CBO and Deltek Analysis Show Growing Federal Spending under Sequestration

Published: March 12, 2013

Forecasts and SpendingSequestration

Recent rhetoric around Sequestration is creating the impression that federal spending will be declining following the initial round of cuts. The reality is that while Sequestration slows the rate of federal spending that spending nevertheless continues to rise for the rest of the decade.

Is it me or does the recent flood of commentary around Sequestration feel a little over the top? Media reports are filled with the government officials from the White House down calling anticipated budget cuts “ruinous” and “devastating.” All the hyperbole inspired me to do a quick data check to determine for myself what the impact of Sequestration is anticipated to be. What I found is that while the planned cuts will cause a lot of pain in the short-term (i.e., the remainder of this fiscal year), the medium-term outlook is more optimistic and the long-term budget projections are business as usual.

According to the Congressional Budget Office (CBO) report The Budget and Economic Outlook: Fiscal Years 2013-2023, federal spending continues to rise under Sequestration. Table 1 below was taken from page 3 of the CBO report. It shows that even taking into account the cuts levied by Sequestration, projected federal outlays rise every year for the next 5 fiscal years (the area outlined in red). This rise is projected to continue for the years beyond fiscal 2017 too, all the way to 2020. The rate of spending may not be increasing at the pace it has since 2008, but then again in 2009 – only three short years ago – federal agencies received what amounted to almost two years of funding in a single fiscal year thanks to the stimulus plan.

Table 1

Now take a look at federal spending as a percentage of U.S. Gross Domestic Product (GDP). Using the same figures presented for the forecast period above, the CBO projects that the federal deficit as a percentage of GDP will fall as a result of Sequestration (Table 2).

Table 2

Projected federal outlays in fiscal 2013 will make up 22.2% of U.S. GDP. The CBO projects this percentage to decline to 21.7% in fiscal 2014 and 21.6% in fiscal 2015 and 2016. Essentially, the CBO is saying that federal spending as a percentage of U.S. GDP will decline by only 0.5% next fiscal year and by another 0.1% the year after that. The CBO is not saying that U.S. GDP will contract by 0.5%, only that federal spending as a percentage of GDP will decline by half a percentage point. This is hardly devastating.

Then there are the results of Deltek’s own analysis of the impact of discretionary spending under Sequestration to consider. Table 3 below shows that the biggest impact of Sequestration will be felt during the last 6 months of fiscal 2013. After this initial dip from levels set in the Budget Control Act (BCA), federal discretionary spending continues its upward trajectory by 1%-2% per year.

Table 3

Admittedly, Sequestration is a big bump in the road, but it is not the unmitigated disaster that it is being made out to be.