Budget Sequesters: A Brief Review

Budget Sequesters: A Brief Review

Order Code RS20398
Updated March 8, 2004
CRS Report for Congress
Received through the CRS Web
Budget Sequesters: A Brief Review
Robert Keith
Specialist in American National Government
Government and Finance Division
Summary
During the period encompassing FY1986-2002, the budgetary decisions of
Congress and the President were guided in part by specific goals in statute enforced by
a process known as sequestration. The statutory goals initially took the form of deficit
targets, but later were changed to limits on discretionary spending (first effective for
FY1991) and a “pay-as-you-go” requirement for direct spending and revenue legislation
(first effective for FY1992). Five sequesters were triggered during years in which
Congress and the President did not adhere to these statutory goals, three under the deficit
targets and two under the discretionary spending limits. No sequester occurred,
however, after FY1991.
In many of the years since FY1991, Congress and the President were able to avoid
a sequester by ensuring that it did not enact spending or revenue legislation in violation
of the statutory goals. At times, Congress and the President had to take advantage of
flexibility in the procedures, such as the ability to designate certain spending as
“emergency requirements,” in order to achieve this outcome. In other instances,
however, Congress and the President prevented a sequester that otherwise would have
occurred by enacting into law provisions that intervened in the normal operation of the
process.
This report will not be updated.
The Balanced Budget and Emergency Deficit Control Act of 1985 set forth deficit
targets leading to a balanced budget and established the sequestration process as the
means of enforcing them. The Budget Enforcement Act (BEA) of 1990 amended the
1985 act to effectively replace the deficit targets with two new enforcement
mechanisms—limits on discretionary spending (i.e., spending controlled through the
annual appropriations process) and a “pay-as-you go” (PAYGO) requirement applicable
to legislation affecting direct spending (i.e., spending controlled outside of the annual
appropriations process) and revenues. Procedures under the BEA of 1990 were revised
and extended, affecting legislation enacted through FY2002, by several laws, including
the Omnibus Budget Reconciliation Act of 1993, the Budget Enforcement Act of 1997,
and the Transportation Equity Act for the 21st Century (TEA-21), among others.
Congressional Research Service ˜ The Library of Congress

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Sequestration involved automatic, largely across-the-board spending reductions to
bring projected budget levels in line with the statutory goals.1 Any sequester under the
discretionary spending limits, the PAYGO requirement, or both would have been
triggered by a report issued by the director of the Office of Management and Budget
(OMB) within 15 days after the end of a congressional session. If the OMB director’s
report indicated that spending cuts must be made, then the President was required to issue
a sequestration order immediately, directing that the necessary cuts be made in strict
conformity with the OMB director’s report. In the case of discretionary spending, a
further sequester for a fiscal year would have occurred during the following session
(through June 30) if the enactment of a supplemental appropriations act caused a breach
of the limits. The enactment of such a measure on or after July 1 would not have caused
a sequester; instead, the applicable discretionary spending limits for the following fiscal
year would have been reduced by the requisite amounts.
Under sequestration tied to the deficit targets, half of the required outlay savings
were to be achieved by cuts in defense programs and the other half by cuts in domestic
programs. Sequestration keyed to the discretionary spending limits applied to different
categories of discretionary spending (e.g., defense/international/domestic or
defense/nondefense), which varied over time. Sequestration under the PAYGO
requirement applied first to selected programs that were covered under “special rules,”
such as a 4% limit on Medicare cuts; any further PAYGO savings were to be achieved by
uniform reductions in the remaining nonexempt programs.
Except for programs covered by PAYGO “special rules,” all reductions made under
a sequester had to comply with the “uniform reduction percentage” applicable to each
category. The reduction percentage would have been applied uniformly to all
appropriations and budget accounts within the category, and the reductions also would
have had to be extended uniformly to all of the programs, projects, and activities within
each account. The uniform reduction percentage could have varied from one category to
another.
During the period that sequestration was in effect, beginning with FY1986,
sequesters were triggered five times (see Table 1). The first three sequesters occurred
when deficit targets were in effect and the other two occurred in the first year that the
discretionary spending limits and PAYGO requirement were in effect.
The deficit targets were in effect from FY1986-1990. Initial outlay savings
associated with the three deficit target sequesters were substantial: $11.7 billion for
FY1986; $20.0 billion for FY1988; and $16.1 billion for FY1990. The uniform reduction
percentages ranged from 4.3% to 10.5%. Except for FY1986, these savings subsequently
were rescinded by a budget agreement (FY1988) or were reduced by a later law (to $4.55
billion for FY1990). Notwithstanding the implementation of a sequester for each of these
three fiscal years, the deficit targets proved to be ineffective on the whole. The actual
deficit for each of these years exceeded the applicable target by an average of about $60
billion.
1 For additional information on the sequestration process, see CRS Report RL31137,
Sequestration Procedures Under the 1985 Balanced Budget Act, by Robert Keith.

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During the remaining years, covering FY1991-2002, sequestration applied to the
enforcement of the discretionary spending limits and PAYGO requirement. Although the
PAYGO requirement applied to legislation enacted by the end of FY2002, it also applied
to the out-year effects of such legislation through FY2006.
Two sequesters under the discretionary spending limits occurred for FY1991. A
drafting error in the Foreign Operations Appropriations Act for FY1991 triggered a
sequester initially expected to yield $191 million in outlay savings, but the drafting error
was corrected in later legislation and the savings were canceled. A supplemental
appropriations act for FY1991 inadvertently caused a small breach, leading to an across-
the-board cut in domestic spending of 13 ten-thousandths of one percent ($13 for every
one million dollars in an account) that yielded $1.4 million in outlay savings.
No sequesters under the discretionary spending limits occurred after FY1991,
although Congress and the President had to enact special legislation to avoid problems for
FY2000-2002.2 No PAYGO sequester ever occurred, but Congress and the President also
had to enact special legislation to prevent PAYGO sequesters in recent years. Finally,
P.L. 107-312, enacted on December 2, 2002, effectively terminated the PAYGO
requirement for the out-years (FY2003-2006), thereby preventing sequesters for each of
the four years.3
2 For a discussion of actions taken to avoid sequesters during this period, see CRS Report
RL31155, Techniques for Preventing a Budget Sequester, by Robert Keith.
3 The legislative history and impact of P.L. 107-312 is discussed in CRS Report RS21378,
Termination of the “Pay-As-You-Go” (PAYGO) Requirement for FY2003 and Later Years, by
Robert Keith.

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Table 1. Summary of Sequesters: FY1986-2006
(outlays in billions of dollars)
Initial
Fiscal
Congress/
outlay
Uniform reduction
year
session
savings
percentages
Subsequent outcome
Enforcement of deficit targets
1986
99/2
11.7
4.9% defense; 4.3% nondefense
Full savings achieved. a
1987
99/2
None
—
[No sequester was required]
1988
100/1
20.0
10.5%defense; 8.5% nondefense
Reductions superseded by budget agreement.b
1989
100/2
None
—
[No sequester was required]
1990
101/1
16.1
4.3% defense; 5.3% nondefense
Reduced to $4.55 billion by subsequent law.c
Enforcement of discretionary spending limits and PAYGO requirement
1991
101/2
0.2
1.9% international; 0.0013%
Reduced to $0.0014 billion by subsequent law.d
domestic
1992
102/1
None
—
No sequesters occurred for these years, but in several
through
through
instances Congress and the President enacted legislation
2002
107/1
preventing a sequester under the discretionary limits and
the PAYGO requirement.e
2003
107/2
None
—
Although the discretionary spending limits had expired at
through
through
the end of FY2002, the PAYGO requirement remained in
2006
109/1
effect for the out-year impact for FY2003-2006 of
legislation enacted by the end of FY2002. The PAYGO
requirement effectively was terminated by P.L. 107-312,
which set the balances on the PAYGO scorecard for
FY2003-2006 to zero. By this action, Congress and the
President prevented PAYGO sequesters for this years.f

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a Outlay reductions under the FY1986 sequester were limited by the 1985 Balanced Budget Act to this amount.
b The FY1988 sequester was in effect from October 20 until December 22, 1987, when legislation implementing a budget
summit agreement of November 20 was enacted. Outlay reductions of $20.0 billion were expected to occur had the
sequester been in effect for the full fiscal year.
c The required outlay reduction of $16.1 billion was reduced to $5.75 billion by Section 11002 of the Omnibus Budget
Reconciliation Act of 1989 and a new sequestration order, consistent with the lower amount, was issued. CBO estimated
that the application of the “crediting rule” under Section 252(f) of the 1985 Balanced Budget Act would reduce the savings
from $5.75 billion to $4.55 billion.
d Two sequesters under the discretionary spending limits occurred for FY1991. On November 9, 1990, $395 million in budget
authority was sequestered in the international category, leading to estimated outlay savings of $191 million; the sequester
was rescinded on April 10, 1991, by Section 401 of P.L. 102-27, a supplemental appropriations act. On April 25, 1991,
$2.4 million in budget authority was sequestered in the domestic category, leading to estimated outlay savings of $1.4
million.
e For a discussion of actions taken to avoid sequesters during this period, see CRS Report RL31155, Techniques for Preventing
a Budget Sequester, by Robert Keith.
f The legislative history and impact of P.L. 107-312 is discussed in CRS Report RS21378, Termination of the “Pay-As-You-Go”
(PAYGO) Requirement for FY2003 and Later Years, by Robert Keith.