Fault Doesn’t Matter: Fix Sequestration Before Too Much Harm Is Done

Washington, DC - The following statement is from Marie Lopez Rogers, President of the National League of Cities, and Mayor of Avondale, AZ response to sequestration going into effect today:

"This is not Washington's finest hour. Despite months of warnings, policy reports, speeches, political maneuvering and electioneering, sequestration will take effect today. I wish we could say this was in spite of the best efforts of our leaders in Washington. But that is not the case.

"Yet again Washington chooses a take it or leave it approach over good governance. Congress and the Administration should not waste time debating who is at fault. Rather, they should own up to fixing it.

"The cuts come at a fragile time in our nation's economic recovery. Families will bear the brunt of the impact as job losses mount and spending pulls back. The cuts that are going into effect are blunt instruments, rather than being strategic and targeted to still allow for smart investments in our nation's cities and towns. The effects of sequestration will test the resolve and creativity of our nation's cities, residents, and businesses to prevent another recession.

"Throughout the recession cities, when faced with difficult decisions, have found ways to move forward and get things done. And, we will do so again. Washington needs to take a cue from local governments and resolve this issue, while allowing investments in human capital and physical infrastructure. The nation needs smart investments and smart cuts that promote long-term competitiveness and sustainable growth for decades to come."

Background Information:

Previously, NLC has pointed out that sequestration would impact the subsidy bond market. By OMB's estimates, rebate payments on subsidy bonds authorized for FY 2013 would be reduced by 7.6 percent, totaling $255 million for the $181 billion in Build America Bonds issued between April 2009 and December 2010.

A cut now will leave issuers on the hook to make the full interest payments without having budgeted for the money. However, the effect on the ability to pay debt service is mitigated to the extent that most general obligation bond issuers budget to pay full debt service without accounting for receipt of the interest subsidies, and most revenue bond issuers did not pledge the subsidies to bondholders. Instead, they use the subsidy to offset debt service costs once the subsidy is received.

Even if the proposed cut is not enacted, OMB giving voice to the possibility of retroactively reducing the federal subsidy will likely have a chilling effect on any future credit bond program

Also, in a report released last September, the White House Office and Management and Budget (OMB) provided preliminary estimates of the sequestration's impact on more than 1,200 budget accounts, including programs important to cities and towns.

Here are several of those estimates:

• The Community Development Fund, which includes the Community Development Block Grant (CDBG), would be cut by $279 million; it is currently funded at $3.4 billion.
• The Choice Neighborhoods program would be cut by $10 million; it is currently funded at $120 million.
• The Home Investment Partnership Program (HOME) would be cut by $82 million; this program is currently funded at $1 billion.
• Department of Justice State and Local Law Enforcement Assistance Grants would be cut by $92 million; these grants are currently funded at $1.12 billion.
• The Community Oriented Policing Services (COPS) Program would be cut by $13 million; this program is currently funded at $162 million.
• Environmental Protection Agency State and Tribal Assistance Grants, which includes funding for the Clean and Safe Drinking Water State Revolving Funds, would be cut by $293 million; these grants are currently funded at $3.56 billion.
• The Department of Labor Training and Employment Services account, which funds job training programs, would be cut by $262 million; it is currently funded at $3.192 billion.
• The Department of Education Accelerating Achievement and Ensuring Equity Account, which includes Title I funding, would be cut by more than $1 billion; it is currently funded at $15.7 billion.
• FEMA State and Local Programs, which include Urban Area Security Initiative grants and the State Homeland Security Grant program, would be cut by $183 million; these programs are now funded at $2.2 billion.
• AMTRAK funding would be reduced by $38 million; it is funded currently $466 million.
• Federal Transit Capital Investment Grants would be cut by $156 million; these grants are now funded at $1.9 billion.

According to OMB, while "the Department of Defense would be able to shift funds to ensure war fighting and critical military readiness capabilities were not degraded, sequestration would result in a reduction in readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families."

The National League of Cities is dedicated to helping city leaders build better communities. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.