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The Impact of Sequestration: An Update and Commentary

September 23, 2012

On Friday, October 14, OMB released the Congressionally-mandated “sequestration transparency report.” As we reported that evening: “$3.873 billion of FDA’s budget is subject to an 8.2% reduction (merely $67 million of the agency’s budget is exempt from the sequester). That cut means that sequestration will erase $318 million from the FDA’s budget. As predicted in our September 4 note on this web site, it does appear that the major user fee programs are included in the sequester. The application of the sequester to user fees further compounds a very bad situation.”

Bad, bad, bad for FDA. The Alliance will be spending the entire Fall trying to find ways to get FDA out from under the impact of sequestration … or to make sequestration go away altogether.

In the intervening week, there have been a lot of questions about where the OMB’s numbers come from and how they were derived.

First, it is important to understand that the report is a “snapshot” of what sequestration might look like, based on the FY 12 numbers (all that OMB had to work on). The final numbers on January 2, 2013 might be different. However, presuming that the Continuing Resolution in effect in January is also based on FY 12 appropriations numbers, then the current estimates are likely to be fairly close.

The OMB’s assessment of sequester-able FDA funds, $3.873 billion, is derived from $2.506 billion in BA (taxpayer appropriations) plus $1.367 billion in user fees. In addition, there is $67 million in exempt BA that comes from somewhere within the user fee realm.

In the immediate-term, I have not been able to establish the break-out of the user fees. In the President’s FY 13 budget request, the FY 12 base for user fees is: $1.326 billion. Please click here to view FDA’s FY 2013 CJ All Purpose Table — Total Program Level. That creates a shortfall — about a $40 million discrepancy — in sequester-able user fees and provides no basis for determining the source of the exempt BA. Eventually (I presume), we will get a good chart that explains how these numbers are derived. We will pass it on when we do.

Of course, the discrepancy lessens if you include the FDASIA-directed incremental user fee increases for FY 13. However, this would seem to violate both the OMB algorithm of using the FY 12 base PLUS it violates the terms of the actual CR, which will not be including the incremental increase. Adding the new generic user fee program (also excluded from the CR), would make the sequester-able total much larger that suggested by the OMB report.

Even though we cannot reconcile the numbers at this point, the message is clear: virtually all user fees that were active in FY 12 are considered part of the sequester.

In terms of a healthy, functional FDA in FY 13, the first priority is to get out of sequestration altogether. The next is to focus (as the Alliance will) on ameliorating the size and damage from the sequestration of FDA BA funding. That is over $200 million. Such a loss will devastate the agency and cripple its ability to do its job. The problem is not created, merely exacerabated, by the OMB legal interpretation that user fees are sequesterable. That adds more than $100 million in potential sequester-able losses to an agency that will already be hard hit by sequestration.

There are conflicting messages about whether Congressional and Administration negotiators are making progress on a compromise deficit reduction package that would eliminate sequestration. Nothing is expected to happen before the lame duck session. At that point, what is possible will be driven by the election result. It is also a very short session — those who have spent the last 2 years constantly bickering will need to put their disagreements aside with unprecedented speed in order to get a deal down in what is likely to be a 5-week session.

Note: This analysis and commentary is written by Steven Grossman, the Deputy Executive Director of the Alliance for a Stronger FDA.

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