Sequestration: Build Your Contingency Plan
The scenarios of either sequestration, postponement of sequestration, or a "Grand Bargain" to prevent sequestration, each involve new risks for the region and the nonprofit community. I am sharing my memo, which highlights the impact of sequestration for the region, the nonprofit community, and our organization. I hope it's useful to your planning -- perhaps the resources could be jumping off point to discuss contingency plans with your own board and staff.
Any nonprofit organization with a revenue mix heavily reliant on Federal funding faces new -- and unprecedented -- risks.
Although leading policy-makers say that sequestration "will not happen" on January 2, 2013, and I have heard the conventional wisdom of many that the lame duck Congress will vote to give themselves more time to deal with sequestration, we need to prepare for the worst. I believe there are three primary scenarios:
- Sequestration (the "fiscal cliff", the "poison pill") begins January 2, 2013 -- with draconian across-the-board cuts in domestic discretionary spending and Defense spending. Beyond the program cuts, noted GMU economist Stephen Fuller says, "we're looking at the loss of about 65,000 federal jobs in this region and about 96,000 federal contractor jobs." In this scenario, nonprofits should be prepared for both big spending cuts and a surge in demand from residents who need assistance.
- Postponement Scenario: Sequestration is postponed by the lame duck Congress for several months into 2013 -- resulting in a huge political gridlock that will make last year's government shutdown seem relatively trivial. In this scenario, nonprofit organizations should be prepared for unprecedented delays with regard to Federal funding, including funds which pass through states and localities.
- The Antidote to Sequestration = Grand Bargain: There is a scenario in which sequestration is averted through a "Grand Bargain" of $2.50 to $3 of spending cuts for every $1 in tax increases. In one manner or another, House Budget Chairman (and Vice Presidential Candidate) Paul Ryan will be involved. The Center for Budget and Policy Priorities notes that "the cuts to non-defense discretionary funding under the Ryan budget would be three times deeper in 2014 than the cuts from sequestration." Depending upon the terms of the "Grand Bargain" the antidote to the poison pill could also be toxic.