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Sequestration and Its Consequences — A Short Q&A

February 25, 2013

In this week’s Analysis and Commentary, Steven Grossman, the Deputy Executive Director of the Alliance for a Stronger FDA, responds to some questions raised by members of the Alliance.

How much FY 13 (current year) money is FDA expected to lose if sequestration goes into effect? Based on OMB testimony before the Senate last week, we estimate that FDA now faces a sequester of about $210 million on March 1. This is 5.1% of FDA’s $4.1 billion budget for FY 13 (about $2.5 billion in appropriations and $1.6 billion in user fees, which includes both tobacco fees and the new generic drug user fees).

Will all programs within FDA be cut by precisely the same amount? Yes. Unless the sequester rules are changed by Congress next week, all FDA programs will be cut by the same 5.1%. However, fixed items (rent, utilities, etc.) will still cost the agency the same amount, creating an internal deficit. This will require additional funds (above the 5.1%) to be taken from the Centers and the Office of the Commissioner. It is our understanding this additional amount must also be shared equally by all programs within the agency.

OMB said that the actual cuts for domestic discretionary programs will be close to 9%. How does that relate to the 5.1%? The sequestration is based on the agency’s full-year budget, but the cost savings would have to be found and implemented within the 7 months remaining in FY 13. If one assumes that the FDA spends its appropriations/user fee revenue equally each month (about $340 million), then the agency will have spent $1.7 billion in the first 5 months of the year and have $2.4 billion to pay for the final 7 months of the year.  Looking only at the remaining 7 months, a sequester of $210 million would represent an 8.75% cut.  This is consistent with OMB’s testimony.

Beyond the specific dollars, why will the impact be greater on FDA than on most federal agencies?  FDA is essentially a service organization. More than 80% of its funding is spent on personnel-related costs. Much of the remainder is fixed costs, not grants or contracts that could be cancelled or cut back. Many federal agencies are hoping to meet some of their sequester obligations with non-personnel cutbacks and FDA will do its best to follow this model. However, furloughs and unfilled job vacancies are almost certain. Lay-offs cannot be ruled out if the sequester runs the entire seven months.

Why are user fees included in the sequestration?   In its September 15, 2012 report, OMB definitively stated that sequestration included most user fee programs and pointed to statutory language that is fairly clear. Some commentators have noted (hopefully) that the sequestered user fee monies are available to be spent in future years. While this could occur, we have been consistently told by the Executive Branch that it would require specific appropriations language to spend these sequestered funds and that such language would be “scored” (i.e. subject to spending limitations in the same manner as budget authority appropriations). It may be possible that the sequestered user fees would be carried forward until the end of the 5 year user fee period, then handled the same way any excess would be handled.

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