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What If There’s a Sequester?

June 22, 2012

Based on the prior column from June 10 about possible FY 13 funding scenarios for FDA, we received a number of questions about the potential for a sequester (across-the-board cut) in January 2013. Budget authority appropriations, but not user fees, would be affected.

The following answers are based on the assumption that the current ground rules stay the same (e.g., across-the-board cuts by line-items, which creates almost no flexibility vs. cuts being allotted by agency or department, which provides some leeway).

1. If sequestration occurs and takes $150-$250 million from FDA, is that figure a potential cut for FY13 or the cuts that would accumulate over the life of the sequestration, which goes through FY21?

Sadly — should a sequester occur, it will be swift, immediate, and painful. Nothing will be held back. Suddenly, the available BA funding for FDA would go from $2.5 billion to $2.3 billion in FY 13. (This assumes an 8% sequester; it might be anywhere from 6 to 12%.). Only three-fourths of the year would be left, making the impact even more severe.

Also, because of the 10-year deficit reduction goals, the out-years assume that the FY14 base is the post-sequester number. Any agency hoping for out-year growth would be starting from that lower number. Large 10-year savings are calculated by extrapolating from the level of spending after the sequester.

2. Since a sequester won’t occur before January 2013 and we may not know until the last minute whether it will happen, how will the threat of the sequester affect FDA activities?

From August to December of this year, FDA will need to speed up some hiring that is highly specialized to new user fee requirements. Simultaneously, it will be pulling back on other spending and hiring. FDA will want to make sure that it will not have to do post-sequester lay-offs.

We assume that there will also be contingency plans to shift individuals from positions and offices paid for by BA and into ones paid for by user fees. For example, if the sequester occurs, a $20 million CDER unit (or CBER or CDRH) that is now funded one-third by PDUFA or MDUFA to two-thirds by BA might suddenly become mostly PDUFA or MDUFA-funded (i.e., product review offices and reviewers are not segregated or have different purposes because of their funding source).

Note the potential consequence — increases in user fee income backfills the BA cuts rather than contributes to real agency growth. Despite that, FDA will be obligated to undertake the activities and meet the performance measures as if the new user fee money was paying for additional staff.

3. Is there a possibility that sequester will trigger the BA maintenance of effort provisions in the user fee laws?

PDUFA and MDUFA require that Congress maintain BA funding at a certain level as a condition of collecting user fees. Over a period of years, BA funding growth has been sufficient to stay well above the minimum maintenance of effort funding required. It is our understanding that the proposed sequester would not lower FDA’s BA funding (for CDER, CBER and CDRH) to a level at which the trigger would come into play. Even after a sequester, FDA would still be well above these minimums.

4. Will programs with user fee funding be better protected from the sequester?

The answer to this is “yes” and “no.” CDER/CBER/CDRH and CFSAN will all have large new responsibilities in FY 13 (new PDUFA and MDUFA commitments, implementation of FSMA). Yet, because user fees are not subject to sequester, CDER, CBER and CDRH will retain more of their prior year capacity than CFSAN.

On the other hand, FDA may be able to stretch implementation of FSMA over a longer period of time, as money becomes available. Meantime, CDER, CBER and CDRH are responsible for undertaking activities and meeting user fee performance measures regardless.

This underscores a critical problem with across-the-board cuts: it robs government agencies of the opportunity to set priorities and put more money against those objectives it considers the most important. That said, we would expect that FDA will be artful in maximizing progress in food safety to the extent that funding allows.

Conclusion: To re-state the obvious, sequestration would be a huge blow to FDA — whether it is cutting food funds or forcing user fees to be used to maintain the status quo rather than build new capacity.

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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