Congress Unlikely to Avert Sequestration But Debate Will Continue This Week

(from the National Low Income Housing Coalition) Congress and the nation moved closer to the implementation of sequestration during the week of February 18 as the House and Senate stood in recess. Sequestration of discretionary funds, an across-the-board cut that would decrease HUD and USDA Rural Housing funds by approximately 5.1%, is scheduled to take effect on March 1. While Republican and Democratic lawmakers alike have stated that sequestration is bad policy, it is unlikely that Congress will act to avert these cuts in the remaining three legislative days. In a briefing on February 19, President Barack Obama told housing advocates that sequestration is a “meat cleaver” approach that would harm the middle class. The President has urged lawmakers to pass a bill to avert sequestration. President Obama said his door is open to talk with anyone, but that he will not proceed with a bill that harms the middle class.

Early in the week of February 25, a  bill is expected to introduced in the Senate to prevent sequestration by postponing the across-the-board cuts through other measures that would still ultimately meet the nation’s deficit reduction goals (see Memo, 2/15). The Senate bill is expected to include increases in revenue, primarily through closing tax loopholes, and targeted spending cuts. Even if the Senate reaches consensus on this bill, the House is unlikely to consider it.

Senate Democrats and House Republicans are divided on their approach to sequestration, with Republicans saying that new revenue should not be part of a sequestration replacement package and Democrats saying that sequestration cuts are too deep and must be lessened by revenues derived from taxes on the wealthiest Americans and closure of corporate tax loopholes. House Speaker John Boehner (R-OH) increased the divide during the week of February 18 when he said that the House would only be interested in a sequestration replacement package that also included a 10-year balanced budget requirement. Still other Republicans are telling constituents that sequestration is good for the nation, despite the impacts many Americans would experience.

This lack of consensus on not just how to prevent sequestration, but whether sequestration should be averted at all, and the fleeting number of legislative days mean that it is unlikely Congress will avoid the deadline by which the Administration needs implement the cuts.

If there is to be agreement on achieving the deficit reductions at which sequestration is aimed, it may be in legislation that will at long last finalize FY13 appropriations. The continuing resolution (CR) currently providing FY13 funding for federal agencies is set to expire on March 27.  Congress is expected to act before then to avert a shutdown and to provide agencies with final funding levels for the second half of the fiscal year.

The Obama Administration is required to implement sequestration, across-the-board cuts to discretionary spending, on March 1, unless Congress acts to offer a solution. These indiscriminate cuts would reduce HUD and USDA housing programs by 5.1%, according to the Center for Budget and Policy Priorities. Nonetheless, both chambers took their scheduled President’s Day break. The Senate is due back on February 25 and the House on February 26, leaving few legislative days left to break the impasse.

“Impact of Sequestration” was the title of the first hearing on in the 113th Congress for the Senate Committee on Appropriations. It was also the first hearing with the new Committee Chair, Senator Barbara Mikulski (D-MD). Nearly all members of the Committee attended the hearing.

HUD Secretary Shaun Donovan testified that the sequester would affect hundreds of thousands of Americans who benefit from HUD programs. “Should sequestration go into effect on March 1,” said Secretary Donovan, “cuts would be deeply destructive.” Secretary Donovan cited specific impacts of the sequester, including that 125,000 households would lose their housing choice vouchers, over half of which include at least one member who is elderly or who has a disability. He said that another 100,000 formerly homeless people, the majority of whom are people with disabilities, would lose their housing or shelter and be back on the streets, and that 7,300 households served by the Housing Opportunities for Persons with AIDS Program (HOPWA) would lose assistance and be at risk of homelessness. Public housing agencies would be forced to defer maintenance and repairs of deteriorating units and add to the $26 billion backlog of public housing capital repairs.

Additionally, 3,000 of the most vulnerable children would be less safe if healthy homes and lead hazard control funds were cut. Seventy-five thousand fewer households would receive foreclosure or pre-purchase housing counseling. A cut to the Community Development Block Grant would result in a loss of leveraged funds, causing loss of tens of thousands of jobs. Super Storm Sandy recovery would also be slowed by cuts of $3 billion from the supplemental appropriations package just passed by Congress. This would eliminate assistance for 10,000 homes and small businesses in the affected region.

The sequester would also halt the housing market “at a critical recovery point,” said the Secretary. He said that HUD’s ability to support the recovery would be severely hampered because of staff furloughs that would affect department operations, including administration of Federal Housing Administration (FHA) loans.

When fielding questions from committee members, Secretary Donovan said that because “housing has become one of the leading factors that is driving our economy,” the ripple effect of housing cuts will affect the jobs of bricklayers, plumbers, carpenters, window manufacturers, and others. Chair Mikulski said that she understood that HUD cuts would affect new housing starts, rehabilitation of existing housing, and modernization of housing, impacting the jobs of people “from the lumber yard” to those employed at large construction companies. Secretary Donovan said the FHA is central to the housing and economic recovery and that currently almost of half of homebuyers use an FHA loan to purchase a house. FHA is responsible for 25% of multifamily construction and even a hiring freeze or furlough would cause a $3 billion loss in financing that would feed the ripple effect of job loss.

Daniel Werfel of the Office of Management and Budget testified that the Administration believes that “sequestration is bad policy,” and that Congress should pass a bipartisan deficit reduction bill to avert sequestration. Mr. Werfel said that the cuts would affect “middle-class families, seniors and the most vulnerable,” and that this is “not the way to address our collective goals of deficit reduction.” Mr. Werfel said that sequestration would result in fewer teachers; less funding for children with disabilities in schools; fewer mental health programs; fewer nutrition programs; fewer food, air, and water inspections; less secure borders; less cyber security and an increase in crime on streets. The Administration is planning for the sequester, Mr. Werfel said, but there is “no amount of planning that can avoid these impacts.”

Department of Education Secretary Arne Duncan, Department of Homeland Security Secretary Janet Napolitano, and Department of Defense Deputy Secretary Ashton Carter also testified on the impacts that the sequester would have on the operations of their departments, and on all Americans. Each committee member who spoke denounced the sequester, calling it “bad policy,” a “blunt tool,” or “dumb.” Senators Mikulski, Tom Harkin (D-IA), Jeff Merkley (D-OR), Patty Murray (D-WA), Jack Reed (D-RI), Jean Shaheen (D-NH), and Tom Udall (D-NM) all raised the impacts of the sequester on housing or homelessness during the question period. 

Senate Democrats released a sequestration replacement plan they developed over the last several weeks which would replace the $85 billion sequester and $25 billion in additional cuts with a $110 billion package evenly split between raising revenue and targeted spending reductions. Half of the spending reductions would come from defense spending and half would come from farm subsidies. Revenues would come from a tax increase on households earning from $1 million to $2 million annually, an oil tax, and from eliminating certain corporate tax deductions. Senate Majority Leader Harry Reid (D-NV) plans to bring the bill to the Senate floor the week of February 25. Majority Leader Reid met with House Speaker John Boehner (R-OH), who asked that the Senate a sequestration bill that the House could consider. Speaker Boehner added a new Republican criterion for such a bill, saying that in addition to reaching the bipartisan deficit reduction goals, it would have to balance the federal budget in ten years for the House to consider the bill. Representative Chris Van Hollen (D-MD) introduced a $120 billion sequester replacement bill, H.R. 699, in the House that is consistent with the Senate proposal.

In total, eight bills to modify or replace the sequester or address spending in relation to the federal deficit were introduced in the House or the Senate during the week of February 11. There do not seem to be a sufficient number of legislative days remaining to stop the sequester, and most Congress watchers expect it to take effect on March 1, even while efforts to replace it continue. The continuing resolution (CR) that is keeping the federal government operating expires 0n March 27. Congress must agree on FY13 spending levels by that date in order to avert a government shutdown. Congress may try to include an agreement on replacing the sequester into the legislation that provides funding for federal agencies for the rest of FY13. View the Appropriations Committee testimony and letters at http://1.usa.gov/ZhAaJZ.