SEQUESTRATION FACT SHEET #2
By Jeff Bratko, Steward AFGE Local 704
Sequestration Fact Sheet #1 explained that sequestration will result in automatic, spending cuts in most discretionary spending by Federal Agencies. Sequestration is required by the Budget Control Act of 2011 (BCA). Fact Sheet #1 discussed the potential impact of sequestration and noted that it does not appear that plans for dealing with sequestration are being shared with employees. We also warned that waiting to make your own plans until specific information is available may be a costly mistake.
Fact Sheet #2 provides some additional information about sequestration and steps you can take to avoid falling off your personal fiscal cliff.
Is September 6, 2012 an important date?
On August 7, 2012 President Obama signed into law the Sequestration Transparency Act which requires him to report to Congress, by September 6, on the impact of sequestration. In his “sequester preview” report, the President must identify all accounts to be sequestered and estimate the sequestration percentages to be applied and the amounts necessary to achieve the required savings. Accounts are to be identified at the “program, project and activity” level.
You might think that the sequester preview report will finally provide you with a clear idea about how sequestration will impact your pocketbook. If so, you may be disappointed
Why won’t the September 6 report help me plan for the sequestration?
On August 1, 2012, Jeffrey Zients, Acting Director and Deputy Director of Management, Office of Management and Budget testified at a hearing held by the House Armed Services Committee. His testimony included the following statements:
“Specific details about percentage reductions and the amount of the reduction by program, project, and activity (PPA) cannot be known at least until Congress enacts appropriations for FY 2013 and finalizes any legislation affecting mandatory programs…”
“Instructing the government to prepare for significant sequestration-induced disruptions—including potentially widespread furloughs or even reductions in force—could inadvertently trigger some of the negative effects of sequestration even if sequestration never happens.”
Given that testimony, it seems unlikely that the President’s report will provide sufficient information to allow employees to determine the impact of sequestration on their take home pay in 2013. In fact, they may not want you to have enough information to make plans because that could trigger the negative effects they fear.
What can I do to plan for sequestration and its negative effects on me and my family?
- Estimate your biweekly net income for the period between January 2, 2012 and the end of September. Since we do not know the exact impact of sequestration, take the net pay you currently receive each pay period and assume it will be reduced by at least 15% due to sequestration and tax increases. Compare that with your current biweekly expenses. If you currently spend more than 85% of each paycheck, you may find yourself short of money when the sequestration takes effect and you need to start figuring out where to cut expenses, or increase income, now. If you cannot cut expenses enough to make up any anticipated shortfall, you may need to dip into savings or seek a holiday season temporary job now so you can accumulate some savings. Going into debt to make up for the shortfall may not help you because the cuts projected for FY 2014 may make it harder to pay back that loan.
- If you expect that 2013 will be the year you get a loan to replace your old car, to buy a house, or for any purpose, remember that if they need to see proof of current income on a pay statement, furloughs could mean a smaller paycheck and that could impact your ability to get that loan. You may need to carefully consider whether you will be able to afford those items in 2013 or you may want to think about advancing your purchase plans while your pay statement still shows a higher pay rate. Of course, that assumes you determine you can pay off the loan with a smaller paycheck in 2013.
- Don’t spend as much for the holiday season this year. Show everyone that you are a true environmentalist. Give gifts of your time and give recycled gifts and brag about such efforts. Buy gift items at church sales or at thrift shops that use the proceeds to do good work. Being creative is better than being broke.