What:	The Budget Control Act and sequestration
When:	Congress passed the Budget Control Act in 2011, triggering a failsafe mechanism that suddenly reduced federal expenditures in 2013.
Why it matters:	An ill-fated attempt to reduce the federal budget deficit resulted in Congressional gridlock, leading to sudden across-the-board budget cuts in 2013 and a decade of federal budget uncertainty.

To celebrate our 25th anniversary in 2025, we’re spotlighting 25 pivotal moments that reshaped the way the government operates. Visit our anniversary page each week as we look back on these defining moments.

When Congress passed the Budget Control Act in 2011, the hope was that a complex series of planning processes and looming penalties would prompt lawmakers to deal with, what were seen at the time, as unsustainable deficits. As a deficit reduction tool, it turned out to be largely ineffective. Instead, it turned into an instrument of budget chaos.

The legislation that came to define — some would say plague — the following decade-plus of federal budgeting started as one of the all-too-familiar negotiations over raising the debt ceiling to cover obligations Congress had already created. In the summer of 2011, the Obama administration and congressional leaders announced a deal to raise the ceiling by $900 billion, but in exchange, a “supercommittee” of lawmakers would have to find at least $1.5 trillion in deficit reduction measures over the next 10 years.

As a failsafe enforcement mechanism, “sequestration” would automatically trim federal budget authority in an across-the-board fashion to fit within the new budget caps — in theory giving the supercommittee a huge incentive to reach a deal.

But almost nothing about the BCA happened according to plan. The supercommittee failed, the sequestration cuts kicked in in 2013 and to prevent a recurrence of the draconian cuts, Congress ended up raising the 10-year spending caps four separate times, significantly undercutting the entire point of the debt reduction exercise.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” as the supercommittee’s co-chairpeople, Rep. Jeb Hensarling (R-Texas) and Sen. Patty Murray (D-Wash.) explained the failure in a November 2011 statement. “Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve.”

BCA “sequestration” cuts take effect

In the ensuing months, the conversation in Washington and on Wall Street began to shift as the realization set in that significant cuts to agencies’ discretionary budgets were about to take effect. It wasn’t just the size of the cuts — a sudden trim of $85 billion, set to take effect in a fiscal year that was already underway — but also their nature. Sequestration was designed to leave nothing to management discretion, and for the affected parts of the budget, every “program, project and activity” was trimmed by the same percentage.

The sounds of alarm were especially acute at the Defense Department, with the defense portion of the discretionary budget absorbing half the cuts. And since all of DoD’s personnel accounts were shielded from sequestration, all of the cutting had to be borne by the other slices of the department’s budget pie, affecting readiness, modernization, research and development and the civilian workforce.—

In February 2013, then-Defense Secretary Leon Panetta announced that to deal with the sudden cuts, most DoD civilians would have their work weeks cut to four days per week. The unpaid days became a phenomenon colloquially called “furlough Fridays.”

“In the event of sequestration we will do everything we can to be able to continue to perform our core mission of providing for the security of the United States, but there is no mistaking that the rigid nature of the cuts forced upon this department, and their scale, will result in a serious erosion of readiness across the force,” he wrote in a memo to the workforce at the time.

Some of the effects — and the suddenness of the budget cuts — were likely exacerbated by DoD’s reluctance to begin planning for them when the BCA was initially passed. At the time, the department was already working on a separate plan to reduce spending by $400 billion over 10 years at the direction of the White House.

“I am not even beginning to consider what would happen with regards to sequestration … all I know is from the review we’ve been doing, from what we’ve been dealing with under these numbers, anything that doubles that would be disastrous to the defense budget,” Panetta told reporters during his first news conference as Defense secretary in 2011.

That didn’t mean there wasn’t planning — but it did mean each component of DoD was developing its own, without central coordination by Pentagon leadership, said David Berteau, a former senior Defense official and budget expert who now serves as president of the Professional Services Council.

“So the first impact was totally uncoordinated preparation, a totally uncoordinated response and a totally unintegrated result,” he said. “And that was the start of the negative impact, not just on DoD programs, but across the board for DoD. ”

DoD did eventually order the military services to start detailed planning to conserve cash and prepare for “budgetary uncertainty” in January 2013.

Blunting the impact

Leaders did find some ways to mitigate the effects of sequestration in 2013, such as by drawing from unobligated 2012 appropriations and draining some programs’ contingency funds. But as fiscal 2013 drew to a close, Defense Department officials warned they had run out of those types of one-time workarounds, and that 2014 would be worse if they were forced to live under the spending caps.

“We were 99.8% obligated at the end of 2013,” then-Gen. Jim Amos, the commandant of the Marine Corps said. “Now there’s no money to bring over. Our account is dry. We’re gonna live with what we have, and we’ve taken measures in the past to lean the force. Civilian hiring was frozen two years ago. We’ve already gone through our travel accounts. We’ve taken our reserves off of active duty to reduce the (temporarily assigned duty) costs. We’ve done all that. There’s really no more fat on our bones.”

Meanwhile, deferred costs, including billions of dollars worth of maintenance, were starting to pile up. And readiness was seeing an impact. To prevent further cuts to readiness, leaders cautioned they’d need to cut force structure to live within the caps. The Army, for instance, warned that it would have to reduce its overall size by 18% and inactivate almost half of its active brigades.

Warnings like that prompted Congress to embark on the first of what would be four instances in which they went back on the original 10-year deficit cutting plan, and raised the caps at the last minute. In December 2014, lawmakers raised that year’s cap by $22 billion. They continued doing so, in larger amounts, until 2019.

And at the Defense Department, there was also a massive workaround that came into greater and greater use during the period affected by the BCA. Overseas Contingency Operations accounts weren’t subject to the caps, so large amounts of Defense spending that would normally be in DoD’s base budget was shifted to OCO in what some analysts and lawmakers saw as an abuse of the accounts.

By 2020, officials explicitly acknowledged that they were shifting funds to OCO in order to spare them from the caps as the 2020 OCO request grew from $69 billion to $165 billion.

Debt growth continues despite cuts

All the while, federal debt continued to grow on roughly the same trajectory it had prior to the BCA, partly because Congress never dealt with the mandatory spending and revenue topics that had been part of the conversation in the early 2010s. And although annual deficits declined noticeably in the immediate years after the caps, by 2019 — the final year before the COVID pandemic — the annual budget deficit stood just shy of $1 trillion, down only slightly from 2012, the year before the caps took effect.

Source: Bureau of the Fiscal Service

“Overall, the BCA seems to be a colossal failure as a tool for controlling spending,” wrote John Diamond, the director of Rice University’s Center for Tax and Budget Policy. “Since 2013, Congress has passed a series of two-year deals to avoid most of the cuts imposed by the BCA … is clear Congress has no appetite for any kind of constraint on its spending authority. Neither the BCA nor the debt ceiling limit Congress’ ability or will to spend money that is financed with debt (i.e., revenues from future generations). To say that the BCA was ineffective and that it failed to accomplish its original goal is likely an understatement.”

Years of instability as cuts, efforts to mitigate them, take toll

The BCA did, however, help produce budget instability for much of the 2010s — in combination with Congress’ inability to enact on-time budgets. Taken together, they left agencies with little insight into their future years’ financial resources.

“We’re constantly being accused of crying wolf. But we’re still recovering from the incomprehensibly destructive way that sequestration was implemented,” Bob Work, the then-Defense secretary, told the Center for Strategic and International Studies in 2014. “There is no strategic planner on the planet that can succeed in this type of environment.”

And there were also-long term effects, particularly in government contract spending, in areas that are difficult if not impossible to recover from, such as federal R&D. A CSIS analysis found R&D bore the brunt of DoD’s BCA cuts, falling by 53% between 2009 and 2015, even as overall contract spending declined by only 35%.

A separate analysis by the American Association for the Advancement of Science found similar trends governmentwide, and estimated that $220 billion in federal R&D spending was lost to the BCA. By the end of the 10-year caps, that spending was 20% lower than it otherwise would have been, according to the association’s estimates.

“We looked at who ultimately bore the impact of the cuts, and my calculations were 80% of the sequestration cuts were borne by industry, because they didn’t cut military insurance, they didn’t cut civilian employee insurance, and they didn’t cut pay and benefits. And so the distribution of the cuts was all then distributed on the remaining 50% of the defense budget, which was contracts … By 2014, when I got back into DoD, we were really struggling with essentially life support for major weapons systems in terms of production rates and a real shortfall in O&M. And you saw it in mission capable rates for aircraft.” Berteau said. “The longer-term impact was no investment in R&D, no investment in capital expenditures, no investment in DoD because they were just basically limping along at the minimum production rates to buy stuff. And that extended for years.”

The post The Budget Control Act, sequestration and a decade of budget chaos first appeared on Federal News Network.

Vicky