At the Brink of a Budgetary and Economic Crisis: Will the Lame Duck Congress Address It or Pass the Buck?

What we know for sure is that there will be a lame-duck session of the 112th Congress beginning Nov. 13. How long it will last is totally uncertain at this time.

The 112th Congress faces several very critical issues when it returns for the lame duck session. From the perspective of most people, it must address several of these issues. Of the utmost importance is addressing sequestration and the pending fiscal cliff. No agency, quarter or sector is immune to sequestration and the overall impact to the economy could be devastating. Something can be done, but will it? Some of the operative questions include the following.

  • Can Congress reach a bipartisan agreement on a strategy to address the federal deficit and pass legislation?
  • If not, can or will it do something to delay the implementation of sequestration and in essence pass the buck to the 113th Congress?
  • Will the lame-duck Congress extend all of the Bush tax cuts or just for those earning less than $250,000?
  • Will the lame-duck session address the pending Farm Bill?
  • Will the lame-duck session take up the other expiring tax legislation such as the American Opportunity Tax Credit?
  • Will they extend the debt ceiling again?

Very few people know what sequestration is and means. It is important to understand what it is and what is its impact, beginning on Jan. 1, 2013, if Congress does enact or amend legislation to address the federal deficit. One option available is to delay the implementation of sequestration through a resolution or amendment to the Budget Control Act. This would only be delaying the inevitable and passing the buck to the next Congress which begins in January 2013.

So What Is Sequestration and the Fiscal Cliff?

The Budget Control Act (BCA) of 2011 established a Joint Select Committee in Congress charged with the task of developing a proposal to achieve at least $1.2 trillion in deficit reduction. In November 2011, the Joint Committee announced that it could not reach agreement on a deficit reduction plan. This failure triggered enforcement via automatic across-the-board funding cuts, called sequestration, for fiscal year 2013, unless Congress prevents this from taking place by sending the president a balanced deficit reduction plan that does away with sequestration before it goes into effect on Jan. 2, 2013.

This was included (and intended) to be so bad that it wouldn't happen, but stopping it requires lawmakers to agree on a grand compromise that includes taxes (revenue) and spending cuts, which so far has been elusive. It requires cuts to all defense and non-defense programs to begin to reduce the federal deficit. The cuts are anticipated to be between 8 and 9.1 percent, and would impact every education program (one exception: Pell Grants are spared). Projected impacts of sequestration include about the loss of 1 million defense-related jobs and 70,000 teaching jobs. Another way to describe this is $110 billion in automatic spending cuts at the Pentagon and other federal agencies. This is all part of the fiscal cliff.

The fiscal cliff is the name given to a collection of changes to current law that become policy in January. The bulk involve the scheduled expiration of tax policies — or, in the case of new taxes in Obama’s health care initiative, levies that are set to take effect for the first time, such as a new 3.8 percent tax on capital gains for high-income households. This is includes the likely end to the payroll tax holiday as well as the sequestration cuts.

It should be noted that the federal fiscal year 2013 began on Oct. 1, 2012. The federal government continues to function on a Continuing Resolution through March 2013 because no appropriation for the 2013 fiscal year has been passed by the Congress and signed by the president.

What Is the Impact of Sequestration on Education Funding and Programs?
On July 25, 2012, U.S. Secretary of Education Arne Duncan testified before the Senate Appropriations Subcommittee on Labor, Health and Human Services, Education and Pensions (HELP) on the impact of sequestration on education and stated:

"Based on the Congressional Budget Office's projection that sequestration will reduce programs by 7.8 percent, here's what we know will be at risk:

  • In higher education, the department would need to slash spending on contracts to support the processing and origination of student loans, which could cause delays that will hurt students as they make decisions about college and could reduce services for borrowers seeking to repay their loans.
  • ESEA Title I funding would be cut by $1.1 billion, cutting off funding to more than 4,000 schools serving an estimated 1.8 million disadvantaged students. The jobs of more than 15,000 teachers and teacher aides would be at risk. Students would lose access to individual instruction, afterschool programs and other interventions that help close achievement gaps.
  • Federal funding for special education programs would be reduced by about $900 million. This could translate into the layoffs of more than 10,000 teachers, aides and other staff who provide essential instruction and other support to 6.6 million children with disabilities in every one of your states.
  • On Jan. 2, schools serving our military families through the Impact Aid program would have immediate cuts to their budgets. For example, the Killeen Independent School District in Texas would lose $4.6 million — directly affecting 18,000 children from military families. Military families make so many sacrifices for our country. Their children deserve a world-class education.”

In addition to these cuts at the Department of Education, other agencies will have to be forced to reduce spending in ways that will slow our nation's educational progress.
  • Up to almost 100,000 low-income children would be denied access to the Head Start program, which is critical to preparing them for success in kindergarten and beyond.
  • 80,000 children would lose access to high-quality care through the Child Care Development Block Grant.
  • The National Institutes of Health would issue 700 fewer grants to medical researchers, slowing progress in the search for treatments and cures to cancer, diabetes, Alzheimer's and other diseases in research labs at hospitals and universities across the country. Up to 1,500 grants would be cut from the National Science Foundation.

According to a memo sent by the Deputy Secretary of Education Anthony Miller to Chief State School Officers, education sequestration cuts would not take effect until the 2013-2014 school year. But the overall economic impact of sequestration will be felt immediately after Jan. 1, 2013, and just delayed slightly for education, except for Impact Aid and effects of tax benefits for higher education that will be ending.

Many have wondered and asked about the impact on the quality of teaching and learning with sequestration without receiving a definitive answer. Some of the questions being posed include the following.

  • How many teachers will be terminated?
  • How many programs will be curtailed?
  • How many students will not be able to obtain a federal student loan and have to get a more expensive private student loan?
  • What tax benefits that will be ending which make postsecondary education affordable?
  • What is the impact on several bond programs that support education construction?
  • How will access to postsecondary education be affected?
No one has the answers at this time.

On Aug. 20, the Office of Management and Budget (OMB) issued a report on the impact of sequestration. While it does not provide detailed specifics by program of the cuts, it does paint a bleak picture.

Another impact will be nearly 90 percent of Americans would face higher taxes next year if Congress permits the nation to hurtle over the “fiscal cliff,” the year-end precipice of tax hikes and spending cuts that threatens to throw the nation back into recession. This is the conclusion of a study published on Oct. 1, 2012, by the nonpartisan Tax Policy Center. It determined that taxes would go up by a collective $536 billion next year, or about $3,500 per household, reducing after-tax income by about 6.2 percent.

Where Are We at the Present Time?
There is wide speculation on what action Congress may take, but no one can predict what will happen during the lame-duck session. The conventional wisdom is that Congress does not have enough time to take up all of the pending legislation and build a bipartisan consensus to address sequestration and the fiscal cliff. Thus, it will be a partial pass-the-buck, which means a resolution and/or an amendment to the Budget Control Act would be enacted during the lame-duck session to delay sequestration and the cliff. It will include some very prescriptive processes that establish a final budget deficit strategy within calendar year 2013 and thus eliminate the implementation of sequestration.

Also, many “insiders” believe if President Obama wins re-election that the Congressional Republican leadership will relent on not increasing or adding some new taxes possibly on higher income citizens, as well as agreeing on a strategy for tax reform. The realistic economic experts state there must be a combination of new revenue streams, tax reform and budget cuts to address the federal deficit. The combination will have to be negotiated. There will most definitely be some trade-offs in the long-term in such areas as corporate tax rates, fixing tax loopholes and addressing such issues as social security age and income eligibility, Medicare and income, and the inheritance tax. There will be a totally different scenario if Governor Romney wins the election.

Another uncertainty until the election results are tabulated is what will be the composition of the 113th Congress. Will the Democrats retain control of the Senate and the Republicans the House and by what margins? Will the Tea Party continue to have influence or will it be diminished? These will have some impact on what occurs during the lame-duck session in conjunction with who is elected president. Another key element for the lame-duck session is what will be the mood of the members upon their return based on what they heard in their districts. Each of these will influence the tone, direction and decisions of the lame-duck Congress to address the nation’s deficit, fiscal cliff and future economic prosperity.

Fritz Edelstein is a principal in Public Private Action, a consulting group. His work focuses on strategic government and constituent relations, business development strategy, advocacy research and policy analysis, strategic planning and resource development, and advocacy, outreach and public engagement. This work includes producing Fritzwire, the education Internet newsletter providing timely information on education and related issues. Read Fritzwire, Education’s Water Cooler, everyday to keep up with what is happening in education around the nation and in Washington, D.C. To subscribe write: [email protected].