Seq-Watered-Down

A month after the non-event that was the sequester’s implementation, its impact still seems more subdued than many feared it would be. And in our view, that’s unlikely to change over the remainder of the year.

Not to say cuts won’t happen—some certainly will. (Though it’s important to understand the dire cuts don’t actually amount to overall government spending reductions, just a reduced rate of spending growth.) In our view, it’s unlikely the Federal Government’s budgetary rejiggering has material macroeconomic fallout. Such shuffling seems more likely to be another instance of federal agencies and lawmakers picking winners and losers—this time, in order to hit budgetary requirements.

Some examples: Air traffic control towers will close in 149 smaller airports throughout the country—mostly small airports with very little traffic. Some are in areas with multiple airports, like Sacramento, CA, and Columbus, OH, likely further mitigating ill-effect. (Plus, most of the actual directing of air traffic isn’t conducted from towers at small airports, but from larger, centralized route planning centers.) Additionally, up to 800,000 Defense Department employees are expected to experience furloughs totaling 14 days—but note, this is down from the initially expected 22 days, as Congress granted the executive branch leeway to determine exactly how to make the cuts. And aerial flight teams have been suspended, meaning baseball’s Opening Day was overall quieter this year. These examples are unfortunate for some, but are broadly representative of the sequester’s ultimate (narrow) impact.

Overall, it seems federal agencies are shifting money around and saving a few dollars where they can, rather than cutting more necessary services. For example, Baltimore’s Fort McHenry will reduce hours and rely on volunteers to cut spending—a tactic we suspect many federal parks and museums will take. Like Yellowstone National Park, where private businesses with a financial stake in the park’s opening on time paid to plow roads connecting the park to towns.

Elsewhere, more prudent budgeting also appears in the works. Food inspectors, widely feared to be heavily impacted by the sequester, were spared by shifting money around—$30 million from building maintenance and $25 million from a new program for school kitchen equipment upgrades. Evidence lawmakers will do what they need to—and evidence general spending cuts aren’t the harbinger of bad meat some thought.

Meanwhile, some in the US government aren’t experiencing much difference yet at all. Many cuts and furloughs are being delayed until September—conveniently the month Congress returns from its summer vacation. So perhaps lawmakers will work their can-kicking magic or otherwise forestall cuts.

Which reminds us—one group is sure to avoid a cut due to the sequester. Because the 27^th Amendment prevents lawmakers’ pay from changing until the next Congress—in this case, January 2015—we can all breathe easy, as Representatives and Senators won’t be seeing their pay slashed. (The relief!) Originally enacted in 1992, the amendment was ostensibly meant to prevent too-quick implementation of raises, but it also prevents pay cuts from happening quickly as well. So it seems the Congress who didn’t compromise the sequester away also likely won’t experience much downside from it (at least as far as their paychecks go). How’s that for an unintended consequence?

Ultimately, it seems the sequester’s much-feared national security impacts or gutting of important civil services and entitlements just aren’t in the cards. Not surprising when you consider it’s just a slower rate of spending growth and not the budgetary guillotine some claimed. But even for those programs slated to receive incremental cuts, lawmakers have leeway to adjust the impact—and evidence shows they’re doing just that. Their re-election depends on it—something to keep in mind when hearing about cuts to federal flood control and prevention in Iowa, federal defense lawyers unable to visit clients in Guantanamo or stark warnings budget cuts will result in fewer criminal arrests. Hyperbolic, emotional warnings are just that, as we saw when the sequester debate began, and as we’re seeing now with current “cuts” and their overall minimal impact.