LINK >>> https://fas.org/sgp/crs/misc/R42050.pdf

“Sequestration” is a process of automatic, largely across-the-board spending reductions to meet or
enforce certain budget policy goals.

It was first established by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, Title II of P.L. 99-177, 2 U.S.C. 900-922) to enforce deficit targets. In the 1990s, sequestration was used to enforce statutory limits on discretionary spending and a pay-as-you-go (PAYGO) requirement on direct spending and revenue legislation. After effectively expiring in 2002, sequestration was reestablished by the Statutory Pay-As-You-Go Act of 2010 (P.L. 111-139) to enforce a modified PAYGO requirement on direct spending and revenue legislation.

Most recently, under the Budget Control Act of 2011 (BCA, P.L. 112-25), sequestration was tied to enforcement of new statutory limits on discretionary spending and achievement of the budget
goal established for the Joint Select Committee on Deficit Reduction. A sequestration was triggered by the Joint Committee’s failure to achieve its goal and was originally scheduled to
occur on January 2, 2013, to affect spending for FY2013. Congress enacted legislation that delayed the effective date of this sequester until March 1, 2013 (American Taxpayer Relief Act of
2012, P.L. 112-240).

In general, sequestration entails the permanent cancellation of budgetary resources by a uniform percentage.

This uniform percentage reduction is applied to all “programs, projects, and activities” (PPAs) within a budget account.

However, the current sequestration procedures, as in previous iterations of such procedures, provide for exemptions and special rules. That is, certain programs and activities are exempt from sequestration, and certain other programs are governed by special rules regarding the application of a sequester. This report provides an overview of those exemptions and special rules, which are generally found in Sections 255 and 256 of BBEDCA, as amended (2 U.S.C. 905 and 906).

While the report makes references to the sequestration currently in effect, triggered by failure of the Joint Committee process under the BCA, it discusses exemptions and special rules in general and should not be viewed as a comprehensive examination of the current or any future sequestration under either the BCA or the Statutory PAYGO Act.

Current Sequestration Triggers

As noted above, sequestration is tied to certain budget goals established in the Budget Control Act of 2011, as well as in the Statutory PAYGO Act of 2010. To provide some context for the

For more information on sequestration and its historical application, see (1) CRS Report RL31137, Sequestration Procedures Under the 1985 Balanced Budget Act, by Robert Keith; (2) CRS Report RS20398, Budget Sequesters: A Brief Review, by Robert Keith; and (3) CRS Report R41901, Statutory Budget Controls in Effect Between 1985 and 2002, by Megan S. Lynch.

President Obama issued the sequestration order on March 1, 2013. See http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-06.pdf.

“Budgetary resources” include new budget authority, unobligated balances, direct spending authority, and obligation limitations, as defined in Section 250(c)(6) of BBEDCA, as amended.

For accounts included in appropriations acts, “programs, projects, and activities” (PPAs) within each budget account are delineated in those acts or accompanying reports; and for accounts not included in appropriations acts, they are delineated in the most recently submitted President’s budget. See Section 256(k) of BBEDCA, as amended.
Budget “Sequestration” and Selected Program Exemptions and Special Rules
Congressional Research Service exemptions and special rules applicable to these sequestration procedures, brief descriptions of the budget goals that may be enforced by sequestration are provided below. Readers also may wish to consult the following CRS reports:

• CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr.,
Elizabeth Rybicki, and Shannon M. Mahan
• CRS Report R42949, The American Taxpayer Relief Act of 2012: Modifications
to the Budget Enforcement Procedures in the Budget Control Act, by Bill Heniff
Jr.
• CRS Report R42972, Sequestration as a Budget Enforcement Process:
Frequently Asked Questions, by Megan S. Lynch
• CRS Report R42675, The Budget Control Act of 2011: Budgetary Effects of
Proposals to Replace the FY2013 Sequester, by Mindy R. Levit
• CRS Report R42051, Budget Control Act: Potential Impact of Sequestration on
Health Reform Spending, by C. Stephen Redhead
• CRS Report R42994, The Budget Control Act, Sequestration, and the Foreign
Affairs Budget: Background and Possible Impacts, by Susan B. Epstein
• CRS Report R43021, Proposed Cuts to Air Traffic Control Towers Under Budget
Sequestration: Background and Considerations for Congress, by Bart Elias
• CRS Report R43065, Sequestration at the Federal Aviation Administration
(FAA): Air Traffic Controller Furloughs and Congressional Response, by Bart
Elias, Clinton T. Brass, and Robert S. Kirk
• CRS Report R42506, The Budget Control Act of 2011: The Effects on Spending
and the Budget Deficit, by Mindy R. Levit and Marc Labonte
• CRS Report R41157, The Statutory Pay-As-You-Go Act of 2010: Summary and
Legislative History, by Bill Heniff Jr.
Sequestration Triggers Under the Budget Control Act (BCA)
The Budget Control Act of 2011 (BCA) was enacted on August 2, 2011. It provided for increases
in the debt limit and established procedures designed to reduce the federal budget deficit.5
The
BCA has two primary components that can trigger a sequestration of discretionary and/or
mandatory (or direct) spending:6
• Title I of the BCA established discretionary spending limits, or caps, for each of
FY2012-FY2021.7
If Congress appropriates more than allowed under these

5
For a comprehensive discussion of the BCA, see CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff
Jr., Elizabeth Rybicki, and Shannon M. Mahan.
6 Discretionary spending is provided in and controlled through the annual appropriations process and represents a
portion of total federal spending. The other portion, referred to as direct spending (or mandatory spending), is generally
provided in or controlled by authorizing legislation that requires federal payments to individuals or entities, often based
on eligibility criteria and benefit formulas set forth in statute. Some direct spending is funded in appropriations acts,
referred to as appropriated entitlements, but is controlled by the authorizing statute(s).
7
Adjustments are allowed to these discretionary spending limits for certain specified activities, such as costs associated
(continued…)
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spending limits in any given year, the automatic reduction process of
sequestration would cancel the excess amount. For FY2012 and FY2013, the
spending limits were divided into “security” and “nonsecurity” categories, with
security defined broadly to include the Departments of Veterans Affairs (VA),
Homeland Security (DHS), and State, in addition to the Department of Defense
and certain other activities.8
For FY2014 and subsequent years, no distinction
was made between security and nonsecurity, and Title I of the law established a
single discretionary spending limit for each year.9
• Title IV of the BCA established a bipartisan Joint Select Committee on Deficit
Reduction. Failure by Congress to enact legislation by January 15, 2012,
developed by the Joint Committee and reducing the deficit by at least $1.2
trillion, would trigger a series of automatic spending reductions intended to
achieve that level of savings over the FY2013-FY2021 period. These automatic
reductions include sequestration of mandatory spending for each of FY2013-
FY2021, a one-year sequestration of discretionary spending for FY2013, and
lower discretionary spending limits for each of FY2014-FY2021. Spending
reductions would be divided equally between security and nonsecurity. However,
these terms are redefined, so that “security” consists only of budget function 050
(effectively, the Department of Defense), and “nonsecurity” includes all other
government spending (including the VA, DHS, and State). The distinction
between security and nonsecurity (as redefined) remains for each of FY2014-
FY2021.
The security-nonsecurity distinction is significant because sequestration is imposed within these
categories. In other words, if Congress appropriated more than allowed for either category in a
given year, the excess spending would be canceled in the category where the breach occurred. As
noted above, security was defined broadly under Title I and spending was divided between the
two categories originally for FY2012 and FY2013. However, under the automatic procedures
triggered by failure of the Joint Committee, security is defined more narrowly and the separate
security and nonsecurity categories remain in effect for each year through FY2021.
Because the Joint Committee did not, in fact, develop legislation to achieve the specified level of
deficit reduction ($1.2 trillion) by the deadline set in the BCA, and Congress did not subsequently
enact such legislation by January 15, 2012, the automatic budget enforcement procedures
provided by the law were triggered.10 The first fiscal year these procedures were intended to

(…continued)
with disability redeterminations, health care fraud and abuse, overseas contingency operations and the War on Terror,
emergency spending, and funding for disasters.
8
The Office of Management and Budget (OMB) determined that discretionary amounts provided for FY2012 were
within the BCA spending limits, so that no sequestration was necessary for that year. See http://www.whitehouse.gov/
sites/default/files/omb/assets/legislative_reports/sequestration/sequestration_final_jan2012.pdf. OMB subsequently
reported on April 9, 2013, that the discretionary spending limits for FY2013 also had not been breached and that a
sequestration of discretionary spending to enforce the FY2013 limits would not be needed. See
http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/sequestration/
sequestration_final_april2013.pdf.
9
These provisions were amended by P.L. 112-240, to revise the amounts and categories for FY2013 and FY2014. See
CRS Report R42949, The American Taxpayer Relief Act of 2012: Modifications to the Budget Enforcement Procedures
in the Budget Control Act, by Bill Heniff Jr.
10 For the statement of the Joint Committee co-chairs, announcing they would not meet the statutory deadline, see
(continued…)
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affect was FY2013; sequestration for that fiscal year (as outlined in the second bullet above) was
originally scheduled to happen on January 2, 2013. Legislation was enacted, however, that
delayed this sequester until March 1, 2013, and also reduced the total amount to be sequestered
by $24 billion (American Taxpayer Relief Act of 2012, P.L. 112-240). Under the law as amended,
BCA now requires a cancellation of budgetary resources equal to $85 billion in FY2013, equally
divided between defense (i.e., the narrow definition of security) and nondefense.11
Office of Management and Budget (OMB) Calculation of
March 2013 Sequestration
On March 1, 2013, President Obama signed the sequestration order triggered by failure of the
Joint Committee process under the BCA, and the Office of Management and Budget (OMB)
issued a report containing the percentages by which budgetary resources must be reduced in order
to achieve the necessary spending reductions in FY2013.12 OMB calculated that, in order to
cancel the requisite $85 billion, annualized spending levels for each nonexempt account must be
reduced by the percentages shown below in Table 1.
OMB noted that the spending reductions for FY2013 must be achieved over a seven-month
period rather than the full fiscal year, thus making the effective percentage reductions higher than
those shown in the table. According to OMB, the effective reductions are approximately 13% for
nonexempt defense spending and 9% for nonexempt nondefense spending. Since the FY2013
appropriations process was still ongoing as of March 1, OMB generally based its calculations on
the assumption that discretionary programs would be funded at the annualized level provided
under the continuing appropriations resolution for FY2013 that was in effect on March 1 (P.L.
112-175),13 plus amounts provided in the Hurricane Sandy supplemental appropriations (P.L. 113-
2), plus any funding enacted as advance appropriations for FY2013. In determining the amount of
mandatory spending subject to sequestration, OMB used the current law baseline amounts in the
President’s FY2013 budget, adjusted for any relevant legislation enacted since transmittal of the
budget in February 2012.14

(…continued)
http://www.murray.senate.gov/public/index.cfm/2011/11/statement-from-co-chairs-of-the-joint-select-committee-ondeficit-reduction.
11 For the mechanics of the BCA’s automatic spending reduction procedures, see the section titled “Budget Goal
Enforcement: Spending Reduction Trigger” in CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr.,
Elizabeth Rybicki, and Shannon M. Mahan, and the section titled “The Sequestration Process” in CRS Report 98-721,
Introduction to the Federal Budget Process, coordinated by Bill Heniff Jr..
12 See OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1, 2013:
http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy13ombjcsequestrationreport.pdf.
Hereinafter referred to as OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013,
March 1, 2013.
13 Congress subsequently passed a continuing resolution for the remainder of FY2013 (P.L. 113-6), which generally
maintains programs at FY2012 levels but also includes separate measures for several departments (e.g., Agriculture,
Commerce, Justice, Defense, Homeland Security, Veterans Affairs).
14 For example, OMB took into consideration provisions of the American Taxpayer Relief Act (P.L. 112-240 that
overrode the scheduled reduction in Medicare physician payments scheduled to take effect in FY2013 because of the
sustainable growth rate (SGR) formula. See CRS Report R40907, Medicare Physician Payment Updates and the
Sustainable Growth Rate (SGR) System, by Jim Hahn and Janemarie Mulvey.
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Readers are referred to the OMB report for an explanation of the methodology used in making
calculations, and to the report’s appendix for an itemized list of budget accounts that include
spending subject to sequestration, the dollar amounts that are subject to sequestration, the
percentage by which they are reduced, and the dollar amount of the reduction. Readers should
note, however, that OMB identifies budget accounts and not “programs, projects and activities”
within these accounts.15 The law requires sequestration to be applied uniformly at the PPA level;
these applications are made by federal agencies under guidance from OMB.16
Table 1. OMB Calculations of FY2013 Uniform Percentage Reductions Under BCATriggered Sequester, Effective on March 1, 2013
Category of Funding Defense Nondefense
Nonexempt discretionary 7.8% 5.0%
Nonexempt mandatory (other than
Medicare and selected health programs)
7.9% 5.1%
Medicare and mandatory components of
selected health programs
na 2.0%
Source: OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1,
2013.
Notes: “Defense” and “Nondefense” are the same as the revised Security and Nonsecurity categories discussed
above, where Defense (or revised Security) equals budget function 050, and Nondefense (or revised
Nonsecurity) equals everything else. na = not applicable. See sections, later in this CRS report, headed “Section
255 Program Exemptions” and “Section 256 Special Rules” for discussion of exemptions and special rules,
including those applicable to Medicare and selected health programs.
OMB Calculation of FY2014 Sequestration
On April 10, 2013, OMB issued a report to Congress on the automatic spending reductions for
FY2014 under the terms of the BCA.17 The law requires that $109 billion in spending—divided
equally between defense and nondefense—must be reduced in FY2014 (and each subsequent
fiscal year through FY2021) as a result of the failure of the Joint Committee process. As
explained in the second bullet on p. 3 of this report, spending reductions in FY2014 through
FY2021 will occur through a reduction of the discretionary spending limits established under
Title I of the BCA and a sequestration of nonexempt mandatory spending.

15 The Sequestration Transparency Act (P.L. 112-155) directed the President to issue a report on the impact of
sequestration as it was originally scheduled to occur on January 2, 2013. In that report, the President was to identify all
exempt and nonexempt accounts at the program, project, and activity level. The report was issued in September 2012,
but did not provide information by PPA, stating that “additional time is necessary to identify, review, and resolve issues
associated with providing information at this level of detail.” See OMB Report Pursuant to the Sequestration
Transparency Act of 2012 (P.L. 112-155), September 2012: http://www.whitehouse.gov/sites/default/files/omb/assets/
legislative_reports/stareport.pdf. Hereinafter referred to as OMB Report Pursuant to the Sequestration Transparency
Act, September 2012.
16 Many executive branch agencies have posted their final FY2013 budgets, reflecting the effects of sequestration, on
their websites. However, there is currently no single authoritative governmentwide source for this information.
17 OMB released a corrected version of its April 10 report on May 20, 2013. See OMB Sequestration Preview Report to
the President and Congress for Fiscal Year 2014 and OMB Report to the Congress on the Joint Committee Reductions
for Fiscal Year 2014, http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/
fy14_preview_and_joint_committee_redu ctions_reports_05202013.pdf.
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Accordingly, the OMB report indicates that the $109 billion in spending reductions for FY2014
will be achieved through lowering the discretionary spending limits by about $91 billion ($53.9
billion in the defense category and $36.6 billion in the nondefense category)18 and sequestering
$18 billion in nonexempt mandatory spending. OMB calculates the FY2014 sequestration
percentages will equal 2% for nonexempt Medicare spending, 7.3% for nonexempt nondefense
mandatory spending, and 9.8% for nonexempt defense mandatory spending. As noted above,
sequestration in FY2014 and later years will affect mandatory spending only, unless the lowered
discretionary spending limits are breached. Because defense spending is largely discretionary,
sequestration in FY2014 will primarily affect nondefense spending.
Readers may consult the OMB report’s appendix for an itemized list of budget accounts that
include mandatory spending that would be subject to sequestration in FY2014, the dollar amounts
that would be subject to sequestration (based on OMB’s current law baseline), the percentage by
which they would be reduced, and the dollar amount of the reduction.
Sequestration Trigger Under Statutory PAYGO
The Statutory Pay-As-You-Go Act of 2010 was enacted on February 12, 2010, as Title I of P.L.
111-139.19 It established a permanent budget enforcement mechanism intended to prevent
mandatory (i.e., direct) spending and revenue legislation that would increase the deficit from
being passed and signed into law. (Statutory PAYGO does not apply to discretionary spending.)
The act requires various scorekeeping procedures, including 5-year and 10-year scorecards that
track costs and savings associated with enacted legislation. At the end of each congressional
session, OMB generally must determine whether the net effect of direct spending and revenue
legislation enacted during the session has increased the deficit, and if so, a sequestration will be
triggered. Certain costs and savings are not counted toward Statutory PAYGO, including
designated emergency spending, debt service costs, costs associated with a shift in timing of
certain outlays, and net savings from the CLASS Act.20
Program Exemptions and Special Rules
for Sequestration
Certain programs are exempt from sequestration, and special rules govern the sequestration of
others. For the most part, these provisions are found in Sections 255 and 256 of the Balanced
Budget and Emergency Deficit Control Act (BBEDCA), as amended. These provisions apply to
sequestration orders that occur under either the BCA or the Statutory PAYGO Act. However, the

18 Congress will determine the specific impact of the $91 billion in reduced discretionary spending allowable for
FY2014 through the normal appropriations process. This means that reductions will not necessarily be made equally
across-the-board, as under sequestration. Moreover, there are no statutory exemptions or special rules that govern these
decisions; the reductions may be allocated however Congress and the President choose, within the statutory
discretionary spending limits for each category (defense and nondefense).
19 For a detailed discussion of the Statutory PAYGO Act, see CRS Report R41157, The Statutory Pay-As-You-Go Act
of 2010: Summary and Legislative History, by Bill Heniff Jr.
20 The CLASS Act was anticipated but not yet enacted at the time P.L. 111-139 was enacted. It has since been repealed.
See CRS Report R40842, Community Living Assistance Services and Supports (CLASS): Overview and Summary of
Provisions, by Kirsten J. Colello and Janemarie Mulvey.
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application of these rules for certain programs might differ, depending on the specific provision
that triggers the sequestration.
Questions about the impact of sequestration on any particular program or account cannot be
answered strictly from reading the relevant provisions of law. As noted earlier, under a
sequestration, all nonexempt “programs, projects, and activities” must be reduced by a uniform
percentage (unless provided otherwise under special rules; see “Section 256 Special Rules”).
However, numerous factors potentially affect the sequestration process, including the amount of
budgetary resources subject to sequestration and the interpretation of statutory requirements as
they apply to specific programs and activities.
Section 255 of BBEDCA (codified at 2 U.S.C. 905) identifies programs that are exempt from
sequestration, and Section 256 of BBEDCA (codified at 2 U.S.C. 906) establishes special rules.
Readers should note that these sections have been amended as recently as February 2010 under
the Statutory PAYGO Act; however, until the most recent action on March 1, an actual
sequestration had not occurred since the early 1990s.21 CRS cannot say with certainty how these
provisions will be interpreted and applied in any particular sequestration, or how potential
ambiguities in language may be resolved. The following should be considered as a general
description of the law and not an attempted interpretation. Ultimately, the execution and impact of
any automatic spending reduction triggered under provisions of the BCA or Statutory PAYGO
depend in large part on the legal interpretations and actions taken by OMB.
As noted above, OMB issued a report on March 1, which identifies budget accounts that include
spending subject to sequestration in FY2013 under the BCA. In addition, OMB’s September 2012
report, issued in response to the Sequestration Transparency Act, gave preliminary information on
the “sequestrable” or “exempt” classification of budgetary resources, and provided citations for
the provisions in BBEDCA that determined these classifications. Readers are referred to those
documents for more specific information on OMB’s interpretation and implementation of the law
in the case of the March 1 Joint Committee- triggered sequester.22 However, readers should note
that the sequester percentages and amounts shown in the September 2012 OMB report are
obsolete, since that report was prepared before the American Taxpayer Relief Act of 2012 (P.L.
112-240) delayed the FY2013 sequestration from January 2 to March 1, 2013, and reduced the
amount of resources to be sequestered.
Section 255 Program Exemptions23
Section 255 contains a list of programs and activities that are exempt from sequestration.24 Most
are mandatory, although a few are discretionary, most notably programs administered by the

21 See CRS Report RS20398, Budget Sequesters: A Brief Review, by Robert Keith, dated March 8, 2004.
22 See OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1, 2013; and
OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L. 112-155), September 2012. Also, some
federal agencies have posted information on implementation of sequestration for specific programs; see individual
agency or program websites to determine whether such information has been made available.
23 See Appendix for the complete statutory language of Section 255 of BBEDCA.
24 For a table showing some of the largest programs exempt from sequestration, including their FY2010 budgetary
authority and discretionary/mandatory status, see Table 4 in CRS Report R42013, The Budget Control Act of 2011:
How Do the Discretionary Caps and Automatic Spending Cuts Affect the Budget and the Economy?, by Marc Labonte
and Mindy R. Levit.
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Department of Veterans Affairs (VA). In many cases, specific budget accounts are provided, so
readers are referred to the statute for precise identification of exempted programs and activities
(see Appendix). While the law provides a list of programs and types of spending that are exempt
from sequestration, it provides no definitive list of programs or types of spending that absolutely
are subject to sequestration. As stated above, the impact of sequestration on any given program
depends on the actions and interpretations of OMB. The following are selected programs and
types of spending identified in Section 255 as exempt from sequestration:
• Social Security benefits (old-age, survivors, and disability) and Tier 1 Railroad
Retirement benefits.
• All programs administered by the VA, and special benefits for certain World War
II veterans.25
• Net interest (budget function 900).
• Payments to individuals in the form of refundable tax credits.26
• Unobligated balances, carried over from prior years, for nondefense programs.
• At the President’s discretion (subject to notification to Congress), military
personnel accounts may be exempt entirely, or a lower sequestration percentage
may apply.27
• A list of “other” budget accounts and activities; readers should consult the statute
for a complete list. A few selected examples include
• activities resulting from private donations, bequests or voluntary
contributions, or financed by voluntary payments for good or services;
• advances to the Unemployment Trust Fund;28
• payments to various retirement, health care, and disability trust funds;
• certain Tribal and Indian trust accounts; and
• Medical Facilities Guaranty and Loan Fund.
• Specified federal retirement and disability accounts and activities (consult the
statute for the complete list).
• Prior legal obligations of the federal government in specified budget accounts
(consult the statute for the complete list).29

25 In its report issued pursuant to the Sequestration Transparency Act, OMB stated that the exemption for VA programs
would also apply to the agency’s administrative expenses. Also, see discussion of special rules in the “Veterans’
Medical Care” section, below.
26 These include the Earned Income Tax Credit and the refundable portion of the Child Tax Credit (sometimes referred
to as the Additional Child Tax Credit). In addition, the Patient Protection and Affordable Care Act (ACA, P.L. 111-
148, as amended) established a refundable tax credit for individuals and families with incomes between specified levels
to help them purchase health insurance coverage; this tax credit also is exempt. See CRS Report R42051, Budget
Control Act: Potential Impact of Sequestration on Health Reform Spending, by C. Stephen Redhead.
27 On July 31, 2012, then-Acting OMB Director Jeffrey Zients notified Congress of the President’s intent to exempt
military personnel accounts from sequestration: http://www.whitehouse.gov/sites/default/files/omb/legislative/letters/
military-personnel-letter-biden.pdf.
28 Also see discussion of special rules in the “Unemployment Compensation” section, below.
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• Low-income programs, including
• Academic Competitiveness/Smart Grant Program;30
• mandatory funding under the Child Care and Development Fund;
• Child Nutrition Programs (including School Lunch, School Breakfast, Child
and Adult Care Food, and others, but excluding Special Milk);
• Children’s Health Insurance Program (CHIP);
• Commodity Supplemental Food Program;
• Temporary Assistance for Needy Families (TANF) and the TANF
Contingency Fund;
• Family Support Programs;31
• Federal Pell Grants;
• Medicaid;
• Foster Care and Permanency Programs;
• Supplemental Nutrition Assistance Program (SNAP, formerly food stamps);
and
• Supplemental Security Income (SSI).
• Medicare Part D low-income premium and cost-sharing subsidies; Medicare Part
D catastrophic subsidy payments; and Qualified Individual (QI) premiums.32
• Specified economic recovery programs, including GSE Preferred Stock Purchase
Agreements, the Office of Financial Stability, and the Special Inspector General
for the Troubled Asset Relief Program.
• The following “split-treatment” programs, to the extent that the programs’
budgetary resources are subject to obligations limitations in appropriations bills:
• Federal Aid-Highways;
• Highway Traffic Safety Grants;
• Operations and Research NHTSA and National Driver Register;
• Motor Carrier Safety Operations and Programs;
• Motor Carrier Safety Grants;

(…continued)
29 Programs on the list include the Federal Crop Insurance Corporation Fund; the exemption of prior legal obligations
for agriculture is similar to a special rule under Section 256 of BBEDCA for the Commodity Credit Corporation
(discussed below).
30 Due to sunset provisions, no grants can be made under this program after June 30, 2011.
31 This account includes the Child Support Enforcement program. See discussion of special rules in the “Child Support
Enforcement” section, below.
32 These programs are not listed in Section 255, but instead Section 256(d) identifies them as programs exempt from
sequestration “in addition to” the programs listed in Section 255. See the “Medicare” section, below.
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• Formula and Bus Grants; and
• Grants-in-Aid for Airports.
Section 256 Special Rules
In addition to the exemptions in Section 255 of BBEDCA, Section 256 establishes special rules
for sequestration of certain programs or types of spending. Most Section 256 special rules apply
to mandatory programs, although some discretionary programs are included (e.g., certain health
programs). Once again, the effect of sequestration on any given program is subject to the
interpretation of the law’s provisions by OMB. The discussions below provide some information
on interpretations made in implementing the March 1 sequestration order.
The following is a list of programs included in Section 256 (they are discussed in greater detail
below):
• student loans under Title IV-B and IV-D of the Higher Education Act;
• Medicare;
• community and migrant health centers, Indian health services and facilities, and
veterans’ medical care;
• Child Support Enforcement;
• federal pay;
• federal administrative expenses;
• Unemployment Compensation; and
• Commodity Credit Corporation.
Student Loans33
Special sequestration rules (Section 256(b)) apply to federal student loans made under the
William D. Ford Federal Direct Loan program during the period when a sequestration order is in
effect. Origination fees on Direct Loans made during a period of sequestration must be increased
by the uniform percentage specified in the sequestration order.34 Loan origination fees are
calculated as a proportion of the loan principal borrowed and are deducted proportionately from
each disbursement of the loan proceeds to the borrower. The origination fee helps offset the costs
of federal loan subsidies.

33 This section was prepared by David Smole, dsmole@crs.loc.gov, 7-0624.
34 Sections 251A(8) and 256(b) of BBEDCA. The William D. Ford Federal Direct Loan program is authorized under
Title IV, Part D of the Higher Education Act of 1965 (HEA), as amended. BBEDCA, §256(b) references federal
student loans made under HEA, Title IV, Part B and Part D, during the period when a sequestration order is in effect.
With the enactment of the SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010 (HCERA;
P.L. 111-152), student loans are no longer being made under HEA, Title IV, Part B (the Federal Family Education
Loan (FFEL) program). As such, the special rule applies only to student loans made under HEA, Title IV, Part D (i.e.,
Direct Loans).
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Four types of federal student loans are made under the Direct Loan program: Direct Subsidized
Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.35 In
general, for Direct Loans made on or after July 1, 2010, the origination fee on Direct Subsidized
Loans and Direct Unsubsidized Loans is 1%, and the origination fee on Direct PLUS Loans is
4%. The Department of Education (ED) does not currently charge an origination fee on Direct
Consolidation Loans.
Under a sequestration order applicable to direct spending programs, origination fees on Direct
Loans made during the sequestration period are required to be increased by the uniform
percentage amount. As illustrated in Table 1, OMB has calculated a uniform percentage amount
of 5.1% for nonexempt nondefense mandatory programs, under the March 1, 2013, sequestration
triggered by the BCA. Thus, the 1% origination fee on Direct Subsidized Loans and Direct
Unsubsidized Loans and the 4% origination fee on Direct PLUS Loans will each be increased by
5.1%. The Department of Education has announced that it will implement the origination fee
increase for loans on which the first disbursement is made on or after July 1, 2013. According to
ED, for these loans the loan origination fee will be 1.051% for Direct Subsidized Loans and
Direct Unsubsidized Loans, and will be 4.204% for Direct PLUS Loans.36
Medicare37
Enacted in 1965, the Medicare program provides hospital and supplementary medical insurance
to Americans age 65 and older and to certain disabled persons, including those with end-stage
renal disease. Medicare enrollment has increased from 19 million in 1966 to about 52 million
beneficiaries in FY2013. CBO estimates that by 2023, the number of Medicare enrollees will
increase by about a third, to almost 69 million.38
Medicare consists of two parts financed through separate trust funds. Hospital Insurance (Part A)
pays health care providers for inpatient care that beneficiaries receive at hospitals; it also pays for
care at skilled nursing facilities, some home health care, and hospice services. Supplementary
Medical Insurance (Parts B and D) pays for physicians’ services, outpatient services at hospitals,
home health care, and outpatient prescription drugs. (Payments to private insurance plans under
Part C are financed by a blend of funds from the two trust funds.) Medicare is administered by the
Centers for Medicare & Medicaid Services (CMS), within the Department of Health and Human
Services (HHS).
CBO estimates that in FY2013 gross Medicare outlays will reach $592 billion.39 Most of this
spending (about 99%) is comprised of mandatory spending that is primarily used to cover benefit
payments (i.e., payments to health care providers for their services). CBO projects that spending

35 For additional information on DL program loans, see CRS Report R40122, Federal Student Loans Made Under the
Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and
Conditions for Borrowers, by David P. Smole.
36 U.S. Department of Education, Federal Student Aid, Electronic Announcement, “Update: Impact of Sequestration on
the Title IV Student Aid Programs,” April 5, 2013.
37 This section was prepared by Patricia Davis, pdavis@crs.loc.gov, 7-7362.
38 Congressional Budget Office, May 2013 Medicare Baseline, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/44205_Medicare_0.pdf.
39 Congressional Budget Office, May 2013 Medicare Baseline, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/44205_Medicare_0.pdf.
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Congressional Research Service 12
on Medicare benefits will increase from $583 billion in FY2013 to about $1 trillion in FY2023,40
an annual growth rate of about 6%.
About 0.5% of Medicare mandatory outlays are used for administrative purposes, such as funding
quality improvement organizations, for certain activities against fraud and abuse, and payments of
Part B premiums for Qualifying Individuals.41 A small portion of Medicare spending is
discretionary (about $6 billion in FY2013). This portion is used almost entirely for program
management activities, such as payments to contractors to process providers’ claims, funding for
beneficiary outreach and education, and the maintenance of Medicare’s information technology
(IT) infrastructure.
Sequestration Rules for Medicare
Section 256(d) of BBEDCA contains special rules for the Medicare program in case of a
sequestration. However, while BBEDCA ordinarily limits reduction of certain Medicare spending
to 4% under a sequestration order (which would apply in the case of a Statutory PAYGO
sequestration), the BCA limits the size of this reduction to 2%.
As stated earlier, sequestration requires that all nonexempt programs must be reduced by a
uniform percentage. This percentage is calculated by OMB, based on the necessary amount of
spending reduction that must occur overall. Under a sequestration triggered by the BCA, if the
uniform percentage is less than 2%, it will be applied to all nonexempt accounts, including
Medicare. If the percentage is greater than 2%, then a 2% reduction will be made in Medicare
spending, and the uniform reduction percentage for the remaining programs will be recalculated
and increased by the amount necessary to achieve the total level of reductions needed. If
sequestration were triggered by Statutory PAYGO, the process would be the same but Medicare
sequestration would be limited to 4%.
As explained earlier in this report, OMB has calculated that the uniform reduction percentage for
nondefense mandatory spending under the March 1 BCA sequester is more than 2%; thus,
Medicare sequestration is limited to 2% and remaining nondefense mandatory spending is being
reduced by 5.1%. CBO estimates that Medicare benefit spending will be reduced by about $90
billion over the nine-year sequestration period.42
Under sequestration, Medicare’s benefit structure generally remains unchanged (i.e., beneficiaries
will not see a change in their Medicare coverage). Additionally, spending for certain Medicare
programs and activities are exempt from sequestration and are therefore not reduced under a
sequestration order. These include (1) Part D low-income subsidies;43 (2) the Part D catastrophic
subsidy (reinsurance); and (3) Qualified Individual (QI) premiums.44

40 Congressional Budget Office, May 2013 Medicare Baseline, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/44205_Medicare_0.pdf.
41 The Qualifying Individual Program (QI) is one of the Medicare Savings Programs and covers the Part B premium for
eligible individuals. To be eligible for the QI program, one must be entitled to Medicare Part A, have an income of at
least 120% of the Federal Poverty Level (FPL) but less than 135% of FPL with resources not exceeding twice the limit
for SSI eligibility, and not be otherwise eligible for Medicaid benefits. Mandatory funding is provided through 2013.
42 Congressional Budget Office, May 2013 Medicare Baseline, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/44205_Medicare_0.pdf.
43 See CRS Report R40425, Medicare Primer, coordinated by Patricia A. Davis and Scott R. Talaga for an overview of
(continued…)
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For Medicare Parts A and B services or discharges occurring on or after April 1, 2013, the
percentage reductions are to be made to individual payments to providers for services (e.g.,
hospital and physician services). According to guidance provided by CMS,45 the provider
payment adjustments are to be made to claims after determining coinsurance, any applicable
deductible, and any applicable Medicare Secondary Payer adjustments. In other words, the 2%
reduction only applies to the portion of the payment paid to providers by Medicare; the
beneficiary cost-sharing amounts, and amounts paid by other insurance, are not reduced.46
In the case of inpatient services, the services are considered to be furnished on the date of the
individual’s discharge from the inpatient facility. For services paid on a reasonable cost basis,47
the reduction is to be applied to payments for such services incurred at any time during each cost
reporting period during the sequestration period, for the portion of the cost reporting period that
occurs during the effective period of the order. For Part B services provided under assignment,48
the reduced payment is to be considered payment in full and the Medicare beneficiary will not pay
higher copayments to make up for the reduced amount.49
In the case of Parts C and D, reductions are to be made to the monthly payments to the private
plans that administer these parts of Medicare. Reductions are to be made at a uniform rate and are
not to exceed 2%. CMS has indicated that Medicare Advantage Organizations (MAOs) and
Prescription Drug Plan sponsors may not modify their current benefit or cost-sharing structures,
including increasing premiums or cost sharing, to offset lower payments resulting from
sequestration.50 CMS also provided instructions regarding the treatment of contract and non-

(…continued)
the Medicare Part D benefit.
44 The report issued by OMB in September 2012, pursuant to the Sequestration Transparency Act, indicated that certain
additional Medicare-related funds would also be exempt from sequestration under Section 255(g)(1)(A) of BBEDCA.
Mandatory spending for Quality Improvement Organizations and discretionary spending for the Office of Medicare
Hearings and Appeals would be exempt as intragovernmental payments; and mandatory payments to health care trust
funds are specifically listed as exempt in Section 255(g)(1)(A).
45 CMS, Medicare FFS Provider e-News, March 8, 2013, Monthly Payment Reductions in the Medicare Fee-for-Service
(FFS) Program –“Sequestration,” http://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/
Downloads/2013-03-08-standalone.pdf.
46 For example, if the total allowed payment for a particular service is $100 and the beneficiary has a 20% co-pay, the
beneficiary would be responsible for paying the provider the full $20 in co-insurance. The remaining 80% that is paid
by Medicare would be reduced by 2%; in this instance, $80 minus 2% of $80 ($1.60) would equal $78.40. Therefore,
the provider would be paid $20 (beneficiary portion) plus $78.40 (Medicare portion) for a total payment of $98.40.
47 Most providers are paid under a prospective payment system or fee schedule. Some types of providers, such as
Critical Access Hospitals, are paid on a reasonable cost basis under which payments are based on actual costs incurred.
Reasonable cost is defined at Social Security Act §1861(v).
48 Assignment is an agreement by a doctor, provider, or supplier to be paid directly by Medicare, to accept the payment
amount Medicare approves for the service, and not to bill the beneficiary for any more than the Medicare deductible
and coinsurance (if applicable). Providers that don’t accept assignment may charge more than the Medicare-approved
amount.
49 Medicare’s payment to beneficiaries for unassigned claims is subject to the 2% payment reduction. See CMS
Medicare FFS Provider e-News, March 8, 2013, Monthly Payment Reductions in the Medicare Fee-for-Service (FFS)
Program – “Sequestration”, http://www.cms.gov/Outreach-and-Education/Outreach/FFSProvPartProg/Downloads/
2013-03-08-standalone.pdf.
50 CMS sequestration guidance to Medicare Advantage organizations and Part D drug plans are contained in a March
22, 2013, memorandum from Cheri Rice of CMS, Medicare Advantage Prescription Drug System (MARx) April 2013
Payment – Information, in the section entitled “Mandatory Payment Reductions in the Medicare Advantage and Part D
Programs – Sequestration,” and a May 1, 2013 memorandum from Cheri Rice and Danielle Moon of CMS entitled
Additional Information Regarding the Mandatory Payment Reductions in the Medicare Advantage, Part D, and Other
(continued…)
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contract providers who provide services under Parts C and D. Specifically, “whether and how
sequestration might affect an MAO’s payments to its contracted providers are governed by the
terms of the contract between the MAO and the provider.”51 Similarly, a Part D plan sponsor’s
payment to its network pharmacy providers is governed by the payment terms in their contracts.
Non-contracted providers, however, must accept as payment in full the fee-for-service payment
amounts; therefore, MAOs may be able to reduce payments to non-contracted providers by 2%.
Section 256(d) of BBEDCA specifies that the Secretary may not take into account any reductions
in payment amounts under sequestration for purposes of computing any adjustments to Medicare
payment rates, including the Part C growth percentage, the Part D annual growth rate, and the
determination of Medicare Part D risk corridors.52 In other words, annual provider and plan
payment updates are to be determined as if the reductions under sequestration had not
taken place.
Special Considerations Regarding Medicare
The budgetary baseline that must be used in implementing a sequestration has special
implications with regard to Medicare. For direct spending, the baseline is to be calculated by
assuming that the laws providing or creating direct spending will operate in the manner specified,
and that funding for entitlement authority is adequate to make all required payments.53
Specifically, CBO’s May 2013 projections of Medicare spending incorporated the assumption that
Medicare spending would be constrained beginning in 2014 by the sustainable growth rate (SGR)
mechanism used to calculate the fees paid for physicians’ services.54 Those fees are scheduled to
be reduced by about 24% beginning in January 2014 and by additional amounts in subsequent
years; however, in prior years Congress has almost always taken action to prevent these cuts from
occurring. CBO estimates that it would cost at least $139 billion over the next 10 years to
eliminate these reductions.55
There have been some concerns that although Medicare benefits are not to be reduced under
sequestration, reductions in provider payments could discourage some providers from accepting
Medicare patients. For instance, there have been reports of cancer clinics turning away Medicare
patients because of the impact of sequestration on Medicare’s reimbursement for chemotherapy
drugs.56 Additionally, there is concern that costs could be shifted to other third-party payers or

(…continued)
Programs.
51 May 1, 2013, memorandum from Cheri Rice and Danielle Moon, CMS, Additional Information Regarding the
Mandatory Payment Reductions in the Medicare Advantage, Part D, and Other Programs.
52 Information on Medicare provider payments and the determination of updates may be found in CRS Report
RL30526, Medicare Payment Updates and Payment Rates, coordinated by Paulette C. Morgan.
53 BBEDCA §257(b)(1).
54 See CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System, by
Jim Hahn and Janemarie Mulvey.
55 Congressional Budget Office, An Analysis of the President’s 2014 Budget, May 2013, p. 10, http://www.cbo.gov/
sites/default/files/cbofiles/attachments/44173-APB_0.pdf.
56 For example, see the Community Oncology Alliance statement at http://www.communityoncology.org/site/blog/
detail/2013/05/09/may-9-2013-sequestration-cuts-threaten-seniors-au-cancer-care-while-increasing-medicarecosts.html.
Budget “Sequestration” and Selected Program Exemptions and Special Rules
Congressional Research Service 15
beneficiaries to make up for the additional decrease in payments. For instance, private payers
could see increased costs or Medicare Advantage or Prescription Drug Sponsors could design
their plans in future years so that Medicare enrollees pay higher premiums and/or increased cost
sharing. Finally, some of the administrative functions, including fraud and abuse and quality
oversight activities, that do not qualify as “Medicare benefits” are subject to reductions higher
than 2% (5.0% and 5.1% for discretionary and mandatory funding respectively in FY2013). There
is some concern that reduced funding for such activities could result in increased costs to the
program and/or reduced quality of care.
Health Centers, Indian Health, and Veterans’ Medical Care
Health Centers57
Community and migrant health centers are two types of federally funded health centers: nonprofit
entities that receive grants to provide primary care to people who experience financial,
geographic, cultural, or other barriers to health care. They are administered by the Health
Resources and Services Administration (HRSA) within the Department of Health and Human
Services (HHS). In addition to these two types of health centers, HRSA provides grants to support
health centers for the homeless and health centers for residents of public housing.
Section 256(e) of BBEDCA limits the amount of funding that can be reduced from community
and migrant health centers under a sequestration to 2%. At the time of BBEDCA’s enactment in
1985, there were four separate health center programs administered by HRSA and funded under
HRSA’s budget account. The Health Centers Consolidation Act of 1996 (P.L. 104-299) combined
the four health center programs—community health centers, migrant health centers, health
centers for the homeless, and health centers for residents of public housing—into Section 330 of
the Public Health Service Act, which receives a single discretionary appropriation as part of the
HRSA budget.
With regard to the sequester that took effect March 1, 2013, OMB determined that this special
rule for community and migrant health centers applies only to mandatory health center funds (i.e.,
funds appropriated for the health center program under the ACA from FY2011 through
FY2015).58 It further determined that the 2% limit applies to that portion (90.1%) of the
mandatory appropriation that is allocated specifically for community and migrant health centers.
The remaining 9.9% of the mandatory appropriation and the discretionary portion of health
centers funding is subject to the full sequestration amount (5.1% for nondefense mandatory and
5.0% for nondefense discretionary spending).

57 This section was prepared by Elayne Heisler, eheisler@crs.loc.gov, 7-4453. For more information on health centers,
see CRS Report R42433, Federal Health Centers, by Elayne J. Heisler.
58 See discussion on pp. 4-5 of OMB Report Pursuant to the Sequestration Transparency Act, September 2012. For
information on these funds, see CRS Report R41301, Appropriations and Fund Transfers in the Patient Protection and
Affordable Care Act (ACA), by C. Stephen Redhead.
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Indian Health Service59
The Indian Health Service (IHS) in HHS is responsible for providing comprehensive medical and
environmental health services for approximately 2.0 million American Indians and Alaska
Natives who belong to 566 federally recognized tribes.60 Health care is provided through a system
of facilities and programs operated by IHS, tribes and tribal groups, and urban Indian
organizations. IHS is funded by two discretionary budget accounts—Indian Health Services and
Indian Health Facilities. However, IHS also receives reimbursements from Medicare, Medicaid,
and CHIP for services provided at IHS facilities for beneficiaries eligible for these programs, and
IHS also receives mandatory appropriations for diabetes programs.61
Under Section 256(e) of BBEDCA, sequestration may only reduce funding for the two IHS
accounts by 2% in any fiscal year. With regard to the sequester that took effect on March 1, 2013,
however, OMB determined that this special rule (i.e., the 2% limit) applies only to mandatory
funds that IHS receives (i.e., diabetes program funding). The IHS discretionary appropriation thus
is fully sequestrable.62 OMB did not include reimbursements that IHS receives from other federal
programs, or rent that IHS receives from renting staff quarters in the amount that could be
sequestered from the IHS budget (i.e., it exempted these amounts from sequestration).
Veterans’ Medical Care63
The VA, through the Veterans Health Administration (VHA), operates the nation’s largest
integrated direct health care delivery system.64 Veterans’ medical care is a discretionary program,
and eligibility for VA medical care is based on veteran status, presence of service-connected
disabilities or exposures, income, and/or other factors, such as status as a former prisoner of war
or receipt of a Purple Heart.65
Under current law, and as originally enacted, Section 256(e) of BBEDCA allows a maximum 2%
reduction in budget authority for VA medical care for any fiscal year. However, Section 255 of
BBEDCA, as amended in 2010 (P.L. 111-139), specifically excludes from sequestration all
programs administered by the VA, which includes veterans’ medical care. This apparent
discrepancy between the two sections of the law raised questions about whether VA will be totally
exempt from sequestration or whether medical care will be subject to a maximum permissible 2%
reduction in budget authority, under a BCA-triggered sequestration. On April 23, 2012, OMB
issued a letter stating that “all programs administered by the VA, including Veterans’ Medical

59 This section was prepared by Elayne Heisler, eheisler@crs.loc.gov, 7-4453.
60 Department of Health and Human Services, Indian Health Service, “IHS Year 2013 Profile,” January 2013,
http://www.ihs.gov/factsheets/index.cfm?module=dsp_fact_profile.
61 Appropriated under P.L. 111-309.
62 See discussion on pages 4 and 5 of OMB Report Pursuant to the Sequestration Transparency Act, September 2012.
63 This section was prepared by Sidath Panangala, spanangala@crs.loc.gov, 7-0623.
64 U.S. Department of Veterans Affairs, FY 2010 Performance and Accountability Report, Washington, DC, November
17, 2008, p. I-20. Established on January 3, 1946, as the Department of Medicine and Surgery by P.L. 79-293,
succeeded in 1989 by the Veterans Health Services and Research Administration, renamed the Veterans Health
Administration in 1991.
65 For more information on eligibility for VA health care, see CRS Report R42747, Health Care for Veterans: Answers
to Frequently Asked Questions, by Sidath Viranga Panangala and Erin Bagalman.
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Congressional Research Service 17
Care, are exempt from sequestration under Section 255(b).”66 In its report issued pursuant to the
Sequestration Transparency Act, OMB further clarified that administration accounts (which
include, among others, construction projects, general administration, and information technology
systems) are exempt.67 In other words, all accounts of the Department of Veterans Affairs are
exempt from sequestration.
Child Support Enforcement68
The Child Support Enforcement (CSE) program is a mandatory spending program that seeks to
enhance the well-being of children by obtaining child support, including financial and medical
support, from noncustodial parents through services and activities that locate noncustodial
parents, establish paternity, establish child support obligations, and collect and monitor child
support payments. The CSE program is a federal-state program, administered by HHS. The
federal government reimburses each state for 66% of all expenditures on CSE activities and also
provides states with an incentive payment to encourage them to operate effective CSE programs.
Section 256(f) of BBEDCA stipulates that any required reduction in CSE program expenditures
or CSE incentive payments must be accomplished by reducing the federal matching rate for state
CSE program costs. However, subsequent to enactment of this provision, Section 255 was
amended (in 1997, by P.L. 105-33), and specifically excludes from sequestration Family Support
Programs, which include the CSE program.
Federal Pay69
In general, for purposes of sequestration, Section 256(g) provides that federal pay under a
statutory pay system—the General Schedule (GS), Foreign Service (FS) pay schedule, and
Department of Medicine and Surgery at the Department of Veterans Affairs (VA) pay schedule—
is subject to reduction in the same manner as other administrative expense components of the
federal budget (see “Federal Administrative Expenses,” immediately below).70 Likewise,
elements of military pay71 are subject to such reduction. Such an order may not, however, reduce
or have the effect of reducing the rate of pay an employee is entitled to under the GS, FS, or VA
pay systems or any increase in special pay rates authorized by 5 U.S.C. Section 5305. The order
also may not reduce or have the effect of reducing the rate of any element of military pay an

66 Letter from Steven D. Aitken, Deputy General Counsel Office of Management and Budget (OMB), to Julia C. Matta,
Assistant General Counsel for Appropriations and Budget, U.S. Government Accountability Office, April 23, 2012,
http://www.murray.senate.gov/public/_cache/files/f8868d52-eec0-43a5-b5c8-9cecbff4596e/VASequesterQuestion.pdf.
67 OMB Report Pursuant to the Sequestration Transparency Act, September 2012, pp. 160-165.
68 This section was prepared by Carmen Solomon-Fears, csolomonfears@crs.loc.gov, 7-7306.
69 This section was prepared by Barbara Schwemle, bschwemle@crs.loc.gov, 7-8655.
70 Budgetary resources available for federal pay, which are subject to sequestration as part of the reduction of
administrative expenses, are detailed in the September 2012 OMB report issued pursuant to the Sequestration
Transparency Act under the “Salaries and Expenses” function for each account.
71 The term “elements of military pay” means the monthly basic pay adjustments for members of the uniformed
services authorized by 37 U.S.C. §1009, allowances provided to members of the uniformed services under 37 U.S.C.
§§403a and 405, and cadet pay and midshipman pay under 37 U.S.C. §203(c). The term “uniformed services” means
the Army, Navy, Air Force, Marine Corps, Coast Guard, National Oceanic and Atmospheric Administration, and
Public Health Service.
Budget “Sequestration” and Selected Program Exemptions and Special Rules
Congressional Research Service 18
individual is entitled to or any increase in rates of pay authorized by 37 U.S.C. Section 1009, or
any other provision of law.
The conference report (H. Rept. 99-433) that accompanied the original BBEDCA explained the
provision as follows:
The conference agreement provides that rates of pay for civilian employees (and rates of
basic pay, basic subsistence allowances and basic quarters allowances for members of the
uniformed services) may not be reduced pursuant to a sequestration order. The agreement
retains the House position that a scheduled pay increase may not be reduced pursuant to an
order and the Federal pay be treated as other components of administrative expenses. The
conferees urge program managers to employ all other options available to them in order to
achieve savings required under a sequestration order and resort to personnel furloughs only if
other methods prove insufficient.72
An employee may experience a pay cut when placed “in a temporary nonduty, nonpay status
because of lack of work or funds, or other nondisciplinary reasons.” This action occurs under an
administrative furlough that “is a planned event by an agency which is designed to absorb
reductions necessitated by downsizing, reduced funding, lack of work, or any other budget
situation other than a lapse in appropriations.”73
In another matter related to federal pay, an OMB Memorandum issued by Controller Danny
Werfel on February 27, 2013, advised executive department and agency heads that “issuing
discretionary monetary awards to employees … should occur only if legally required until further
notice.”74
Federal Administrative Expenses75
In general, under Section 256(h) of BBEDCA, federal administrative expenses are subject to
sequestration, regardless of whether they are incurred in connection with a program, project,
activity, or account that is otherwise exempt or subject to a special rule.76 As an example, while
Supplemental Security Income (SSI) is exempt from sequestration, the federal administrative
expenses associated with this program would generally not be exempt. With regard to the
sequester that took effect on March 1, 2013, however, OMB determined that the special rule for
federal administrative expenses applies only to mandatory funds and not discretionary funds.77
This means, according to OMB, that mandatory administrative expenses for an otherwise exempt

72 Congressional Record, vol. 131, December 10, 1985, p. 35776.
73 U.S. Office of Personnel Management, Guidance for Administrative Furloughs (Washington: OPM, March 8, 2013),
p. 1, available at http://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/guidance-for-administrativefurloughs.pdf. See especially the section on “Pay,” which begins on p. 5.
74 U.S. Office of Management and Budget, Memorandum for Executive Department and Agency Heads from Danny
Werfel, Controller, Agency Responsibilities for Implementation of Potential Joint Committee Sequestration, M-13-05,
February 27, 2013, p. 3, available at http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-05.pdf.
75 The BBEDCA does not define administrative expenses. For purposes of the March 1 sequestration, OMB states that
“‘administrative expenses’ for typical government programs are defined as the object classes for personnel
compensation, travel, transportation, communication, equipment, supplies, materials, and other services.”
76 The statute lists several federal financial services entities that would not be covered by this section (e.g., Comptroller
of the Currency, Federal Deposit Insurance Corporation, and others).
77 See discussion on pp. 4-5 of OMB Report Pursuant to the Sequestration Transparency Act, September 2012, or p. 2
of OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1, 2013.
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program are subject to sequestration, but that discretionary administrative expenses for an exempt
program are not. Therefore, since federal administrative expenses for SSI are discretionary
(although program benefits are mandatory), they are not subject to sequestration under the Joint
Committee-triggered automatic reduction provisions, despite the special rule described above.78
Section 256 also states that federal payments to state and local governments that match or
reimburse these governments for their administrative costs are not considered “federal
administrative expenses” and are subject to sequestration only to the extent that the relevant
federal program is subject to sequestration. In other words, if a program is exempt under Section
255, then federal payments to states for the costs of administering that program also are exempt.
(However, certain unemployment compensation payments are not covered by this provision, as
noted below.)
Unemployment Compensation79
Section 256(i) of BBEDCA reiterates the exemption from sequestration (provided under Section
255) of federal loans to the states for payment of unemployment benefits. Additionally, Section
256(i) exempts regular unemployment compensation (UC) benefits from sequestration. This
exemption is extended to UC for former federal workers (UCFE) and UC for former
servicemembers (UCX). Generally, these benefits have a duration of up to 26 weeks and are paid
by state unemployment taxes. However, Section 256 specifically does not exempt administrative
grants to the states and the federal share of the permanently authorized extended benefit (EB)
program from sequestration. States are required to continue to pay their share of EB payments. If
a state’s unemployment insurance law allows it, the state may reduce the EB benefit amount by a
percentage that does not exceed the percentage by which the federal share of EB has been
reduced. The authorization of the temporary emergency unemployment compensation (EUC08)
benefit ends at the end of calendar year 2013; the EUC08 benefit is subject to sequestration.80
On March 8, 2013, the U.S. Department of Labor released the details on how the sequester
reductions to administrative grants, unemployment benefits, and other types of unemployment
benefit expenditures will occur.81 The reductions to UI expenditures will generally begin the week
beginning on or after March 31, 2013. No unemployment benefits already paid to individuals will
be recovered to satisfy the sequestration reductions.
Commodity Credit Corporation82
The Commodity Credit Corporation (CCC) is the funding mechanism for the mandatory spending
of the U.S. Department of Agriculture (USDA) for farm commodity support and certain
conservation programs. The CCC is a wholly owned government corporation that has the legal

78 For more discussion of administrative expenses of the Social Security Administration, which administers the SSI
program, see the section titled “Sequestration of SSA Administrative Funds” in CRS Report R41716, Social Security
Administration (SSA): Budget Issues, by Scott Szymendera.
79 This section was prepared by Julie Whittaker, jwhittaker@crs.loc.gov, 7-2587.
80 For more information, see section headed “Unemployment Benefits and the Sequester” in CRS Report R42936,
Unemployment Insurance: Legislative Issues in the 113th Congress, by Julie M. Whittaker and Katelin P. Isaacs.
81 Employment and Training Administration, U.S. Department of Labor, Unemployment Insurance Program Letter
(UIPL) 13-13, March 8, 2013, http://wdr.doleta.gov/directives/attach/UIPL/UIPL_13_013_Acc.pdf.
82 This section was prepared by Jim Monke, jmonke@crs.loc.gov, 7-9664.
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authority to borrow up to $30 billion at any one time from the U.S. Treasury. Its borrowing
authority is replenished annually in the Agriculture appropriations bill by a “such sums as are
necessary” appropriation. Most spending for these programs was authorized by the 2008 farm bill
(P.L. 110-246).
Section 256(j) says that sequestration should not restrict the CCC’s authority to discharge its
primary duties. Specifically, it states that commodity loan contracts entered into before the
sequestration order shall not be reduced.83 Section 256 says, though, that loan contracts after the
sequestration order shall be reduced. The farm commodity programs have evolved to include
other support mechanisms than the loan program, and the loan program is no longer the primary
outlay.
In fact, the Joint Committee sequestration applies to many CCC-funded programs, including the
direct payment program, disaster payments, the Milk Income Loss Contract (MILC) program, and
conservation programs (except the Conservation Reserve Program), as well as other farm bill
programs that use CCC funds.84 Outlays of the federal crop insurance program are not funded
under the CCC but instead have their own mandatory funding mechanism, addressed in Section
255, that exempts the prior legal obligations of the Federal Crop Insurance Fund from
sequestration.

83 Commodity loans are one part of the farm support program that makes government loans to farmers at farm-bill
specified support prices per unit of commodity. Farmers can use these loans as financing to pay their expenses and, if
market prices are below the support price, can benefit financially by the difference between the support price and the
market price.
84 See section titled “Budget Sequestration” in CRS Report R42484, Budget Issues Shaping a Farm Bill in 2013, by Jim
Monke.
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Appendix. Section 255 of the Balanced Budget and
Emergency Deficit Control Act, as Amended
SEC. 255. (2 U.S.C. 905) EXEMPT PROGRAMS AND ACTIVITIES.
(a) SOCIAL SECURITY BENEFITS AND TIER I RAILROAD RETIREMENT
BENEFITS.—Benefits payable under the old-age, survivors, and disability insurance program established
under title II of the Social Security Act (42 U.S.C. 401 et seq.), and benefits payable under section 231b(a),
231b(f)(2), 231c(a), and 231c(f) of title 45 United States Code, shall be exempt from reduction under any
order issued under this part.
(b) VETERANS PROGRAMS.—The following programs shall be exempt from reduction under any order
issued under this part:
All programs administered by the Department of Veterans Affairs.
Special Benefits for Certain World War II Veterans (28–0401–0–1–701).
(c) NET INTEREST.—No reduction of payments for net interest (all of major functional category 900)
shall be made under any order issued under this part.
(d) REFUNDABLE INCOME TAX CREDITS.—Payments to individuals made pursuant to provisions of
the Internal Revenue Code of 1986 establishing refundable tax credits shall be exempt from reduction
under any order issued under this part.
(e) NON-DEFENSE UNOBLIGATED BALANCES.—Unobligated balances of budget authority carried
over from prior fiscal years, except balances in the defense category, shall be exempt from reduction under
any order issued under this part.
(f) OPTIONAL EXEMPTION OF MILITARY PERSONNEL.—
(1) IN GENERAL.—The President may, with respect to any military personnel account, exempt that
account from sequestration or provide for a lower uniform percentage reduction than would otherwise
apply.
(2) LIMITATION.—The President may not use the authority provided by paragraph (1) unless the
President notifies the Congress of the manner in which such authority will be exercised on or before the
date specified in section 254(a) for the budget year.
(g) OTHER PROGRAMS AND ACTIVITIES.—
(1)(A) The following budget accounts and activities shall be exempt from reduction under any order issued
under this part:
Activities resulting from private donations, bequests, or voluntary contributions to the Government.
Activities financed by voluntary payments to the Government for goods or services to be provided for such
payments.
Administration of Territories, Northern Mariana Islands Covenant grants (14–0412–0–1–808).
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Advances to the Unemployment Trust Fund and Other Funds (16–0327–0–1–600).
Black Lung Disability Trust Fund Refinancing (16–0329–0–1–601).
Bonneville Power Administration Fund and borrowing authority established pursuant to section 13 of
Public Law 93–454 (1974), as amended (89–4045–0–3–271).
Claims, Judgments, and Relief Acts (20–1895–0–1–808).
Compact of Free Association (14–0415–0–1–808).
Compensation of the President (11–0209–01–1–802).
Comptroller of the Currency, Assessment Funds (20–8413–0–8–373).
Continuing Fund, Southeastern Power Administration (89–5653–0–2–271).
Continuing Fund, Southwestern Power Administration (89–5649–0–2–271).
Dual Benefits Payments Account (60–0111–0–1–601).
Emergency Fund, Western Area Power Administration (89–5069–0–2–271).
Exchange Stabilization Fund (20–4444–0–3–155).
Farm Credit Administration Operating Expenses Fund (78–4131–0–3–351).
Farm Credit System Insurance Corporation, Farm Credit Insurance Fund (78–4171–0–3–351).
Federal Deposit Insurance Corporation, Deposit Insurance Fund (51–4596–0–4–373).
Federal Deposit Insurance Corporation, FSLIC Resolution Fund (51–4065–0–3–373).
Federal Deposit Insurance Corporation, Noninterest Bearing Transaction Account Guarantee (51–4458–0–
3–373).
Federal Deposit Insurance Corporation, Senior Unsecured Debt Guarantee (51–4457–0–3–373).
Federal Home Loan Mortgage Corporation (Freddie Mac).
Federal Housing Finance Agency, Administrative Expenses (95–5532–0–2–371).
Federal National Mortgage Corporation (Fannie Mae).
Federal Payment to the District of Columbia Judicial Retirement and Survivors Annuity Fund (20–1713–0–
1–752).
Federal Payment to the District of Columbia Pension Fund (20–1714–0–1–601).
Federal Payments to the Railroad Retirement Accounts (60–0113–0–1–601).
Federal Reserve Bank Reimbursement Fund (20–1884–0–1–803).
Financial Agent Services (20–1802–0–1–803).
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Foreign Military Sales Trust Fund (