Potential Impact of a Federal Sequestration

Lately, news outlets have been reporting on the Federal budget sequester set to begin on Friday, March 1. It would likely impact the City’s revenues. “Sequestration is a term used to describe the practice of using mandatory spending cuts in the federal budget if the cost of running the government exceeds either an arbitrary amount or the gross revenue it brings during the fiscal year. Simply put, sequestration is the employment of automatic, across-the-board spending cuts in the face of annual budget deficits. ¹The Balanced Budget and Emergency Deficit Control Act of 1985 established the basis for the automatic budget cuts. The Budget Control Act of 2011 required the administration to sequester FY13 discretionary funds. This includes making across-the-board cuts of $1.2 trillion in savings over a ten year period beginning in 2013. 

The impact to the City of Champaign is unclear since in previous years when sequestration was a possibility, Congress was unwilling to let it happen and took actions to prevent the automatic budget cuts. However, likely areas within the City’s budget are reductions to the Build America Bond (BAB) payments, Community Development Block Grant (CDBG), and HOME Investment Partnership Program (HOME) funding. Currently, the City receives BAB payments of about $417,000 annually. According to the Government Finance Officers Association², this rebate could be reduced by 7.6% or $30,021. CDBG and HOME grants could be reduced by 8.2% or approximately $144,000 which would impact projects in the Neighborhood Services Department. Since the sequestration deadline is the end of this week, Finance will continue to monitor the situation.

1 http://uspolitics.about.com/od/thefederalbudget/a/What-Is-Sequestration.htm
2 Government Finance Officers Association Newsletter, Vol. 88, No. 7, dated February 14, 2013