Sequestration Cuts Go Into Effect

March 7, 2013

pic-capital-capitolLast week, $85 billion in across-the-board spending cuts for FY 2013 went into effect. These arbitrary cuts, enacted under the Budget Control Act of 2011, will have a negative impact on small business’s ability to hire new employees, expand their firms, and plan for the future. For example, the cuts to military and domestic discretionary spending will have a dramatic effect on our country’s small-business prime and subcontractors. In FY 2011, small business received over $91.5 billion (or 21.65 percent of federal contracting dollars) in contracts from the federal government. If a deal is not reached to avert these cuts, we will begin to see fewer contracts awarded to small businesses, which means slower economic growth and job creation.

According to a recent letter from U.S. Small Business Administration (SBA) Administrator Karen Mills to Sen. Barbara Mikulski (D-Calif.), Chair of the Senate Committee on Appropriations, “small business contractors would see a decline in revenue of over $4 billion, [and SBA’s] ability to identify and address fraud, waste, and abuse through 8(a) and HUBZone reviews would be compromised.”

In addition to the aforementioned impacts on America’s small-business contractors, sequestration also will have a significant impact on the SBA’s ability to provide access to the programs, services and other technical assistance upon which tens of thousands of small businesses rely on a daily basis. The SBA is the single largest provider of long-term loans to small businesses, and must remain a strong and fully-funded agency with robust and attractive lending programs.

According to the above-referenced letter, sequestration would reduce the “SBA loan subsidy by $16.68 million” and would force them to make “1,928 [fewer] small business loans – loans that could have helped small businesses access more than $902 million of capital. Additionally, these funds would have supported approximately 22,600 jobs in industries like manufacturing, food services and hospitality which are still struggling to recover.”

Overall, the $85 billion in cuts which went into effect Friday, March 1, are just the first installment of the sequester’s $1.2 trillion in across-the-board reductions over the next decade. The Congressional Budget Office has projected the sequester could eventually cost 750,000 jobs in 2013 and reduce the gross domestic product by half a percentage point. Federal agencies have been in the planning stages for the sequester for months and are now implementing the cuts which are impacting countless programs.

With less than three weeks until the March 27 deadline when the current continuing resolution (CR) runs out, and lawmakers working to balance concerns over how sequestration will impact various federal programs, they now turn their attention to passing a host of spending bills. This week, the House passed language (HR 933) that includes appropriations bills for Defense and Military Construction-Veterans Affairs and an extension of the current CR for all other federal agencies. That bill caps 2013 spending at $984 billion, down approximately $59 billion from 2012. The bill does, however, build in some flexibility for military programs to deal with the sequester.

The Senate is set to take up the issue next week, however their package is likely to include additional appropriations bills. The challenge is how to garner adequate support for the measure, work to ease sequestration while maintaining cuts on-par with the automatic spending trigger.

While NSBA’s number one priority is reducing the deficit in a long-term, responsible way that includes broad tax and entitlement reform as well as spending cuts, sequestration is the wrong way to go. NSBA has partnered with the Fix the Debt campaign and participated in a high-level briefing today on Capitol Hill urging lawmakers to forge a path forward.

NSBA is urging both the Administration and Members of Congress to set their respective differences aside and reach an agreement to avoid these devastating cuts to America’s small business community.

Click here to tell us how sequestration will impact your business.

Click here for more from NSBA on the sequestration.

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