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Sequestration: Still the Wrong Direction

January 19, 2013

I spent all week searching for someone who is optimistic about avoiding sequestration on March 1. I chatted with people on the phone and at meetings. I scoured Politico, CQ, and all types of media. Everywhere I turned, people said: “Prepare for sequestration.”

There are any number of substantive proposals that produce sufficient monies to avert sequestration. The real problem is the lack of political will to resolve the impending crisis. And, as a political problem, it can be resolved quickly IF Congress wants to. Thus, our small ray of sunshine is that we still have 6 weeks to convince Congress that across-the-board cuts in discretionary programs is the worst, most unfair, and least economically justifiable way to resolve our nation’s deficit problems.

By our reckoning, if sequestration was to go into effect on March 1, FDA would have to achieve between $250 and $270 million in FY 13 (current year) savings. While this is slightly more than 6% of FDA’s total revenue (appropriations and user fees), the agency will have only 7 months to find it. The cut in “funds remaining to be spent” will probably be closer to 10%, possibly more.

I have been told that FDA is likely to start with the same game plan as other agencies: cancel contracts, reduce travel, cut activities that involve travel (for FDA, that would largely be inspections), and save on administrative costs. For agencies that spend substantial parts of their appropriation on grants and contracts, it is possible that this approach will be sufficient.

FDA, however, is largely a service organization. A little over 80% of the agency budget is salaries, benefits, training, and travel. Most of the rest is rent and rent-related cost (e.g., utilities), White Oak consolidation costs, and information technology. Most of these non-personnel costs are fixed and hold relatively little potential for savings. For example, GSA and other landlords will not be giving FDA a break on the amount the agency owes. If FDA can’t save 6% to 10% on these infrastructure costs (and mostly it can’t), then the difference will have to be made up by additional savings from the other line items: FDA Centers and the Office of the Commissioner.

This raises the very real specter that FDA will have to reduce personnel through hiring freezes, buy-outs, lay-offs, and furloughs. As a rule of thumb: for every million dollars of savings that has to come from FDA personnel, four to five jobs could be lost. Even though OMB guidance to agencies will be to cut non-personnel costs first and utilize furloughs, it is possible that FDA could permanently lose 1000 to 2000 jobs.

It goes without saying — this is the wrong direction when FDA’s mission is expanding, science is becoming more complex, and the agency is implementing three new laws passed by Congress.

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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