Lawmakers in Washington, D.C. spent the last week of February scrambling unsuccessfully to avoid sequestration. On March 1 at 8:31 pm President Barack Obama signed the executive order requiring federal agencies to implement sequestration. The Budget Control Act of 2011 (BCA) required the sequestration of discretionary funds for 10 years, which means making across-the-board cuts to achieve a $1.2 trillion reduction in the deficit over a 10-year period (see Memo, 1/4). These cuts, originally scheduled for January 2, were postponed to March 1 by the American Taxpayer Relief Act of 2012. Sequestration of FY13 discretionary funds will decrease HUD and USDA Rural Housing budgets by 5%. Because the cuts will be implemented starting in the sixth month of the fiscal year, the effective rate of the cuts will be 9% for non-defense discretionary spending. Final FY13 funding levels for federal agencies have still not been determined (see next article in Memo.)After a week of discussion and sparring in Congress, on February 28, the Senate voted down both a Republican bill and a Democratic bill to avert sequestration. S. 16, the Republican plan, would have postponed sequestration until March 15, but received only 38 votes, with both Republicans and Democrats voting against it. The Democratic bill, S. 388, failed by a 51-49 vote, with several Democrats opposing. S. 388 would have replaced sequestration with targeted cuts and increases in revenue to achieve the nation’s deficit reduction goals. Numerous other proposals circulated in the Senate during the week, but Senate leadership agreed that the chamber would vote on only one bill from each party. On February 28, President Obama issued a statement on sequestration saying, “Tomorrow I will bring together leaders from both parties to discuss a path forward. As a nation, we can’t keep lurching from one manufactured crisis to another.” He convened House and Senate leaders for a morning meeting on March 1 in the hopes of reaching a bipartisan agreement. However, before the White House meeting, Senate Minority Leader Mitch McConnell (R-KY) told the press that he would not make a last-minute deal and did not expect for the leaders to come to an agreement on averting sequestration during the month. Indeed, the meeting lasted less than an hour and did not result in a solution to sequestration. The President held a press conference after the meeting and announced that sequestration would go into effect on March 1. He emphasized he does not believe it should, saying the country “shouldn’t be making a series of arbitrary cuts… This is unnecessary, and at a time when too many Americans are still looking for work, it’s unacceptable.” President Obama placed responsibility for these cuts on the Republicans, saying, “Let’s be clear: none of this is necessary. It is happening because of a choice Republicans in Congress have made. They’ve allowed these cuts to happen because they refuse to budge on closing a single wasteful loophole to reduce the deficit.” The President hopes discussions with lawmakers on replacing sequestration will continue in March. He concluded, “I do believe that we can and must replace these cuts with a balanced approach that asks something of everyone.” With lawmakers departing D.C. for their home districts on March 1, there was no possibility that eleventh-hour Congressional action could reverse the course. House Speaker John Boehner (R-OH) thinks that if an agreement on replacing sequestration is reached after March 1, it could be included in the continuing resolution for FY13 funding. The Speaker said that the House would advance another continuing resolution (CR) to allow Congress additional time beyond the expiration of the current CR to come to agreement. He said he hoped this would avert a government shutdown when the current CR expires on March 27 (see next article in Memo). The President has indicated that he would not veto an FY13 spending bill in order to avoid a government shutdown. House and Senate Democrats have also indicated they are not interested in causing a government shutdown over the FY13 spending measure. However, reports have surfaced that the CR may include ways for the Administration to mitigate the effect of sequestration on defense and veterans’ programs by allowing flexibility in how the cuts will be implemented. No such flexibility for non-defense programs has yet to be considered. On the afternoon of March 1, the Administration’s focus quickly moved to preparing for sequestration. As the President issued the executive order to implement sequestration, the Office of Management and Budget (OMB) issued a letter and a report to Congress on the level of cuts federal agencies are responsible for implementing. As anticipated, the cuts to HUD programs are deep. The public housing operating fund will be cut by $199 million from its FY12 level, which was already artificially low due to the use of PHA reserves for some operating subsidies. The public housing capital fund must absorb a $94 million cut, the Housing Choice Voucher program will receive a $938 billion cut, and project-based rental assistance will be cut by $470 million. OMB is expected to issue more detailed instructions to federal agencies on implementation of cuts. HUD Secretary Shaun Donovan has stated that cuts to the department’s programs would result in devastating impacts, including: 125,000 households losing their housing choice vouchers; 100,000 formerly homeless people losing their housing or shelter; 7,300 households served by the Housing Opportunities for Persons with AIDS (HOPWA) program losing assistance and being at risk of homelessness; 3,000 of the most vulnerable children being less safe from lead and other health hazards; 7,500 fewer households receiving foreclosure or pre-purchase housing counseling; tens of thousands of people losing jobs funded by the Community Development Block Grant; and public housing agencies deferring maintenance and repairs of deteriorating units (see Memo, 2/15). HUD issued sequestration guidance to public housing agencies on voucher administration on February 18 and on the public housing operating fund on February 25. HUD was prepared to issue further guidance to state and local governments regarding funding levels and implementing cuts on March 1 after the sequestration order was signed. HUD is expected to post sequestration implementation guidance in a new section of its website starting the week of March 4. The Congressional Budget Office (CBO) posted a blog entry with frequently asked questions (FAQs) on sequestration on February 28. The FAQs include information on the size of the FY13 and FY14 cuts and the impact that budgetary changes are projected to have on economic growth. The White House continued to post information on sequestration on a webpage which includes an FAQ and state-by-state sequestration impacts. The Administration is expected to continue to add guidance to this site as sequestration is implemented. On March 3, Speaker Boehner and Minority Leader McConnell made public statements indicating possible interest in replacing sequestration with a broader deficit reduction plan. Other Republican Members of Congress reportedly made statements indicating willingness to incorporate revenue into such a replacement plan after the sequestration order was issued. While some effects of sequestration will be seen immediately, such as cuts to programs that receive regular monthly disbursements, other effects, such as furloughing of union employees, are expected to be phased over the month of March. Some lawmakers view this time period as an opportunity to continue negotiations before Americans experience the full impacts of sequestration. View the President’s sequestration order at http://1.usa.gov/Wq0Nf3. View the letter from OMB to Congress at http://1.usa.gov/Z8LBhi. View the President’s Feb. 28 statement at http://1.usa.gov/YEPPN0. View the President’s March 1 press conference statements at http://1.usa.gov/YEPSIE. View HUD’s sequestration webpage at http://1.usa.gov/XRFWfz.View the HUD guidance is attached.View the White House sequestration page at http://1.usa.gov/YEPU2Z. View the CBO blog post on sequestration at http://1.usa.gov/YEPWIn.