Mortgage Insurance Fund, administered by the Federal 
Housing Administration, and the Ginnie Mae mortgage-backed securities 
guarantee program were mostly unaffected because these programs are 
funded through federal credit program financing accounts, which were 
not sequestered.[Footnote 56] However, the salaries and expenses 
accounts for these programs were subject to sequestration. As a 
result, Federal Housing Administration employees were furloughed for 5 
days like most other HUD employees. As noted above, Ginnie Mae did not 
furlough its employees.  

See figure 13 for a timeline of key events in HUD's planning for and 
implementation of sequestration.  

Figure 13: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Housing and Urban Development:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

HUD Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

January 2013: Began developing plans for implementing sequestration.  

February 26, 2013: Notified employees of furloughs.  

March 2013: Determined programs, projects, and activities for 
sequestration and final sequestrable amount.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

August 9, 2013: Reduced the number of furlough days from 7 to 5.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from HUD.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

HUD's rental assistance programs had the largest dollar amount 
sequestered, and these cuts likely will cause the most difficulties 
for families, according to HUD officials. HUD estimates that the total 
number of very low-income households that received rental housing 
assistance through the Housing Choice Voucher program at the end of 
calendar year 2013 was about 42,000 (2.2 percent) lower than at the 
end of calendar year 2012, primarily due to sequestration.[Footnote 
57] HUD officials told us that PHAs generally used attrition to reduce 
the number of individuals and families who received assistance through 
the program, rather than terminating vouchers of current recipients.  

HUD officials reported that reduced funding for PHAs to operate and 
make capital repairs to public housing could lead to long-term 
effects, including depleted PHA reserves as well as deteriorating 
living conditions and increased utility costs for the 1.1 million low-
income households residing in public housing. HUD monitors the 
financial condition of PHAs as part of its oversight responsibilities 
and will continue to do so to determine sequestration's effect on PHAs'
financial condition.  

HUD estimates that sequestration's cuts to Homeless Assistance Grants 
will lead to states and localities removing 60,000 formerly homeless 
persons from housing and emergency shelter programs, putting them at 
risk of returning to the streets. HUD officials told us that this 
estimate was based on the amount of funding sequestered and the 
average cost per person served by these grants, because initial data 
on the number of persons served will not be available until after the 
grants from fiscal year 2013 funding are disbursed in 2014. HUD 
reduced its initial estimate of 100,000 persons to this level because 
HUD ultimately received about $100 million more in appropriations for 
Homeless Assistance Grants.[Footnote 58]  

HUD officials reported that cuts to CDBG reduced funding for public 
services, facilities, and infrastructure improvements in numerous 
communities. In addition, HUD anticipated that the reductions will 
also result in lower other governmental or private investment in these 
communities. However, even after sequestration CDBG grantees received 
more funding in fiscal year 2013 than they had a year earlier, when 
HUD used $400 million of CDBG funding for disaster relief.  

HUD's supplemental funding for disaster recovery assistance through 
its CDBG program was reduced from $16 billion to $15.2 billion by 
sequestration. As of September 30, 2013, HUD had allocated about $6 
billion of this amount, leaving about $9.2 billion available to 
address long-term recovery needs for disasters in 2011 through 2013. 
HUD officials said they have begun the process of determining 
additional allocations in response to Hurricane Sandy and other 
events.  

Finally, HUD estimated that the reductions to Housing Counseling 
grants have resulted in 75,000 fewer households receiving counseling 
on their finances and housing choices and improving their housing 
conditions.  

Agency Comments:  

We provided a draft of this report to HUD. HUD provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Orice Williams Brown at (202) 512-
8678 or williamso@gao.gov.  

[End of HUD section]  

Sequestration Planning, Implementation, and Effects:  

U.S. Department of the Interior:  

Mission and Budget Overview:  

Mission:  

Interior is the steward of the nation's land and natural resources, 
managing more than 500 million acres of federal lands, including 401 
national park units, 561 wildlife refuges, and vast amounts of 
multiple use lands. Interior also provides access to onshore and 
offshore public lands for the development of natural resources, which 
generate significant federal revenues from royalties, rents, and 
bonuses from mineral, timber, and other natural resource development 
activities. Interior allocates billions in revenue payments to state, 
tribal, and county governments for Interior-related activities that 
occur within their borders and supports ongoing partnerships with 
states and other entities for sport fish restoration, migratory bird 
conservation, and other activities through grant programs.  

2013 Funding Prior to Sequestration:  

Interior received a total of $21.3 billion for fiscal year 2013, 
including $12.7 billion in discretionary appropriations and $8.6 
billion in direct spending. Interior also received $829.2 million in 
supplemental appropriations related to Hurricane Sandy.  

Sequestered Amount:  

Approximately $856.2 million was sequestered––$626.8 million in 
discretionary appropriations and $229.4 million in direct spending. 
These amounts excluded some funding used to support such activities as 
Indian water rights acquisitions and certain payments to U.S. 
territories in accordance with the Balanced Budget and Emergency 
Deficit Control Act of 1985, as amended. In addition, nearly $42.5 
million in supplemental funding related to Hurricane Sandy was 
sequestered.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 546 PPAs within 84 accounts throughout the 
department's bureaus and offices. Interior's PPAs reflected the wide 
range of efforts the department conducts across the country. Interior'
s PPAs also encompassed grants made to states for conservation efforts 
as well as direct payments to state, tribal, and county governments 
for activities conducted on federal lands within their borders.  

Transfer Authority:  

Interior is authorized to transfer no-year appropriations (i.e., 
appropriations that are available for obligations for an indefinite 
period of time) department-wide only for wildland fire response and 
other emergency purposes. Funding used under this emergency authority 
must be replenished by a supplemental appropriation and must be 
requested by Interior as promptly as possible. Interior also has 
limited transfer authority to move funding between appropriated 
accounts for the purposes of implementing the reorganization of the 
Minerals Management Service.  

Reprogramming Limitations:  

Under applicable reprogramming guidelines, Interior may generally 
reprogram up to $1 million, or 10 percent, without notifying the 
Appropriations Committees.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview[  

Department of the Interior (Interior) officials reported sequestration 
affected Interior's ability to manage the nation's natural resources 
in fiscal year 2013. Interior officials said they faced challenges in 
planning for sequestration, such as limited flexibility and knowledge 
of how to apply the reductions. Interior took a number of actions to 
help mitigate the effect of sequestration, including utilizing 
carryover balances and reprogramming funds. Still, Interior found it 
necessary to institute a department-wide hiring freeze among other 
actions to implement sequestration. Interior officials stated that the 
hiring freeze adversely affected the department's ability to hire 
seasonal employees who are critical to conducting field work 
activities, such as monitoring and data collection, during the summer––
the most active period for Interior's major land management bureaus 
and offices. Interior officials stated that the effects of 
sequestration on natural resources due to Interior's inability to 
perform field activities may take years to materialize. In addition, 
Interior officials said that sequestration led to reduced fiscal year 
2013 revenues from fees paid for federal land use. For example, 
Interior postponed certain oil and natural gas lease sales because it 
did not have adequate staff to devote to processing new leases. 
Sequestration also delayed royalty payments to a number of states for 
mineral activities conducted on federal lands within their borders.  

Planning:  

According to an Interior sequestration planning document, in December 
2012, Interior instructed its bureaus and offices to identify program 
areas where funding reductions would pose the most significant 
challenges. The document further indicated that, in January 2013, 
Interior directed its bureaus and offices to conduct detailed planning 
to determine the immediate actions needed to preserve ongoing mission 
critical activities and to minimize significant effects of 
sequestration. Interior's bureaus and offices developed plans for 
absorbing any budget reductions as a result of sequestration using two 
scenarios. The Interior planning document indicated that the first 
scenario assumed an across-the-board cut with no flexibility to use 
carryover balances or reallocate funding to mitigate effects on 
programs or staff. Under the first scenario, approximately 20,561 
permanent and 4,685 seasonal employees would be furloughed for between 
6 and 62 days and 5 and 45 days, respectively. The second scenario 
gave bureaus and offices the flexibility to mitigate effects on 
critical mission programs and staff by taking all possible 
discretionary actions, such as using carryover balances and existing 
reprogramming authorities. Under the second scenario, the number of 
potential furloughs was reduced to 8,507 permanent and 556 seasonal 
employees for between 5 and 19 days and 12 and 19 days, respectively.  

Interior officials stated the department relied heavily on OMB 
guidance to provide the technical assumptions used in its planning 
process and conducted the process in a manner that was consistent with 
Interior's principles of preserving its most important 
responsibilities and providing for the protection of life, health, and 
safety. The department also sought to ensure that its actions in 
response to sequestration preserved critical mission activities as 
well as maintained long-term mission capabilities and effective 
operations.  

Interior officials cited several challenges in planning for 
sequestration.  

* Limited expertise. According to Interior officials, Interior had 
little institutional knowledge about how to implement sequestration. 
Consequently, initial planning efforts were iterative and required 
extensive coordination as program and budget officials interpreted and 
clarified sequestration requirements in applying reductions to PPAs 
that were subject to sequestration.  

* Limited flexibility. Interior officials stated that, because 
sequestration reductions were to be applied as across-the-board 
reductions at the PPA level, they had limited flexibility to 
strategically reallocate or discontinue activities. Interior officials 
stated this limited flexibility presented greater challenges for some 
of Interior's PPAs that primarily fund salaries––for example, the U.S. 
Park Police and the Office of the Inspector General—and have virtually 
no funding flexibility. Interior officials said these PPAs were more 
likely to experience staffing reductions or furloughs. Interior 
officials further reported that while some program activities could be 
delayed in response to sequestration cuts, others could not be 
deferred, such as efforts pertaining to wildland fire suppression. The 
department executed emergency transfers to fully fund suppression 
needs in 2013 due to sequestration-reduced funding levels. However, 
Interior reported that it has no general transfer authority to move 
funds between appropriated accounts. The lack of such authority 
limited Interior's flexibility to execute the sequestration 
reductions. In addition, Interior officials said the department does 
not consistently have large carryover balances or other funding 
flexibilities, which are useful for managing budget reductions over 
the long term.  

* Complex budget and decentralized organizational structure. According 
to Interior officials, efforts to predict and communicate the 
potential effects of sequestration proved to be challenging because of 
Interior's complex budget process as well as its decentralized 
organizational structure and dispersed decision-making processes. 
Consequently, estimates of potential effects and furloughs were being 
modified throughout the fiscal year. Interior officials said direct 
spending accounts were particularly challenging because the actual 
amounts subject to sequestration varied and would not be known until 
the end of the fiscal year.  

* Timing of sequestration. Officials stated that because sequestration 
took place in the middle of the fiscal year, the department was unable 
to take advantage of opportunities to mitigate some of the effects of 
sequestration at the start of the year. For example, Interior 
officials said the department might not have entered into new 
contracts or might have postponed costly maintenance repairs if 
sequestration occurred earlier in the fiscal year. However, because 
sequestration occurred when it did, the department lost some of its 
ability to make more strategic planning decisions.  

* Complex programs. Interior officials stated the complex nature of 
many Interior programs made planning for sequestration challenging. 
For example, Interior had particular difficulty planning for those 
programs that involve revenue sharing or are based on fees because a 
formula is typically used to determine allocations, and each program's 
formula, which is generally dictated by statute, is different. For 
revenue-sharing programs, Interior had to identify the sequestered 
amount based on actual payments made each month. As a result, it was 
very labor intensive to collect the necessary information and 
interpret the sequestration requirements for these programs. Moreover, 
because the actual revenues associated with many of these programs are 
not known until the end of the fiscal year, the sequestered amounts 
determined during the planning phase of sequestration changed. 
Interior officials stated planning was further complicated by the fact 
that the department needed to undertake a legal review for each of 
these programs to ensure its actions were consistent with the programs'
authorizing legislation  

Implementation:  

According to information provided by Interior officials, to implement 
sequestration, Interior took a wide range of actions, including the 
following:  

* Personnel actions. Interior furloughed staff, instituted a 
departmentwide hiring freeze, reduced overtime, offered voluntary 
early retirements and separation incentive payments to staff, and 
significantly reduced monetary awards. Interior officials stated the 
hiring freeze—along with the limited use of unobligated carryover 
balances, cuts in discretionary contracts and financial assistance, 
and other cost-cutting measures—allowed the department to avoid 
furloughs on the magnitude it initially expected. For example, an 
early Interior planning document indicated that the department could 
possibly furlough approximately 8,507 permanent and 556 seasonal 
employees across its bureaus and offices. Interior ultimately 
furloughed only 766 employees from the U.S. Park Police for 3 days, an 
estimated savings of $827,000 according to the department.  

* Contracting actions. Interior rescoped or delayed contracts for 
environmental studies and facilities and building services as well as 
program management and support services. Interior also rescoped or 
eliminated some planned maintenance, including maintenance at national 
parks.  

* Other actions. Interior reduced employee training and travel, 
renegotiated or delayed new grants and leases, and eliminated some 
financial agreements with states and nongovernmental organizations for 
partner projects, including youth programs––a priority goal for the 
department.  

According to department officials, Interior reprogrammed funds on a 
very limited scale to avoid significant interruptions for certain 
programs. Interior officials stated funds were primarily reprogrammed 
from maintenance and operating accounts within the bureaus and offices 
to maintain critical mission capabilities (many of which require 
stable personnel levels). For example, the Fish and Wildlife Service 
reprogrammed funds from its maintenance and operations account to 
support its national fish hatcheries program to prevent significant 
fish loss. Similarly, the National Park Service reprogrammed funds 
from its maintenance and operations account to maintain mission 
requirements for U.S. Park Police. Interior officials stated that in 
general the department views all of its programs as equally important 
in accomplishing its mission.  

Interior officials also credited efforts to reduce costs and generate 
efficiencies, including those initiated under the Campaign to Cut 
Waste (an initiative by the Executive Office to make federal agencies 
more efficient by eliminating program waste and inefficiencies), in 
helping the department reduce adverse effects of sequestration. For 
example, Interior officials said the department had already begun 
efforts under the initiative to reduce travel costs. Officials also 
noted that Interior's bureaus and offices were being prudent while 
operating for the first half of fiscal year 2013 under a continuing 
resolution by taking action based on anticipated budget reductions to 
constrain spending. Thus, they said the department was already focused 
on strategies to achieve savings to mitigate the adverse effects of 
sequestration on its mission critical areas.  

See figure 14 for a timeline of key events in Interior's planning for 
and implementation of sequestration.  

Figure 14: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of the Interior:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

Interior Actions and Other Key Dates:  

July 2012: Determined PPAs in discussion with OMB.  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Officially began developing plans for implementing 
sequestration.  

January 2013: Developed scenarios for sequestration.  

February 2013: Sent letters to governors notifying them of possible 
sequestration effects.  

February 2013: Secretary issued direction to complete contingency 
plans, freeze hiring, and reduce travel, conferences, contracts and 
other spending.  

February--March 2013: Sent letters to vendors notifying them of 
possible sequestration effects.  

February--March 2013: Sent letters to tribes notifying them of 
possible sequestration effects.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

May 2013: Determined total number of furlough days for affected 
employees.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from DOI.  

[End of figure]  

Interior officials stated a critical lesson learned by the department 
in implementing sequestration was the need to plan early, thus 
allowing bureaus and offices the flexibility to prioritize core 
mission requirements while making strategic decisions about programs. 
The officials further noted that the department now has a better 
perspective on sequestration requirements and the potential effects on 
Interior's programs. They said the department does not plan to alter 
its current budget process as a result of sequestration, but that 
officials are more mindful of how to prepare for and respond to future 
reductions should they occur. Interior officials stated the department'
s essential activities would be at greater risk in the event of a 
subsequent sequestration because they have used all the available 
discretion to take actions that would have a lesser effect.  

Effects on Operations, Performance, or Services to the Public:  

Interior officials stated sequestration affected the department's 
ability to manage the nation's public lands and resources in a variety 
of ways. The officials said that some effects of sequestration are 
more readily apparent, such as reduced visitor services at national 
parks or maintenance at wildlife refuges, reduced control of invasive 
species, and cuts in science and data collection. Other effects may 
not be known for years, such as the long-term effects on natural 
resources because Interior did not have the capacity to conduct 
necessary field work. Seasonal hiring, which is a significant 
component of Interior's workforce, was disrupted by sequestration as 
was the summer field work season when Interior bureaus and offices 
conduct most of their monitoring, research, and data collection. 
Interior officials also cited the long-term effects associated with 
eliminating training. According to the officials, the elimination of 
training in fiscal year 2013 will affect the ability of the department 
to maintain important skills and will jeopardize programs as current 
employees retire.  

Interior officials stated the hiring freeze in response to 
sequestration affected Interior's efforts to meet its high-priority 
goal of hiring more youths. Officials said youth hires––individuals 
between the ages of 15 and 25—play an important role in supporting the 
department's mission of natural and cultural resource management. 
Among other things, youth hires assist career-level staff in managing, 
interpreting, monitoring, and maintaining cultural and natural 
resources, which provide training opportunities for those interested 
in future careers with the department. According to information on 
Interior's performance goals, the department had a goal of hiring 
21,800 youths in fiscal year 2013––a 35 percent increase over fiscal 
year 2009. As of the third quarter of 2013, Interior had only been 
able to hire approximately 11,000 youths––about half of its goal. 
Although the actual numbers for youth employment over the full fiscal 
year were not yet available as of December 2013, Interior officials 
said it is unlikely that the department will achieve this 2013 
priority goal.  

According to Interior documentation, limited resources as a result of 
sequestration—particularly staffing—would severely affect the 
department's ability to conduct work associated with new onshore oil 
and gas leases. For example, Interior projected that approximately 300 
fewer onshore oil and gas leases would be issued in western states 
including Wyoming, Utah, Colorado, and New Mexico in fiscal year 2013. 
Delayed leases result in a lost opportunity to collect additional 
revenues in fiscal year 2013, while also causing prospective 
production and revenues from these leases to be pushed further into 
the future. In addition, according to information describing 
Interior's progress toward meeting its fiscal year 2013 priority 
goals, it is doubtful that the department will meet its priority goal 
for reviewing high-risk oil and gas cases.[Footnote 59 Interior's goal 
for fiscal year 2013 was to review 95 percent of high-risk oil and gas 
cases, but the department projected it would inspect 87 percent due to 
the effects of sequestration. We previously reported concerns with 
Interior's management of federal oil and gas resources, and identified 
this as a high-risk area for the department. The concerns we 
identified included problems in hiring, training, and retaining 
sufficient staff to provide oversight and management of oil and gas 
operations on federal lands and water, among others.[Footnote 60]  

Interior reported that certain revenue-sharing and grant payments to 
state, tribal, and county governments will be reduced or delayed. For 
example, under the Mineral Leasing Act, states generally receive half 
of the royalties collected for oil and natural gas development and 
coal production on federal lands within their borders.[Footnote 61] 
These funds are used to support schools and road maintenance, among 
other things. According to an Interior document, the department 
withheld approximately $105 million in mineral royalty payments from 
states and counties in fiscal year 2013 due to sequestration. However, 
according to Interior officials, after reviewing the Mineral Leasing 
Act payments, the agency determined that funds sequestered in 2013 
would become available in 2014 as provided under the Balanced Budget 
Deficit Control Act of 1985. The sequestered payments were disbursed 
to affected states and counties at the beginning of fiscal year 2014.  

Interior officials also reported they had to terminate some 
partnership agreements with states, local governments, and 
nongovernmental organizations, such as youth organizations, due to a 
lack of funding as a result of sequestration. These partnerships 
helped Interior carry out its mission. Interior officials stated that 
they do not yet have data on the number of partnership agreements 
affected by sequestration.  

Agency Comments:  

We provided a draft of this report to Interior. Interior provided 
technical comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of DOI section]  

Sequestration Planning, Implementation, and Effects:  

Department of Justice  

Mission and Budget Overview:  

Mission:  

DOJ's wide-ranging mission encompasses enforcing the law and defending 
the interests of the United States, ensuring public safety, providing 
federal leadership in crime prevention and control, seeking punishment 
for those guilty of unlawful behavior, enforcing the nation's voting 
rights statutes, and ensuring the fair and impartial administration of 
justice for all Americans.  

2013 Funding Prior to Sequestration:  

DOJ received $30.8 billion in total funding for fiscal year 2013, 
including $26.8 billion in discretionary appropriations and an 
estimated $4 billion in direct spending. DOJ spends about half of its 
funding to support two components—the Federal Bureau of Investigation 
(FBI), which aims to protect the United States against crime, 
terrorism, and foreign intelligence threats, and the Federal Bureau of 
Prisons (BOP), which confines convicted federal offenders. DOJ's 
remaining funding supports nearly 40 other components with a broad 
array of national security, law enforcement, and criminal justice 
responsibilities.  

Sequestered Amount:  

Of DOJ's total funding in fiscal year 2013, roughly $1.6 billion was 
sequestered. This included $1.5 billion in discretionary 
appropriations and $117 million in direct spending, including funds 
DOJ receives through offsetting collections that were subject to 
sequestration. For instance, all of the funding in the Crime Victims 
Fund, which was established by the Victims of Crime Act of 1984 to 
provide funding for victim services, was subject to sequestration.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 127 PPAs within 40 DOJ accounts. The 
composition of funding among PPAs varied; some PPAs were composed 
almost entirely of funding for personnel, while others were primarily 
composed of nonpersonnel funding, such as grants.  

Transfer Authority:  

For fiscal year 2013, DOJ was generally statutorily authorized to 
transfer up to 5 percent from one appropriation account to another, 
provided it did not increase the account's appropriation by more than 
10 percent and that, among other things, DOJ notified the 
Appropriations Committees in advance.  

Reprogramming Limitations:  

In general, for fiscal year 2013, DOJ could reprogram funds in an 
appropriation account; however, funds could not be reprogrammed for 
certain purposes, such as to create a new program, or to augment an 
existing program, project, or activity in excess of $500,000 or 10 
percent, whichever was less, or reduce by 10 percent an existing 
program, project, or activity, among other things, unless DOJ notified 
the Appropriations Committees in advance.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of Justice (DOJ) avoided some potential effects of 
sequestration on its mission in fiscal year 2013, including employee 
furloughs. In some cases, spending reductions affected DOJ's 
operations, performance, and services to the public, while in other 
cases projected effects on performance did not occur in fiscal year 
2013. DOJ avoided furloughs in fiscal year 2013 by reprogramming funds 
and using its transfer authority, as well as taking other cost-saving 
actions. In addition, DOJ began a hiring freeze in January 2011, which 
continued during sequestration. DOJ reported that the loss of staff 
resulting from the continuation of the hiring freeze during 
sequestration and attrition, among other things, resulted in over 
1,600 fewer criminal and civil cases filed by prosecutors in the U.S. 
Attorneys' Offices in fiscal year 2013, compared to fiscal year 2012. 
However, DOJ anticipated that the loss of staff resulting from its 
hiring freeze would also result in fewer assets seized from drug 
traffickers compared to fiscal year 2012, and this effect did not 
occur in fiscal year 2013.  

Planning:  

Upon enactment of the Budget Control Act on August 2, 2011, DOJ 
reported that it began considering sequestration in its budget 
formulation and execution processes, and provided information to 
components within the department to help explain sequestration. 
According to DOJ's Chief Financial Officer (CFO), DOJ followed several 
guiding principles in planning for sequestration:  

* Prepared in advance. For example, DOJ's Budget Director stated that, 
in the spring of 2012, DOJ analyzed the potential effects of 
sequestration on DOJ and identified questions and uncertainties about 
its implementation.  

* Engaged leadership across its components. To do so, the CFO provided 
information regarding sequestration to the Attorney General during 
daily senior management meetings. In addition DOJ's budget staff met 
with the Attorney General, for example, in December 2012 and April 
2013, to specifically discuss the effects that sequestration would 
have on DOJ and its employees. The budget staff provided information 
to component heads to alert them to the effects that sequestration 
could have on their components.  

* Sought to limit furloughs and to ensure that, if furloughs were 
necessary, they were equitably assumed by components. Specifically, 
DOJ officials stated that the department considers its employees its 
most valuable asset in fulfilling its mission and, thus, wanted to 
avoid furloughs. However, according to DOJ's CFO and Budget Director, 
the structure of DOJ's PPAs affected components' abilities to limit 
furloughs, as components with PPAs largely composed of personnel had 
little flexibility to cut other types of spending to protect 
personnel, given that all PPAs had to be cut equally. As a result, 
employees in components with personnel-heavy PPAs would have been 
disproportionately affected by sequestration, which ran counter to 
this guiding principle.  

While planning for sequestration, DOJ reported that it did not 
encounter any challenges in determining its PPAs and identified the 
PPAs subject to sequestration before January 2, 2013—-the date 
sequestration was originally scheduled to be ordered under the Budget 
Control Act. However, DOJ's CFO and budget staff reported that DOJ 
faced challenges resulting from uncertainty over sequestration's 
timing, amount, and how it would be applied to each of DOJ's accounts. 
For instance, the CFO stated that DOJ initially expected that 
sequestration would be ordered on January 2, 2013, but the American 
Taxpayer Relief Act of 2012, which passed on January 2, 2013, delayed 
sequestration until March of that year. Moreover, the officials 
reported that DOJ did not know its final amount subject to 
sequestration until May 2013, almost 3 months after sequestration was 
ordered. Though DOJ knew most of the final amounts subject to 
sequestration prior to May 2013, the delay was due to uncertainty over 
the applicability of sequestration to some of DOJ's accounts, 
including those accounts with offsetting collections, such as the 
Crime Victims Fund. In particular, according to DOJ officials, the 
Crime Victims Fund was the last account about which DOJ learned the 
final amount subject to sequestration on May 28, 2013. OMB officials 
reported that this was because OMB discovered a computational error 
related to the amount of the Crime Victims Fund subject to 
sequestration, which was corrected on May 20, 2013. However, DOJ's 
Budget Director reported that the delay in learning the final amount 
of the Crime Victims Fund subject to sequestration did not negatively 
affect DOJ's ability to carry on its operations, although the Budget 
Director suggested that, if sequestrations occur in the future, it 
would be helpful to receive guidance and engage in a dialogue with OMB 
earlier in the process.  

To address these challenges, the CFO reported that DOJ's budget staff 
developed multiple options for actions, including the use of furloughs 
as a last resort, for DOJ to consider for absorbing the sequestration 
cuts under different circumstances. Developing these options was time 
and resource intensive. In addition, DOJ budget staff reported that 
they contacted OMB for clarification on technical issues related to 
how sequestration would apply to DOJ's accounts, including 
participating in OMB conference calls. However, the Budget Director 
stated that planning for the implementation of the fiscal year 2013 
sequestration was not a unique experience. Rather, according to the 
Budget Director, DOJ has carried out similar planning efforts during 
uncertain budgetary climates in prior years, although the budget staff 
may have developed additional options more frequently during 
sequestration planning. Further, the CFO and Budget Director reported 
that the range of options DOJ considered to absorb the cuts under 
sequestration was generally the same as in prior years, except that 
the consideration of furloughs was a new option when planning for 
sequestration.  

Implementation:  

When sequestration was ordered on March 1, 2013, DOJ reported that 
over 97,000 DOJ employees faced potential furloughs due to 
sequestration. According to the CFO, furloughs would have hindered DOJ'
s ability to achieve its mission and created potential life and safety 
issues. For instance, correctional officers at the Federal Bureau of 
Prisons (BOP), who supervise offenders, were among those facing 
potential furloughs. Given this, the Attorney General sought to 
minimize the use of furloughs. Further, on March 5, 2013, the Deputy 
Attorney General directed components to protect mission critical 
operations by continuing a hiring freeze that had begun in January 
2011 due to budget uncertainty at that time, delaying or canceling 
contracts, restricting nonmission critical travel, canceling or 
postponing nonmandatory training, postponing or scaling back 
conferences, limiting employee overtime, and eliminating the use of 
discretionary monetary awards.  

In addition, DOJ used its funding flexibilities, including the ability 
to transfer and reprogram funds, to avoid the need for furloughs in 
fiscal year 2013. Specifically, DOJ carried out two actions to help it 
avoid furloughs in fiscal year 2013.  

* First, on March 15, 2013, DOJ notified the Appropriations Committees 
of its intent to transfer funds to BOP. According to DOJ, the 
transfers were necessary to avoid furloughs of a total of 3,570 staff 
each day from all 119 of its federal prisons, thereby avoiding serious 
life and safety concerns for staff, inmates, and the public. DOJ 
transferred a total of $150 million to BOP from several accounts—the 
Drug Enforcement Administration's (DEA) Salaries and Expenses account; 
the Federal Bureau of Investigation's (FBI) Construction and Salaries 
and Expenses accounts; DOJ's Fees and Expenses of Witnesses account; 
and the U.S. Marshals Service's (USMS) Construction account. To almost 
fully replace the $131.55 million that the FBI transferred to BOP, DOJ 
transferred $116 million in unobligated balances from its Working 
Capital Fund to the FBI for its information technology and capital 
equipment requirements.[Footnote 62] The CFO and Budget Director 
reported that, with the support of the Appropriations Committees, they 
took this transfer action quickly after the sequestration was ordered 
because they were aware that the transfer and reprogramming 
flexibilities they had, including the amount of certain unobligated 
balances they were authorized to transfer, would be changed after the 
passage of the Consolidated and Further Continuing Appropriations Act, 
2013 on March 26, 2013. For example, the Consolidated and Further 
Continuing Appropriations Act, 2013 caps the amount of unobligated 
balances DOJ is authorized to transfer from its Working Capital Fund 
at $30 million, over $85 million less than the amount DOJ transferred 
to the FBI.  

* Second, on April 17, 2013, DOJ informed the Appropriations 
Committees of its intent to reprogram, transfer, and use unobligated 
balances, for a total of $313 million, to avoid furloughs. DOJ 
reported in its notification that these furloughs would have affected 
almost 60,000 staff in nine components—the FBI; Bureau of Alcohol, 
Tobacco, Firearms, and Explosives (ATF); USMS; Civil Rights Division; 
U.S. Attorneys' Offices; Executive Office for Immigration Review; 
Office of the Inspector General; U.S. Parole Commission; and the U.S. 
Trustee Program—for up to 14 days. According to DOJ, such furloughs 
would have posed serious national security and life and safety 
concerns, and impeded its efforts to prosecute financial fraud, 
protect the nation's most vulnerable citizens, ensure the timely 
administration of justice, and prevent fraud and waste of public 
monies.  

Further, DOJ received additional funding in the Consolidated and 
Further Continuing Appropriations Act, 2013, which helped it avoid 
furloughs. Specifically, BOP received approximately $87 million in 
additional funding in its Salaries and Expenses account compared to 
the fiscal year 2013 continuing resolution. Additionally, DOJ 
officials reported that one DOJ component—the U.S. Parole Commission—
implemented a reduction in force of one employee to achieve partial 
savings required by sequestration in fiscal year 2013.  

According to DOJ's CFO and budget staff, these actions, particularly 
the use of DOJ's transfer authority and the reprogramming of funds, 
allowed DOJ to avoid furloughing employees in fiscal year 2013, which 
other agencies may not have been able to avoid as successfully because 
they lacked the same flexibilities as DOJ. However, the CFO and DOJ 
budget officials reported that DOJ will face challenges in taking 
similar actions to avoid future furloughs because over 90 percent of 
the specific funding they used for the transfer and reprogramming 
actions in fiscal year 2013 is not available for future years, 
including $344 million in balances that were available at the time of 
the transfer and reprogramming actions. DOJ's budget staff reported 
that DOJ will continue to have some expired balances, although they 
stated that these balances have decreased over time. According to DOJ 
budget officials, if a sequestration occurs in the future, components 
could need to continue the hiring freeze and further reduce spending 
on operations and infrastructure. In addition, they stated that 
furloughs could be a possibility.  

See figure 15 for a timeline of key events in DOJ's planning for and 
implementation of sequestration.  

Figure 15: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Justice:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DOJ Actions and Other Key Dates:  

January 2011: Implemented hiring freeze.  

August 2011: Reported considering sequestration in its budget 
formulation and execution processes and shared information internally 
to help explain sequestration.  

Spring 2012: Reported analyzing the potential effect of sequestration 
on DOJ and identifying questions and uncertainties about its 
implementation.  

October 1, 2012: Beginning of fiscal year 2013.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 5, 2013: Deputy Attorney General issued a memorandum to 
component heads on spending restrictions under sequestration.  

March 15, 2013: Notified Appropriations Committees of intent to 
transfer funds to avoid furloughs at the Federal Bureau of Prisons.  

April 17, 2013: Notified Appropriations Committees of intent to 
transfer funds to avoid furloughs at nine components, including the 
Federal Bureau of Investigation; Bureau of Alcohol, Tobacco, Firearms, 
and Explosives; U.S. Marshals Service; Civil Rights Division; U.S. 
Attorneys' Offices; Executive Office for Immigration Review; Office of 
the Inspector General; U.S. Parole Commission; and the U.S. Trustee 
Program.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from DOJ.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

According to DOJ, the biggest effect of sequestration has been a 
continuing loss of staff due to attrition and its hiring freeze. The 
hiring freeze began in January 2011 due to budget uncertainty at that 
time and continued during sequestration. When implemented in January 
2011, the hiring freeze allowed components to hire personnel to 
replace those leaving—or to backfill—key positions, such as 
correctional officers or Deputy U.S. Marshals; however, as of March 
2013, the hiring freeze no longer allowed for the automatic 
backfilling of such personnel. DOJ reported that it lost over 3,500 
employees between January 2011, when the hiring freeze was 
implemented, and September 21, 2013, the last pay period in fiscal 
year 2013. This loss equals almost 3 percent of DOJ's workforce, 
including almost 400 agents, almost 200 intelligence analysts, and 
over 400 attorneys. DOJ stated that the largest losses—of over 2,000 
employees—were among support staff, such as paralegals, chemists, 
accountants, and contract specialists.  

According to DOJ, this loss of personnel affected its operations, 
performance, and services to the public. For instance, given the 
continuing hiring freeze, the U.S. Attorneys' Offices had 45 fewer 
attorneys in fiscal year 2013 compared to fiscal year 2012, and filed 
over 1,600 fewer criminal and civil cases—about a 1 percent reduction—
which DOJ states will reduce the monies collected by the U.S. Attorneys'
 Offices. However, other effects DOJ anticipated did not occur in 
fiscal year 2013. For example, DOJ stated that DEA lost 179 special 
agents as a result of the hiring freeze in fiscal year 2013. Using 
data from fiscal year 2012 on the disruption and dismantlement of 
priority target organizations and the assets seized per agent full-
time equivalent, DOJ estimated that the lost work hours from these 
agents would result in the disruption or dismantlement of 111 fewer 
priority target organizations, and $79 million less in cash and assets 
seized from drug traffickers. However, according to DOJ data, these 
measures increased in fiscal year 2013 compared to 2012, with 214 more 
disruptions and dismantlements of priority target organizations, and 
almost $748 million more in assets seized in fiscal year 2013, 
compared to fiscal year 2012. According to DOJ officials, over 70 
percent of the investigations that resulted in a disruption or 
dismantlement in fiscal year 2013 were initiated prior to the 
beginning of fiscal year 2013, before the more significant hiring 
restrictions were implemented under sequestration. A DEA official 
explained that, while the agents remaining in fiscal year 2013 after 
attrition may have been able to resolve the existing investigations in 
fiscal year 2013, disruptions and dismantlements may decrease in the 
future because fewer agents are now available to undertake 
investigations. Further, DOJ officials reported that it is too early 
to tell the full and long-term effects of sequestration, as 
performance statistics are lagging indicators. Moreover, DOJ officials 
stated that, while DOJ can demonstrate that its components, such as 
DEA, have been forced to curtail hiring, it cannot directly link 
changes in performance to sequestration.  

DOJ also reported that reductions in training may affect its 
operations in the longer term. Specifically, DOJ reported that the 
U.S. Attorneys' Office of Legal Education reduced the total number of 
its sponsored courses from 183 in fiscal year 2012 to 114 in fiscal 
year 2013, a decrease of 37 percent. DOJ stated that these reductions 
may result in fewer opportunities to train attorneys in new and 
emerging areas of law.  

Agency Comments:  

We provided a draft of this report to DOJ. DOJ provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact David C. Maurer at (202) 512-9627 
or maurerd@gao.gov.  

[End of DOJ section]  

Sequestration Planning, Implementation, and Effects:  

Department of Labor:  

Mission and Budget Overview:  

Mission:  

DOL provides grants for employment and training services, administers 
worker protection and compensation programs, administers unemployment 
insurance at the federal level, and produces employment-related 
statistics through the Bureau of Labor Statistics, among other 
activities.  

2013 Funding Prior to Sequestration:  

DOL received total funding of $102.5 billion for fiscal year 2013, 
including $12.5 billion in discretionary appropriations and about $90 
billion in direct spending.  

Sequestered Amount:  

An estimated $3.1 billion was sequestered from the DOL budget — over 
$600 million in discretionary appropriations and $2.5 billion in 
direct spending.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 115 PPAs within 27 appropriation accounts at 
DOL. Various DOL components administer these accounts, such as the 
Employment and Training Administration, Office of Workers' 
Compensation Programs, the Occupational Safety and Health 
Administration, and the Mine Safety and Health Administration, among 
others. The PPAs in these accounts include, for example, benefits paid 
to individuals, grants, or administrative expenses for the individual 
offices in DOL.  

The following PPAs were exempt from sequestration: certain 
unemployment benefits, Federal Employees' Compensation Act benefits, 
Special Benefits for Disabled Coal Miners, and benefits paid by the 
Energy Employees Occupational Illness Compensation Fund, the Black 
Lung Disability Trust Fund, Panama Canal Commission Compensation Fund, 
Special Workers Compensation Expenses Fund, the Working Capital Fund, 
payments and advancements to the Unemployment Trust Fund and other 
funds, and gifts and bequests. Additionally, the Pension Benefit 
Guaranty Corporation's two PPAs that fund its pension insurance and 
pension plan termination activities were exempt, although its third 
one for operational support was not.  

Transfer Authority:  

For fiscal year 2013, DOL was authorized to transfer up to 1 percent 
of its discretionary funds between PPAs, provided that DOL notified 
the Appropriations Committees at least 15 days in advance, but no PPA 
could be increased by more than 3 percent by any such transfer. This 
transfer authority was available only to meet emergency needs and 
could not be used to create any new program or fund any project or 
activity not funded by the appropriations act.  

Reprogramming Limitations:  

DOL may reprogram funds, although for fiscal year 2013 it was required 
to notify the Appropriations Committees 15 days in advance of certain 
reprogramming; for example, any reprogramming that created new 
programs, or any reprogramming in excess of $500,000 or 10 percent, 
whichever was less, that augmented existing PPAs, among others.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V. 

[End of Mission and Budget Overview]  

Department of Labor (DOL) officials told us the agency took steps to 
minimize the effect of sequestration on its mission. Officials said 
while actions such as some reductions in unemployment benefits have 
already occurred, it is too early to fully assess the effects on 
operations or services to the public. For example, DOL officials noted 
some effects of sequestration may not be known until after the end of 
the fiscal year when reports come in from state grantees. DOL provided 
guidance to states that administered unemployment insurance reductions 
and implemented grant reductions in several employment and training 
programs. It also reprogrammed some funding to preserve priority 
activities, cut back on training and hiring and other activities, and 
furloughed a quarter of its employees for 0.5 to 7 days. Officials 
also expressed concern about long-term effects of sequestration and 
the inability to conduct long-term planning due to the unstable budget 
situation.  

Planning:  

DOL officials told us they developed initial agency-wide plans for 
sequestration in early December 2012 in accordance with OMB guidance. 
They completed an updated plan in February 2013. The 2013 plan 
included estimates of the reductions for each account and PPA due to 
sequestration, a brief description of the agency's response to the 
reductions, and an estimate of the effects of the actions the plan 
described. According to DOL officials, the guiding principle was to 
minimize the effect of sequestration on DOL's ability to meet the 
goals stated in its strategic plan–which includes preparing workers 
for jobs, ensuring workplace safety, providing income security, and 
producing data on economic conditions.  

During planning, each component defined its key services and 
identified programs or activities that were lower priorities. In some 
cases, particularly concerning the Pension Benefit Guaranty 
Corporation (PBGC), DOL consulted OMB to clarify which accounts were 
subject to the sequestration and which were not.  

DOL officials said that the uncertainty about the timing and size of 
sequestration presented a challenge for them as they developed an 
implementation plan for the agency. Additionally, DOL officials said 
that a large number of their accounts had special rules or exemptions 
that made it difficult to determine how to apply sequestration. For 
example, PBGC receives its funding primarily from the insurance 
premiums it collects, but OMB determined that its administrative 
expenses were subject to sequestration under BBEDCA. Similarly, DOL 
reported that fees which are received in exchange for a required 
government service, such as inspections of mining equipment by the 
Mine Safety and Health Administration (MSHA), were subject to 
sequestration. However, fees DOL receives from voluntary sources, such 
as orders for data or publications from the Bureau of Labor Statistics 
(BLS), were exempt from sequestration in accordance with BBEDCA. 
Further, DOL officials told us that they were uncertain about the 
final amount of sequestered funds because the actual amount of fees 
collected in a fiscal year is unknown until the end of the fiscal 
year. As a result, DOL had to base its reductions on estimates of the 
sequestrable base for certain accounts.  

Implementation:  

DOL reported that it implemented a number of actions in response to 
sequestration, including (1) reducing certain benefit and grant 
payments; (2) reducing spending for travel, training, and contract 
administration, as well as accelerating the cancellation of some 
activities; (3) implementing employee furloughs; and (4) reprogramming 
funds within the agency.  

According to the goals in its strategic plan, DOL provides services 
for the unemployed, which include administering unemployment insurance 
programs. Unemployment insurance provides temporary support for people 
available to work, but unable to find employment. Some of the funding 
for unemployment insurance was sequestered, while other related 
funding was exempt, as shown in table 7.  

Table 7: Sequestration Status of Selected Unemployment Insurance 
Funding:  

Type of unemployment insurance funding: Unemployment benefits paid by 
a state from its account in the Unemployment Trust Fund (includes 
regular unemployment benefits, generally for up to 26 weeks paid by 
employer taxes)[A]; 
Subject to sequestration: No.  

Type of unemployment insurance funding: Federal advances to states for 
payment of unemployment benefits; 
Subject to sequestration: No.  

Type of unemployment insurance funding: Federal share of Unemployment 
Insurance Extended Benefits generally beyond the usual 26 weeks[B]; 
Subject to sequestration: Yes.  

Type of unemployment insurance funding: Emergency Unemployment 
Compensation benefits[C]; 
Subject to sequestration: Yes.  

Type of unemployment insurance funding: Unemployment Insurance state 
administrative grants; 
Subject to sequestration: Yes  

Source: Congressional Research Service and DOL documents.  

[A] Unemployement insurance benefits vary by state. Typically, 
eligible unemployed workers can receive unemployment insurance 
benefits for up to 26 weeks in most states, though individuals may be 
eligible for fewer weeks.  

[B] During periods of high unemployment, states may provide up to 13 
or 20 additional weeks of benefits through the Extended Benefits 
program, funded jointly by states and the federal government.  

[C] Title IV of the Supplemental Appropriations Act, 2008, created the 
Emergency Unemployment Compensation Program, which provides 100 
percent federal funding to certain unemployed workers for additional 
weeks of unemployment benefits. The expiration date for this program 
was extended to January 1, 2014.  

[End of table]  

In implementing reductions for Emergency Unemployment Compensation 
benefits, which were reduced overall by 5.1 percent, DOL provided 
guidance to states on March 8, 2013, to allow them some time to begin 
benefit reductions on or after March 31, 2013. Some benefits had 
already been paid, so the actual reductions required during the 
remainder of fiscal year 2013 were higher than 5.1 percent, according 
to documents provided by the agency.  

DOL reported that it also reduced grants provided to states and local 
workforce agencies for employment and training services by 5.1 
percent. Several of these grant programs, such as the Adult, 
Dislocated Workers, and Youth programs of the Workforce Investment 
Act, help provide services to individuals at about 2,500 American Job 
Centers nationwide. According to DOL, it also reduced funding for 
other grant programs, such as the Homeless Veterans Reintegration 
Program, which provides services to help veterans reintegrate into the 
labor force.  

DOL officials reported reducing operational or administrative costs in 
areas such as contract support services, travel, training, facilities, 
and supplies. Officials also said they planned to cancel some 
activities to achieve cost savings during fiscal year 2013. For 
example, the agency reported that BLS eliminated a number of surveys 
and measures earlier than planned, including the Mass Layoff 
Statistics, the International Labor Comparisons, and the Measuring 
Green Jobs Initiative.  

In addition, DOL furloughed about a quarter of its workforce, or over 
4,000 on board staff. DOL reported that the furloughs helped the 
agency save approximately $3.7 million. The number of furlough days 
varied by component. Officials said that components that had a higher 
proportion of administrative costs saw larger numbers of furlough 
days. Employees saw anywhere from 0.5 days per employee to a high of 7 
days, depending on the component. To support furloughed employees, DOL 
issued a frequently asked questions document to its employees as well 
as guidance regarding obtaining employment outside the agency. 
Officials also noted that they were implementing these furlough days 
in ways that would be least disruptive to the operations for the 
respective components. Additionally, DOL officials told us that the 
extensive planning and coordination required by sequestration improved 
their communication channels within the agency and with the agency's 
unions.  

To mitigate the effects of sequestration, DOL reprogrammed funds based 
on the priorities of the individual components as determined by the 
agency's examination of its output measures and in keeping with the 
agency's core mission. For example, the Occupational Safety and Health 
Administration (OSHA) reprogrammed $11 million from educational, 
outreach, and assistance activities funded through its assistance 
program to its enforcement program. Likewise, MSHA reprogrammed $4.4 
million from educational and outreach activities to enforcement 
activities in order to ensure the component maintained its inspection 
program. DOL officials said that while outreach and education are 
important in ensuring that workers and employers know their rights and 
responsibilities, they thought a reduction in these activities would 
have less of an immediate effect on worker safety. Officials also said 
they chose not to pursue any funding transfers because they did not 
want transfers to one component to come at the expense of another 
component, which would then have funding problems.  

For further information regarding the timeline of DOL's sequestration 
planning and implementation, see figure 16.  

Figure 16: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Labor:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DOL Actions and Other Key Dates:  

July 30, 2012: Issued guidance to state workforce agencies,
administrators, and liaisons regarding Worker Adjustment and 
Retraining Notification Act requirements for federal contractors.  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Completed initial agency-wide plan for sequestration.  

February 2013: Updated agency-wide plan for sequestration.  

March 1, 2013: Agreed to a Memorandum of Understanding with employee 
unions related to sequestration reductions and proposed furloughs.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 5, 2013: Issued furlough notices to employees.  

March 8, 2013: Issued guidance to state workforce agencies regarding 
the unemployment insurance program.  

June 19, 2013: Determined furlough days.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from DOL.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

DOL officials reported that in some cases they may not know the full 
effect of the sequestration until after the end of the fiscal year. 
Officials said that data to measure the extent to which some services 
were reduced are often dependent on state reporting that would not be 
complete until after the end of the fiscal year, with officials 
telling us they might not have the results analyzed until months 
later. Additionally, DOL officials informed us that some programs 
operate on a program year basis, which generally runs from July to 
June. This means that the agency will not be able to report on the 
final fiscal year 2013 results for these programs until after states 
provide their data at the end of the program year after June 30, 2014.  

DOL officials estimated some effects on certain programs. For example, 
DOL reported estimates that the $1.9 million reduction in the Homeless 
Veterans Reintegration Program would result in six fewer grants 
serving 600 fewer veterans. In addition, DOL reported estimates that 
the sequestered funding from the Emergency Unemployment Compensation 
program would reduce weekly benefits paid to 2.6 million long-term 
unemployed workers by nearly 11 percent.  

In addition, DOL officials told us that some of the effects may not be 
clear until the following years. For example, officials expressed 
concern regarding the reprogramming of funds in OSHA from education 
and outreach to enforcement. They said the lack of education and 
outreach regarding workplace safety and health regulations could 
result in increases in safety and health violations in later years.  

DOL officials also expressed concern that the unstable budget 
situation makes it difficult to conduct long-term planning. They also 
said sequestration could have an effect on maintaining the functions 
of the various components in DOL as they are not replacing departing 
staff and it can take more than a year to train new staff once funding 
becomes available. Additionally, DOL officials informed us about one-
time actions, such as delaying computer system upgrades, but said 
these types of purchases could not be delayed indefinitely.  

Agency Comments:  

We provided a draft of this report to DOL. DOL provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Andrew Sherrill at (202) 512-7215 
or sherrilla@gao.gov or Revae Moran at (202) 512-7215 or 
moranr@gao.gov.  

[End of DOL section]  

Sequestration Planning. Implementation, and Effects:  

Department of State and U.S. Agency for International Development 
Operations and Foreign Assistance:  

Mission and Budget Overview:  

Mission:  

The joint mission of State and USAID is to advance freedom for the 
benefit of the American people and the international community by 
helping to build and sustain a more democratic, secure, and prosperous 
world composed of well-governed states that respond to the needs of 
their people, reduce widespread poverty, and act responsibly within 
the international system.  

State and USAID have a consolidated planning and budget process for 
foreign assistance accounts, with joint request and justification 
submissions to Congress. The agencies have maintained that joint 
approach while proceeding with sequestration planning and 
implementation for foreign assistance.  

2013 Funding Prior to Sequestration:  

State and USAID had operational and foreign assistance funding of 
$54.3 billion for 2013, made up of $54.2 billion in discretionary 
spending and $35 million in direct funding.  

Sequestered Amount:  

The estimated amount of sequestration was about $2 billion—-$1.97 
billion in discretionary appropriations and $1.79 million in direct 
spending.  

Programs, Projects, and Activities (PPA):  

State Operations' appropriations are provided in 25 accounts. Within 
these accounts, funding is divided among approximately 52 PPAs. 
State/USAID foreign assistance appropriations are provided in 20 
budget accounts. Within these accounts, funding is divided among 
approximately 462 PPAs. Foreign assistance PPAs are defined by law and 
generally include the country, regional, and central program level 
funding. State and USAID identified all their PPAs prior to January 2, 
2013.  

Transfer Authority:  

For State Operations, the Consolidated and Further Continuing 
Appropriations Act, 2013 extends authority provided by section 7009 of 
the Department of State, Foreign Operations, and Related Programs 
Appropriations Act, 2012 (SFOAA) allowing transfers between accounts 
not to exceed 5 percent of the total amount of the sending 
appropriation or 10 percent of the receiving appropriation subject to 
the regular notification procedures. The Consolidated and Further 
Continuing Appropriations Act, 2013 provides additional transfer 
authority between amounts appropriated as Overseas Contingency 
Operations (OCO) in fiscal year 2013 for specified accounts, including 
Diplomatic & Consular Programs; Embassy Security, Construction, and 
Maintenance; and Educational and Cultural Exchange Programs, subject 
to the regular notification procedures.  

With respect to foreign assistance, the Consolidated and Further 
Continuing Appropriations Act, 2013 extends authority provided by 
section 8003 of SFOAA, granting transfer authority between amounts 
appropriated as OCO in fiscal year 2013 for certain foreign assistance 
accounts such as International Disaster Assistance; Transition 
Initiatives; Complex Crises Fund; Economic Support Fund; and the 
Foreign Military Financing Program. The Foreign Assistance Act 
provides additional transfer authorities including section 610, which 
provides for transfers not to exceed 10 percent of the total amount of 
the sending appropriation or 20 percent of the receiving appropriation 
should the President deem the transfer necessary.  

Reprogramming Limitations:  

For State Operations accounts, congressional notification requirements 
for certain reprogrammings, including those that augment existing PPAs 
in excess of $1 million or 10 percent, are found in section 34 of the 
Department of State Basic Authorities Act (22 U.S.C. 2706) and section 
7015(a-b) of SFOAA.  

For foreign assistance, congressional notification requirements for 
obligations for activities, programs, projects, types of material 
assistance, countries, or other operations not justified or in excess 
of the amount justified by 10 percent or more of the previous 
justification are found in section 7015(c) of the fiscal year 2012 
SFOAA. A similar requirement is found at section 634A of the Foreign 
Assistance Act.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of State (State) and the U.S. Agency for International 
Development (USAID) began informal planning efforts prior to fiscal 
year 2013. Officials noted that it was challenging to plan budgets for 
sequestration without knowing how much would ultimately be cut. Both 
agencies used personnel and contracting actions to mitigate the 
effects of sequestration, but neither agency was required to furlough 
employees. Foreign assistance was cut equally across PPAs, so that 
U.S. missions abroad would not be viewed as giving certain countries 
or regions preferential treatment. The nature of State and USAID's 
core activities can make it difficult to quantify specific immediate 
effects, but officials said that there could be longer-term political 
and diplomatic effects if funding continues to be reduced.  

Planning:  

State officials said they began discussing the potential effects of 
sequestration internally and planning for various scenarios as early 
as the summer of 2012. Officials reported that during the planning 
period they were looking for ways to mitigate effects on high-priority 
issues, such as planned security improvements to diplomatic 
facilities. USAID's guiding principle was to protect its ability to 
perform its core mission. To this end, USAID officials reported that 
they considered a variety of ways to mitigate the disruption to 
operations, programs, and personnel. USAID officials noted that they 
sought to closely follow OMB guidance and they conducted their 
planning with long-term needs in mind.  

According to officials, by October 2012 State's Office of U.S. Foreign 
Assistance Resources (State/F) and USAID developed initial plans to 
address a potential sequestration of foreign assistance. State/F and 
USAID officials said they began taking cost containment steps that 
same month, releasing funds only for the purpose of ensuring that 
continuing programs were not suspended or terminated until officials 
ascertained the full effects of sequestration. State/F and USAID could 
reprogram foreign assistance funds to protect a particular country or 
activity, subject to regular notification procedures. That would mean, 
however, that the funding for PPAs for other countries or activities 
within those accounts would be further reduced. In consultation with 
their appropriators, State/F and USAID budget officials decided not to 
protect any foreign assistance PPAs in this manner. Officials said it 
would be easier to explain to foreign partners that these cuts to 
programs and commitments were mandated by U.S. law and that they were 
being applied equally. This would allow the U.S. missions abroad to 
more easily defend the reductions and mitigate diplomatic tensions, as 
opposed to prioritizing certain countries, regions, or programs over 
others.  

By February 2013, State and USAID prepared draft operating plans 
which, according to officials, considered implementation actions that 
accounted for the unique labor laws and statutes governing local staff 
at overseas missions.  

Officials reported that it was challenging to develop plans over time 
without knowing what the final sequestered amount would be. Officials 
did not know that amount until April 2013. In addition, officials 
noted that they had to consider the different country labor laws and 
statutes governing local engaged staff at overseas missions. From 
April through June of 2013, State and USAID revised and developed full-
year operating plans with the more complete sequestration figures.  

Implementation:  

According to officials, State and USAID took a range of actions to 
implement sequestration cuts, which included the following:  

Personnel actions: In March 2013, State began a slowdown of its U.S. 
direct hires. The slowdown started with a smaller A-100 Foreign 
Service orientation class than State originally planned. In April, 
State instituted a 50 percent attrition replacement plan (selected 
programs may have been exempted), hiring one person for every two new 
vacancies. This attrition plan was instituted both domestically and 
with locally employed staff in country, including personal service 
contractors and Foreign Service nationals. Further, both State and 
USAID suspended all discretionary monetary awards and 
meritorious/quality step increases.  

Contracting actions: State reported a $34 million reduction of its 
Embassy Security, Construction, and Maintenance, Worldwide Security 
Upgrades funding. State's program to secure contracts to increase 
security at high-threat diplomatic facilities is funded from this 
account. In addition, sequestration cuts affected several contract-
funded IT initiatives including global modernization, Share Point 
services, and the Enterprise Server Operations Centers. In March 2013, 
USAID issued letters to contractors and grantees to notify them that 
sequestration cuts might affect the workforce, revenues, or planning 
processes of those organizations. USAID noted in these letters that it 
might take general actions such as rescoping or delaying contracts.  

Foreign Assistance programs: Sequestration cuts were made equally at 
the PPA level because agency officials chose not to prioritize one 
country or region over another. Approximately 80 percent of the 
reduction to foreign assistance was borne by the Economic Support 
Fund, Development Assistance, Foreign Military Financing, Global 
Health Programs and Humanitarian Assistance accounts. According to 
State and USAID these programs support some of the agencies' most 
critical security partnerships, development programs, and humanitarian 
interventions.  

Although State and USAID originally planned to use furloughs to help 
meet the sequestration cuts, they avoided this through a number of 
factors. First, State was able to offset reductions by using 
unobligated balances from multiyear appropriations. For example in its 
operation plan, State reported that it planned to use $18.8 million of 
carryover balances from its Worldwide Security Protection–Overseas 
Contingency Operations account to offset required sequestration 
reductions and preserve its ability to support extraordinary security 
costs in Afghanistan and Pakistan and invest in security enhancements 
in high-threat, high-risk posts. State officials said the agency also 
implemented other personnel and contract actions, and reviewed 
administrative expenses such as travel to avoid furloughs. USAID 
officials also said they reviewed all of USAID's available authorities 
and the agency was able to exercise about $32.5 million of recoveries—-
using deobligated funds—-in fiscal year 2013 to help offset the need 
for furloughs.  

In addition, in June 2013 State notified Congress of plans to 
reprogram at least $64 million from fiscal year 2013 Diplomatic and 
Consular Programs Iraq Operations Enduring funds to offset the effects 
of sequestration. State's operating plan also said it planned to 
reprogram about $180 million to preserve high-priority activities, 
such as the Bureau of Administration's real property acquisition for a 
permanent location of the Diplomatic Security Worldwide Command 
Center.  

According to State and USAID officials, they generally did not use 
reprogramming to mitigate sequestration cuts for foreign assistance. 
Rather, they used reprogramming to address a host of unanticipated 
issues or crises that arose during the year. For example, State 
reprogrammed funds to provide unanticipated assistance to address the 
ongoing crisis in Syria. No funds had been budgeted for this purpose.  

See figure 17 for a timeline of State and USAID sequestration planning 
and implementation.  

Figure 17: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of the State and U.S. Agency for 
International Development:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

State/USAID Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

February 21, 2013: USAID announced no furloughs for fiscal year 2013.  

March 2013: USAID created a Sequestration Leadership Team.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March, 2013: State and USAID announced no new monetary awards would be 
approved.  

March 12, 2013: USAID issued letters to contractors and grantees 
regarding the potential effect and timing of the sequestration cuts.  

April 2013: State determined that no furloughs would be required for 
fiscal year 2013.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from State/USAID.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

The objectives of U.S. foreign assistance are to promote U.S economic 
and national security interests and reflect American values. State and 
USAID reported that the $1.5 billion sequestration to foreign 
assistance could hinder these objectives. Officials expect program 
effects will be intensified as time passes, especially for multiyear 
accounts, given the normal lag between when the funds are appropriated 
and when they are obligated. However, for one-year accounts, more 
short term effects are visible. For example, a reduction in Foreign 
Military Financing funds means that U.S. allies, such as Israel, will 
not be able to purchase as much equipment in fiscal year 2013. Other 
effects that State and USAID officials said can be seen or expected 
include some of the examples below.  

* According to State, the continuation of a hiring slowdown and a 50 
percent attrition replacement plan will damage the progress made over 
the last 4 years to close gaps in hiring and training to meet mission 
requirements of State.  

* The fees generated through visa and passport applications were 
subject to sequestration; however, enough revenue was generated so 
that Consular Affairs services were not expected to be affected in 
fiscal year 2013.  

* State noted that to mitigate the effects of the sequestration on 
increased security efforts for overseas facilities, the Bureau of 
Overseas Building Operations will have to reprioritize its projects 
which may result in the deferral of other projects to provide safe, 
secure facilities. They also reprioritized planned contracts for new 
diplomatic facilities.  

* State also reported that it will have to postpone a data-sharing 
platform supporting its classified communications. It will have to 
defer work on the OMB-directed Data Center consolidation initiative.  

State and USAID officials said that the reductions in funding for 
operational and foreign assistance programs, while not always 
immediately quantifiable, may likely lead to political and diplomatic 
challenges over time.  

Agency Comments:  

We provided a draft of this report to State and USAID. State indicated 
it had no comments. USAID also indicated it had no comments.  

GAO Contact:  

For additional information, contact Michael J. Courts at 202-512-8980 
or courtsm@gao.gov.  

[End of State/USAID section]  

Sequestration Planning, Implementation, and Effects:  

Department of Transportation: 

Mission and Budget Overview:  

Mission:  

DOT's mission is to serve the United States by ensuring a fast, safe, 
efficient, accessible, and convenient transportation system that meets 
vital national interests and enhances the quality of life of the 
American people.  

2013 Funding Prior to Sequestration:  

DOT received a total of $91 billion in funding for fiscal year 2013, 
including $71.6 billion in annual discretionary appropriations, $13 
billion in supplemental discretionary appropriations, and $6.4 billion 
in direct spending authority. DOT's funding supports investments in 
highway, aviation, transit, rail, and other activities and promotes 
safety across all modes of transportation.  

Sequestered Amount:  

The estimated amount sequestered was $1.9 billion—$1 billion in annual 
discretionary appropriations, $600 million in supplemental 
discretionary appropriations, and $326 million in direct spending. 
Overall, 75 percent of DOT's total funding was exempt from 
sequestration, including grant programs for airport improvements, 
highways, motor carrier safety, and public transit.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 100 of DOT's 167 PPAs within 38 of its 46 
accounts. About $1.7 billion, or 90 percent of the sequestered funds, 
came from 14 accounts related to 3 DOT administrations—-FAA, the 
Federal Highway Administration, and the Federal Transit 
Administration. Within these organizations, funding for operations and 
maintenance of the air traffic control system, general revenue 
contributions to the Highway Trust Fund, and emergency response and 
relief funding for transit operators following Hurricane Sandy 
accounted for $1.3 billion of the sequestered funds.  

Transfer Authority:  

For fiscal year 2013, DOT was limited to a total of 2 percent that 
could be transferred from one FAA budget activity to another, except 
for aviation safety. Any transfer in excess of 2 percent would require 
that DOT notify the Appropriations Committees.  

Reprogramming Limitations:  

For fiscal year 2013, DOT was prohibited from reprogramming funds 
that, among other things, augmented or reduced funds for existing PPAs 
by 10 percent or $5 million, whichever was less.  

Other Funding Flexibilities:  

On May 1, 2013, the Reducing Flight Delays Act of 2013 was enacted, 
which authorized DOT to make a one-time transfer of $253 million from 
the Airport Improvement Program account to fund air traffic control 
and other activities.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

Much of the Department of Transportation's (DOT) planning went into 
how to adjust Federal Aviation Administration (FAA) operations under 
the potential reduced spending levels of sequestration. Planning 
included determining the number of furlough days for FAA air traffic 
controllers and other employees and identifying federal contract air 
traffic control towers for closure. DOT halted these actions when it 
was provided with authority to make a one-time transfer of $253 
million from the Airport Improvement Program account to address these 
issues. Spending reductions affected the available amount of DOT 
support for Hurricane Sandy rebuilding efforts as well as other 
infrastructure investments and, according to DOT officials, could 
create long-term delays in these investments. DOT also reduced some 
grants, research funding, and maintenance activities, although the 
extent to which these reductions might prolong or delay projects 
supported by these investments varies by program, according to DOT.  

Planning:  

According to DOT officials, the department began planning for 
sequestration in the summer of 2012. Its guiding principle was to 
minimize the effects on its mission of ensuring a fast, safe, 
efficient, accessible, and convenient transportation system, with a 
particular focus on ensuring the safety of the traveling public.  

As part of the planning effort, budget, legal, procurement, and human 
resources staff from each of DOT's operating administrations met to 
discuss and review their efforts to address past funding reductions. 
While the largest DOT grant programs were exempt from sequestration, 
DOT reported that 11 of its 13 operating administrations were affected 
in some way by sequestration. According to DOT budget officials, the 
department's initial planning involved identifying areas that, if cut, 
would have the least effect on component operations and activities. 
For example, DOT budget officials reported that 6 of its operating 
administrations continued restrictions on hiring and non-essential 
spending implemented earlier in the fiscal year when a continuing 
resolution was in place.  

DOT identified additional cost-savings measures to address the 
reduction at FAA, which was the largest reduction among DOT's 
administrations ($637 million), after excluding DOT's disaster relief 
appropriation. According to DOT officials, these measures included a 
hiring freeze, termination of certain temporary employees and rehired 
annuitants, about $253.5 million in contract reductions, and about 
$46.9 million in travel reductions.  

FAA reviewed its operational activities to determine the number of 
furlough days needed to absorb the sequestered amounts. According to 
DOT budget officials, FAA determined that furloughs, if necessary, 
would be applied to staff across the country without targeting any 
specific airport or geographic area. They indicated that targeting 
specific airports could disproportionally affect airlines serving 
targeted airports and cause system-wide disruptions given the 
interconnectedness of the national airspace system.  

At the same time, DOT assessed options for closing air traffic control 
towers that are operated under contracts (referred to as federal 
contract towers) or eliminate overnight air traffic control service at 
certain airports. On March 22, 2013, the department announced it had 
identified 149 federal contract towers for closure, which would begin 
on April 7, 2013. However, on April 5, 2013, the start date was 
postponed until June 15, 2013, pending legal challenges to the 
proposed closure decisions. Eventually, the closures were canceled 
pending the enactment of the Reducing Flight Delays Act of 2013.  

According to DOT budget officials, planning was challenging because of 
the timing of the sequestration and the agency's PPA structure. 
Officials noted that the delay of sequestration implementation until 
March resulted in a shorter period of time in which to absorb the 
reductions. In addition, DOT officials stated that the PPA structure 
and limitations on FAA's transfer authority created a challenge. 
Specifically, according to DOT and FAA officials, about 70 percent of 
FAA's Air Traffic Organization PPA covers employee salaries and 
benefits, including all of FAA's air traffic controllers. According to 
DOT officials, even if DOT maximized its existing transfer authority, 
it would not have been able to provide for employee costs, as cuts 
were to be made uniformly across all PPAs in FAA's Operations account. 
Consequently, DOT could only make the required reductions through an 
employee furlough.  

Implementation:  

DOT's most significant action in response to sequestration was the 
furlough of FAA personnel in April 2013. DOT officials noted that 
furloughs were used as the last option to achieve sequestration 
levels. The department announced that the vast majority of the 47,000 
FAA employees, including air traffic controllers, aviation safety 
inspectors, maintenance technicians, and engineers would take one 
furlough day per pay period beginning April 21 through the remainder 
of the fiscal year. After the furloughs began, FAA reported delays 
occurring in major metropolitan areas, including New York, Chicago, 
and Southern California, because fewer controllers were available to 
manage air traffic. On April 27, 2013, the furlough was suspended 
pending the enactment of the Reducing Flight Delays Act of 2013 which 
provided DOT the authority to make a one-time transfer from the 
Airport Improvement Program—a grant program that makes funds available 
to airports for capital improvements— to other FAA accounts. 
Subsequently, the department used this additional authority to 
terminate all planned furloughs and fund air traffic control services 
and other activities. DOT budget officials reported that in all, 
21,141 FAA employees were furloughed for an average of approximately 8 
hours per employee, resulting in an estimated savings of $8.7 million.  

DOT also reduced funding for grants and research projects that were 
subject to sequestration. For example, DOT reduced funding available 
for Transportation Investment Generating Economic Recovery 
discretionary grants by $25.2 million,[Footnote 63] for pipeline 
safety grants and emergency preparedness grants to states by $3.5 
million, and for research by $20.9 million. In addition, DOT reduced 
payments under the Maritime Security Program—-a program that provides 
financial assistance to operators of U.S. flag vessels that, in turn, 
make their fleet available upon request of the Secretary of Defense 
during times of war or national emergency—-by $13.7 million. In 
implementing the $32.6 million reduction to the National Highway 
Performance Program, DOT reduced funding to each state by 5.1 percent, 
the sequestration rate for the program, and notified the states of 
this reduction.  

See figure 18 for a timeline of sequestration planning and 
implementation at DOT.  

Figure 18: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of Transportation:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

DOT Actions and Other Key Dates:  

Summer 2012: Began planning for potential sequestration.  

Fall 2012: Started a working group on sequestration.  

October 1, 2012: Beginning of fiscal year 2013.  

January 2013: Began implementation planning for potential 
sequestration.  

February 11, 2013: The Secretary sent a letter on potential 
sequestration effects to Congress.  

February 19, 2013: Federal Aviation Administration (FAA) notified 
employees that furloughs would be necessary if sequestration was 
implemented on March 1.  

February 22, 2013: The Secretary notified the traveling public of 
potential air travel delays.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 5, 2013: FAA began distributing proposed furlough notices to 
employees.  

March 22, 2013: The Federal Highway Administration (FHWA) notified 
states of the portion of the National Highway Performance Program 
funds being sequestered.  

March 22, 2013: FAA announced a phased-in closure of contract air 
traffic control towers beginning April 7, 2013.  

April 5, 2013: FAA postponed federal contract tower closures until 
June 15, 2013.  

April 10, 2013: FAA distributed furlough decision letters to affected 
employees.  

April 11, 2013: The Maritime Administration notified carriers in the 
Maritime Security Program of reduced stipend payments for August and 
no stipend payments for September.  

April 21, 2013: First day of FAA furloughs.  

April 27, 2013: FAA terminated all furloughs pending the President's 
approval of the Reducing Flight Delays Act of 2013.  

May 10, 2013: The Secretary announced that the Reducing Flight Delays 
Act of 2013 would provide sufficient funds to keep all federal 
contract towers open for the remainder of the fiscal year, and fund 
certain NextGen programs.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from DOT.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

DOT was able to mitigate the effects of the furlough at FAA and 
restore air traffic control and other aviation services through the 
transfer of funds between accounts allowed by Congress. However, the 
transfer of $253 million from the Airport Improvement Program will 
mean that FAA must curtail funding for eligible airport projects, 
including funding for airport planning, equipment, construction, and 
noise mitigation. FAA estimates about 170 projects—most of them 
associated with runway and taxiway construction—will be delayed. Some 
of these projects were scheduled to start in fiscal year 2013 and were 
deferred, while other phased projects may take longer to complete.  

DOT reported sequestration effects in other program areas, including 
the following:  

* Delays in Next Generation Air Transportation System (NextGen) 
projects: FAA's undertaking to transform and update the air traffic 
control system relies, in part, on participation by subject matter 
experts, such as air traffic controllers, to develop and test NextGen 
systems. Anticipating furloughs, FAA pulled its air traffic 
controllers from NextGen projects and put them back online to support 
air traffic control operations. Following the furlough, FAA was unable 
to schedule air traffic controllers back to NextGEN work until June 
2013. Consequently, FAA indicated that projects to improve the 
airspace efficiency around major metropolitan airports will be delayed 
by 60 days to 5 months, because of the time that it took to reinitiate 
these projects following the transfer of funds. According to DOT, the 
hiatus in air traffic controller involvement also extended the 
timelines for FAA's En Route Automation Modernization program—a key 
modernization system that will provide the foundation for NextGen-—by 
7 months and resulted in delays for some programs dependent on this 
system's capabilities.[Footnote 64] In addition, despite the transfer 
of funds, FAA reduced funding for contracts that support NextGen 
development, including improvements in data communications and global 
position system technology in the cockpit.  

* Increased transit project costs: In fiscal year 2013, DOT reduced 
funding for existing grant agreements under the New Starts and Smart 
Starts program, its primary grant program for funding major transit 
capital investments. According to DOT, these reductions could lead to 
increased costs for transit projects supported by these grants or 
delays in other projects. DOT officials explained that project 
sponsors have contractual arrangements with design and construction 
firms that include schedule and payment requirements. Sponsors can 
incur delay claims if these requirements are not met. Therefore, the 
sponsors must figure out how to keep a project moving forward, even if 
federal funds fall short. According to DOT, some sponsors may borrow 
additional funds, which could increase overall project costs, while 
other sponsors may choose to reprioritize where they put their limited 
funds, which could delay projects.  

* Fewer pipeline safety personnel: The State Pipeline Safety grant 
program was reduced by $1.9 million, affecting more than 60 state 
agencies, according to DOT. Consequently, these agencies deferred the 
hiring of inspection and enforcement personnel responsible for 
pipeline safety oversight activities.  

* Reduced first responder training: Funding for Emergency Preparedness 
Grants administered by the Pipeline and Hazardous Materials Safety 
Administration was reduced by $1.4 million, including $1.1 million in 
grants for planning and training at the state and local level. 
According to DOT, with these reductions, grantees will provide less 
training to first responders such as volunteer and professional 
firefighters or to the trainers of first responders.  

* Decreased participation in the Maritime Security Program: DOT 
officials indicated that a $13.7 million reduction in funding for this 
program resulted in smaller payments in August 2013 to the 13 vessel 
operators that participate in this program, and no payments in 
September 2013. According to DOT, an operator of one vessel withdrew 
its ship from the program as a result of the reduced payments. DOT 
officials noted that participation of all operators is needed to 
ensure that the Department of Defense has sufficient access to 
commercial vessels during times of national emergency.  

Although department officials were able to point to some short-term 
effects of sequestration, officials noted that it is too soon to tell 
what the long-term effects of these reductions might be, such as how a 
prolonged hiring freeze will affect critical backfills. According to 
DOT officials, they have been collecting information on the effects of 
the fiscal year 2013 sequestration to help understand the potential 
effect of any future sequestration.  

Agency Comments:  

We provided DOT with a draft of this report for review and comment. 
DOT provided technical comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Phillip R. Herr at (202) 512-2834 
or herrp@gao.gov.  

[End of DOT section]  

Sequestration Planning, Implementation, and Effects:  

Department of the Treasury:  

Mission and Budget Overview:  

Mission:  

Treasury's mission is to maintain a strong economy and job 
opportunities by promoting the conditions that enable economic growth 
and stability at home and abroad, to strengthen national security by 
combating threats and protecting the integrity of the financial 
system, and to manage the U.S. government's finances and resources 
effectively, including collecting revenues and enforcing federal tax 
laws.  

2013 Funding Prior to Sequestration:  

Treasury received a total of $619.3 billion for fiscal year 2013 prior 
to sequestration, including roughly $20 billion in discretionary 
appropriations and $599.3 billion in direct spending.  

Sequestered Amount:  

Almost $1.335 billion was sequestered—-$845 million in discretionary 
appropriations and $490 million in direct spending. Roughly 70 percent 
of the sequestered amount came from IRS, whose budget supports 
taxpayer services, the enforcement of tax laws, and operations 
support. Certain refundable income tax credits, such as the Earned 
Income Tax Credit and the refundable portion of the Child Tax Credit, 
along with interest payments on the federal debt (a large share of 
Treasury's overall funding), were exempt from sequestration.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 96 PPAs at Treasury within 51 accounts. The 
PPA structure for different Treasury components provided different 
levels of flexibility for absorbing the cuts. For example, IRS 
operations are funded through 9 separate PPAs, and Treasury had the 
ability to move funding from one PPA to another using its existing 
transfer authorities and reprogramming. In contrast, funding for many 
Community Development Financial Institutions Fund programs is set in 
statute. For example, funding for the Bank Enterprise Awards program 
was set at $18 million in fiscal year 2012. This program was funded 
through a single PPA that was reduced in fiscal year 2013 by 
sequestration and the across-the-board rescission to $17.058 million. 
Treasury had no flexibility to change this funding level.  

Transfer Authority:  

Subject to certain limitations, IRS was authorized in fiscal year 2013 
to transfer up to 5 percent of funds across accounts, limited to 3 
percent from the Enforcement account. Treasury may, with certain 
restrictions, transfer up to 2 percent between certain accounts such 
as Departmental Offices—Salaries and Expenses, Financial Management 
Service, Alcohol and Tobacco Tax and Trade Bureau, Financial Crimes 
Enforcement Network, and Bureau of the Public Debt—or to the Treasury 
Inspector General for Tax Administration. No transfer may increase or 
decrease any appropriation by more than 2 percent.  

Reprogramming Limitations:  

Treasury may reprogram funds within an account; however, in fiscal 
year 2013, certain limitations applied. Treasury could not reprogram 
funds to augment or reduce an existing program, project, or activity 
by more than 10 percent or $5 million, whichever was less, unless the 
department notified the Appropriations Committees in advance.  

Other Funding Flexibilities:  

Subject to certain limitations, Treasury has additional authority to 
carry over, for an additional fiscal year, up to 50 percent of 
unobligated balances from appropriations made available for salaries 
and expenses that would otherwise expire.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Department of the Treasury (Treasury) reported that sequestration 
negatively affected many program areas such as Internal Revenue 
Service (IRS) customer service, tax enforcement, and municipal bond 
payments. In the years leading up to sequestration, Treasury officials 
said the agency implemented cost savings initiatives, which, along 
with the use of transfers and other funding flexibilities, helped it 
mitigate some of the effects on services to the public in fiscal year 
2013. However, IRS reported that sequestration had an overall adverse 
effect on core taxpayer services. IRS's level of customer service, for 
example, dropped in fiscal year 2013 due in part to resource 
constraints caused by sequestration. In addition, according to 
Treasury, sequestration cuts to the IRS enforcement budget account, 
along with transfers from this account to other IRS programs, will 
likely result in lost revenue due in part to fewer tax return reviews 
and diminished fraud detection. Treasury was also required to decrease 
direct payments to state and municipal bond issuers and others 
assisting low-income and disadvantaged communities.  

Planning:  

Treasury began informal planning for sequestration prior to October 
2012—-the start of fiscal year 2013-—and intensified its efforts 
beginning in November 2012. According to Treasury officials, 
throughout the planning process, the department's guiding principle 
was to protect its ability to perform its mission on behalf of the 
American people. Treasury officials said that the department also 
sought to treat employees who could be subject to furloughs or other 
personnel actions as equitably as possible.  

In August 2012, Treasury instructed its components to begin 
considering how they would adjust their operations should 
sequestration occur. By November 2012, as the prospect of 
sequestration increased, the components developed statements on the 
potential effects of sequestration. Following the enactment of the 
American Taxpayer Relief Act of 2012, which delayed the effects of 
sequestration until March 2013, and the issuance of additional OMB 
guidance regarding sequestration implementation, Treasury required its 
components to reevaluate planning considerations, including 
reassessing the need for furloughs.  

According to Treasury officials, the uncertainty regarding if and when 
sequestration would occur presented the biggest planning challenge. 
Sequestration occurred 5 months into the fiscal year, which limited 
options available to achieve the required reductions. Most of the 
planning necessarily focused on actions that could be implemented 
quickly rather than those that would result in long-term efficiencies. 
According to Treasury officials, restructuring the workforce, for 
example, would have required substantial prior planning and possible 
upfront costs that were not feasible given the short window to 
implement the reductions. Treasury officials also reported that the 
department did not know its final funding levels until April 2013—at 
least one month after sequestration was ordered—because of the late 
passage of the full year continuing resolution, affecting the 
department's ability to plan. Treasury reported encountering no 
significant challenges in defining its PPAs for the purposes of 
sequestration.  

Implementation:  

Cost saving initiatives begun in prior years helped to mitigate some 
but not all of the challenges in implementing sequestration. For 
example, in previous fiscal years Treasury began the process of 
consolidating the functions of the Bureau of Public Debt and Financial 
Management Services into the Bureau of the Fiscal Service. According 
to Treasury officials, this consolidation resulted in efficiencies and 
cost savings that better positioned the bureau to absorb the $19.6 
million in budget reductions required by sequestration while 
minimizing effects on the bureau's mission.  

Treasury determined that IRS would be the only component that would 
require employee furloughs to manage to the reduced sequestration 
levels. After accounting for $135 million in new savings achieved from 
continuing its “by-exception-only” hiring freeze (which was in effect 
since December 2010) and after controlling other spending into fiscal 
year 2013, IRS initially estimated that it would have to furlough 
employees for 5 to 7 days to reduce spending by as much as $189 
million. IRS officials estimated that each furlough day would have 
saved roughly $27 million. IRS officials said the agency was able to 
limit the number of furlough days for employees to 3 days using 
available funding flexibilities and by identifying other cost savings, 
such as cuts in funding for travel, training, overtime, and monetary 
awards.[Footnote 65] The number of IRS employees furloughed by 
Treasury on each day ranged from roughly 84,000 to 90,000. IRS 
calculated that the estimated savings from the 3 furlough days through 
August 2013 totaled just over $89 million—$88.5 million saved in 
salary and benefits and $750,000 saved from reduced infrastructure 
costs, including utilities and security.  

IRS officials said the agency decided to furlough all employees on the 
same days in part because of the interdependencies of many operations. 
Initial implementation plans would have required furloughing IRS 
employees differently depending on the account from which they were 
funded. PPAs composed largely of salaries and benefits offer few 
alternatives to furloughs. According to IRS estimates, salaries and 
benefits make up 72 percent of total IRS funding (93 percent of which 
is in the Taxpayer Services and Enforcement accounts). IRS officials 
said they transferred $73 million from the Enforcement account to the 
Taxpayer Services and Operations Support accounts, so that IRS could 
implement its sequestration plan to furlough employees equitably and 
minimize the number of furlough days.  

IRS also exercised its authority to carry over roughly $52 million in 
unobligated funds from fiscal year 2012 appropriations that would 
otherwise expire to help minimize the number of furlough days and 
apply them evenly across appropriations accounts. While this carryover 
authority is not new, Treasury officials said that absent 
sequestration, these funds would have been used for other purposes. 
Officials also noted that there may be fewer unobligated balances 
available in the future because of ongoing resource constraints.  

In addition, Treasury officials said that while there was a large pool 
of contracts across the department that they considered rescoping, 
approximately 10 were actually targeted for specific cuts. For 
example, the Alcohol and Tobacco Tax and Trade Bureau (TTB) absorbed 
$5 million in spending reductions in part through cuts to its 
contracts and operating costs, delaying updates to information 
technology hardware.  

Treasury reported that sequestration also reduced funding for the 
Community Development Financial Institutions Fund (CDFI) by $11.1 
million. CDFI provides financial assistance, technical assistance, tax 
credit allocations, and training to support community and economic 
development activities and to expand access to credit to finance 
projects such as affordable housing, small businesses, community 
facilities, and financial services, among other projects. CDFI cannot 
reallocate reductions across these programs in most cases because the 
funding levels are fixed in the appropriations language.  

Furthermore, due to sequestration, Treasury reported that it had to 
reduce its payments to states and municipalities from Build America 
Bonds, Qualified Zone Academy and other bonds, grants, and payments 
for specified energy property. Build America Bonds, for example, are 
taxable bonds for which Treasury pays a subsidy covering 35 percent of 
the interest costs to the issuers, which include states and 
municipalities. These bonds are used to help state and local 
governments create jobs and finance capital projects (such as schools, 
government hospitals, and roads and transportation infrastructure 
projects) at lower borrowing costs. Because sequestration began in the 
middle of fiscal year 2013, Treasury reported that it had to achieve 
the 5.1 percent annual savings in the remaining months of the fiscal 
year, requiring it to uniformly reduce each payment by 8.7 percent in 
order to achieve the required funding reductions for the year.  

Treasury officials said that some of the changes they implemented in 
response to sequestration and other funding reductions may be useful 
in the future. First, the Departmental Offices instituted a 
centralized travel review process which required additional scrutiny 
and approval for travel requests. According to Treasury, while not 
wholly in response to sequestration, this initiative allowed for 
greater coordination across offices and cost savings opportunities. 
Similarly, although initiated prior to sequestration, IRS officials 
continued their shift to virtual training, stating that it helped them 
to save money and make better use of technology. In the future, 
Treasury officials said that voluntary early retirement and voluntary 
separation incentive pay (i.e., buyouts) could be a useful tool to 
help managers reshape their workforce in times of budget reductions. 
However, these actions require extensive upfront planning and, in the 
case of buyouts, large one-time payments to departing staff. Treasury 
did not offer employees voluntary early retirement and voluntary 
separation incentive pay in fiscal year 2013.  

See figure 19 for a timeline of sequestration planning and 
implementation at Treasury.  

Figure 19: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Department of the Treasury:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

Treasury Actions and Other Key Dates:  

August 2012: Instructed bureaus to begin considering how they would 
adjust their operations should sequestration occur.  

October 1, 2012: Beginning of fiscal year 2013.  

November 2012: Bureaus provided updated high level plans to Office of 
Performance Budgeting.  

December 20, 2012: Deputy Secretary released a memo to Treasury 
employees regarding implications of ongoing fiscal cliff negotiations.  

December 28, 2012: Assistant Secretary for Management instructed 
bureaus to initiate pre-decisional discussions with unions on employee 
furloughs.  

February 15, 2013: Office of the Procurement Executive contacted 
bureaus requesting information on contract actions anticipated in the 
event of sequestration.  

February 28, 2013: Assistant Secretary for Management requested 
bureaus to increase scrutiny plans and to finalize stakeholder 
communication letters.  

March 1, 2013: Began reducing awards and payments to Build America and 
other bonds by 8.7 percent.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 12, 2013: Notified governors of the likely effects of 
sequestration on their states.  

April 2013: Determined its final sequestered amount for fiscal year 
2013.  

May 16, 2013: Announced 5 furlough days for IRS and the potential for 
2 more days to be determined if necessary.  

May 24, 2013: Implemented first furlough day.  

June 14, 2013: Implemented second furlough day.  

June 16, 2013: IRS canceled its furlough day scheduled for July 22.  

July 5, 2013: Implemented third furlough day.  

August 13, 2013: Postponed another of IRS's furlough days, pending 
reevaluation of its budget.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from Treasury.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

Overall, the combination of actions unrelated to sequestration taken 
in previous years and Treasury's use of funding flexibilities helped 
to mitigate some of the effects of sequestration on operations, 
performance, and services to the public in fiscal year 2013. However, 
sequestration still forced reductions across nearly all Treasury 
programs with resulting performance losses. For example, Treasury 
stated that sequestration had an overall adverse effect on core 
taxpayer services. In Treasury's 2013 agency financial report, the 
department reported that IRS's customer service representative (CSR) 
level of service—one of IRS's key performance measures—was 60.5 
percent for fiscal year 2013, down from 67.6 percent in fiscal year 
2012 and lower than the fiscal year 2013 target of 70 percent set 
prior to sequestration. CSR level of service represents the number of 
toll-free callers that either speak to a CSR or receive informational 
messages divided by the total number of attempted calls. However, 
there is considerable weekly variation in this and other CSR 
performance levels throughout the fiscal year. For example, as part of 
our review of IRS's 2013 filing season, in December 2013, we reported 
that from January 1 to June 30, the CSR level of service for taxpayers 
with account inquiries (which excludes some calls such as compliance) 
was higher at 68 percent.[Footnote 66]  

According to Treasury officials, the number of times taxpayers 
received assistance at IRS taxpayer assistance centers (i.e., its walk-
in sites) through July 2013 also dropped to just over 5.4 million from 
almost 5.7 million in fiscal year 2012. While a number of factors 
affected IRS taxpayer services, according to a Treasury official, the 
primary driver of the decline was sequestration. Treasury officials 
also said some services to taxpayers were also temporarily unavailable 
because of IRS office closures for 3 days.  

Treasury officials said they anticipate that reductions to IRS's 
Enforcement account will likely result in lost revenue in current and 
future years due to fewer tax return reviews and diminished fraud 
detection. Since 1990, enforcement of the tax laws has been on our 
High Risk List of programs that are vulnerable to fraud, waste, abuse, 
and mismanagement or in need of fundamental transformation.[Footnote 
67] IRS estimates the tax gap—the difference between taxes owed and 
taxes paid—to be in the hundreds of billions of dollars. Based on 
their calculations, which assume a $4 return to each dollar spent on 
IRS, Treasury officials said they anticipate that sequestration would 
likely result in billions of dollars in lost revenue due to fewer tax 
return reviews and diminished fraud detection.[Footnote 68] Treasury 
also noted that enforcement-related revenue is typically generated 
through processes that can take years, therefore the complete effects 
of sequestration may not be known until subsequent years.  

Treasury officials projected that sequestration could also affect 
their ability to achieve their priority goal of increasing voluntary 
tax compliance. Specifically, Treasury officials stated that due to 
IRS furloughs and decreased enforcement actions, it is reasonable to 
project that voluntary tax compliance would decrease.  

Treasury also said that reductions to TTB accounts could slow permit 
processing and export certifications, among other activities, which 
could affect trade, revenue collection, and public health and safety. 
For example, according to Treasury's 2013 agency financial report, 
TTB's average turnaround time for the processing of original permit 
applications jumped from 67 days in fiscal year 2012 to 81 days in 
fiscal year 2013. According to Treasury officials, while awaiting TTB 
approval, new breweries, bonded wineries, importers, and wholesalers 
of alcohol are unable to begin producing and distributing their 
products and, subsequently, making tax payments.  

Treasury officials said the reduced payments to states and 
municipalities from the Build America Bonds and other bond programs 
for states and municipalities created by the American Recovery and 
Reinvestment Act of 2009 will negatively affect their capacity to 
create jobs and finance capital investments. However, they were not 
yet able to provide detailed support for these projected effects. For 
CDFI-related projects, Treasury said that fewer resources would be 
available to assist low income and disadvantaged communities, although 
exact quantifiable estimates of the effects of the $11.1 million 
reduction are difficult to forecast because of the mix of the products 
and services provided by awardees and the communities that they serve. 
According to the Treasury operating plan, the effects of CDFI 
reductions on job reduction forecasts are sensitive to the size and 
industrial sector in which the loans are made, among other factors.  

Agency Comments: 

We provided a draft of this report to Treasury. Treasury provided 
written comments which are presented in appendix III of this report. 
In its written comments, Treasury further described some of the 
effects of sequestration on agency operations and services to the 
public. Treasury also provided technical comments, which we 
incorporated as appropriate.  

GAO Contact:  

For additional information, contact James R. White at (202) 512-9110 
or whitej@gao.gov or James R. McTigue, Jr. at (202) 512-9110 or 
mctiguej@gao.gov.  

[End of Treasury section]  

Sequestration Planning, Implementation, and Effects:  

U.S. Environmental Protection Agency:  

Mission and Budget Overview:  

Mission:  

EPA's mission is to protect human health and the environment. To 
accomplish its mission EPA develops and enforces environmental 
regulations, among other things. Often EPA sets national standards 
that states generally implement through their own regulations. In 
addition, EPA uses nearly half of its budget to provide grants to 
state environmental programs, educational institutions, and others. 
These funds are used for a wide variety of projects from scientific 
studies to community environmental cleanups.  

2013 Funding Prior to Sequestration:  

EPA received a total of $8.95 billion for fiscal year 2013, including 
$8.34 billion in discretionary appropriations and almost $608 million 
in discretionary supplemental appropriations related to Hurricane 
Sandy. EPA did not receive any funding for direct spending in fiscal 
year 2013.  

Sequestered Amount:  

The estimated total amount of sequestered EPA funding was over $455.4 
million. This amount included nearly $425.1 million in discretionary 
appropriations, as well as other sources of dedicated revenue that 
were directly subject to sequestration. In addition, nearly $30.4 
million in supplemental funding related to Hurricane Sandy was 
sequestered.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to 91 PPAs within 8 appropriation accounts at 
EPA. These PPAs were generally at the program area level which 
reflected the structure of how EPA executes its budget. However, for 
State and Tribal Assistance Grants and geographic programs PPAs were 
defined at a more detailed project level. In some instances, EPA's 
sequestered PPAs represented PPAs with a large proportion of EPA staff 
costs, while in other instances they represented PPAs consisting 
primarily of grants or assistance provided to others.  

Transfer Authority:  

The annual appropriations acts for 2012 and 2013 provided EPA with 
limited transfer authorities for specific activities. For example, EPA 
was authorized to transfer up to $10 million to conduct removal 
activities related to oil spills.  

Reprogramming Limitations:  

Subject to certain limitations, EPA may generally reprogram not more 
than $1 million annually or 10 percent of an affected program without 
notifying the Appropriations Committees.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V. 

[End of Mission and Budget Overview]  

Environmental Protection Agency (EPA) officials reported challenges in 
planning for and minimizing the effects of sequestration on agency 
staff and programs. For example, EPA officials reported that the 
structure of the agency's PPAs created planning challenges because 
certain PPAs were made up almost entirely of salaries while others 
largely represented funding provided to state and tribal governments 
to implement environmental programs. In addition, EPA had reduced 
appropriations for fiscal year 2013 that resulted in a funding level 
below the fiscal year 2012 enacted level for almost all of EPA's 
accounts. Consequently, although EPA limited hiring and travel, among 
other actions, it furloughed nearly all of its employees for 47 hours 
and reduced funding for its state and tribal partners by over $200 
million. EPA officials stated that, as a result of sequestration in 
fiscal year 2013, EPA generally did less of what it planned to do. For 
example, it eliminated over 100 water quality protection and 
restoration projects and conducted 2,600 fewer underground storage 
tank inspections. EPA took these actions rather than canceling 
significant aspects of its work. Officials said over the long term it 
will be difficult to determine sequestration's effects on the agency's 
programs and goals because it is challenging to separate those effects 
from other budget constraints.  

Planning:  

EPA began planning for sequestration in January 2013 when OMB issued 
specific guidance. Specifically, EPA officials reported that they 
worked with their contract offices to consider contracting options. In 
addition, EPA human resources officials and union officials had pre-
decisional meetings to discuss the number of furlough hours that would 
be needed, and the grants office discussed reducing funding levels to 
EPA's grantees. However, EPA officials did not provide further details 
on what options they evaluated in their planning efforts. EPA's 
guiding principles in planning for sequestration consisted of 
implementing OMB guidance with equity and fairness for EPA employees 
and major stakeholders while safeguarding EPA's mission.  

EPA officials indicated that, beyond the challenge of planning for 
sequestration specifically, EPA had reduced appropriations for fiscal 
year 2013 that resulted in a funding level below the fiscal year 2012 
enacted level for almost all of EPA's accounts.[Footnote 69] According 
to information provided in EPA's operating plan for fiscal year 2013, 
key efforts to implement these reductions prior to applying 
sequestration included using carryover balances from fiscal year 2012 
to reduce current costs without affecting planned work and reducing 
the level of funding available for certain grant programs by 11 
percent, among other steps. EPA also had to plan to implement a $50 
million funding rescission in addition to sequestration.  

EPA officials reported that the structure of EPA's PPAs presented a 
challenge to planning for sequestration in a way that upheld EPA's 
guiding principles. Sequestration was applied as an across-the-board 
reduction to every PPA, which EPA officials said was constraining 
given the agency's PPA structure because certain PPAs were made up 
almost entirely of staff salaries. For example, according to an EPA 
budget document, there were 10 program areas for which personnel costs 
exceeded 70 percent of the total, and 4 for which no funding remained 
available for program costs other than personnel due to sequestration 
and 2013 salary increases. Moreover, EPA officials said the agency 
does not have the flexibility to absorb sequestration by reducing 
expenses for overtime and seasonal employees because these costs 
represent a limited part of EPA's budget. Further, EPA officials said 
the agency did not generally have the authority to transfer funds 
between appropriation accounts. As a result of these constraints, EPA 
officials said that it was difficult to plan for sequestration in such 
a way that minimized significant effects on its employees (i.e., 
implementing furloughs) and that did not disproportionately affect 
programs that supported EPA's state and tribal partners.  

Implementation:  

EPA officials reported that cost savings measures taken by the agency 
prior to sequestration, such as a hiring freeze, helped to mitigate 
the effects of the reductions; however, EPA found it necessary to take 
a range of personnel, contracting, and other actions to implement 
sequestration. EPA officials stated that, in fiscal year 2012, EPA 
limited hiring to one new employee for every two employees that left 
the agency. EPA officials also stated that, given constrained budgets, 
in recent years EPA consolidated its facility space and reduced 
mission-related travel. While these steps helped constrain the growth 
in EPA's costs and position the agency to implement the reductions 
required by sequestration, EPA took a range of additional or enhanced 
actions to implement sequestration. Ultimately, about 20 percent of 
the overall agency-level reduction in EPA's fiscal year 2013 operating 
plan was taken against payroll costs and about 80 percent from other 
costs such as inspections, hazardous waste site clean-up activities, 
and grant awards to state and tribal governments.  

One of the more significant personnel actions EPA took was to furlough 
each employee, excluding Office of Inspector General employees, for 47 
hours, including two agency-wide furlough days.[Footnote 70] These 
furloughs of approximately 16,000 employees resulted in a savings of 
close to $48 million ($8 million per day). EPA required nearly all 
employees to take the same number of furlough hours to ensure 
equitable treatment of employees, to minimize disruptions to EPA 
operations, and to ensure consistency in applying sequestration to all 
program areas. Initial agency estimates of the required number of 
furlough hours were much higher (104 hours or 13 days). These initial 
estimates were based on a direct calculation of a 5 percent 
sequestration reduction to EPA's fiscal year 2013 salary 
appropriations, but were reduced several times during the spring and 
summer of 2013 when better estimates could be calculated. According to 
an EPA document detailing aspects of the furlough process for 
employees, the estimated need for employee furloughs was reduced 
because of cost savings EPA realized from spending controls put in 
place earlier in the fiscal year, including reduced hiring and limited 
travel, as well as employee separations and voluntary leave without 
pay.  

Other significant actions EPA took to implement sequestration included 
the following:  

* Actions affecting personnel: Reducing overtime and freezing and 
further reducing hiring. Beginning in March 2013, EPA froze all new 
hiring. While EPA later allowed some new hiring to take place, in 
April EPA enhanced the policy it implemented prior to fiscal year 2013 
by requiring three departures for each new hire.  

* Contracting actions: Reducing contracts and operating and 
administrative costs. EPA reduced available contract resources by an 
estimated $50 million.  

* Other actions: Limiting travel and training to essential, mission 
critical activities and reducing grants and interagency agreements. 
EPA projected that State and Tribal Assistance Grants, which are for 
programs such as air quality management and pollution control, would 
be reduced by about $209.5 million and other grant or interagency 
agreement funding would be reduced by $51.9 million, resulting in 
cancellations or reductions to some new or existing awards and 
competitions.  

EPA officials reported that EPA generally did not use reprogramming as 
a tool to mitigate the effects of sequestration. The officials said 
the agency has generally not pursued reprogramming actions exceeding 
the parameters identified by Appropriations Committees, except in 
instances where the agency experiences a change in its fixed costs 
(e.g., rent). In addition, the officials said that if EPA had 
reprogrammed funds to mitigate reductions to one program at the 
expense of another, it would have gone against its principle of 
applying sequestration equitably across the agency's activities. 
However, EPA submitted one reprogramming request to cover increased 
rent costs charged to EPA by the General Services Administration for 
fiscal year 2013.[Footnote 71] EPA sought to move a total of about 
$18.9 million from PPAs in several different accounts to facilities, 
infrastructure, and operations PPAs in these accounts. Late in fiscal 
year 2013 EPA finalized its rent payments through reprogramming.  

Figure 20 shows EPA's key actions to plan for and implement 
sequestration.  

Figure 20: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Environmental Protection Agency:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

EPA Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

January 2013: Began developing plans to implement sequestration.  

February 7, 2013: Notified employees of the potential for furloughs, 
but did not provide specific estimates of furlough hours.  

February 26, 2013: Notified employees that sequestration could require 
employee furloughs of up to 13 days (104 hours).  

March 1, 2013: Notified employees of Phase I furloughs (32 hours from 
April 21 to June 15).  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 5, 2013: Issued a general notice to all EPA contractors 
regarding the potential effect of sequestration.  

March 5, 2013: Issued an internal memo to its senior officials 
highlighting immediate actions that needed to be taken to implement 
sequestration, such as taking no new hiring actions until further 
notice; limiting travel to mission critical activities; prohibiting 
issuance of new procurement solicitations; and freezing contract 
funding actions supported by fiscal year 2013 or other appropriations, 
except in mission critical situations.  

March 26, 2013: Made a final determination of its PPAs for purposes of 
sequestration.  

April 9, 2013: Notified employees of the reduction in the total number 
of anticipated furlough hours from the original estimate of 104 to 79.  

May 7, 2013: Submitted its fiscal year 2013 operating plan to the 
Appropriations Committees.  

May 29, 2013: Notified employees of Phase II furloughs (23 hours from 
June 16 to September 30) and of a reduction in the total number of 
anticipated furlough hours from 79 to 55.  

August 21, 2013: Notified employees that it was canceling the final 
planned furlough day (August 30), which further reduced the total 
number of furlough hours from 55 to 47.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and EPA 
documentation and other information provided by agency officials.  

[End of figure]  

EPA officials identified several lessons learned from their experience 
implementing sequestration. Specifically, they thought that EPA was 
transparent in its communication of the potential effects on employees 
and worked well with the employees' union representation.[Footnote 72] 
They noted that, in the future, to minimize disruption and concerns 
among employees, they would continue to engage the union early and 
often and be sure to communicate considerations and constraints to 
employees. For example, EPA would more clearly communicate why 
estimates of furlough hours tend to be high and tend to decline 
throughout the fiscal year (the officials said initial estimates tend 
to be high to ensure sufficient funds are available). Also, EPA found 
that it did not have adequate guidance prescribing the terms and 
conditions for on-site service contracts that could be disrupted 
because of a furlough-related facility closure. EPA took steps to 
develop new guidance prior to its first agency-wide furlough day on 
May 24.  

Should sequestration occur again in a future fiscal year EPA officials 
stated that actions taken in fiscal year 2013 could be replicated. 
However, these actions would depend on the levels of and conditions on 
any future funding. EPA officials stated that they would, to the 
extent possible, try to reduce or eliminate any furloughs in future 
fiscal years.  

Effects on Operations, Performance, or Services to the Public:  

EPA generally did less of what it planned to do. Since EPA did not 
have flexibility to move funding between accounts, EPA took reductions 
across many programs in many categories rather than canceling any 
specific programs. EPA implemented two agency-wide mandatory furlough 
days and scheduled them near federal holidays, when many staff were 
likely to be on leave, to minimize disruption to operations. Despite 
the consideration EPA gave to scheduling the mandatory furlough days 
as well as the flexibility the agency provided employees in choosing 
when to take other required furlough hours, EPA officials stated that 
employee morale has suffered and is a major concern.  

In terms of effects on specific programs and performance goals, EPA 
officials identified challenges to providing information on what 
effects, if any, there will be from sequestration. For example, EPA 
officials stated that many of the goals of EPA's major environmental 
programs are long-term goals (e.g., improving the quality of air, 
water, and land). Also, according to an agency official, EPA programs 
to protect air, water, and land depend on many interconnected 
activities, such as scientific research, risk assessment, 
environmental monitoring, regulatory development, enforcement, and 
other activities, which make it challenging to link specific 
activities with overall results. As a result, EPA officials stated it 
is difficult to identify the effects of specific sequestration 
reductions and, in particular, to isolate the effects of these 
reductions from other fiscal constraints. However, they provided 
specific estimates of the effects on some of EPA's programs including:  

* Reducing fellowships, by about 118, which support science, 
technology, engineering, and math and which help to educate the next 
generation of environmental scientists. EPA planned to award 151 
fellowships but awarded only 33.  

* Eliminating over 100 water quality protection and restoration 
projects. EPA does not have final data on the number of projects 
funded because states are still in the process of making awards. Water 
quality projects assist small and disadvantaged public drinking water 
systems and protect public health. EPA officials stated that reduced 
funding will affect states' ability to reduce the nitrogen and 
phosphorus pollution that contaminates drinking water supplies, causes 
toxic algae blooms, and deprives waters of oxygen that fish need to 
survive.[Footnote 73]  

* Reducing state grants for underground storage tank inspections and 
contaminated site cleanups, resulting in an estimated 2,600 fewer 
inspections and 290 fewer cleanups. In fiscal year 2012, when the most 
recent baseline data were available, states conducted 98,869 
inspections and 10,927 cleanups. Concerning reduced state grants for 
underground storage tank inspections in particular, EPA officials 
stated that some states struggle to inspect a third of their 
facilities every year and the reduction in funding limits their 
ability to maintain the 3-year inspection requirement, which may 
increase the risk of storage tank releases that contaminate soil, 
groundwater, surface water, or indoor air.  

* Reducing hiring and furloughing staff resulting in 1,000 fewer 
annual inspections (out of about 20,000) being conducted by EPA's 
compliance enforcement staff. EPA officials stated that fewer 
inspections reduce the deterrence effect on noncompliance from the 
possibility of an inspection. However, the officials stated the 
reduced deterrence effect is difficult to quantify.  

According to EPA officials, EPA has not completed fourth quarter data 
collection, analysis, and reporting for its priority performance 
goals. However, EPA met its prior quarterly milestones with one 
exception: improve, restore, or maintain water quality by enhancing 
nonpoint source program accountability, incentives, and effectiveness. 
EPA officials said it is unclear whether sequestration directly 
contributed to that milestone's delay because priority performance 
goals are long-term goals which rely on work by many interconnected 
programs.  

Agency Comments and Our Evaluation:  

We requested comments on a draft of this product from EPA. On February 
12, 2014, a senior policy advisor in EPA's Office of the Chief 
Financial Officer provided us with the following comments via e-mail 
on the draft.  

The EPA official provided suggestions to further explain the context 
surrounding the agency's actions to plan for and implement 
sequestration. Specifically, the official recommended putting the 
actions EPA took to prepare for sequestration in chronological order 
with actions the agency took to prepare for other reductions to its 
funding. We acknowledge in the report that EPA faced other funding 
reductions, which created challenges in its efforts to plan for 
sequestration. However, we did not revise the report to reflect EPA's 
efforts to plan for different funding reductions in chronological 
order because EPA's efforts to plan for sequestration were the focus 
of our work. The official also noted that EPA had to plan for a 
possible government-wide shutdown. As the government-wide shutdown did 
not occur until fiscal year 2014, we did not include its effects as 
part of our efforts to examine agencies' planning for sequestration in 
fiscal year 2013.  

The EPA official also commented on information discussing why the 
agency did not begin more detailed sequestration planning prior to 
January 2013. Specifically, the official said that EPA began more 
detailed planning in January 2013 because that was when OMB issued 
specific guidance. Previously, EPA officials had indicated that 
uncertainty in agency personnel costs prior to January 2013 
contributed to delays in planning for sequestration. However, in 
commenting on the draft, the EPA official noted that the agency 
carefully estimates future personnel costs. We adjusted the draft 
based on the EPA official's comments but did not assess the accuracy 
of EPA's personnel cost estimation procedures as part of the scope of 
our work to examine agency efforts to plan for and implement 
sequestration.  

Additionally, the EPA official commented on the information presented 
in the report discussing the challenges associated with identifying 
specific effects of sequestration on agency programs. In particular, 
the official stated that many EPA programs depend on interconnected 
activities to protect air, water, and land, such as scientific 
research, risk assessment, environmental monitoring, regulatory 
development, enforcement, and other activities, which make it 
challenging to link specific activities with overall results. We 
adjusted the draft based on the EPA official's comments.  

EPA also provided technical comments, which we incorporated as 
appropriate.  

GAO Contact:  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of EPA section]  

Sequestration Planning, Implementation, and Effects:  

General Services Administration:  

Mission and Budget Overview:  

Mission:  

GSA supports the missions of all federal agencies by providing them 
with workspace, acquisition services, administrative policies, and 
citizen engagement tools so that they can focus on achieving their 
respective missions.  

2103 Funding Prior to Sequestration:  

GSA received a total of $22.2 billion for fiscal year 2013 including 
roughly $8.3 billion in discretionary appropriations and $13.9 billion 
in direct spending.  

Sequestered Amount:  

While a significant portion (98 percent) of the agency's funding was 
exempt from sequestration, $13.4 million was sequestered—$12.3 million 
in discretionary appropriations and $1.1 million in direct funds.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to nine PPAs within nine accounts at GSA. For 
eight of these accounts, the agency's PPAs are synonymous with its 
account for the purposes of sequestration. According to GSA officials, 
this structure gave them flexibility to determine where cuts could be 
made. The ninth account included multiple PPAs, but only one was 
subject to sequestration.  

Transfer Authority:  

GSA has some specific transfer authority for the Federal Buildings 
Fund, but only to the extent that is necessary to meet program 
requirements which must be approved in advance by the Appropriations 
Committees. GSA also has other authority under 40 U.S.C. § 3173(d) to 
transfer unobligated balances for payroll and operating expenses into 
the major equipment acquisition and development activity of the 
Working Capital Fund.  

Reprogramming Limitations:  

For fiscal year 2013, GSA could reprogram funds subject to certain 
limitations within an account. Funds could not be reprogrammed for 
certain purposes, such as creating or reorganizing offices, programs, 
or activities, unless GSA notified the Appropriations Committees in 
advance.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

Less than 1 percent of the total funding for the General Services 
Administration (GSA) was sequestered in fiscal year 2013. GSA's two 
largest funds, the Federal Buildings Fund, which collects rent from 
tenant federal agencies at GSA properties, and the Acquisition 
Services Fund, which finances the purchase of products and services 
for federal agencies, represent over 98 percent of GSA's total funding 
for fiscal year 2013. The Acquisition Services fund was exempt from 
sequestration, while the Federal Buildings Fund was largely exempt. In 
light of sequestration, GSA officials said GSA cut its operations, 
postponed some planned activities, and took advantage of an effort to 
consolidate support services. Even though the portion of the budget 
sequestered was very small, and steps taken to mitigate the effects of 
sequestration were sufficient for fiscal year 2013, GSA officials 
indicated that they may not be able to address a future sequestration 
in a similar manner.  

Planning:  

GSA officials reported they began planning for sequestration in July 
2012, when initial guidance was provided by OMB. Officials said GSA's 
guiding principles were to protect its ability to perform its core 
operations and meet its mission of supporting the federal community 
while limiting the effect on other agencies and the public. GSA 
officials were anticipating funding cuts for future fiscal years, and 
much of the planning consisted of accelerating some actions to reduce 
spending that it anticipated making in future fiscal years.  

Implementation:  

GSA officials reported they curtailed operational and administrative 
costs in areas such as training, travel, facilities, and supplies. GSA 
also addressed sequestration by reducing or canceling contracts, which 
covered administrative services as well as information services and 
technology support for the agency's USA.gov website and citizen 
information services. GSA did not consider any employee furloughs as 
part of its sequestration efforts.  

GSA officials said they also moved forward with a planned 
consolidation of selected administrative functions. GSA officials said 
they designed this effort to address the duplication of several 
support services throughout the agency, such as human resources, 
information technology, and finance. By consolidating duplicative 
support services, GSA officials indicated that the agency will achieve 
cost savings, including full-time equivalent reductions. In addition, 
GSA officials said consolidating these resources brings the agency's 
overhead and indirect activities under the oversight of a single, 
accountable individual.  

To minimize the effects of sequestration, GSA reported several offices 
within GSA implemented hiring freezes, left staff vacancies unfilled, 
or relied on attrition to achieve cost savings. In addition, GSA 
reported that it drew on carryover balances from the Federal Citizen 
Services Fund, which provides citizens with information about an array 
of government services via the Internet, phone, e-mail and print; and 
the Electronic Government Fund, which finances innovative technologies 
and solutions to provide services through these funds.  

GSA officials stated they did not take any transfer actions or 
reprogram funds in response to sequestration.  

See figure 21 for a timeline of sequestration planning and 
implementation events at GSA.  

Figure 21: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the General Services Administration:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

GSA Actions and Other Key Dates:  

July 2012: Began planning for a reduced budget and the potential for 
sequestration.  

October 1, 2012: Beginning of fiscal year 2013.  

February 8, 2013: Notified employees of sequestration planning 
efforts.  

March 2013: Determined final sequestered amount for fiscal year 2013.  

March 1, 2013: Notified contractors of canceled or revised contracts 
related to sequestration.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from GSA.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public  

Since most of its funding was exempt from sequestration, GSA officials 
reported they do not anticipate substantial effects from the actions 
taken as a result of sequestration. Accordingly, agency officials 
indicated that they expect to be able to meet the agency's strategic 
goals and performance measures despite sequestration. However, some 
planned upgrades and outreach activities were affected. For example, 
GSA curtailed plans to modernize technology in the Transportation 
Audits Division in response to recent inspector general 
recommendations related to GSA's oversight of government-wide 
transportation expenses. In addition, according to GSA officials, GSA 
plans to reduce its support of certain citizen outreach programs 
through its external website [hyperlink, http://www.USA.gov], which is 
the single central source for the public to obtain information on an 
array of government programs.  

Agency Comments:  

We provided GSA with a draft of this report for review and comment. 
GSA provided technical comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact David Wise at (202) 512-2834 or 
wised@gao.gov.  

[End of GSA section]  

Sequestration Planning, Implementation, and Effects:  

National Aeronautics and Space Administration:  

Mission and Budget Overview:  

Mission:  

NASA's mission is to drive advances in science, technology, and 
exploration to enhance knowledge, education, innovation, economic 
vitality, and stewardship of the Earth. Projects range from space 
satellites with advanced sensors, to a spacecraft for returning 
samples from an asteroid, to telescopes for exploring the universe, to 
spacecraft to transport humans and cargo beyond low-Earth orbit.  

2013 Funding Prior to Sequestration:  

NASA received a total of $17.5 billion for fiscal year 2013, including 
$1.3 million in direct spending.  

Sequestered Amount:  

The sequestered amount was $626.6 million—$626.5 million in 
discretionary appropriations and $66,300 in direct spending.  

Programs, Projects, and Activities (PPA):  

NASA's PPAs are synonymous with its 10 appropriation accounts. Nine of 
the PPAs were subject to sequestration. The structure of the PPAs 
corresponds to the general areas of research that NASA handles in its 
programs and includes all of the costs associated with the specific 
programs under each PPA.  

Transfer Authority:  

In general, for fiscal year 2013 funds, the Consolidated and Further 
Continuing Appropriations Act, 2013, Pub. L. No. 113-6, 127 Stat. 198, 
264, authorized NASA to transfer up to 5 percent of an appropriation 
account to another account. The transferred amount cannot result in an 
increase of more than 10 percent in the receiving account. Transfers 
must also comply with certain reprogramming procedures.  

Reprogramming Limitations:  

NASA's reprogramming procedures provide certain limitations. For 
example, NASA cannot reprogram funds if the increase augments an 
existing program by more than 10 percent or $500,000 (whichever is 
less). (Pub. L. No. 113-6, § 505.)  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The National Aeronautics and Space Administration (NASA) absorbed most 
of its sequestration reductions by slowing its intended development of 
the Commercial Crew and Space Technology programs, according to NASA 
officials. This allowed NASA to maintain funding for commitments in 
programs that are fully under way. However, if sequestration 
continues, NASA may not be able to use this approach for future years 
without facing consequences in delaying projects with committed 
baselines. Specifically, NASA currently has only five major projects 
that have not established baselines and several of these are planned 
to be baselined this year, which would limit NASA's ability to avoid 
affecting projects with established commitments. Delaying milestones 
and testing for projects that have established cost and schedule 
baselines would likely lead to longer and more costly projects. In 
addition, according to NASA officials, additional funding cuts may 
result in NASA missing certain deadlines, such as the first launch for 
the Space Launch System program scheduled for December 2017. 
Furthermore, NASA would miss milestone payments in the Commercial Crew 
program and the resulting delays could prolong the nation's reliance 
on Russia to transport crew to and from the International Space 
Station (ISS).  

Planning:  

NASA began planning for sequestration in December 2012. According to 
agency officials, NASA's guiding principles were to continue with 
business as usual. These officials said that NASA was already 
operating at a lower spending level than the budget level it requested 
with the funding provided under the continuing resolution, which only 
permitted the agency to continue ongoing efforts and prohibited the 
start of new activities, such as research and development projects. 
During fiscal year 2013, NASA was ramping down from two large efforts—
the Space Shuttle program and the Mars Curiosity Rover project—which 
combined accounted for over $773 million of NASA's fiscal year 2012 
budget. NASA expected to shift its focus and ramp up its funding in 
the Commercial Crew and Space Technology programs in fiscal year 2013. 
NASA's role as a research and development agency allowed it to 
maintain funding for commitments in projects that were fully under way 
and absorb most of its sequestration funding decreases by slowing 
activities in these and other development areas. As a result, NASA did 
not consider furloughs or terminating contracts.  

According to agency officials, no major challenges were encountered in 
planning for or implementing fiscal year 2013 sequestration, 
particularly because NASA's PPA structure had been used in budget 
execution and operations for several years. NASA provided guidance to 
its employees as it planned and implemented sequestration. 
Specifically, this guidance directed projects to prioritize fiscal 
year 2013 spending on salaries for civil servants, fixed costs and 
safety activities of ongoing operations, and projects that were 
further along in development and had committed to established cost and 
schedule baselines.  

See figure 22 for a timeline of planning and implementation events at 
NASA.  

Figure 22: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the National Aeronautics and Space Administration:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

NASA Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

December 2012: Began developing plans for implementing sequestration.  

December 20, 2012: Provided memorandums to staff explaining that 
sequestration would require significant cuts, but no furloughs were 
planned.  

January 4, 2013: Provided memorandums informing staff that 
sequestration was delayed by 2 months.  

February 2013: Provided guidance to staff for prioritizing 
expenditures after the March 1, 2013, sequestration occurred.  

February 26, 2013: Provided memorandum informing staff that 
sequestration would set back the space exploration plan and cut about 
5 percent from the budget during the remaining 7 months of the fiscal 
year, but that no furloughs were planned.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 4, 2013: Provided guidance to staff regarding letters sent to 
contractors, grantees, and agreement participants on the possibility 
that work might be rescoped, delayed, or canceled due to 
sequestration. 

March 13, 2013: Provided new policy guidelines to staff on changes 
made due to sequestration: employee awards placed on hold, 
restrictions placed on training and travel, and no plans for 
furloughs.  

March 2013: Determined PPAs for purposes of sequestration.  

April 2013: Determined final sequestrable amount.  

May 2013: Began informing Congress of proposed transfers and 
reprogramming.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from NASA.  

[End of figure]  

Implementation:  

NASA canceled or strictly limited employee monetary awards, travel, 
and conference attendance. NASA also transferred and reprogrammed 
funding to ensure the agency continued to focus on its key priorities— 
establishing a space launch system to support travel beyond Earth's 
orbit, exploring Mars, supporting commercial crew transportation to 
the ISS, and providing technologies and instruments for further space 
research. Specifically, according to the operating plans submitted to 
Congress, NASA transferred $100.2 million from its Space Operations 
and $6.1 million from its Education accounts to its Space Technology 
($14.7 million) and Exploration ($91.6 million) accounts. The transfer 
helped to restore funding cut by sequestration to continue to develop 
and test space technologies, to support the operation of the ISS and 
its research, and to continue to develop the Orion crew vehicle for 
beyond low-Earth orbit exploration.  

Within the Science account, NASA reprogrammed $48.7 million from the 
Planetary Science and Astrophysics programs to two other programs. The 
funding was reprogrammed to the Heliophysics program ($4.9 million) to 
sustain missions in development. The funding was also reprogrammed to 
the James Webb Space Telescope program ($43.8 million) to ensure that 
the telescope program, which is intended to advance understanding of 
the origin of the universe, remains on schedule to launch in 2018. The 
reprogrammed funds included $41 million in costs savings realized on 
the Mars Atmosphere and Volatile EvolutioN program—NASA's mission to 
explore the Martian atmosphere that launched in November 2013. In 
addition, NASA reprogrammed funds within the Space Operations account 
from the ISS program to the Space and Flight Support program. This 
reprogramming restored some of the sequestered funding needed to 
support the Space Communications and Navigation program—NASA's program 
office that coordinates all of the agency's space communications 
activities. As a result, NASA is delaying Commercial Resupply Services 
and reducing the number of flights to the ISS.  

According to NASA officials, without reprogramming the additional 
funding to the Space Communications and Navigation program, one of its 
projects—the Space Network Ground Segment Sustainment, which provides 
essential communications and tracking services for space missions—
would have been delayed from entering the integration and testing 
phase. This delay would subsequently have delayed the final delivery 
of the system and affected the availability of necessary 
communications for NASA's spacecraft.  

Effects on Operations, Performance, or Services to the Public:  

Because the agency was able to transfer or reprogram funding to key 
priorities, the agency expected to meet its performance goals for 
fiscal year 2013. However, NASA may not be able to accommodate further 
funding reductions in future years without facing consequences in 
delaying projects already under way. NASA expected that fiscal year 
2014 would be challenging if funding levels were reduced below fiscal 
year 2013 levels. In particular, NASA officials said that the agency 
would miss milestone payments in the Commercial Crew program. Delays 
in the program could result in prolonging the nation's reliance on 
Russia to transport crew to and from the ISS. In addition, officials 
in some project offices expressed concerns that the full effect of 
sequestration is still uncertain. The officials anticipated a more 
significant effect if sequestration was to occur again. For example, 
the James Webb Space Telescope program reported that a cut in its 
fiscal year 2014 budget could adversely affect the execution of the 
current project plan and potentially jeopardize the October 2018 
launch date.  

In addition, officials from the Space Network Ground Segment 
Sustainment project, which recently experienced performance issues, 
stated that the project no longer has reserve funds and they are 
considering descoping some of the planned work. Space Launch System 
program officials also were concerned about their ability to stay on 
track for the first launch scheduled to occur in December 2017 if 
funding is reduced in future years.  

Agency Comments:  

We provided a draft of this report to NASA. NASA indicated it had no 
comments.  

GAO Contact:  

For additional information, contact Cristina T. Chaplain at (202) 512-
4841 or chaplainc@gao.gov.  

[End of NASA section]  

Sequestration Planning, Implementation, and Effects:  

National Science Foundation: 

Mission and Budget Overview:  

Mission:  

NSF's mission is to promote the progress of science; to advance the 
national health, prosperity, and welfare; and to secure the national 
defense. In support of that mission, NSF's 2013 budget request 
projected that over 80 percent of the agency's funding would be used 
for research in broad areas, such as mathematics and physical 
sciences, with about 12 percent provided for education and human 
resources efforts. Almost 90 percent of the support NSF provides for 
these core activities goes to academic institutions and, to a lesser 
extent, the private sector.  

2013 Funding Prior to Sequestration:  

NSF received a total of over $7.36 billion for fiscal year 2013 
including almost $7.24 billion in discretionary appropriations and 
$125 million in direct spending.  

Sequestered Amount:  

Of these amounts $360.8 million was sequestered—$355.7 million in 
discretionary appropriations and $5.1 million in direct spending. 
Also, $25 million of NSF's total funding was exempt from sequestration 
because these funds came from private donations.  

Programs, Projects, and Activities (PPA):  

NSF's appropriations are provided in seven accounts with the Research 
and Related Activities account separated into defense and nondefense 
activities, which resulted in NSF having eight PPAs for purposes of 
sequestration.  

Transfer Authority:  

In its past two annual appropriations, NSF has been given authority to 
transfer up to 5 percent of any appropriation account as long as no 
appropriation is increased by more than 15 percent by such transfers, 
subject to certain restrictions.  

Reprogramming Limitations:  

NSF may generally reprogram funds within an appropriation account. In 
its past two annual appropriations, however, NSF has been required to 
notify the Appropriations Committees when it reprograms funds in 
certain scenarios, including when reprogramming would augment a PPA by 
$500,000 or 10 percent, whichever is less.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

National Science Foundation (NSF) officials reported that several 
circumstances helped the agency mitigate the effects of sequestration 
in fiscal year 2013. In particular, NSF officials indicated that NSF 
received a higher appropriation than it anticipated for the year, 
which helped limit the reduction in the number of new grant awards the 
agency provided—NSF's primary action to implement sequestration. In 
addition, the flexibility NSF received by having its eight PPAs 
defined at a relatively high level combined with its use of its 
transfer authority helped it to avoid significant effects on agency 
staff and other priorities, such as maintaining support for ongoing 
facilities construction projects. NSF officials awarded 690 fewer new 
grants in fiscal year 2013 as an effect of sequestration. Although 
they could not determine the effects of fewer NSF grant awards, NSF 
officials said effects would likely include less innovation and 
advancement in science and engineering research and education in areas 
such as emerging technologies and cybersecurity.  

Planning:  

According to NSF officials, in October 2012 NSF began informal 
planning for sequestration and in mid-December 2012 began to more 
specifically examine the potential effects of sequestration. During 
this period and through February 2013, NSF senior officials developed 
pre-decisional scenarios to examine how NSF's operational capabilities 
would be affected by the use of its transfer authority. In particular, 
these officials analyzed ways in which the estimated sequestration 
reductions could be accommodated in two of NSF's accounts: (1) Major 
Research Equipment and Facilities Construction and (2) Agency 
Operations and Award Management. The officials determined that NSF 
would likely have to use its transfer authority to supplement 
available funding in the Equipment and Facilities Construction account 
to keep ongoing major facilities construction projects on track, and 
to avoid layoffs of scientific and technical staff supporting these 
projects. NSF officials also determined that reductions in support for 
these projects in fiscal year 2013 could lead to increased costs in 
future years. In addition, NSF officials analyzed how the agency might 
accommodate sequestration reductions in the Agency Operations account, 
and considered the potential savings and mission effects associated 
with actions such as hiring freezes, employee furloughs (between 1 and 
10 days), and reducing general operating expenses, among others.  

From October through December 2012, NSF began developing guiding 
principles for sequestration planning. NSF finalized the principles 
after receiving OMB guidance in January 2013. NSF's three guiding 
principles for sequestration planning were to protect:  

1. commitments to NSF's core mission by maintaining existing awards;  

2. the NSF workforce; and;  

3. science, technology, engineering, and mathematics human capital 
development programs, especially graduate research fellowships.  

NSF officials stated that while NSF developed guiding principles prior 
to receiving the January 2013 OMB guidance—-which encouraged agencies 
to protect their ability to meet their core mission and avoid 
decisions that may be beneficial in the short term but harmful in the 
long term—-this guidance helped reassure NSF that its principles were 
a sound approach to planning for sequestration.  

NSF officials said a key planning challenge was the uncertainty of 
whether sequestration would actually occur and, if so, when. They also 
said they found OMB's guidance on planning for sequestration to be 
restrictive on the timing and content of formal communication, 
particularly when and how NSF could communicate (1) potential furlough 
decisions to reassure its staff that it did not plan to implement 
furloughs, and (2) the effect of sequestration to other stakeholders 
(i.e., entities who might be interested in applying for research 
funding from NSF). In addition, NSF officials said OMB's February 2013 
guidance on implementing sequestration required agencies to place 
increased scrutiny on issuing discretionary monetary awards to 
employees. However, the officials said this guidance was unclear 
because they were uncertain whether NSF could still provide 
discretionary awards or only those awards that were legally required. 
In addition, according to an NSF official there was uncertainty around 
the meaning of the term “legally required.” Although OMB provided 
additional clarifying guidance in April 2013, the final decision on 
providing monetary awards was left for each agency counsel to 
determine.  

Implementation:  

NSF's primary action to implement sequestration was to reduce new 
grants in fiscal year 2013. Each year NSF receives 50,000 to 55,000 
proposals and, in recent years, has typically funded about 22 percent 
of them. Under sequestration, NSF received about 400 more proposals 
than it received in fiscal year 2012 and the number of awards 
decreased by 6 percent—from 11,534 to 10,844—or 690 fewer awards in 
fiscal year 2013.  

NSF also canceled staff monetary awards pursuant to OMB direction that 
federal agencies take such steps. NSF officials said the agency had 
already slowed or reduced hiring and employee travel prior to 
sequestration. In addition, NSF determined that furloughs would not be 
necessary to implement sequestration.  

NSF officials identified several circumstances that helped the agency 
mitigate the effects of sequestration. First, according to NSF 
officials, NSF's appropriation for fiscal year 2013 was $300 million 
more than anticipated—resulting in a 2 percent reduction from its 
fiscal year 2012 funding level rather than a 5 percent reduction from 
the level established pursuant to the continuing resolution. NSF 
officials credited this development with helping to reduce the 
estimated number of awards it would not be able to provide in fiscal 
year 2013 from 1,000 to the actual final amount of 690.  

Second, NSF transferred funds between accounts that are used primarily 
to support new grant awards to accounts that support key construction 
projects and agency operations. Specifically, the transfers were made 
as follows:  

* NSF transferred $12.47 million from the Research and Related 
Activities account to the Major Research Equipment and Facilities 
Construction account. According to NSF documentation, this funding 
ensured that all ongoing projects would continue in fiscal year 2013, 
and protected long-term facility investments, such as upgrading major 
research equipment and facilities.  

* NSF transferred $13.44 million from the Research and Related 
Activities account and $2.03 million from the Education and Human 
Resources account to the Agency Operations and Award Management 
account. This funding helped the agency avoid staff furloughs and 
hiring freezes and helped fund the grant proposal review process and 
post-award oversight and monitoring activities. While NSF transferred 
funds from its Education and Human Resources account, NSF maintained 
the level of funding within this account for its Graduate Fellowship 
Research program at the full fiscal year 2013 request level.  

In developing this strategy, NSF officials noted they benefited from 
the flexibility afforded to the agency by having its PPAs defined 
generally at the level of its appropriation accounts for purposes of 
sequestration. Specifically, since NSF has only eight PPAs across 
seven accounts, NSF officials said they were able to weigh potential 
effects of sequestration cuts more broadly than at the level of a 
particular area of focus within an account.  

Third, NSF officials stated that the agency's normal business process 
and its approach to ongoing budget uncertainty helped to mitigate the 
effects of sequestration. NSF officials said the agency's program 
budget is about 95 percent research grant awards and cooperative 
agreements, and most of this spending occurs in the third (26 percent) 
and fourth (46 percent) quarters of the fiscal year. As a result, NSF 
was able to implement sequestration largely by reducing future awards. 
In addition, NSF planned to allocate a smaller percentage of its 
budget at the start of fiscal year 2013 than normal. NSF officials 
stated that the agency typically plans to allocate 90 percent of its 
funding under a continuing resolution, thereby allowing for a 10 
percent change in the level of funding actually received during the 
fiscal year. However, for fiscal year 2013, NSF officials planned for 
an 80 percent allocation of funding because of the significant budget 
uncertainties regarding a continuing resolution and potential 
sequestration.  

Fourth, NSF officials said that, in certain instances, they chose to 
provide a continuing grant award as opposed to a grant award that was 
fully funded up front.[Footnote 74] The officials said that providing 
a greater percentage of continuing awards allows more awards to be 
made in a particular year because not all of the funding is obligated 
in the initial award year. However, doing so reduces the agency's 
flexibility in the future because of the intent to obligate funding to 
past awardees. As a result, NSF officials said the agency limited the 
extent to which it increased the percentage of continuing awards.  

Figure 23 shows NSF's key actions to plan for and implement 
sequestration.  

Figure 23: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the National Science Foundation:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

NSF Actions and Other Key Dates:  

October 2012: Senior management began analyzing options to implement 
estimated sequestration reductions.  

October 1, 2012: Beginning of fiscal year 2013.  

December 20, 2012: Issued a memo to staff discussing certain issues 
concerning the potential for sequestration in which NSF indicated that 
it did not anticipate implementing furloughs.  

January 2013: Finalized guiding principles for sequestration planning.  

February 2013: Determined it needed to pursue with OMB use of the 
agency's transfer authority to restore funding within certain accounts 
in order to maintain the agency's ability to meet its core mission and 
essential operation requirements.  

February 27, 2013: Notified academic institutions and other NSF 
awardee organizations of the potential effects of sequestration on 
NSF's awards.  

March 2013: Determined the final sequestrable amount.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 26, 2013: Made a final determination of its PPAs for purposes of 
sequestration.  

May 22, 2013: Submitted its fiscal year 2013 operating plan to the 
Appropriations Committees, which included the use of transfer 
authority (as noted above).  

July 17, 2013: Provided an updated notification to awardee 
organizations on the potential effects of sequestration and updated 
information to staff noting that there would not be furloughs or 
hiring freezes in fiscal year 2013.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and NSF 
documentation and information provided by agency officials.  

[End of figure]  

NSF identified several lessons learned from implementing sequestration 
in fiscal year 2013. Specifically, an NSF official reported that, 
should sequestration occur again, it would be important to communicate 
more frequently and with greater timeliness with NSF staff and 
stakeholders. The official noted that it would be important for OMB 
guidance and procedures related to these communications to be 
clarified and streamlined. The official also stated that the recent 
transfer authority provided to NSF afforded the agency flexibility to 
minimize adverse effects on agency personnel. Lastly, the NSF official 
noted the value of allocating a smaller percentage of NSF's budget at 
the start of the fiscal year, which preserved flexibility for the 
agency while its budget was uncertain.  

Should sequestration reoccur, an NSF official indicated that, in 
general, the agency could repeat the actions it took to implement or 
mitigate the effects of sequestration in fiscal year 2013. For 
example, the official noted the agency could again reduce the number 
of new grant awards—-alone or as part of a strategy to protect 
existing continuing grant awards.[Footnote 75] Also, the official 
reported that NSF could again transfer funds between its 
appropriations accounts—-provided NSF maintains its current transfer 
authority in years when sequestration is applied. The official also 
indicated NSF could again increase the share of continuing grant 
awards but only for a limited number of years, as it would reduce the 
agency's future flexibility.  

Effects on Operations, Performance, or Services to the Public:  

NSF officials did not identify specific sequestration effects on 
agency operations and did not identify any specific effects stemming 
from NSF's cancellation of staff monetary awards. NSF officials also 
noted that the agency's hiring and travel reductions were occurring 
prior to sequestration due to budget uncertainty. They said that 
sequestration was unlikely to have long-term effects on NSF's human 
capital planning because many of NSF's staff are scientists who rotate 
through the agency for 1- to 3-year periods from other organizations. 
NSF officials also said that the agency still plans to be able to meet 
its priority and other performance goals (e.g., develop a diverse and 
highly qualified science and technology workforce).  

The primary effect of sequestration on NSF's services to the public 
was fewer new grant awards funded in fiscal year 2013. According to 
NSF's operating plan for sequestration, an estimated 8,000 fewer 
researchers, students, technicians, and teachers benefited from these 
awards. NSF officials could not determine what proposals would have 
been funded in the absence of sequestration because the agency does 
not rank proposals in a specific order of funding priority. Also, some 
proposals might receive funding from other sources and could proceed 
with their work. However, because the number of awards was reduced 
across the entire organization, NSF officials said that the likely 
effect would be a reduction in the types of benefits that generally 
accrue from the activities it supports. This would include less 
innovation and advancement in science and engineering research and 
education in areas such as emerging technologies and cybersecurity.  

NSF plans to present its annual report on the merit review process to 
the National Science Board. The report is expected to be completed by 
May 2014.[Footnote 76] NSF officials noted that this report should 
include information on the effects of sequestration including the 
final grant tally, program and grant restructuring, and other analyses 
such as which researchers were funded compared to previous years.  

Agency Comments and Our Evaluation:  

We requested comments on a draft of this product from NSF. On February 
12, 2014, a senior advisor with NSF's Office of International and 
Integrative Activities provided us with the following comment via e-
mail on the draft.  

The NSF official noted that, should sequestration reoccur at the 
beginning of a fiscal year, the option of reducing funding increments 
for existing awards would be a more viable option for NSF to consider. 
The official indicated that, in fiscal year 2013, NSF's first guiding 
principle— maintaining existing awards—was largely driven by the 
timing of sequestration. As sequestration was ordered in March—nearly 
halfway through the fiscal year—a large fraction of the funding 
increments for existing awards were already provided. Therefore, 
actions to implement sequestration reductions involving existing 
awards would have raised concerns regarding equitable application. We 
adjusted the draft based on the NSF official's comment.  

NSF also provided technical comments, which we incorporated as 
appropriate.  

GAO Contact:  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of NSF section]  

Sequestration Planning, Implementation, and Effects:  

Nuclear Regulatory Commission:  

Mission and Budget Overview:  

Mission:  

NRC protects public health, safety, and the environment by licensing, 
regulating, and overseeing (1) civilian nuclear power, research, and 
test reactors (about 77 percent of the agency's budget); and (2) 
nuclear materials and waste (about 22 percent of the agency's budget).  

2013 Funding Prior to Sequestration:  

NRC received a total of $1.049 billion in discretionary appropriations 
in fiscal year 2013. NRC is required by law to recover approximately 
90 percent of its budget authority through fees charged to licensees 
and applicants, and in 2013 NRC expected to collect and return to the 
Treasury approximately $864 million in fees.  

Sequestered Amount:  

The sequestered amount was approximately $52.4 million, which 
consisted primarily of discretionary appropriations. Some sources of 
offsetting collections were sequestered, while others were exempt.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to four PPAs within two appropriations accounts 
at NRC: (1) salaries and expenses, which has three PPAs and (2) Office 
of Inspector General, which has one PPA.  

Transfer Authority:  

Under 42 U.S.C. 5852(a)(8), NRC is authorized to transfer to the 
Office of Inspector General an additional amount equal to 5 percent of 
the amount appropriated to the office for the fiscal year.  

Reprogramming Limitations:  

NRC can reprogram within an appropriation account, subject to certain 
limitations. For example, since fiscal year 2013 through the present, 
NRC has been prohibited by statute from reprogramming certain funds, 
unless they are needed to address national security or imminent risks 
to public safety.  

Other Funding Flexibilities:  

NRC receives mostly no-year funding (i.e., appropriations available 
for obligation without fiscal year limitation). As a result, NRC may 
carry over unobligated funds from one fiscal year to another, 
indefinitely.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

Nuclear Regulatory Commission (NRC) officials cited some challenges in 
planning for sequestration, including uncertainty about how much of NRC'
s budget would be subject to sequestration. Planning was also 
complicated by the need to address certain priority activities for 
which NRC officials said no additional funding was provided, such as 
those stemming from the Fukushima disaster in Japan.[Footnote 77] The 
officials said that the agency was able to partially mitigate the 
sequestration reductions by reprogramming funds. NRC officials noted 
that the funding available for reprogramming would not mitigate 
sequestration to the same extent if it should reoccur. NRC officials 
did not identify significant effects of sequestration on the agency's 
mission or performance goals. However, they stated that NRC collected 
$45.5 million less in licensing fees than it would have absent 
sequestration, and that this money would have been returned to the 
Treasury.  

Planning:  

NRC officials said that the agency began preparing for sequestration 
by identifying its PPAs in August 2012. They noted that NRC began more 
formal planning in October 2012 by contacting the agency's program 
offices to seek their input on what reductions could be made. In 
December 2012, NRC revised its PPAs, according to agency officials, 
and NRC staff developed a list of proposed reductions and presented 
them to NRC's Commission, a body of five commissioners that heads the 
agency. NRC officials said that in January 2013, the Commission 
requested that NRC staff draft a contingency plan for operating under 
sequestration. The draft contingency plan provided to the Commission 
in February 2013 outlined the overall effect of sequestration on NRC's 
mission, funding flexibilities, staffing, contracting, grants, and 
fees. In February 2013, the Commission approved the draft plan, 
according to NRC officials, and NRC provided an updated plan to the 
Commission on March 7, 2013. NRC officials said that they determined 
the final amount of sequestered funding by April of 2013.  

NRC officials stated that the agency sought to minimize the effects of 
sequestration on staff and on critical safety and security mission 
activities, particularly oversight of existing licensees. NRC 
officials also said that OMB's guidance on sequestration and NRC's 
guiding principles were in alignment. According to NRC officials, the 
agency's initial plans were largely based on a worst-case scenario 
that would reduce NRC's funding by approximately $86 million—an 
estimated level that decreased after passage of the American Taxpayer 
Relief Act of 2012, which reduced the sequestration amount scheduled 
for fiscal year 2013. Agency officials told us that NRC's initial 
planning identified essentially the same actions to take as those 
outlined in the agency's final contingency plan; however, the initial 
list identified more areas for reductions and involved larger 
reductions for those areas.  

NRC officials identified several challenges in planning for 
sequestration, including uncertainty about the agency's overall 
budget, as well as difficulties in determining its PPAs and the final 
sequestered amount. For instance, NRC officials described initial 
uncertainty over whether to begin planning for sequestration. They 
also said that they were uncertain about what constituted a PPA based 
on OMB guidance. Additionally, according to NRC officials, the agency 
was uncertain how much of its budget would be subject to 
sequestration. NRC received fiscal year 2013 appropriations of over $1 
billion and was required by law to recover about 90 percent of this 
through fees. NRC officials said that the agency's initial position 
was that the sequestered amount should be based only on the other 10 
percent of its appropriation, which is drawn directly from the 
Treasury, rather than its total appropriation for fiscal year 2013. 
Ultimately, OMB directed NRC to base its sequestered amount on its 
total appropriation, according to NRC officials.[Footnote 78]  

NRC officials also said that planning was complicated by the need to 
address priority activities for which no additional funding was 
provided. These included activities stemming from the 2011 Fukushima 
disaster in Japan and a 2012 court decision on an NRC rule related to 
storage of spent nuclear fuel,[Footnote 79] as well as the need to 
implement the Integrated University Research Program, a 
congressionally-mandated grant program. Because of these activities, a 
key aspect of NRC's sequestration planning efforts was to develop an 
integrated list of sequestration reductions and priority activities 
for which no additional funding was provided. NRC used this list to 
balance sequestration reductions and efforts to mitigate these 
reductions with the need to fund its priority activities for which no 
additional funding was provided.  

According to NRC officials, the lesson the agency learned regarding 
planning for sequestration was the value of early planning, even 
without guidance from OMB. In addition, based on the agency's 
experience implementing sequestration in fiscal year 2013, NRC 
officials said that they will change the agency's budget practices by 
over-estimating proposed reductions in their planning efforts. They 
noted that this is more efficient and effective for NRC's budget 
planning because it enables them to avoid repeated requests for 
information from program offices.  

Implementation:  

To implement sequestration, NRC officials said the agency made a range 
of reductions. For example, the officials told us that NRC reduced 
funding for licensing of new reactors and approval of designs for 
advanced reactors by an estimated $12.7 million.[Footnote 80] They 
said that these licensing and approval activities are core functions 
of the agency. According to NRC officials, other actions to implement 
sequestration included:  

* reducing funding for some research intended to: (1) improve the 
analytical tools and information used by the agency to confirm the 
safety and security of authorized uses of nuclear material and 
facilities, and (2) enhance the efficiency of certain agency 
activities;  

* eliminating the educational grants it awards under its Grants to 
Universities Program, as well as renegotiating grants awarded under 
its Integrated University Program;  

* rescoping or delaying contracts for information technology, 
facilities and building services, and program management and support 
services; and;  

* reducing employee training and travel.  

NRC officials told us that the agency did not furlough any of its 
employees in 2013 as a result of sequestration, but it did cancel or 
limit monetary awards to personnel.  

NRC also reprogrammed funds to mitigate the effects of sequestration. 
Specifically, NRC reprogrammed $38 million in prior year funds— 
approximately $14 million from deobligations of prior year funds and 
$24 million from unobligated fiscal year 2012 funding—to partially 
offset some of the sequestration reductions, according to agency 
officials. NRC officials said that while the agency routinely 
reprograms prior year funds and analyzes its available funding and 
expenses throughout every fiscal year, NRC did not reprogram any prior 
year funds in 2012, which left a larger amount available to reprogram 
in 2013.  

NRC officials told us that these reprogramming actions were not solely 
for the purpose of mitigating the effects of sequestration—they also 
helped to implement NRC's priority activities for which additional 
funding was not provided. Specifically, NRC officials said that the 
agency reprogrammed $28.5 million of prior year funds to the Nuclear 
Reactor Safety program, which officials said largely supported 
operating reactor licensing, oversight, and research activities, 
including activities stemming from the Fukushima disaster. According 
to agency officials, NRC also reprogrammed $9.5 million of prior year 
funds to the Nuclear Materials and Waste Safety program, which they 
said provided funding to support updating of an NRC rule related to 
storage of spent nuclear fuel.  

Figure 24 summarizes NRC's key actions to plan for and implement 
sequestration.  

Figure 24: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Nuclear Regulatory Commission:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

NRC Actions and Other Key Dates:  

August 2012: Initially identified PPAs.  

October 1, 2012: Beginning of fiscal year 2013.  

October 2012: Began sequestration planning by seeking input from 
program offices on potential reductions.  

December 2012: Revised PPAs.  

January 2013: Drafted Sequestration Contingency Plan.  

February 2013: Sequestration Contingency Plan approved by NRC's 
Commission.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

April 2013: Determined final sequestered amount.  

July 2013: Finalized the fee recovery for 2013.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from NRC.  

[End of figure]  

If sequestration were to be implemented again, NRC officials stated 
that some carryover balances would likely be available for possible 
reprogramming; however, the officials said that the funding available 
for reprogramming would not mitigate sequestration to the same extent 
as in fiscal year 2013. In addition, NRC officials told us that the 
agency could potentially replicate some of the actions it took to 
implement sequestration in fiscal year 2013, but others were one-time 
measures that would need to be re-evaluated to determine if they could 
be taken again.  

Effects on Operations, Performance, or Services to the Public:  

NRC officials did not identify significant effects on the agency's 
safety and security mission or performance goals as a result of 
implementing sequestration. However, the officials indicated that 
there have been some effects on NRC's operations, and that there may 
be effects on services to the public. For example, NRC officials said 
that rescoping or delaying contracts has affected operations by 
delaying infrastructure development for information technology, as 
well as facilities maintenance and improvements. Regarding services to 
the public, NRC officials noted that it could take longer to license 
new reactors and technologies; however, the officials did not provide 
details on the extent of any delays. Additionally, NRC officials told 
us that the agency eliminated educational grants under a program that 
would have provided funding to 25 to 35 grantees. The grant program 
was to assist in expanding the workforce in nuclear safety and nuclear-
related disciplines and in developing the next-generation nuclear 
workforce.  

In addition, NRC officials noted that sequestration of the agency's 
total appropriation forced the agency to reduce its fees for fiscal 
year 2013. NRC is required to recover approximately 90 percent of its 
appropriation in licensing fees, and sequestration reduced the 
appropriation on which NRC bases these fees. Consequently, according 
to NRC officials, the government lost the opportunity to collect $45.5 
million in fees (about 87 percent of NRC's final sequestered amount of 
$52.4 million) that would have been returned to the Treasury.  

Agency Comments:  

We provided a draft of this report to NRC. NRC provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact John Neumann at (202) 512-3841 or 
neumannj@gao.gov.  

[End of NRC section]  

Sequestration Planning, Implementation, and Effects:  

Office of Personnel Management:  

Mission and Budget Overview:  

Mission:  

OPM is responsible for the successful management of human capital 
across every federal agency. It oversees the creation and 
implementation of policies to support federal human resources 
departments—from classification and qualifications systems to hiring 
authorities as well as performance management and pay, leave, and 
benefits. OPM also manages insurance benefits for more than 8 million 
federal employees, retirees, and their families and serves more than 
2.5 million annuitants and survivors.  

2013 Funding Prior to Sequestration:  

OPM received a total of $169.9 billion in funding for fiscal year 
2013, including $234.1 million in discretionary appropriations and 
$169.7 billion in direct spending.  

Sequestered Amount:  

Approximately $8.7 million was sequestered—$5.1 million in 
discretionary appropriations and $3.6 million in direct spending. More 
than $169 billion in funding— almost all direct spending—was exempt 
from sequestration. This included payments to the Civil Service 
Retirement and Disability, Employees and Retired Employees Health 
Benefits, and Employees Life Insurance trust funds.  

Programs, Projects, and Activities (PPA):  

Sequestration applied to six PPAs which were synonymous with the six 
accounts at OPM including Salaries and Expenses, Office of Inspector 
General, trust funds for Federal Retirement, Health and Life 
Insurance, and Disability Programs and the Flexible Benefits Plan 
Reserve. For the trust fund accounts, only amounts attributable to 
administrative expenses were subject to sequestration.  

Transfer Authority:  

OPM did not have transfer authority available to mitigate the effects 
of sequestration.  

Reprogramming Limitations:  

In fiscal year 2013, OPM could reprogram funds within an account, 
subject to certain limitations, including a limit on augmenting an 
existing program, project, or activity in excess of $5 million or 10 
percent, whichever is less.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

Despite prior actions to prepare for reduced funding, according to the 
Office of Personnel Management (OPM), sequestration adversely affected 
some operations and services to the public, such as efforts to 
streamline and automate the exchange of federal employee human 
resources information; promote human resource information technology 
consolidation, standardization, and modernization; and process 
retirement claims. OPM had already prepared for a reduction in its 
fiscal year 2013 funding consistent with the President's budget 
request prior to sequestration. These actions helped position the 
agency to operate within the funding level for 2013 under 
sequestration. For example, a hiring freeze begun in October 2012, 
though not directly related to sequestration, helped the agency to 
achieve the reductions required by sequestration without resorting to 
furloughs. Nevertheless, according to OPM officials, OPM took actions 
to implement sequestration that adversely affected its ability to 
provide certain customer services in a timely fashion and to process 
federal employees' retirement claims. For example, OPM terminated a 
contract with a call center that handled customer inquiries regarding 
retirement. OPM also temporarily eliminated employee overtime which, 
along with other factors, impeded the agency from meeting its priority 
goal for processing retirement claims and addressing the existing 
backlog by the end of July 2013.  

Planning:  

According to agency officials, OPM began formally planning for 
sequestration in January 2013 in response to an OMB request for a 
detailed written plan for sequestration by February. According to OPM 
officials, because they had already been preparing for a reduction in 
OPM's total funding consistent with the President's budget request, 
they were better positioned to plan for sequestration. For example, 
OPM officials stated that they planned on $95.8 million in funding for 
the Salaries and Expenses account for fiscal year 2013 based on the 
President's budget—down from $97.8 million the prior fiscal year. OPM 
received $92.7 million for this account for 2013 after sequestration. 
OPM's guiding principle in planning for sequestration was to protect 
its ability to perform its mission on behalf of the American people. 
For example, OPM's planning documents identify administering the Civil 
Service Retirement System (CSRS) and the Federal Employees Retirement 
System (FERS) as one of OPM's highest priorities.  

OPM officials identified uncertainty regarding their final funding 
level as the greatest challenge in planning for sequestration. The 
continuing resolution enacted for fiscal year 2013 contributed to this 
uncertainty. However, OPM officials stated that the limitations on the 
amount that OPM could spend under the continuing resolution also 
helped prepare the agency for the subsequent reductions required by 
sequestration. For example, OPM implemented a hiring freeze in October 
2012 partly in response to the continuing resolution. The savings it 
achieved allowed the agency to operate within the reductions required 
by sequestration without resorting to furloughs. OPM officials said 
that budgeting based on a lower level of spending was a lesson that 
they were continuing to incorporate to help the agency prepare for a 
potential fiscal year 2014 sequestration. OPM officials reported no 
challenges in determining PPAs, which are synonymous with their 
accounts, and no challenges determining OPM's final sequestered 
amount.  

Implementation:  

Anticipating budget reductions in 2012 helped OPM to accommodate the 
effects of its eventual $8.7 million sequestration in 2013. 
Nevertheless, OPM had to implement several sequestration-related 
actions. First, OPM eliminated overtime for Retirement Services 
employees on April 28, 2013. According to OPM's operating plan, this 
was expected to reduce operating costs by $940,000. Second, OPM 
terminated its contract with a national call center on May 14, 2013. 
The call center handled questions on retirement plans and claims 
processing for annuitants and survivors throughout the federal 
government and helped OPM's federal employees handle peak hour calls. 
According to OPM's operating plan, the cost savings from this 
termination totaled $610,000. As of November 2013, OPM officials 
stated they were not able to calculate the cost associated with 
terminating the contract, which will likely offset part of these cost 
savings.  

According to OPM's operating plan, sequestration reduced the agency's 
Dental/Vision program, which administers benefits for federal 
employees, retirees, and their dependents, by approximately $870,000. 
In addition, over $370,000 in sequestered funding came from reductions 
to OPM's Enterprise Human Resources Integration program, designed to 
streamline and automate the exchange of federal employee human 
resources information, and its Human Resources Line of Business 
program, which leads the government-wide transformation of human 
resources information technology by focusing on modernization, 
integration, and performance assessment. As noted in OPM's operating 
plan, sequestration reduced or eliminated fiscal year 2013 funding for 
other operations, including the Wellness Works Program, which aided 
employees with health, family, and other work/life issues; building 
renovations; the summer Paralympics Job Fair, which, according to OPM, 
was instrumental in recruiting veterans; and other programs designed 
to achieve savings.  

Figure 25 provides a timeline of OPM's key actions to plan for and 
implement sequestration.  

Figure 25: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Office of Personnel Management:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

OPM Actions and Other Key Dates:  

October 1, 2012: Beginning of fiscal year 2013.  

October 2012: Implemented a hiring freeze unrelated to sequestration.  

January 2013: Began formal sequestration planning.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

April 28, 2013: Eliminated overtime for its Retirement Services 
employees.  

May 14, 2013: Terminated its contract with a national call center.  

August 17, 2013: Resumed limited overtime for its Retirement Services 
employees.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from OPM.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

OPM officials stated that eliminating overtime in response to 
sequestration, along with other unrelated factors, prevented the 
agency from meeting its priority goal of processing and finalizing 90 
percent of all incoming retirement claims within 60 days of receipt by 
July 2013. As shown in figure 26, the number of claims processed each 
month dropped from more than 15,000 in February (prior to the 
elimination of overtime for Retirement Services employees) to fewer 
than 8,000 by July 2013.  

Figure 26: Number of Retirement Claims Processed by the Office of 
Personnel Management's Retirement Services:  

[Refer to PDF for image: combined vertical bar and line graph]  

Date: July, 2012; 
Number of claims processed: 12,304; 
Backlog: 44,679.  

Date: August, 2012; 
Number of claims processed: 11,865; 
Backlog: 41,787.  

Date: September, 2012; 
Number of claims processed: 12,563; 
Backlog: 41,176.  

Date: October, 2013; 
Number of claims processed: 12,228; 
Backlog: 37,086.  

Date: November, 2012; 
Number of claims processed: 11,966; 
Backlog: 31,704.  

Date: December, 2012; 
Number of claims processed: 10,454; 
Backlog: 26,402.  

Date: January, 2013; 
Number of claims processed: 12,527; 
Backlog: 36,062.  

Date: February, 2013; 
Number of claims processed: 15,333; 
Backlog: 41,103.  

Date: March, 2013; 
Number of claims processed: 14,683; 
Backlog: 36,603.  

Date: April, 2013; April 28, 2013: Eliminated overtime for Retirement 
Services employees; 
Number of claims processed: 13,582; 
Backlog: 30,080.  

Date: May, 2013; 
Number of claims processed: 10,954; 
Backlog: 26,210.  

Date: June, 2013; 
Number of claims processed: 8,683; 
Backlog: 25,542.  

Date: July, 2013; 
Number of claims processed: 7,724; 
Backlog: 25,601.  

Date: August, 2013; August 17, 2013: Restored limited overtime for its 
Retirement Services employees; 
Number of claims processed: 10,955; 
Backlog: 22,750.  

Date: September, 2013; 
Number of claims processed: 10,831; 
Backlog: 17,719.  

Date: October, 2013; 
Number of claims processed: 11,027; 
Backlog: 14,176.  

Source: GAO analysis of OPM data.  

[End of figure]  

OPM officials stated that an early 2013 spike in claims resulting from 
a U.S. Postal Service buyout in late 2012 combined with the loss of 
staff from the prevailing hiring freeze exacerbated the effects of 
sequestration on retirement claims processing. OPM officials stated 
that upwards of 20,000 claims were subsequently filed in early 2013—
far more than the normal increase in claims from across the federal 
government of 1,100 to 1,200 that OPM receives every January. 
According to agency officials, despite this influx of claims, 
Retirement Services had been on pace to meet its claims processing 
goals until implementation of sequestration. However, in September, 
OPM reported that a year-end budget review allowed Retirement Services 
to resume limited overtime on August 17. Consequently, the backlog in 
claims reached its lowest point in more than one year. In addition, 
OPM stated that the cost savings from canceling overtime eventually 
totaled just under $838,000, rather than the $940,000 initially 
estimated.  

According to officials from OPM's Retirement Services, termination of 
the call center contract meant that the remaining staff had to handle 
calls from only 7:40 a.m. through 5 p.m. eastern time rather than 
until 8 p.m. They expected that the reduced hours likely 
disproportionately affected customers on the West Coast. Data later 
supplied by OPM suggested that the termination of the call center 
contract did negatively affect its customer service.  

Sequestration also indirectly affected OPM's operations. For example, 
according to its operating plan, OPM expected sharp declines in its 
Revolving Fund due to a decline in demand for shared services. 
Specifically, while the fund itself was not subject to sequestration, 
the federal agency customers of its operations that charge fees for 
service, such as the Federal Investigative Services and Human 
Resources Solutions programs, faced sequestration.  

When we spoke with OPM officials in November 2013, they stated that 
they were likely to meet or exceed their other performance goals for 
the fiscal year, including those they have designated as priority 
goals, in part because OPM's final funding amount including 
sequestration was largely consistent with the funding level officials 
assumed when they established the performance goals. The agency's 
other priority goals include ensuring high-quality federal employees, 
increasing health insurance choices for Americans, maintaining the 
speed of national security background investigations, and improving 
agencies' performance culture as part of the Goals-Engagement-
Accountability-Results pilot program designed to inform the 
development of government-wide policies.  

Agency Comments:  

We provided a draft of this report to OPM. OPM indicated it had no 
comments.  

GAO Contact:  

For additional information, contact Robert N. Goldenkoff at (202) 512-
2757 or goldenkoffr@gao.gov or Yvonne D. Jones at (202) 512-6806 or 
jonesy@gao.gov.  

[End of OPM section]  

Sequestration Planning, Implementation, and Effects:  

Small Business Administration:  

Mission and Budget Overview:  

Mission:  

SBA provides financial assistance, counseling and technical assistance 
to small businesses, and also provides loans to individuals or 
entities affected by disasters.  

2013 Funding Prior to Sequestration:  

SBA received a total of $1.9 billion in funding for fiscal year 2013, 
all of which was discretionary appropriations. The Disaster Relief 
Appropriations Act, 2013, a supplemental appropriation in the wake of 
Hurricane Sandy, provided $804 million of SBA's funding. Nearly all of 
SBA's supplemental funding was for disaster loans, with the remainder 
appropriated for grants to or cooperative agreements with 
organizations to provide technical assistance related to Hurricane 
Sandy and for SBA's Office of Inspector General.  

Sequestered Amount:  

Approximately $93 million of SBA's funding was sequestered, including 
$40 million of funding from the supplemental disaster relief funding.  

Programs, Projects, and Activities (PPA)  

Sequestration applied to six PPAs, which are synonymous with SBA's 
appropriation accounts. SBA has separate accounts for salaries and 
expenses, its Office of Inspector General, its Office of Advocacy, and 
three program accounts.  

Transfer Authority:  

In fiscal year 2013, subject to certain restrictions, SBA had 
authority to transfer 5 percent of appropriations in each account into 
another account, provided that such transfers did not increase any 
account by more than 10 percent.  

Reprogramming Limitations:  

For fiscal year 2013, SBA could reprogram funds within each account, 
though it had certain limitations if, among other situations, the 
reprogrammings changed the accounts involved by more than $5 million 
or 10 percent, whichever is less.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Small Business Administration (SBA) was able to implement 
sequestration reductions without furloughing employees because of 
savings it obtained from its 2012 early retirement offering and a 
partial hiring freeze, according to officials. Though sequestration 
cut SBA's loan programs, the reduced funding level for these programs 
was sufficient for SBA to meet the demands of qualified loan 
applicants. However, because SBA's disaster loan funding can be used 
in future years, without additional funding the sequestration cuts 
will reduce the amount of disaster loans SBA can make in future years. 
SBA estimated that reduced funding for SBA grants to partners that 
provide support to small businesses has decreased the number of 
businesses served by 2 to 25 percent, depending on the program.  

Planning:  

SBA began planning for a potential sequestration during the last 
quarter of fiscal year 2012. SBA developed an implementation plan in 
February 2013 that officials updated as the sequestration date 
approached. SBA officials told us that their priorities in 
implementing sequestration were to ensure that their customers, 
including borrowers, lenders, and noncredit partners, would not suffer 
severe or disproportionate consequences. SBA officials told us that 
they experienced delays and difficulties finalizing the plan and 
communicating with customers because of the timing of the 
sequestration order, which occurred less than 1 month before the end 
of the continuing resolution funding the federal government. 
Uncertainties about the final amount of agency funding under the 
sequestration persisted until April 2013.  

Implementation:  

SBA was able to implement sequestration without furloughs because it 
previously reduced personnel costs. In fiscal year 2012, SBA completed 
an early retirement offering, through which nearly 200 employees 
retired. SBA also achieved $9.5 million in savings by implementing a 
partial hiring freeze and $1.5 million in savings by reducing travel.  

Sequestration reduced the maximum total amount of available SBA direct 
and guaranteed lending through SBA's three non-disaster business loan 
programs from $25 billion to $24 billion. Sequestration also reduced 
funding for disaster loans from $896 million to $851 million. SBA's 
funding for disaster loans are no-year appropriations, which remain 
available for obligation until expended. Most of SBA's other funding 
comes from fiscal year appropriations, and thus must be obligated 
during that fiscal year.  

SBA did not fund its Program for Investment in Micro-Entrepreneurs, 
which provided funding to organizations that help low-income 
entrepreneurs gain access to capital. SBA officials said SBA chose not 
to fund the program (which received $3.5 million in 2012) in part 
because our work on duplication and overlap had identified it as one 
of a number of lending programs that assisted entrepreneurs.[Footnote 
81]  

SBA prioritized travel related to oversight over other travel, which 
enabled it to conduct travel necessary for oversight of small business 
eligibility for and participation in certain contracting programs. 
Travel for such oversight helps SBA identify fraud, waste, and 
abuse.[Footnote 82] For example, according to officials, SBA performed 
about the same number of documentation and on-site eligibility reviews 
as it had planned to complete before sequestration for the 
Historically Underutilized Business Zone Program and the 8(a) Business 
Development Program. The first program provides small businesses in 
historically underutilized business zones with federal sole-source 
contracting opportunities and contracting preferences, and the second 
program provides small disadvantaged businesses with access to federal 
sole-source contracting opportunities and other benefits.  

SBA officials told us that their partners (such as Small Business 
Development Centers and Women's Business Centers that provide 
mentoring, counseling, and training to small businesses) had been 
expecting and preparing for lower fiscal year 2013 funding before the 
fiscal year began. The President's fiscal year 2013 budget request 
(issued in February 2012) for the grant programs that fund these 
centers was lower than the funding they actually received in fiscal 
year 2013 after the sequestration ($155 million). SBA officials told 
us that after the President's budget request, SBA notified its 
partners through regular conference calls to expect reduced funding 
for fiscal year 2013.  

SBA's Office of Advocacy, which manages its budget independently of 
the rest of SBA, reduced contracting for economic research on small 
businesses by more than half, saving nearly $500,000, according to 
officials. Officials told us these savings enabled the office to 
reduce the effects of sequestration on staff and avoid furloughs.  

SBA's Office of the Inspector General, which also manages its budget 
independently of the rest of the agency, obtained the savings to 
implement sequestration through employee attrition and a hiring 
freeze, according to officials. It also reduced training and stopped 
paying cash awards to employees.  

SBA officials told us they did not need to transfer funds to implement 
sequestration. Prior to sequestration, SBA reprogrammed $70 million in 
unobligated balances for the costs of direct disaster loans to cover 
administrative costs for these loans.  

See figure 27 for a timeline of key events in SBA's planning for and 
implementation of sequestration.  

Figure 27: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Small Business Administration:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

SBA Actions and Other Key Dates:  

July 2012: Began developing plans for implementing sequestration. 

October 1, 2012: Beginning of fiscal year 2013.  

January 29, 2013: Received supplemental appropriation, primarily for 
disaster loans.  

February 2013: Prepared written implementation plan.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

April 2013: Determined final sequestrable amount.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from SBA.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

Qualified small business loan applicants were able to obtain SBA loans 
despite sequestration, according to SBA officials. SBA did not reach 
the sequestration-reduced maximum authorized lending amounts for any 
of its non-disaster business loan programs, and was able to make loans 
through the end of the fiscal year.  

SBA officials told us that the supplemental appropriation provided 
sufficient funding for the immediate response to Hurricane Sandy. 
However, they said sequestration decreased the total amount of 
disaster loans SBA can make, which could reduce the availability of 
disaster loans in subsequent years and would deplete its disaster loan 
reserves more rapidly without additional funding.  

The reduction in SBA grants to SBA partners for counseling and 
training of small businesses decreased the numbers of businesses 
served by these partners. For example, SBA officials told us that SBA'
s Small Business Development Centers served 2,839 (4.2 percent) fewer 
long-term counseling clients in fiscal year 2013 than in fiscal year 
2012, and its Women's Business Centers will assist 3,186 (2.3 percent) 
fewer female entrepreneurs in fiscal year 2013 than in fiscal year 
2012. SBA officials also said that reduced funding for SCORE, a 
nonprofit association that provides education and mentoring to small 
businesses primarily through volunteers, decreased the number of 
clients served in fiscal year 2013 by 112,871 compared to fiscal year 
2012, a decline of 24.6 percent. SBA officials told us that the 
decline in clients served was greatest for SCORE because while the 
other programs receive some funding from sources such as state and 
local governments and the private sector, SCORE's sole source of 
funding is SBA, and the reduced funding for SCORE affected its ability 
to conduct local and national outreach and marketing.  

As a result of the Office of Advocacy's reduced spending on contracts 
for economic research on small businesses, it contracted for 4 
research projects in fiscal year 2013, down from the 11 projects 
funded in fiscal year 2012. However, it increased the number of 
projects completed by its in-house staff, which it estimated would 
enable it to meet its performance goal of issuing 20 reports in fiscal 
year 2014—when the projects funded in fiscal year 2013 will generally 
be completed. Still, officials from the Office of Advocacy told us 
that the reduced spending on external research would limit the type of 
research that could be completed, as certain research projects can 
only be done by organizations that have collected proprietary data or 
developed proprietary models.  

Officials from the Office of the Inspector General told us that as a 
result of attrition and the hiring freeze needed to implement the 
sequestration, the office had 88 employees at the end of fiscal year 
2013, down from 97 at the end of fiscal year 2012. The office reported 
that in fiscal year 2012 its efforts resulted in $91 million in 
savings, cost avoidances, and recoveries and fines, more than five 
times its budget. However, the officials told us that the reduction in 
staffing to implement the sequestration could reduce their capacity to 
attain that level of accomplishments.  

SBA had a fiscal year 2013 performance goal of collaborating with 
other federal agencies to ensure that at least 23 percent of federal 
contract dollars were awarded to small businesses, but agency 
officials were unsure as to whether any decline in total federal 
contracting resulting from sequestration, which they said increased 
competition between small and large businesses for some contracts, 
affected this goal because they said that final validated data will 
not be available until July 2014.  

Agency Comments:  

We provided a draft of this report to SBA. SBA provided technical 
comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Orice Williams Brown at (202) 512-
8678 or williamso@gao.gov.  

[End of SBA section]  

Sequestration Planning, Implementation, and Effects:  

Social Security Administration:  

Mission and Budget Overview:  

Mission:  

SSA is responsible for providing benefits and services that affect the 
lives of nearly every American. It provides financial assistance to 
eligible individuals through Social Security retirement and disability 
benefits and Supplemental Security Income (SSI) payments.  

2013 Funding Prior to Sequestration:  

SSA had a total of $930.5 billion in funding for fiscal year 2013, 
including about $919 billion in direct spending and $11.5 billion in 
discretionary appropriations. Most of SSA's funding is used to pay 
Social Security retirement, survivors, and disability benefits from 
the Old-Age and Survivors Insurance Trust Fund and the Federal 
Disability Insurance Trust Fund.  

Sequestered Amount:  

For fiscal year 2013, all of SSA's direct spending and the 
Supplemental Security Income portion of its discretionary 
appropriations were exempt from sequestration, leaving the remaining 
discretionary appropriations subject to sequestration. The estimated 
amount sequestered from SSA's discretionary appropriations was $391 
million, which includes the amount sequestered from the Office of the 
Inspector General (OIG).  

Programs, Projects and Activities (PPA):  

SSA funding is provided in four primary accounts: Payments to Social 
Security Trust Funds; the Supplemental Security Income (SSI) Program; 
the OIG; and the Limitation on Administrative Expenses, which provides 
the administrative funding for the retirement and disability programs, 
among others.  

At SSA, sequestration applied to six PPAs within two of these 
accounts—-the OIG and the Limitation on Administrative Expenses 
accounts. The six PPAs included Old-Age and Survivors Insurance, 
Disability Insurance, Hospital Insurance, Supplementary Medical 
Insurance, Medicare Part D, and OIG General Fund.  

Transfer Authority:  

For fiscal year 2013, SSA was statutorily authorized to transfer a 
limited amount from the Limitation on Administrative Expenses account 
to the OIG account, provided that the Appropriations Committees were 
notified at least 15 days in advance.  

Reprogramming Limitations:  

SSA may reprogram funds, although for fiscal year 2013 it was required 
to notify the Appropriations Committees 15 days in advance of certain 
reprogramming; for example, any reprogramming that created new 
programs, or any reprogramming in excess of $500,000 or 10 percent, 
whichever was less, that augmented existing PPAs, among others.  

For information on the objectives, scope, and methodology, see 
appendix I. For a detailed glossary of budget terms, see appendix V.  

[End of Mission and Budget Overview]  

The Social Security Administration (SSA) reported that it began 
implementing cost savings initiatives in 2011, which helped avoid 
furloughs and mitigate some of the challenges in implementing 
sequestration in fiscal year 2013. After sequestration was ordered, 
SSA reported that it continued many of its cost-cutting measures such 
as restricting hiring and limiting overtime and travel. While it is 
difficult to separate the effects of sequestration from the effects of 
other ongoing budget constraints, SSA reported that sequestration cuts 
would result in growing backlogs of hearings for Disability Insurance 
and Supplemental Security Income (SSI) benefit claims and longer wait 
times at Social Security offices. Further, officials noted that loss 
of experienced staff could mean increasing workloads, backlogs, and 
improper payments in the future. In addition, SSA officials told us 
that the inability to replace departed staff can negatively affect 
long-term succession planning.  

Planning:  

SSA began informally planning for sequestration in 2011, when SSA 
executives began holding high-level discussions regarding implications 
of the Budget Control Act of 2011. At that time, SSA also implemented 
a hiring freeze with limited hiring in frontline areas it considered 
critical in response to budget reductions from the previous two years. 
Documentation provided by SSA stated that during planning SSA created 
scenarios of preliminary sequestration funding levels for fiscal year 
2013. The agency also communicated with SSA staff prior to 
sequestration to provide updates on the budget and potential steps the 
agency might take to mitigate the risk of furloughs. According to SSA 
budget officials, the agency's guiding principle for planning future 
reductions was to focus on carrying out its primary mission of 
providing benefits and services to the public.  

SSA officials reported that the biggest challenge in planning and 
implementing sequestration was uncertainty about whether or how 
sequestration would play out. Sequestration occurring in the middle of 
the fiscal year was also a challenge, in that it limited the options 
available to the agency. Officials also said that it was difficult to 
plan strategically without knowing the final budget numbers, and that 
uncertainty about budget resources had made it difficult for SSA to 
engage in long-term planning. SSA did not report encountering any 
significant challenges in defining its PPAs nor did it report that the 
structure of the PPAs influenced the types of options available.  

Implementation:  

To implement sequestration, SSA mainly continued some of the cost-
cutting initiatives begun in 2011. According to SSA officials, these 
earlier actions helped mitigate some of the challenges in implementing 
the sequestration reductions, and allowed the agency to avoid 
furloughs in fiscal year 2013. Some of the earlier actions and any 
specific actions taken after sequestration as reported by SSA are 
highlighted below:  

* Implemented a hiring freeze, with only minimal hiring in critical 
frontline areas. SSA reported that this action resulted in the loss of 
about 11,000 employees since 2011, including about 1,875 federal and 
state employees from March 1, 2013 to September 30, 2013.[Footnote 83]  

* Offered early-out retirement to employees in fiscal year 2013. 
According to SSA, 235 or about 3 percent of an estimated 7,700 
eligible employees took these offers.  

* Consolidated 92 field offices into 46 and closed 521 contact 
stations, in addition to forgoing plans to open eight new hearing 
offices and a new Teleservice center.[Footnote 84]  

* Reduced the hours that field offices are open to the public to allow 
staff to complete late-day interviews without using overtime.  

* Implemented an acquisitions savings plan that realized nearly $620 
million in savings from fiscal year 2010 to fiscal year 2012. In 
fiscal year 2013, SSA officials anticipated a savings of approximately 
$1 billion. According to SSA, these savings were achieved through 
strategic sourcing and negotiating with potential contractors to 
receive discounts, and were calculated by determining what the agency 
would have paid had it not negotiated or strategically sourced an item 
or service compared to what was actually paid.  

* Reduced travel in accordance with the President's Executive Order 
13589, Promoting Efficient Spending, which has saved an estimated $30 
million since fiscal year 2010, according to SSA. 

* Reduced agency-sponsored conferences from 113 in fiscal year 2010 to 
13 in fiscal year 2012, saving almost $7 million.  

* Suspended lower priority notices sent to the public (e.g., recontact 
and direct deposit notes) and reduced the number of Social Security 
statements mailed annually to current workers. Since the beginning of 
fiscal year 2013, SSA has stopped mailing Social Security statements 
annually to all individuals.  

* Reduced the number of continuing disability reviews, which are 
periodic reviews to verify that certain recipients still meet SSA 
disability rules.  

To mitigate sequestration's effects on the OIG, SSA transferred $3 
million from its Limitation on Administrative Expenses account to the 
OIG account. Of this amount, $2.8 million was to avoid OIG staff 
furloughs due to sequestration, and the remainder was to support 
critical OIG operations. According to a letter SSA sent to the 
Appropriations Committees on May 17, 2013, about 85 percent of the OIG 
budget is dedicated to salaries and benefits. The remainder supports 
general expenditures related to audit, investigative, and law 
enforcement work, as well as critical training, travel, and 
procurement.  

For further information regarding the timeline of SSA's sequestration 
planning and implementation, see figure 28.  

Figure 28: Timeline of Fiscal Year 2013 Sequestration Planning and 
Implementation at the Social Security Administration:  

[Refer to PDF for image: timeline]  

Legislative and OMB Actions:  

August 2, 2011: Budget Control Act (BCA) of 2011 enacted. Created the 
Joint Select Committee on Deficit Reduction, which was tasked with 
proposing budget reductions of at least $1.2 trillion to avert 
automatic deficit reduction procedures in fiscal years 2013 through 
2021.  

January 15, 2012: Deadline for legislation originating from the Joint 
Select Committee to be enacted to avoid automatic procedures.  

July 31, 2012: OMB notified Congress of the President's intent to 
exercise the legal option to exempt all military personnel accounts 
from sequestration for fiscal year 2013, as authorized under BCA. This 
action increased sequestration in other defense programs.  

September 14, 2012: OMB issued a breakdown of exempt and non-exempt 
budget accounts and additional information on the potential 
implementation of sequestration (pursuant to the Sequestration 
Transparency Act of 2012).  

September 28, 2012: Continuing Appropriations Resolution, 2013 
enacted, providing funding through March 27, 2013.  

January 2, 2013: American Taxpayer Relief Act of 2012 enacted. Reduced 
the sequestration amount scheduled for 2013 from $109 billion to 
roughly $85 billion and delayed the sequestration order until March 1, 
2013.  

January 14, 2013: OMB directed agencies to plan for and manage budget 
uncertainty but to postpone implementation of reductions specifically 
designed to respond to sequestration.  

January 29, 2013: Disaster Relief Appropriations Act of 2013 enacted. 
Provided funding for Hurricane Sandy disaster assistance and other 
purposes, thereby increasing the sequestrable base and reducing the 
percentage for non-defense programs necessary to achieve the required 
budget reductions in the future.  

February 27, 2013: OMB issued a memorandum discussing the 
implementation of sequestration and addressing questions regarding 
certain categories of planning activities, such as communication, 
acquisition, and financial assistance.  

March 1, 2013: OMB provided the final percentages for across-the-
board reductions in funding.  

March 26, 2013: Consolidated and Further Continuing 
Appropriations Act of 2013 enacted. Provided full-year appropriations 
to federal agencies and lowered the total sequestration amount to 
roughly $80 billion.  

April 11, 2013: OMB provided specific instructions to agencies on 
applying the sequestration against the full-year appropriations.  

SSA Actions and Other Key Dates:  

August–October 2011: Held high level discussions with executives 
regarding the BCA.  

August 2012: Created preliminary sequestration funding level scenarios 
for fiscal year 2013.  

October 1, 2012: Beginning of fiscal year 2013.  

November 2012: Updated sequestration funding scenarios based on the 
Continuing Appropriations Resolution, 2013.  

December 20, 2012: Issued Commissioner broadcast to all SSA employees 
covering implications of ongoing "fiscal cliff" negotiations and the 
effect of a potential sequestration on SSA.  

January 2013: Updated sequestration funding scenarios based on 
enactment of the American Taxpayer Relief Act of 2012 and changes in 
the percentages for sequestration.  

February 28, 2013: Issued Commissioner broadcast to all SSA employees 
covering budget updates and potential steps the agency may take to 
minimize the risk of furloughs.  

March 1, 2013: Released letters to governors alerting them of 
sequestration's effects on their states after the President signed the 
sequestration order for fiscal year 2013.  

March 1, 2013: Sequestration of $85.3 billion ordered government-wide.  

March 27, 2013: Updated sequestration funding scenarios based on 
enactment of Consolidated and Further Continuing Appropriations Act, 
2013.  

September 30, 2013: End of fiscal year 2013.  

Source: GAO analysis of legislation, OMB guidance, and information 
from SSA.  

[End of figure]  

Effects on Operations, Performance, or Services to the Public:  

Overall, SSA was able to mitigate some of sequestration's effects on 
its operations and performance because of the combination of actions 
it took in previous years, unrelated to sequestration, and its 
continuation of several cost-cutting measures. However, SSA officials 
emphasized that the additional cuts due to sequestration have further 
impeded the agency's ability to serve members of the public who need 
its services. The cuts have also resulted in growing backlogs of 
hearings for Disability Insurance and SSI benefit claims and longer 
wait times at Social Security offices. For example, due to reduced 
staff and overtime, SSA estimated that callers to SSA's 800-number in 
fiscal year 2013 waited twice as long as callers in fiscal year 2012; 
the average busy rate rose from 5 percent in fiscal year 2012 to 12 
percent by the end of fiscal year 2013. On average, applicants for 
disability benefits waited almost a week longer for a decision on an 
initial disability claim and nearly a month longer for a disability 
hearing decision compared to last year.  

Further, according to SSA officials, resource constraints have made it 
more difficult to remain current on the number of continuing 
disability reviews the agency is required to conduct. When these 
reviews are not conducted as scheduled, beneficiaries may receive 
benefits for which they are no longer eligible, and the agency may 
forgo future program savings, which SSA officials estimate are about 
$9 for every $1 spent conducting the reviews over a 10-year period. 
[Footnote 85]  

In addition, officials noted that the loss of experienced staff, 
combined with the inability to replace departed staff, can result in a 
drain on institutional knowledge and expertise at a time when 
workloads are growing and can negatively affect long-term succession 
planning.  

According to SSA officials, sequestration has negatively affected the 
agency's priority goal for faster hearing decisions. Officials said 
that the inability to provide balanced overtime throughout the year, 
lack of hiring, and limited replacement of aging video units 
contributed to longer wait times for decisions. For example, SSA had 
planned and modeled achieving an average processing time of 380 days 
for September 2013, but the year ended with a 396-day average 
processing time compared to 362 days in September 2012.  

Furthermore, agency officials reported that although SSA met its 
priority goal for online services,86 in the long term sequestration 
will affect its ability to invest in new eServices at the pace 
necessary to drive substantial growth.  

Agency Comments:  

We provided a draft of this report to SSA. SSA provided written 
comments which are presented in appendix IV of this report. In its 
written comments, SSA agreed with our findings. SSA also provided 
technical comments, which we incorporated as appropriate.  

GAO Contact:  

For additional information, contact Daniel Bertoni at (202) 512-7215 
or bertonid@gao.gov.  

[End of SSA section] 

Footnotes from Overview of Sequestration at 23 Federal Agencies:  

[1] In the early 1930s, when farm foreclosures occurred every day and 
American agriculture was hit hard by drought and economic disaster, 
Congress enacted agricultural legislation to, among other things, 
protect farmers against the risks of low crop prices and bad weather. 
Since then, Congress has periodically passed farm bills to help 
farmers manage the risks that come with farming and has added programs 
through these bills that are to provide domestic and international 
food assistance, promote economic development in rural areas, and help 
advance alternatives to petroleum fuel, among other things.  

[2] States can provide different WIC benefit levels and some states 
may reduce their benefit before they cut participants. The Food and 
Nutrition Service estimated that a 5 percent sequestration cut would 
result in a reduction of about 79,000 participants.  

[3] USDA indicated that there were 100 fewer grants compared to the 5-
year average of 2,170. However, USDA indicated that it did not have 
final data on the grant reduction associated with sequestration 
because some awards will not be processed until fiscal year 2014. 
Also, other factors could have influenced the number of awards made, 
such as providing a smaller amount of funding per award.  

[4] USDA officials indicated that 11,000 fewer producers and 
landowners, out of about 200,000 prior to sequestration, may have been 
provided assistance.  

[5] In commenting on a draft of this report, OMB noted that while 
Supplemental Nutrition Assistance Program benefits and State 
administrative expenses are exempt from sequestration, some 
administrative funding, including funding for program integrity 
activities, is subject to mandatory sequestration.  

[6] USPTO's appropriation gave it authority within certain 
restrictions to spend fees collected in excess of its appropriated 
level and also specified that its appropriated amount would be reduced 
to the level of fees collected if it collected less than its 
appropriated level. As a result, USPTO's authority to spend funds was 
reduced by sequestration based on the amount of fees it collected.  

[7] In July 2013, an OMB official notified Commerce that if the 
sequestered fees were appropriated in the future, they would count 
toward discretionary spending limits under federal law, which the OMB 
official stated reduced the likelihood of the funds being 
appropriated.  

[8] While the America Invents Act required the USPTO to open three 
satellite offices by September 2014, this mandate was subject to 
available funds. USPTO's first satellite office, located in Detroit, 
was fully opened in July 2012. Three additional field offices beyond 
Detroit are currently housed in temporary space with smaller than 
planned staffing.  

[9] In the fee restructuring, USPTO increased some fees and decreased 
or eliminated others, and provided discounts for small and micro 
entity filers. Overall, the fee changes were expected to increase the 
amount of fees collected.  

[10] Under federal law, if sequestration goes into effect when there 
is only a part-year budget, when a full-year budget is enacted any 
account receiving a reduction from the part-year budget to the full-
year budget equal to or more than the calculated sequestered amount 
will not be reduced any further. 2 U.S.C. § 903(f)(2).  

[11] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: February 
2013), 21.  

[12] GAO, Geostationary Weather Satellites: Progress Made, but 
Weaknesses in Scheduling, Contingency Planning, and Communicating with 
Users Need to Be Addressed, [hyperlink, 
http://www.gao.gov/products/GAO-13-597] (Washington, D.C.: Sept. 9, 
2013), 21-23.  

[13] We recently reported on sequestration at the Department of 
Defense, see GAO, Sequestration: Observations on the Department of 
Defense's Approach in Fiscal Year 2013, [hyperlink, 
http://www.gao.gov/products/GAO-14-177R] (Washington, D.C.: Nov. 7, 
2013).  

[14] [hyperlink, http://www.gao.gov/products/GAO-14-177R].  

[15] [hyperlink, http://www.gao.gov/products/GAO-14-177R].  

[16] Title I is a grant program established under Title I, Part A of 
the Elementary and Secondary Education Act of 1965, as amended. The 
program provides financial assistance to local educational agencies 
and schools with high numbers or high percentages of children from low-
income families to help ensure that all children meet challenging 
state academic standards.  

[17] An advance appropriation is budget authority provided in an 
appropriation act that becomes available one or more fiscal years 
after the fiscal year for which the appropriation act was enacted. For 
example, of the funding provided to carry out Title I in the 
Department of Education Appropriations Act, 2012, a certain portion 
was made available on July 1, 2012 (in fiscal year 2012), and another 
portion was made available on October 1, 2012 (in fiscal year 2013). 
The funding that was made available on October 1, 2012, was an advance 
appropriation.  

[18] Impact Aid grants assist local school districts that have lost 
property tax revenue due to the presence of tax-exempt federal 
property, or that have experienced increased expenditures due to the 
enrollment of federally connected children, including children living 
on Indian lands.  

[19] According to agency officials, Education distributed 80 percent 
of the Impact Aid grants to school districts at the beginning of the 
school year in 2012, and then applied the sequestration reductions to 
the remaining payments made later in the school year.  

[20] Although these grant reductions occurred later than some others, 
grantees likely had already made adjustments in their overall budgets 
in anticipation of reduced funding levels. Education officials said 
that they regularly communicated with grant recipients—up to a year in 
advance of the sequestration— to help them better understand the 
possible effects of sequestration on their programs. However, 
Education did not have information on the extent of those adjustments.  

[21] Pub. L. No. 112-74, 125 Stat. 786 (2011).  

[22] According to DOE officials, the contractors are those with whom 
the department has a direct contractual relationship.  

[23] Pub. L. No. 112-175 § 125(b), 126 Stat. 1313, 1319 (2012); Pub. 
L. No.113-6, Div. F, Title II, § 1205(b), 127 Stat. 198, 416 (2013).  

[24] Pub. L. No. 112-175 §125(a), 126 Stat. 1313, 1319 (2012).  

[25] According to a May 2013 report to Congress on DOE's uncosted 
balances for fiscal year 2012, these balances increased steadily from 
fiscal year 1998 through 2009. DOE officials stated that, each year 
since fiscal year 2010, the department has reduced the amount of its 
uncosted balances and is committed to doing so in the future.  

[26] DOE is responsible for cleanup of radioactive and hazardous waste 
at the Hanford site—a 586-square-mile site that is one of the world's 
largest environmental cleanup projects—that resulted from the 
operation of nine nuclear reactors and other facilities until the late 
1980s.  

[27] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: February 
2013).  

[28] GAO, Hanford Waste Treatment Plant: DOE Needs to Take Action to 
Resolve Technical and Management Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-13-38] (Washington, D.C.: Dec. 19, 
2012). GAO, Nuclear Waste: Uncertainties and Questions about Costs and 
Risks Persist with DOE's Tank Waste Cleanup Strategy at Hanford, 
[hyperlink, http://www.gao.gov/products/GAO-09-913] (Washington, D.C.: 
Sept. 30, 2009).  

[29] The mission of the Defense Nuclear Facilities Safety Board, an 
independent agency, is to provide analysis and advice to the Secretary 
of Energy on adequate protection of public health and safety at DOE's 
defense nuclear facilities.  

[30] Areas are identified as high risk due to their greater 
vulnerabilities to fraud, waste, abuse, and mismanagement or the need 
for transformation to address economy, efficiency, or effectiveness 
challenges. See [hyperlink, http://www.gao.gov/products/GAO-13-283].  

[31] FDA user fees were subject to sequestration in fiscal year 2013 
except for those related to export certification.  

[32] Sequestration for HHS's programs funded by direct spending will 
continue on an annual basis through fiscal year 2024, in accordance 
with BBEDCA.  

[33] These reductions became effective April 1, 2013, and continue 
through March 31, 2014. Qualified individual premiums, Medicare 
prescription drug benefit (Part D) low income subsidies, and Part D 
catastrophic subsidies are exempt from sequestration.  

[34] For the 2012-2013 program year reporting period, Head Start had a 
total funded enrollment of approximately 957,000 children. “Funded 
enrollment” refers to the total number of funded Head Start slots 
which may differ from the total number of children served throughout 
the year.  

[35] See Pub. L. No. 112-25, 125 Stat. 240.  

[36] In October 2013, DHS changed the name of the Balanced Workforce 
Program Management Office to the Office of Strategic Workforce 
Planning and Analysis.  

[37] The seven components that had anticipated furloughs were 
Departmental Management and Operations, Office of the Inspector 
General, U.S. Customs and Border Protection, the Transportation 
Security Administration, U.S. Secret Service, the Federal Law 
Enforcement Training Center, and the Domestic Nuclear Detection 
Office.  

[38] See Pub. L. No. 112-240, 126 Stat. 2313 (2013).  

[39] See Pub. L. No. 113-2, 127 Stat. 4. For the purposes of this 
product, we did not include this supplemental funding in our 
calculations of DHS's total budget authority for fiscal year 2013.  

[40] See Pub. L. No. 113-6, 127 Stat. 198.  

[41] See id.  

[42] The anticipated discretionary appropriations do not include 
discretionary offsetting collections.  

[43] See 2 U.S.C. § 903(f).  

[44] Pub. L. No. 113-6, 127 Stat. 198, 345; explanatory statement of 
the Senate Committee on Appropriations on H.R. 933, accompanying the 
Consolidated and Further Continuing Appropriations Act, 2013, Pub. L. 
No. 113-6, 127 Stat. 198.  

[45] The increased fees included, for example, an increase of $299.2 
million for accounts such as CBP's Electronic System for Travel 
Authorization ($5.1 million), Global Entry ($36.5 million), and Land 
Border Inspection Fees ($17.5 million), which CBP officials attributed 
to the rising popularity and expansion of CBP's Trusted Traveler 
programs.  

[46] In our communication with DHS, the department provided examples 
of the effects of sequestration. However, we recognize that other 
factors could also contribute to budget uncertainty and affect agency 
operations, performance, and services to the public.  

[47] See Pub. L. No. 113-6, 127 Stat. 198, 347. To maintain the 
mandated level of beds for detainees, ICE also transferred and 
reprogrammed funds in fiscal year 2013. The Consolidated 
Appropriations Act, 2014 extends the 34,000 detention bed requirement 
through September 30, 2014. Pub. L. No. 113-76, 128 Stat. 5, 251.  

[48] The Port Security Grant Program supports maritime transportation 
infrastructure and strengthens the nation's critical infrastructure 
against risks associated with potential terrorist attacks.  

[49] The Intercity Passenger Rail Grant Program is intended to create 
a sustainable, risk-based effort to protect critical surface 
transportation infrastructure and the traveling public from acts of 
terrorism, major disasters, and other emergencies within the Amtrak 
rail system.  

[50] According to the Acting Director of CBP's Office of Training and 
Development, CBP planned to conduct these training classes in fiscal 
year 2014.  

[51] HUD estimated these closures will lead to annual savings in 
future years of between $9 million and $10 million.  

[52] HUD estimated that the reorganization will save approximately $60 
million annually when completed and will help the office better serve 
its customers and stakeholders, operate more efficiently, and improve 
its risk management.  

[53] A 2010 report commissioned by HUD estimated that the capital need 
to make HUD's public housing decent and economically sustainable, 
based on inspections of 548 properties in 140 housing authorities, was 
$25.6 billion. Abt Associates, Inc., Capital Needs in the Public 
Housing Program, a report prepared for the Department of Housing and 
Urban Development, November 24, 2010.  

[54] PHA reserves for rental housing vouchers were generally reduced 
to about 1 month of expenses, and PHA reserves for public housing 
operations were generally reduced to 4 months of expenses for PHAs 
with 250 or more public housing units and to 6 months of expenses for 
PHAs with less than 250 units.  

[55] As part of HUD's fiscal year 2013 appropriation for the Housing 
Choice Voucher program, $103 million was provided as a set-aside that 
HUD could allocate among four specified purposes. HUD chose to 
prioritize providing funding to PHAs that would otherwise be required 
to terminate participating families from the program due to 
insufficient funds, and HUD anticipates that nearly all of the set-
aside will be used for this purpose.  

[56] Credit financing accounts are non-budgetary accounts, and 
therefore are not sequestrable accounts for purposes of BBEDCA.  

[57] This estimate is based on data reported by PHAs. This estimate 
excludes 35 PHAs (1.5 percent of PHAs that administer vouchers), 
accounting for 12 percent of vouchers, that have additional 
flexibility in how they spend their funding through the Moving to Work 
demonstration program because they can change the proportion of 
funding that they allocate to vouchers over time. Because the Housing 
Choice Voucher program operates on a calendar-year basis, the final 
number of individuals and families served by this program was not 
available from HUD in time for this report. HUD officials told us that 
because some of the funding for the program could only be used for new 
special-purpose vouchers, the decline in renewal vouchers was larger 
than 42,000.  

[58] HUD's final fiscal year 2013 appropriation in the Consolidated 
and Further Appropriations Act of, 2013 for homeless assistance grants 
was $2.03 billion before accounting for sequestration, which is about 
$100 million higher than it would have been had its appropriation been 
based on the fiscal year 2012 level.  

[59] Interior defines a case as a lease or other type of agreement 
that identifies a group of wells or facilities that are to be 
inspected together.  

[60] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: February 
2013).  

[61] 30 U.S.C. § 191(a) (2012).  

[62] With notifications to the Senate and House Committees on 
Appropriations, funds in the Working Capital Fund, Unobligated Balance 
Transfers account, may be used for the department-wide acquisition of 
capital equipment, development and implementation of law enforcement 
or litigation-related automated data processing systems, and 
improvement and implementation of DOJ's financial management and 
payroll/personnel systems. Pub. L. No. 102-140, 105 Stat. 728, 784-85 
(1991) (28 U.S.C. § 527 note).  

[63] Transportation Investment Generating Economic Recovery grants are 
awarded on a competitive basis for road, rail, transit, and port 
projects that will have a significant effect on the nation, a 
metropolitan area, or a region.  

[64] DOT officials expect overhead costs to increase for this program 
as a result of the delays, but did not provide any estimates. We have 
previously reported on how past delays with the En Route Automation 
Modernization program increased overall acquisition costs as well as 
affected time frames for other related NextGen programs. See: GAO, Air 
Traffic Control Modernization: Management Challenges Associated with 
Program Costs and Schedules Could Hinder NextGen Implementation, 
[hyperlink, http://www.gao.gov/products/GAO-12-223] (Washington, D.C. 
Feb. 16, 2012).  

[65] On March 21, 2013, IRS stopped paying Performance and Special Act 
Awards and stopped making quality step increases to 19,280 non-
bargaining unit employees. According to Treasury, these actions saved 
$8.3 million in fiscal year 2013. On March 25, IRS also stopped paying 
bargaining unit performance awards, affecting approximately 77,760 
employees and saving an estimated $76 million in fiscal year 2013.  

[66] GAO, 2013 Tax Filing Season: IRS Needs to Do More to Address the 
Growing Imbalance between the Demand for Services and Resources, 
[hyperlink, http://www.gao.gov/products/GAO-14-133] (Washington, D.C.: 
Dec.18, 2013).  

[67] See [hyperlink, http://www.gao.gov/products/GAO-13-283].  

[68] According to Treasury's 2014 budget justification, enforcement 
revenue was $50.2 billion in fiscal year 2012 for a total IRS-wide 
return of $4.2 to $1. This estimate does not include the revenue 
effect of the deterrence value of these investments and other IRS 
enforcement programs. In addition, an estimate such as this that 
assumes a constant rate of return across all spending does not take 
into account the potential for the marginal return on investment to 
decline as spending on enforcement increases. These and other factors 
make estimating the return on spending difficult. We have not 
evaluated Treasury's estimate.  

[69] The Consolidated and Further Continuing Appropriations Act, 2013 
included the following rescinded amounts: (1) Hazardous Substance 
Superfund, $15 million, and (2) State and Tribal Assistance Grants, 
$35 million.  

[70] EPA reported the Office of Inspector General was able to avoid 
the need to furlough employees by applying carryover balances from 
prior fiscal years.  

[71] The General Services Administration is generally required to 
charge agencies renting space in its buildings at rates that 
approximate commercial charges for comparable space and services.  

[72] Some EPA employees (represented by their union) have filed 
grievances contending that the way EPA implemented required 
sequestration cuts was arbitrary and capricious, and violated 
collective bargaining agreements. They are seeking lost pay due to 
furloughs and transparency about how furlough days are designated. As 
of December 2013 arbitration hearings had not been scheduled.  

[73] A harmful algal bloom, also known as a red tide, is the 
proliferation of toxic nuisance algae that negatively affect natural 
resources or humans. Effects of these phenomena include human illness 
(or death) from contaminated seafood, marine mammal and seabird 
deaths, and extensive fish kills.  

[74] NSF standard grants provide a specific level of support for a 
specified period of time (i.e., they are fully funded up front), while 
continuing grants provide a specific level of support for an initial 
period of time, usually a year, with a statement of intent to provide 
additional support for later periods, provided funds are available and 
the results achieved warrant further support.  

[75] An NSF official also noted that, should sequestration reoccur at 
the beginning of a fiscal year, the option of reducing funding 
increments for existing awards would be a more viable option for NSF 
to consider. The official indicated that, in fiscal year 2013, NSF's 
first guiding principle—maintaining existing awards—was largely driven 
by the timing of sequestration. As sequestration was ordered in March—-
nearly halfway through the fiscal year-—a large fraction of the 
funding increments for existing awards were already provided. 
Therefore, actions to implement sequestration reductions involving 
existing awards would have raised concerns regarding equitable 
application.  

[76] Through its merit review process, NSF ensures that science and 
engineering research proposals are reviewed in a fair, competitive, 
transparent, and in-depth manner.  

[77] On March 11, 2011, a tsunami severely damaged the Fukushima 
Daiichi nuclear power plant in Japan and led to the largest release of 
radiation since the 1986 Chernobyl disaster. Following the Fukushima 
Daiichi accident, the NRC established a task force that identified 
near-term actions the agency should consider to enhance safety. NRC is 
working to address the task force's recommendations.  

[78] In commenting on a draft of this report, OMB indicated this was 
consistent with legal requirements that were applied the same way 
government-wide.  

[79] New York v. NRC, 681 F.3d 471 (D.C. Cir. 2012). As a result of 
this decision, NRC needs to consider additional information on the 
effects of failing to secure permanent disposal for spent nuclear 
fuel, and on the effects of other fuel storage hazards.  

[80] According to NRC officials, this estimate does not account for 
the use of reprogrammed funds to partially offset the reduction. They 
indicated that, because the agency reprogrammed funds based on an 
integrated approach that balanced mitigating sequestration reductions 
with supporting priority activities for which no additional funding 
was provided, they could not determine the amount that was 
reprogrammed to specifically mitigate sequestration reductions to 
individual NRC activities.  

[81] GAO, Small Business Programs: Efforts to Address Internal Control 
Weaknesses and Potential Duplication, [hyperlink, 
http://www.gao.gov/products/GAO-11-558T] (Washington, D.C.: June 16, 
2011).  

[82] We have previously reported on weaknesses in SBA's ability to 
screen and monitor fraud and abuse in its contracting programs and 
recommended the use of site visits. See GAO, 8(a) Program: Fourteen 
Ineligible Firms Received $325 Million in Sole-Source and Set-Aside 
Contracts, [hyperlink, http://www.gao.gov/products/GAO-10-425] 
(Washington, D.C.: Mar. 30, 2010) and HUBZone Program: Fraud and Abuse 
Identified in Four Metropolitan Areas, [hyperlink, 
http://www.gao.gov/products/GAO-09-440] (Washington, D.C.: Mar. 25, 
2009).  

[83] SSA funds Disability Determination Services, which are state 
agencies, to process disability applications and conduct continuing 
disability reviews in accordance with SSA policies and procedures. In 
May 2013, we reported that SSA had over 80,000 state and federal 
employees to administer SSA programs in about 1,700 facilities 
nationwide. See GAO, Social Security Administration: Long-Term 
Strategy Needed to Address Key Management Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-13-459] (Washington, D.C.: May 29, 
2013).  

[84] Teleservice centers handle general inquires from the public, 
simple post-entitlement actions, and referrals from field offices. 

[85] This figure represents the present value of future benefits saved 
for Old-Age, Survivors, and Disability Insurance; Supplemental 
Security Income; Medicare; and Medicaid. The estimate includes savings 
to Medicare and Medicaid because in some cases eligibility for SSI and 
Disability Insurance confers eligibility for certain Medicare or 
Medicaid benefits. The share of continuing disability reviews that 
result in terminating eligibility for benefits depends on the 
frequency of reviews performed and the types of beneficiaries for whom 
they are conducted. If in the future a different frequency or mix of 
continuing disability reviews is conducted, then the share of reviews 
that result in terminating eligibility—and thus the average value of 
future benefits saved—could differ from previous experience.  

[86] We previously reported that one of SSA's goals in its strategic 
plan is to increase the public's use of online services. See 
[hyperlink, http://www.gao.gov/products/GAO-13-459].  

[End of Overview of Sequestration at 23 Federal Agencies]  

Appendix I: Objectives, Scope, and Methodology:  

This report examines: (1) the effects of sequestration in fiscal year 
2013 on agency operations, performance, or services to the public; (2) 
how agencies prepared and planned for sequestration; and (3) how 
agencies implemented sequestration.[Footnote 73] 

To achieve these objectives, we gathered standard information from 23 
of the 24 chief financial officers (CFO) in CFO Act agencies. We 
excluded the Department of Veterans Affairs, because its accounts were 
exempt from sequestration.[Footnote 74] The CFO Act agencies covered 
by the CFO Act of 1990, as amended, are: [Footnote 75] 

Department of Agriculture (USDA); 
Department of Commerce (Commerce); 
Department of Defense (DOD); 
Department of Education (Education) 
Department of Energy (DOE); 
Department of Health and Human Services (HHS); 
Department of Homeland Security (DHS); 
Department of Housing and Urban Development (HUD); 
Department of the Interior (Interior); 
Department of Labor (DOL); 
Department of Justice (DOJ); 
Department of State (State); 
Department of Transportation (DOT); 
Department of the Treasury (Treasury); 
Department of Veterans Affairs (VA); 
Agency for International Development (USAID); 
Environmental Protection Agency (EPA); 
General Services Administration (GSA); 
National Aeronautics and Space Administration (NASA); 
National Science Foundation (NSF); 
Nuclear Regulatory Commission (NRC); 
Office of Personnel Management (OPM); 
Small Business Administration (SBA); 
Social Security Administration (SSA).  

These agencies accounted for approximately 98 percent of the total 
sequestration for fiscal year 2013. They also accounted for the 
majority of federal spending in 13 of the federal government's 17 
broad mission areas, or budget functions.[Footnote 76] For purposes of 
this report, information on State and USAID is reported together 
because State's Office of U.S. Foreign Assistance Resources jointly 
manages both budgets. Therefore, we report summary results in terms of 
22 rather than 23 agencies. 

To address our objectives, we used a web-based information request and 
structured interview with the CFO or designee at each agency. We 
reviewed standard information provided in response to our information 
request such as a list of each agency's sequestered discretionary and 
mandatory programs, projects, and activities (PPA); total 
discretionary and mandatory funding levels; and total amount 
sequestered. We also reviewed each agency's reprogramming restrictions 
and transfer authorities identified as part of the information request 
and supporting documentation of how these authorities were used, if at 
all, in response to sequestration. In addition, we asked for 
additional agency documents, such as operating and spending plans and 
illustrative examples of sequestration-related guidance and formal 
communications with their employees, unions, and other stakeholders. 
We did not assess the appropriateness of actions agencies took to 
implement sequestration, such as transfer and reprogramming actions. 

We pre-tested this information request with OPM in June and then 
distributed it to all of the agencies by July 2013. Almost all of the 
agencies returned their completed questionnaires and the requested 
documents by the end of August 2013. We confirmed the accuracy and 
completeness of the information provided with agency officials by 
November 2013 to take into account any actions that might have 
occurred late in the fiscal year and to update estimates. We requested 
and reviewed additional information beyond what was asked in the 
standard information request when necessary to address our objectives. 

As part of this structured information request, we asked agencies to 
identify the source of any information provided and a description of 
any known limitations or purposes for which the data being provided 
should not be used. We reviewed agencies' supporting documents to 
assess the reasonableness of their data and any estimates of the 
effects of sequestration on agency operations, performance, and 
services to the public. Specifically, we reviewed the data and 
methodology used to calculate these estimates and we reported the 
estimates when they met our evidentiary standards. In some cases we 
found it appropriate to report agency estimates, as long as we also 
included significant contextual information and information about 
limitations regarding the estimates. In other cases, if agency 
explanations of the data and methodologies used to estimate the 
effects of sequestration indicated significant uncertainty surrounding 
the estimates, we did not report the estimates. To further assess the 
reliability of the data provided by agencies we interviewed 
knowledgeable officials as needed. We also reviewed existing reports 
by inspectors general on the databases or systems that produced any 
data provided. 

In our communications, we asked federal agencies to isolate the 
effects of sequestration from other factors such as operating under a 
continuing resolution (CR) and the rescissions enacted in the 
Consolidated and Further Continuing Appropriations Act, 2013, to the 
degree possible. We recognize that these other factors could also 
contribute to budget uncertainty and affect agency operations, 
performance, and services to the public. For example, because CRs only 
provide funding until an agreement is reached on final appropriations, 
they create uncertainty for agencies about both when they will receive 
their final appropriation and what level of funding ultimately will be 
available. Our past work has shown that an agency may delay hiring or 
contracts during the CR period, potentially reducing the level of 
services agencies provide and increasing costs. 

While we reviewed the sources agencies used to determine their PPAs 
for the purpose of sequestration, we did not review whether or not the 
PPAs agencies identified complied with the law. Nor did we 
independently verify the number of PPAs or accounts subject to 
sequestration. Information on agencies' total budgets for fiscal year 
2013 and on the amounts sequestered is based on agencies' responses to 
a standard information request. Figures, particularly for mandatory 
funding, may be estimates and are subject to change based on final end-
of-the-year financial data. 

In December 2013, we also sent a short e-mail questionnaire to federal 
inspectors general offices at the 23 agencies included in our review. 
The questionnaire asked for information related to the effects of 
sequestration on each office's budget and its oversight activities. We 
received responses from 19 inspectors general offices by the end of 
January 2014. 

We conducted structured interviews with each agency's CFO or designee 
from June 2013 to August 2013 using a standard set of questions about 
agencies' sequestration planning and preparation, actions taken to 
implement sequestration, and the effects of sequestration on agency 
operations, performance, and services to public. We conducted 
additional interviews with other agency officials when necessary to 
address our objectives. 

Based on agencies' responses to the information request, structured 
interviews, and other information obtained from the agency, we 
assessed whether actions taken by agencies were broadly consistent 
with Office of Management and Budget (OMB) guidance. We also assessed 
whether OMB's actions were broadly consistent with the Balanced Budget 
and Emergency Deficit Control Act of 1985 and other related laws and 
regulations in terms of providing information and guidance that 
enhanced public understanding of sequestration and whether the 
guidance was distributed at the appropriate time to enable efficient 
and effective decision making. As part of this analysis, we also 
reviewed OMB guidance on sequestration and conducted several 
interviews with OMB officials. 

To further analyze the effects of sequestration on agency operations 
and the public, we interviewed organizations representing service 
contractors, academic research institutions that receive federal 
funds, state governments, and federal employees: the Professional 
Services Council, the American Federation of Government Employees, the 
Federal Demonstration Partnership, and the National Association of 
State Budget Officers. We reviewed the results of OPM's 2013 Federal 
Employee Viewpoint Survey (FEVS). While not specifically addressing 
sequestration, the FEVS captures employees' general perceptions in 
areas including their work experiences and their agency that could be 
affected by sequestration. To assess the reliability of the FEVS data, 
we reviewed reports and other descriptions of the survey methodology 
available on the OPM website: [hyperlink, 
http://www.fedview.opm.gov/2013/].  

We conducted this performance audit from April 2013 to March 2014 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.  

[End of section]  

Appendix II: Comments from the Department of Education:  

United States Department of Education: 
Washington, D.C. 20202:  

February 11, 2014:  

Ms. Melissa Emrey-Arras: 
Director, Education, Workforce, and Income Security Issues
Government Accountability Office: 
Washington, DC 20548:  

Dear Ms. Emrey-Arras:  

Thank you for the opportunity to respond to the Government 
Accountability Office's (GAO) draft report "2013 Sequestration: 
Agencies Reduced Some Services and Investments, While Taking Ce11ain 
Actions to Mitigate Effects" (GAO-14-244).  

Department of Education officials found the report balanced and 
informative. Those who participated in the review and discussions with 
GAO staff about the actions taken as a result of the sequester also 
welcomed the opportunity to discuss the challenges presented by the 
unusual reduction. While the Department did a good job in addressing 
this matter, it was helpful to review the information in the draft 
report.  

As the report indicates, it is challenging to determine the precise 
impact of the sequester on Department programs or operations. The 
Department took a number of steps to mitigate the effects of the $2.3 
billion reduction in discretionary appropriations. The bulk of that 
funding was taken from grants that would have gone to State, local, 
and institutional grant recipients for school year 2013-14, so the 
effects are still being felt. Programs such as Impact Aid, Titles I and
II of the Elementary and Secondary Education Act, and the Individuals 
with Disabilities Education Act lost critical funding. While it is 
difficult to quantify the impact of the loss, the decrease in funds 
affected thousands of schools and caused some reductions to the 
services to our country's neediest students. On the other hand, our 
decision in July 2012 to delay the reduction from the 2013 sequester 
for the large State, grant programs enabled recipients to plan
and might have tempered some of the negative consequences. We also 
helped grantees avoid some of the disruption by following our 
regulations and placing a priority on funding continuation grants 
rather than starting new competitions.  

Our reductions in administrative funding pared back hiring, travel, 
conferences, printing, and contracts. We were already taking steps to 
implement many of these kinds of savings in 2012 and early 2013, so we 
did not have to furlough employees, like many agencies. As with the
program reductions, there may be some long-term consequences of the 
cutbacks in investments, particularly in career staff, but we have 
continued to carry out our basic mission in the short run. 

The Department of appreciates GAO's thoroughness in this report. 
Should you need additional assistance, please contact Jan Solomon in 
the Department's Budget Service.  

Sincerely,  

Signed by:  

Thomas Skelly: 
Director, Budget Service and Delegated to Perform
Functions and Duties of the Chief Financial Officer:  

[End of section]  

Appendix III: Comments from the Department of Treasury:  

Department of The Treasury: 
Assistant Secretary: 
Washington, D.C. 20220:  

February 14, 2014:  

James White: 
Director, Tax Issues: 
Government Accountability Office: 
441 G Street NW: 
Washington, D.C. 20548:  

Sent via email to McCabeT@gao.gov:  

Dear Mr. White,  

Thank you for the opportunity to comment on the draft report entitled 
2013 Sequestration: Agencies Reduced Some Services and Investments, 
While Taking Certain Actions to Mitigate Effects (GAO-14-244).  

As described in the report, the cuts required by sequestration 
curtailed investments vital to economic growth, threatened the safety 
and security of the American people, and harmed programs that benefit 
the American taxpayer. The across-the-board nature of the spending cuts
forced reductions across nearly all Treasury programs, impacting the 
Treasury workforce and critical Treasury operations.  

Treasury bureaus subject to sequestration conducted an extensive 
review of expenses in an effort to achieve the savings required by 
sequestration while minimizing the impact on Treasury's mission and 
employees. Unfortunately, sequestration resulted in a reduction in the 
agency's ability to provide quality services to taxpayers. At the 
Internal Revenue Service (IRS), furloughs and cuts to other operating 
expenses impeded taxpayer access to IRS call and assistance centers.
The IRS estimates that sequestration resulted in billions of dollars 
in lost revenue due to fewer tax return reviews and diminished fraud 
detection.  

In addition to reducing services, Treasury sequestration decreased 
payments, export certifications, tax credits, and financial assistance 
programs that support small businesses and state and local 
governments. Sequestration forced Treasury to reduce direct payments 
to state and municipal bond issuers, decrease assistance for 
development of renewable energy, and grant fewer and smaller grants to 
low-income and disadvantaged communities.  

Sequestration had a considerable impact on the Treasury workforce as 
well, causing Treasury bureaus to institute hiring freezes and reduce 
training. The IRS also furloughed all employees for three days in 
fiscal year 2013. We believe these events contributed to a decline in 
the Treasury employee satisfaction and engagement scores as measured 
by OPM's Federal Employee Viewpoint Survey.  

As the Administration has said many times, sequestration was 
destructive to the operations of the federal government and should 
never have happened. Treasury leadership attempted to absorb the cuts 
in the most responsible way possible, while still maintaining mission 
critical operations and minimizing the impact of such arbitrary cuts 
on taxpayers and Treasury employees. Despite these efforts, the 
negative impacts of sequestration at Treasury were significant.  

Thank you again for the opportunity to provide comments. Please let me 
know if you have any questions.  

Sincerely,  

Signed by:  

Nani Coloretti: 
Assistant Secretary for Management:  

[End of section]  

Appendix IV: Comments from the Social Security Administration:  

Social Security: 
Office of the Commissioner: 
Social Security Administration: 
Baltimore, MD 21235-0001:  

February 12, 2014:  

Mr. Daniel Bertoni, Director: 
Education, Workforce, and Income Security Issues: 
United States Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548:  

Dear Mr. Bertoni:  

Thank you for the opportunity to review the draft report, "2013 
Sequestration: Agencies Reduced Some Services and Investments, While 
Taking Certain Actions to Mitigate Effects" (GAO-14-244). The report 
accurately describes our sequestration planning activities, and we
have no additional comments.  

If you have any questions, please contact me at (410) 966-9014. Your 
staff may contact Gary S. Hatcher, our Senior Advisor for Records 
Management and Audit Liaison Staff, at (410) 965-0680.  

Sincerely,  

Signed by:  

Katherine Thornton: 
Deputy Chief of Staff:  

[End of section]  

Appendix V: Glossary of Budget Terms:  

Appropriation:  

Budget authority to incur obligations and to make payments from the 
Treasury for specified purposes. An appropriation act is the most 
common means of providing appropriations; however, authorizing and 
other legislation itself may provide appropriations. 

Annual appropriation:  

A provision of law appropriating funds enacted annually to provide 
budget authority to incur obligations and make payments from the 
Treasury for specified purposes. 

Supplemental appropriation:  

A provision of law appropriating funds in addition to those already 
enacted in an annual appropriation act. Supplemental appropriations 
provide additional budget authority, usually in cases where the need 
for funds is too urgent to be postponed until enactment of the regular 
appropriation bill. Supplemental appropriations may sometimes include 
items not appropriated in the regular bills due to a lack of timely 
authorizations. 

Advance appropriation:  

Budget authority that becomes available 1 or more fiscal years after 
the fiscal year for which the appropriation was enacted. For example, 
a fiscal year 2012 appropriation could provide that budget authority 
for a specified activity would not become available until October 1, 
2012 (the start of fiscal year 2013) or later. For sequestration, 
funding enacted as advance appropriations--available in fiscal year 
2013--was included in the sequestrable base. 

Availability:  

Budget authority that is available for incurring new obligations. 

Budget account:  

An item for which appropriations are made in any appropriation act 
and, for items not provided for in appropriation acts, the term means 
an item for which there is a designated budget account identification 
code number in the President's budget. 

Budget authority:  

Authority provided by federal law to enter into financial obligations 
that will result in immediate or future outlays involving federal 
government funds. 

Duration:  

One-year appropriation:  

Budget authority available for obligation only during a specific 
fiscal year that expires at the end of that fiscal year. 

Multiyear appropriation:  

Budget authority available for a fixed period of time in excess of 1 
fiscal year. This authority generally takes the form of 2-year, 3-
year, and so forth availability but may cover periods that do not 
coincide with the start or end of a fiscal year. 

No-year appropriation:  

Budget authority that remains available for obligation for an 
indefinite period of time. A no-year appropriation is usually 
identified by language such as "to remain available until expended."  

Timing of legislative action:  

Permanent appropriation:  

Budget authority that is available as the result of previously enacted 
legislation and is available without further legislative action. Many 
programs with permanent appropriations are exempt from sequestration 
(see "mandatory" below). 

Determination of amount:  

Definite appropriation:  

Budget authority that is stated as a specified sum at the time the 
appropriation is enacted. This type of authority, whether in an 
appropriation act or other law, includes authority stated as "not to 
exceed" a specified amount. 

Indefinite appropriation:  

Budget authority that, at time of enactment is for an unspecified 
amount, such as entitlement programs where obligations depend on the 
number of eligible beneficiaries receiving benefits. Also for fee-
funded accounts in which total obligations depend on demand for the 
good or service provided by the program (e.g., programs funded by 
regulatory fees). Indefinite appropriations may be appropriated as all 
or part of the amount of proceeds from the sale of financial assets, 
the amount necessary to cover obligations associated with payments, 
the receipts from specified sources--the exact amount of which is 
determinable only at some future date--or it may be appropriated as 
"such sums as may be necessary" for a given purpose. For 
sequestration, unless otherwise specified in law, agencies were 
directed to implement sequestration for accounts with indefinite 
authority by reducing the remaining obligations from fiscal year 2013 
sequestrable resources by a uniform percentage. 

Availability for new obligations:  

Expired budget authority:  

Budget authority that is no longer available to incur new obligations 
but is available for an additional 5 fiscal years for disbursement of 
obligations properly incurred during the budget authority's period of 
availability. 

Budget function:  

The functional classification system is a way of grouping budgetary 
resources so that all budget authority and outlays of on-budget and 
off-budget federal entities and tax expenditures can be presented 
according to the national needs being addressed. National needs are 
grouped in 17 broad areas to provide a coherent and comprehensive 
basis for analyzing and understanding the budget. 

Carryover balance (unexpended balance):  

The sum of the obligated and unobligated balances. 

Continuing resolution:  

An appropriation act that provides budget authority for federal 
agencies, specific activities, or both, to continue in operation for a 
specific period of time when Congress and the President have not 
completed action on the regular appropriation acts by the beginning of 
the fiscal year. 

Deobligate:  

A cancellation or downward adjustment of previously incurred 
obligations made by an agency. Deobligated funds may be reobligated 
within the period of availability of the appropriation. 

Direct spending:  

Budget authority that is provided in laws other than appropriation 
acts and entitlement authority (for example, Supplemental Nutrition 
Assistance, Medicare, and veterans' pension programs). Direct 
spending, also referred to as mandatory spending, includes payment of 
interest on the public debt, and nonentitlements such as payments to 
states from Forest Service receipts. For sequestration, many mandatory 
programs are exempt. But for those that are not exempt, the PPAs for 
mandatory accounts are generally delineated in the President's budget 
for fiscal year 2013. 

Discretionary spending:  

Outlays from budget authority that is provided in, and controlled by, 
appropriations acts. 

Expended funds:  

Funds that have actually been disbursed or outlaid. 

Mandatory spending:  

See definition of direct spending above. 

Obligated balance (obligated funds):  

The amount of obligations already incurred for which payment has not 
yet been made. Technically, the obligated balance is the unliquidated 
obligations. Budget authority that is available for a fixed period 
expires at the end of its period of availability, but the obligated 
balance of the budget authority remains available to liquidate 
obligations for 5 additional fiscal years. At the end of the fifth 
fiscal year, the account is closed and any remaining balance is 
canceled. Budget authority available for an indefinite period may be 
canceled and its account closed if (1) it is specifically rescinded by 
law or (2) the head of the agency concerned (or the President) 
determines that the purposes for which the appropriation was made have 
been carried out and disbursements have not been made from the 
appropriation for 2 consecutive years. 

Obligation:  

An obligation is a definite commitment that creates a legal liability 
of the government for the payment of goods and services ordered or 
received, or a legal duty on the part of the United States that could 
mature into a legal liability by virtue of actions of another party. 

Program, Project, or Activity (PPA):  

An element within a budget account. The programs, projects, and 
activities as delineated in the appropriation act or accompanying 
report for the relevant fiscal year covering that account. For 
accounts not included in appropriation acts, PPAs are delineated in 
the most recently submitted President's budget or congressional budget 
justifications, specifically the program and financing schedules that 
the President provides in the "Detailed Budget Estimates" in the 
budget submission for the relevant fiscal year. 

Receipts, offsetting collections, and offsetting receipts:  

Governmental receipts:  

Collections from the public based on the government's exercise of its 
sovereign powers, including individual and corporate income taxes and 
social insurance taxes, excise taxes, duties, court fines, compulsory 
licenses, and deposits of earnings by the Federal Reserve System. 

Offsetting collections:  

Collections authorized by law to be credited to appropriation or fund 
expenditure accounts. Offsetting collections result from (1) 
businesslike transactions or market-oriented activities with the 
public, (2) intragovernmental transfers, and (3) collections from the 
public that are governmental in nature but required by law to be 
classified as offsetting. Laws authorizing offsetting collections make 
them available for obligation to meet the account's purpose without 
further legislative action. However, it is not uncommon for annual 
appropriation acts to include limitations on the obligations to be 
financed by these collections. The authority to obligate and spend 
offsetting collections is a form of budget authority. 

Offsetting receipts:  

Like offsetting collections, offsetting receipts result from (1) 
businesslike transactions or market-oriented activities with the 
public, (2) intragovernmental transfers, and (3) collections from the 
public that are governmental in nature but required by law to be 
classified as offsetting receipts. Offsetting receipts are collections 
that are offset against gross outlays but are not authorized to be 
credited to expenditure accounts and cannot be used without being 
appropriated. 

User charges/fees:  

Fees assessed to users for goods or services provided by the federal 
government. User fees generally apply to federal programs or 
activities that provide special benefits to identifiable recipients 
above and beyond what is normally available to the public. User fees 
are normally related to the cost of the goods or services provided. An 
agency may not obligate against fees collected without specific 
statutory authority. 

Reprogramming:  

Reprogramming is the shifting of funds from one program to another 
within an appropriation or fund account for purposes other than those 
contemplated at the time of appropriation. The authority to reprogram 
is implicit in an agency's responsibility to manage its funds; no 
statutory authority is necessary but the agency may be required to 
notify the congressional appropriations committees, the authorizing 
committees, or both of any reprogramming action. 

Rescission:  

Legislation enacted by Congress that cancels budget authority 
previously enacted before the authority would otherwise expire. For 
sequestration, the Consolidated and Further Continuing Appropriations 
Act, 2013 included across-the-board rescissions, which were applied to 
full-year appropriations for fiscal year 2013 (in addition to the 
reductions required by the Joint Committee sequestration). 

Sequestration:  

In general, the permanent cancellation of budgetary resources under a 
presidential order. For fiscal year 2013, the uniform percentage 
reduction is applied to all programs, projects, and activities within 
a budget account, with some program exemptions and special rules. 

Spending authority:  

A specific form of budget authority that authorizes obligations and 
outlays using offsetting collections credited to an expenditure 
account. Spending authority is typically provided in authorizing laws 
and in some cases appropriation acts limit obligations. 

Transfer:  

The shifting of funds between accounts is called a transfer. An agency 
may not transfer funds unless it has statutory authority to do so. 

Unobligated balance (unobligated funds):  

The portion of budget authority that has not yet been obligated. For 
an appropriation account that is available for a fixed period, the 
budget authority expires after the period of availability ends and is 
no longer available for new obligations, but its unobligated balance 
remains available for 5 additional fiscal years for recording and 
adjusting obligations properly chargeable to the appropriations period 
of availability. For example, an expired, unobligated balance remains 
available until the account is closed to record previously unrecorded 
obligations or to make upward adjustments in previously under-recorded 
obligations (such as contract modifications properly within scope of 
the original contract). At the end of the fifth fiscal year, the 
account is closed and any remaining balance is canceled. For a no-year 
account, the unobligated balance is carried forward indefinitely until 
(1) specifically rescinded by law or (2) the head of the agency 
concerned (or the President) determines that the purposes for which 
the appropriation was made have been carried out and disbursements 
have not been made from the appropriation for 2 consecutive years. 

For more information on budget terms and concepts, see GAO, A Glossary 
of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, 
D.C.: Sept. 2005) (published in cooperation with the Secretary of the 
Treasury and the Directors of the OMB and the Congressional Budget 
Office).  

[End of section]  

Appendix VI: GAO Contacts and Staff Acknowledgments:  

GAO Contacts:  

Michelle Sager, Director, Strategic Issues, (202) 512-6806 or 
sagerm@gao.gov. 

Edda Emmanuelli Perez, Managing Associate General Counsel, (202) 512-
2853 or emmanuellipereze@gao.gov. 

For issues related to the Departments of Agriculture, Energy, and the 
Interior; the Environmental Protection Agency; the National Science 
Foundation; and the Nuclear Regulatory Commission: John Neumann, 
Acting Director, Natural Resources and Environment, (202) 512-3841 or 
neumannj@gao.gov. 

For issues related to the Departments of Commerce and Housing and 
Urban Development and the Small Business Administration: Orice 
Williams Brown, Managing Director, Financial Markets and Community 
Investment, (202) 512-8678 or williamso@gao.gov. 

For issues related to the Department of Defense: John Pendleton, 
Director, Defense Capabilities and Management, (202) 512-3489 or 
pendletonj@gao.gov or Michael Sullivan, Director, Acquisition and 
Sourcing Management, (202) 512-4841 or sullivanm@gao.gov. 

For issues related to the Department of Education: Melissa Emrey-
Arras, Director, Education, Workforce, and Income Security, (617) 788-
0534 or emreyarrasm@gao.gov. 

For issues related to the Department of Health and Human Services: 
Kathleen King, Director, Health Care, (202) 512-7114 or kingk@gao.gov. 

For issues related to the Departments of Homeland Security and 
Justice: David C. Maurer, Director, Homeland Security and Justice 
(202) 512-9627 or maurerd@gao.gov. 

For issues related to the Department of Labor: Andrew Sherrill, 
Director, Education, Workforce, and Income Security, (202) 512-7215 or 
sherrilla@gao.gov or Revae Moran, Director, Education, Workforce, and 
Income Security, (202) 512-7215 or moranr@gao.gov. 

For issues related to the Department of State and the U.S. Agency for 
International Development: Michael J. Courts, Director, International 
Affairs and Trade, (202) 512-8980 or courtsm@gao.gov. 

For issues related to the Department of Transportation: Phillip Herr, 
Managing Director, Physical Infrastructure, (202) 512-2834 or 
herrp@gao.gov. 

For issues related to the Department of the Treasury: James R. White, 
Director, Strategic Issues, (202) 512-9110 or whitej@gao.gov or James 
R. McTigue, Jr., Director, Strategic Issues, (202) 512-9110 or 
mctiguej@gao.gov. 

For issues related to the General Services Administration: David Wise, 
Director, Physical Infrastructure, (202) 512-2834 or wised@gao.gov. 

For issues related to the National Aeronautics and Space 
Administration: Cristina Chaplain, Director, Acquisition and Sourcing 
Management, (202) 512-4841 or chaplainc@gao.gov. 

For issues related to the Office of Personnel Management: Robert N. 
Goldenkoff, Director, Strategic Issues, (202) 512-2757 or 
goldenkoffr@gao.gov or Yvonne D. Jones, Director, Strategic Issues, 
(202) 512-6806 or jonesy@gao.gov. 

For issues related to the Social Security Administration: Daniel 
Bertoni, Director, Education, Workforce, and Income Security, (202) 
512-7215 or bertonid@gao.gov. 

Staff Acknowledgments:  

The following staff contributed to this report: Elizabeth Curda and 
Melissa Wolf (Assistant Directors); Katherine Lenane (Assistant 
General Counsel); Thomas McCabe (Analyst-in-Charge); Margaret Adams, 
Shari Brewster, Robert Gebhart, Lauren Grossman, Laurel Plume, Robert 
Robinson, Alan Rozzi, and Walter Vance. 

In addition, staff that contributed to sections of this report on 
selected agencies are listed in Table 5. 

Table 5: Names of GAO Staff Contributing to Information on Selected 
Agencies:  

Department of Agriculture: 
Christopher Murray (Assistant Director), Kathryn Smith (Analyst-in-
Charge), Antoinette Capaccio, and Alison O'Neill.  

Department of Commerce: 
Daniel Garcia-Diaz (Director), Cody Goebel (Assistant Director), Ethan 
Wozniak (Analyst-in-Charge), Rudy Chatlos, Elizabeth Jimenez, Lisa 
Moore, and Jessica Sandler. 

Department of Defense: 
Brenda Farrell, Brian Lepore, Zina Merritt, and Sharon Pickup 
(Directors); Lori Atkinson, Bruce Fairbairn, Thomas Gosling, J. 
Kristopher Keener, Mark Pross, Bruce Thomas, and Matthew Ullengren 
(Assistant Directors); Brian Mazanec (Analyst-in-Charge); Jennifer 
Andreone, Natalya Barden, Russell Bryan, R. Eli DeVan, Chaneé Gaskin, 
Laura Hook, LaToya King, Joanne Landesman, Meghan Perez, Janine 
Prybyla, Jeanett Reid, Amber Lopez Roberts, Traye Smith, Don 
Springman, Maria Storts, Walter Vance, and Michael Willems.  

Department of Education: 
George Scott (Director), Gale Harris (Assistant Director), Susan Chin 
(Analyst-in-Charge), Nora Boretti, Sarah Cornetto, and David Reed. 

Department of Energy: 
Christopher Murray (Assistant Director), Krista Breen Anderson 
(Analyst-in-Charge), Antoinette Capaccio, Rich Johnson, and Alison 
O'Neill. 

Department of Health and Human Services: 
Lori Achman and Rosamond Katz (Assistant Directors), Rebecca Abela 
(Analyst-in-Charge), George Bogart, and Hemi Tewarson. 

Department of Homeland Security: 
Kathryn H. Bernet (Assistant Director), Meg Ullengren (Analyst-in-
Charge), Tracey King, and Michelle Sahlhoff. 

Department of Housing and Urban Development: 
Daniel Garcia-Diaz (Director), Cody Goebel (Assistant Director), Ethan 
Wozniak (Analyst-in-Charge), Rudy Chatlos, Elizabeth Jimenez, Lisa 
Moore, Jessica Sandler. 

Department of the Interior: 
Christopher Murray (Assistant Director), John Johnson (Analyst-in-
Charge), Antoinette Capaccio, Richard Johnson, and Alison O'Neill. 

Department of Justice: 
Kathryn H. Bernet and Jill Verret (Assistant Directors), and Janet 
Temko. 

Department of Labor: 
George Scott (Director), Gale Harris (Assistant Director), Susan Chin 
(Analyst-in-Charge), Lucas Alvarez, David Barish, Sarah Cornetto and 
David Reed. 

Department of State: 
Anthony Moran (Assistant Director), Brian Tremblay (Analyst-in-
Charge), and Mark Dowling. 

Department of Agriculture: Department of Transportation; 
Christopher Murray (Assistant Director), Kathryn Smith (Analyst-in-
Charge), Antoinette Capaccio, and Alison O'Neill: Heather Krause 
(Assistant Director) and Christopher Jones (Analyst-in-Charge). 

Department of the Treasury: 
Elizabeth Curda and Melissa Wolf (Assistant Directors), Thomas McCabe 
(Analyst-in-Charge), Margaret Adams, Amy Bowser, Laurel Plume, and 
Alan Rozzi. 

U.S. Agency for International Development: 
Anthony Moran (Assistant Director), Brian Tremblay (Analyst-in-
Charge), and Mark Dowling. 

Environmental Protection Agency: 
Christopher Murray (Assistant Director), Kathryn Smith (Analyst-in-
Charge), Rich Johnson, and Alison O'Neill. 

General Services Administration: 
Keith Cunningham (Assistant Director) and Christopher Jones (Analyst-
in-Charge). 

National Aeronautics and Space Administration: 
Shelby Oakley (Assistant Director) and R. Eli DeVan (Analyst-in-
Charge). 

National Science Foundation: 
Christopher Murray (Assistant Director), Kathryn Smith (Analyst-in-
Charge), Antoinette Capaccio, and Alison O'Neill. 

Nuclear Regulatory Commission: 
Christopher Murray (Assistant Director), Krista Breen Anderson 
(Analyst-in-Charge), Antoinette Capaccio, Rich Johnson, and Alison 
O'Neill. 

Office of Personnel Management: 
Elizabeth Curda and Melissa Wolf (Assistant Directors), Thomas McCabe 
(Analyst-in-Charge), Margaret Adams, Karin Fangman, Laurel Plume, and 
Alan Rozzi. 

Small Business Administration: 
Daniel Garcia-Diaz (Director), Cody Goebel (Assistant Director), Ethan 
Wozniak (Analyst-in-Charge), Rudy Chatlos, Elizabeth Jimenez, Lisa 
Moore, and Jessica Sandler. 

Social Security Administration: 
George Scott (Director), Gale Harris (Assistant Director), Susan Chin 
(Analyst-in-Charge), Laurel Beedon, Sarah Cornetto, Sara Pelton, and 
David Reed. 

Source: GAO. 

[End of table]  

[End of section]  

Footnotes:  

[1] BBEDCA has been amended many times, including by the Budget 
Enforcement Act of 1990, the Statutory Pay-As-You-Go Act of 2010, the 
Budget Control Act of 2011, and the American Taxpayer Relief Act of 
2012. This body of law is classified in sections 900 through 907d in 
title 2 of the U.S. Code. 

[2] Pub. L. No. 112-25, 125 Stat. 240 (Aug. 2, 2011).  

[3] Under the Balanced Budget and Emergency Deficit Control Act of 
1985, an account is defined as an item for which appropriations are 
made in any appropriation act or, for items not provided for in 
appropriation acts, an item with a designated budget account 
identification code in the President's budget. 

[4] The defense spending category consists of budgetary resources in 
the national defense budget function. In addition to the Department of 
Defense, several other agencies received funding classified under the 
national defense budget function, including the Departments of Energy 
and Homeland Security. The nondefense spending category consists of 
budgetary resources in budget functions other than national defense. 
For more detailed information on sequestration at the Department of 
Defense, see GAO, Sequestration: Observations on the Department of 
Defense's Approach in Fiscal Year 2013, [hyperlink, 
http://www.gao.gov/products/GAO-14-177R] (Washington, D.C.: Nov. 7, 
2013). 

[5] Previous sequestrations occurred in the 1980s and 1990s, and most 
recently in 1991. For more information on the 1991 sequestration, see 
GAO, The Budget for Fiscal Year 1991: Compliance With the Balanced 
Budget and Emergency Deficit Control Act of 1985, [hyperlink, 
http://www.gao.gov/products/GAO/AFMD-91-35] (Washington, D.C.: Dec. 
10, 1990). 

[6] Discretionary appropriations are budgetary resources provided in 
appropriations acts. By contrast, direct spending, often referred to 
as mandatory spending, consists of budgetary resources provided by 
entitlement authority and laws other than appropriations acts. Many 
direct spending programs (though not necessarily the associated 
administrative budgets) are exempt from sequestration, including 
Social Security benefit payments, federal employees' retirement, and 
programs that serve lower income populations such as Supplemental 
Security Income, Medicaid, the Supplemental Nutrition Assistance 
Program (formerly the Food Stamp Program), the Children's Health 
Insurance Program, and school meals. Federal income tax credits paid 
to individuals, such as the Child Tax Credit and the Earned Income Tax 
Credit, are also exempt. Medicare payments and other select health 
programs were limited to a 2 percent reduction. The sequestration of 
direct spending was recently extended through fiscal year 2024. Pub. 
L. No. 113-82, § 1, 128 Stat. 1009 (Feb. 15, 2014). 

[7] In response to your request, we also reviewed whether OMB's March 
1 actions complied with section 251A of BBEDCA. In the legal opinion 
that we released in July 2013, we concluded that OMB's calculations, 
the President's March 1 sequestration order, and OMB's March 1 report 
satisfied the BBEDCA requirements. See GAO, March 1 Joint Committee 
Sequestration for Fiscal Year 2013, B-324723 (July 31, 2013). 

[8] 2 U.S.C. § 905(b). In May 2012, we reported on the effect of the 
Budget Control Act on the Department of Veterans Affairs. See GAO, The 
Budget Control Act and the Department of Veterans Affairs' Programs, B-
323157 (May 21, 2012). For the purposes of this report, when we refer 
to an "agency," we are referring to the overall government component. 
This could be a cabinet-level department (e.g., the Department of 
Transportation) or an independent agency (e.g., the Environmental 
Protection Agency).  

[9] We will issue additional work in the spring of 2014 providing more 
detail on the planning, implementation, and effects of sequestration 
at four case study bureaus within these agencies: DHS's U.S. Customs 
and Border Protection, Education's Elementary and Secondary Education, 
HHS's Centers for Medicare & Medicaid Services, and HUD's Public and 
Indian Housing. 

[10] The BCA also imposed discretionary spending limits for fiscal 
years 2012 to 2021 to reduce projected spending by about $1 trillion. 
If the discretionary spending caps are not met in a given fiscal year, 
they will be enforced by an "after session sequestration" within 15 
days after the end of a congressional session. This report focuses on 
the Joint Committee sequestration.  

[11] OMB produced these preliminary estimates as directed by the 
Sequestration Transparency Act of 2012. Because a fiscal year 2013 
appropriation had not been enacted, the act directed OMB to base the 
estimates on the fiscal year 2012 appropriation level. 

[12] Pub. L. No. 112-240, § 901(a), 126 Stat. 2313, 2370 (Jan. 2, 
2013). The $24 billion reduction in the fiscal year 2013 sequestration 
was offset by $12 billion in revenue increases and $12 billion in 
total reductions to the fiscal year 2013 and 2014 discretionary 
spending limits.  

[13] Section 251(b) of BBEDCA provides for adjustments to the 
discretionary spending limits for certain categories of funding, 
including amounts designated as emergency and disaster relief 
appropriations. OMB adjusted the discretionary spending limits for 
fiscal year 2013 to reflect appropriations enacted in response to 
Hurricane Sandy. OMB, OMB Final Sequestration Report to the President 
and Congress for Fiscal Year 2013 (Apr. 9, 2013). 

[14] Pub. L. No. 113-6, 127 Stat. 198 (Mar. 26, 2013). 

[15] The final sequestered amount for fiscal year 2013 is dependent on 
total sequestered amounts for programs that are funded by permanent 
indefinite budget authority, such as entitlement programs like 
Medicare payments where obligations depend on the number of eligible 
beneficiaries receiving benefits. Further, while agencies were 
generally required to implement the cuts by the end of fiscal year 
2013, sequestration of Medicare payments extends through March of 2014. 

[16] 2 U.S.C. § 903(f). 

[17] In addition, the Consolidated and Further Continuing 
Appropriations Act, 2013, also provided for additional rescissions for 
specific categories of spending, including 2.513 percent and 1.877 
percent rescissions for certain categories of nonsecurity spending and 
a 0.1 percent rescission for security spending. 

[18] While the Joint Committee sequestration cuts applied to defense 
and nondefense spending categories, BBEDCA set discretionary spending 
limits based on security and nonsecurity categories for fiscal years 
2012 and 2013, and discretionary spending limits based on defense and 
nondefense categories for fiscal years 2014 through 2021. The security 
category included discretionary appropriations for accounts in the 
Department of Defense, the Department of Homeland Security, the 
Department of Veterans Affairs, the National Nuclear Security 
Administration, the Intelligence Community Management Account, and all 
discretionary accounts in the international affairs budget function. 
The nonsecurity category included all discretionary appropriations 
that do not fall into the security category.  

[19] In April 2012, we reported on the meaning of PPA under the BCA. 
See GAO, Agency Operations: Agencies Must Continue to Comply with 
Fiscal Laws Despite the Possibility of Sequestration, [hyperlink, 
http://www.gao.gov/products/GAO-12-675T] (Washington, D.C.: Apr. 25, 
2012). 

[20] Carryover balances may consist of funds that have not been 
obligated (known as unobligated balances) or obligations for which 
payment has not been made (known as unliquidated obligations) that are 
carried forward into future fiscal years. We recently reported on 
unobligated balances, see GAO, Budget Issues: Key Questions to 
Consider When Evaluating Balances in Federal Accounts, [hyperlink, 
http://www.gao.gov/products/GAO-13-798] (Washington, D.C.: Sept. 30, 
2013). 

[21] Multiyear appropriations provide budget authority for a fixed 
period of time in excess of one year, while no-year appropriations 
provide budget authority for an indefinite period of time. 

[22] We recently reported on user fee design options, including issues 
related to identifying and managing unobligated balances. See GAO, 
Federal User Fees: Fee Design Options and Implications for Managing 
Revenue Instability, [hyperlink, 
http://www.gao.gov/products/GAO-13-820] (Washington, D.C.: Sept. 30, 
2013).  

[23] Pub. L. No. 112-155, 126 Stat. 1210 (Aug. 7, 2012). The 
Sequestration Transparency Act of 2012 required that the President 
submit a detailed report on the sequestration required to be ordered 
for fiscal year 2013 as directed by BBEDCA. The purpose of the report 
was to enhance public understanding of sequestration and actions to be 
taken under it. The STA included a requirement to show reductions for 
each account at the PPA level.  

[24] OMB, OMB Report Pursuant to the Sequestration Transparency Act of 
2012, (Sept. 14, 2012). While the report provided a breakdown of 
exempt and nonexempt budget accounts, OMB stated that "because of the 
STA's reporting deadline of just 30 days, the large number of PPAs 
across all agencies and budget accounts, and inconsistencies in the 
way PPAs are defined, additional time is necessary to identify, 
review, and resolve issues associated with providing information at 
this level of detail." 

[25] OMB, OMB Report to the Congress on the Joint Committee 
Sequestration for Fiscal Year 2013 (Mar. 1, 2013).  

[26] Several large mandatory grant programs providing federal funds, 
such as Medicaid and the Supplemental Nutrition Assistance Program, 
were exempt from sequestration.  

[27] Sequestration reduced Emergency Unemployment Compensation 
benefits overall by 5.1 percent. Because some benefits had already 
been paid, the actual reductions required to be achieved during the 
remainder of fiscal year 2013 were higher than 5.1 percent. The actual 
reduction in benefits varied by state depending in part on when the 
state implemented the reduction.  

[28] States can provide different Women, Infants, and Children benefit 
levels and some states may reduce their benefits before they cut 
participants. 

[29] For the 2012-2013 program year reporting period, Head Start had a 
total funded enrollment of approximately 957,000 children. "Funded 
enrollment" refers to the total number of funded Head Start slots, 
which may differ from the total number of children served throughout 
the year. 

[30] Each year, NSF receives 50,000 to 55,000 proposals and typically 
funds about 22 percent of these proposals.  

[31] USDA indicated that there would be 100 fewer grants compared to 
the 5-year average of 2,170. However, USDA indicated that it did not 
have final data on the grant reduction associated with sequestration 
because some awards will not be processed until fiscal year 2014. 
Also, other factors could influence the number of awards made, such as 
providing a smaller amount of funding per award. 

[32] This figure represents the present value of future benefits saved 
for Old-Age, Survivors, and Disability Insurance; Supplemental 
Security Income (SSI); Medicare; and Medicaid. The estimate includes 
savings to Medicare and Medicaid because in some cases eligibility for 
SSI and Disability Insurance confers eligibility for certain Medicare 
or Medicaid benefits. The share of continuing disability reviews that 
results in terminating eligibility for benefits depends on the 
frequency of reviews performed and the types of beneficiaries for whom 
they are conducted. If in the future a different frequency or mix of 
continuing disability reviews is conducted, then the share of reviews 
that results in terminating eligibility--and thus the average value of 
future benefits saved--could differ from previous experience. 

[33] See OMB, Ongoing Implementation of the Joint Committee 
Sequestration, OMB Memorandum M-13-11 (Washington, D.C.: Apr. 4, 
2013).  

[34] In September 2012, we reported on challenges FAA faces in 
implementing the Next Generation Air Transportation System. See GAO, 
Next Generation Air Transportation System: FAA Faces Implementation 
Challenges, [hyperlink, http://www.gao.gov/products/GAO-12-1011T] 
(Washington, D.C.: Sept. 12, 2012).  

[35] HUD Office of Inspector General (OIG) reported these findings in 
HUD OIG, Final Civil Action: Bank of America Settled Alleged 
Violations of the False Claims Act by Countrywide Home Loans, Inc., 
Memorandum No. 2012-CF-1809 (Washington, D.C., June 12, 2012). 

[36] In November 2012, we reported on security challenges at U.S. 
diplomatic posts. See GAO, State Department: Diplomatic Security 
Challenges, [hyperlink, http://www.gao.gov/products/GAO-13-191T] 
(Washington, D.C.: Nov. 15, 2012).  

[37] Since 1990 enforcement of tax laws has been on GAO's High Risk 
List of programs that are vulnerable to fraud, waste, abuse, and 
mismanagement. IRS estimated the tax gap--the difference between taxes 
owed and taxes paid--to be in the hundreds of billions of dollars. See 
GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: June 15, 
2011). 

[38] According to Treasury's 2014 budget justification, enforcement 
revenue was $50.2 billion in fiscal year 2012 for a total IRS-wide 
return of $4.2 to $1.  

[39] We designated potential gaps in satellite capacity as a high-risk 
area in 2013. See [hyperlink, http://www.gao.gov/products/GAO-13-283]. 

[40] Depot maintenance is, subject to certain exceptions, material 
maintenance or repair requiring the overhaul, upgrading, or rebuilding 
of parts, assemblies, or subassemblies, and the testing and 
reclamation of equipment as necessary, regardless of the source of 
funds for the maintenance or repair or the location at which the 
maintenance or repair is performed. This includes certain software 
maintenance. 

[41] Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011). GPRAMA 
updated the Government Performance and Results Act of 1993 (GPRA). 

[42] OPM restored overtime for employees in mid-August and thereby 
increased the number of claims processed in the ensuing months, 
although it still fell short of this goal.  

[43] OPM, the central human resources agency for the federal 
government, has conducted the FEVS every year since 2010. Prior to 
2010, OPM conducted the survey during even numbered years, beginning 
in 2004. The most recent results from 2013 included employees from 
more than 80 federal agencies, including all 23 of the agencies 
included in this review as well as several smaller, independent 
federal agencies and organizations. Overall, more than 376,500 
employees responded to the survey in 2013 for a total response rate of 
48.2 percent. The survey was administered in two waves with 
approximately 6-week administration periods beginning April 23, 2013, 
and April 30, 2013. For additional information on the survey 
methodology, see [hyperlink, http://www.fedview.opm.gov/2013/].  

[44] HUD, EPA, and DOD furloughed roughly 8,000, 16,000, and 640,500 
employees in fiscal year 2013, respectively.  

[45] According to OPM, based on a standard statistical test the 
difference between positive percentages from 2012 to 2013 for this 
question was determined to be "statistically significant," indicating 
that there is less than a 5 percent probability that the difference 
occurred by chance.  

[46] [hyperlink, http://www.gao.gov/products/GAO-13-283]. 

[47] According to Federal Acquisition Regulations, "prime" contractors 
are those with whom the department has a direct contractual 
relationship. 

[48] Research examining the effect of previous Medicare payment cuts 
suggests that providers may increase the volume or intensity of 
services billed to Medicare to offset lost revenue. 

[49] OMB, Issues Raised by Potential Sequestration Pursuant To Section 
251A of the Balanced Budget and Emergency Deficit Control Act of 1985, 
OMB Memorandum M-12-17 (Washington, D.C.: July 31, 2012).  

[50] Pub. L. No. 112-155, 126 Stat. 1210 (Aug. 7, 2012). 

[51] In the federal government, layoffs are called reduction in force 
actions. 

[52] OMB, Planning for Uncertainty With Respect to Fiscal Year 2013 
Budgetary Resources, OMB Memorandum M-13-03 (Washington, D.C.: Jan. 
14, 2013). 

[53] Executive Order (EO) 13576 "Delivering an Efficient, Effective, 
and Accountable Government," established the Campaign to Cut Waste on 
June 16, 2011. A June 28, 2011, memo issued by the OMB Controller to 
the CFOs of all agencies outlined specific steps that CFOs should take 
to address the President's directive to identify immediate 
administrative cost savings, including steps to identify and share 
government practices that cut costs and improve efficiencies. OMB, 
Campaign to Cut Waste, OMB Memorandum (Washington, D.C.: June 28, 
2011). 

[54] We previously reported that uncertainty resulting from unknown 
funding levels, such as when agencies are operating under a CR, 
limited management options and increased workload. GAO, Continuing 
Resolutions: Uncertainty Limited Management Options and Increased 
Workload in Selected Agencies, [hyperlink, 
http://www.gao.gov/products/GAO-09-879] (Washington, D.C.: Sept. 24, 
2009). 

[55] 29 U.S.C., §§ 2101-2109. The Worker Adjustment and Retraining 
Notification (WARN) Act generally requires employers with at least 100 
employees to provide written notice to affected employees 60 days 
before ordering certain plant closings or mass layoffs if they are 
reasonably foreseeable. DOL concluded that federal contractors should 
not issue WARN Act notices to employees in advance of a potential 
sequestration given the uncertainty. OMB later issued separate 
guidance to agencies reinforcing DOL's conclusion. Department of 
Labor, Guidance on the Applicability of the Worker Adjustment and 
Retraining Notification (WARN) Act, Training and Employment Guidance 
Letter No. 3-12 (Washington, D.C.: July 30, 2012) and OMB, Guidance on 
Allowable Contracting Costs Associated with the Worker Adjustment and 
Retraining Notification (WARN) Act, M-12-19 (Washington, D.C.: Sept. 
28, 2012). We later issued a legal opinion on several questions 
related to OMB's WARN Act guidance. GAO, Office of Management and 
Budget Guidance on the Worker Adjustment and Retraining Notification 
(WARN) Act, B-324146 (Washington, D.C.: Sept. 12, 2013). 

[56] OMB, Agency Responsibilities for Implementation of Potential 
Joint Committee Sequestration, OMB Memorandum M-13-05 (Washington, 
D.C.: Feb. 27, 2013). 

[57] 2 U.S.C. § 906(k)(6) states: "Budgetary resources sequestered in 
revolving, trust, and special fund accounts and offsetting collections 
sequestered in appropriation accounts shall not be available for 
obligation during the fiscal year in which sequestration occurs, but 
shall be available in subsequent years to the extent otherwise 
provided in law." 

[58] Under the Mineral Leasing Act, classified at 30 U.S.C. § 191(a), 
states generally receive half of the royalties collected for oil and 
natural gas development and coal production on federal lands within 
their borders.  

[59] Interior distributed payments to states in October 2013. 

[60] Section 255 of BBEDCA exempts from sequestration "activities 
financed by voluntary payments to the government for goods or services 
to be provided for such payments." 2 U.S.C. §905(g)(1)(A). In December 
2011 OMB issued criteria to agencies regarding what constitutes a 
voluntary payment, but the information was not available to the 
public.  

[61] Pub. L. No. 112-155, 126 Stat. 1210 (Aug. 7, 2012). 

[62] GAO, Internal Control: Standards for Internal Control in the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999). 

[63] OMB, Planning for Uncertainty with Respect to Fiscal Year 2013 
Budgetary Resources, OMB Memorandum M-13-03 (Washington, D.C.: Jan. 
14, 2013). 

[64] These amounts were generally consistent with the amounts of broad 
transfer authority provided to DOD in fiscal years 2011 and 2012. 

[65] 50 U.S.C. § 2745. 

[66] Defense unobligated balances, remaining available from previously 
enacted appropriations, were subject to sequestration pursuant to 2 
U.S.C. § 905(e). 

[67] 28 U.S.C. § 527. 

[68] Deobligation refers to an agency's cancellation or downward 
adjustment of previously incurred obligations. Deobligated funds may 
be reobligated within the period of availability of the appropriation. 
For example, annual appropriated funds may be reobligated in the 
fiscal year in which the funds were appropriated, while multiyear or 
no-year appropriations may be reobligated in the same or subsequent 
fiscal years. 

[69] OMB, Ongoing Implementation of the Joint Committee Sequestration, 
OMB Memorandum M-13-11 (Washington, D.C.: Apr. 4, 2013) and Agency 
Responsibilities for Implementation of Potential Joint Committee 
Sequestration, OMB Memorandum M-13-05 (Washington, D.C.: Feb. 27, 
2013).  

[70] For purposes of this report, information on State and USAID is 
reported together because the Office of U.S. Foreign Assistance 
Resources has jointly managed both budgets since 2006.  

[71] Information on agencies' total budgets for fiscal year 2013 and 
the amount sequestered is based on agencies' responses to a standard 
information request. Figures, particularly for direct funding, may be 
estimates and are subject to change based on final end-of-the-year 
financial data.  

[72] While we reviewed the sources agencies used to determine their 
PPAs for the purpose of sequestration, we did not do a legal 
compliance review to determine that agencies identified their PPAs 
appropriately and we did not independently verify the number of PPAs 
or accounts subject to sequestration. 

[73] We will issue additional work at a later date providing more 
detail on the planning, implementation, and effects of sequestration 
at four case study bureaus within these agencies: DHS's U.S. Customs 
and Border Protection, Education's Elementary and Secondary Education, 
HHS's Centers for Medicare & Medicaid Services, and HUD's Public and 
Indian Housing. 

[74] 2 U.S.C. § 905(b). See also B-323157, May 21, 2012.  

[75] The CFO Act agencies are the executive branch agencies listed at 
31 U.S.C. § 901(b). For the purposes of this report, when we refer to 
"agency," we are referring to the overall government component. This 
could be a cabinet-level department (e.g., the Department of 
Transportation) or an independent agency (e.g., the Environmental 
Protection Agency). 

[76] Based on OMB data for actual obligations in fiscal year 2012. The 
budget function classification system provides a comprehensive and 
consistent means to capture federal activity and group budgetary 
resources according to mission area or "national need." These 
"national needs" are grouped into 17 broad areas for analyzing and 
understanding the budget. Three additional categories--Net Interest, 
Allowances, and Undistributed Offsetting Receipts--do not address 
specific "national needs" but are included in the budget function 
classification system so that the total of all functions sum to the 
budget totals. For more information on budget functions, see GAO, 
Federal Budget: Agency Obligations by Budget Function and Object 
Classification for Fiscal Year 2003, [hyperlink, 
http://www.gao.gov/products/GAO-04-834] (Washington, D.C.: June 25, 
2004). 

[End of section]  

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