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As Deadline Looms for Budget Cuts, FDA Faces Loss of $318 Million and Many Employees

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By Alexander Gaffney, RF News Editor

A critical deadline is fast approaching for US legislators to act to avoid the effects of the budget sequestration process, set to come into effect on 2 January 2013 unless Congress can find at least $1.2 trillion in budget cuts over the coming decade.

First, the background: In 2011, Congress passed the Budget Control Act (BCA), which stipulated that the government's debt-driven spending was propelling it toward an unsustainable future and needed to be reigned in. While negotiators were unable to come up with an agreeable solution to the entire problem at the time of the BCA, they put into motion a planned trigger—Congress had until 1 January 2013 to pass $1.2 trillion in cuts to the federal budget over the coming decade, or else an across-the board (some social programs like Social Security and Medicare were exempted) budget cut of approximately 8% would come into effect.

As reported earlier by Regulatory Focus, the effect of the cuts on the US Food and Drug Administration (FDA) and regulated industries could be substantial, taking money from both FDA's appropriated budget and its user fee funding as well.

A 17 September 2012 report from the Office of Management and Budget, "OMB Report Pursuant to the Sequestration Transparency Act (STA) of 2012," noted that FDA would lose a grand total of $318 million in 2013, with $112 million to come from FDA's industry-funded user fees. Just $67 million of FDA's budget would be exempted from the fees.

That isn't to say industry would be exempted from paying FDA the user fees it needs to operate. Rather, FDA would just be unable to spend the fees that it receives from industry, likely putting its goals under the user fee acts in jeopardy.

FDA's appropriated funds are also important to its mission, and could lead to cuts in its review staff and ability to make improvements to its review infrastructure, said Steven Grossman, deputy executive director at the Alliance for a Stronger FDA, in an October 2012 posting. Compared to grant-making institutions like the National Institutes of Health, FDA is a relatively staff-heavy organization, which would likely require either staff furloughs or reduction-in-force agreements which could cause chaos at the agency.

As of 2010, FDA employed nearly 15,000 workers. Assuming a staff reduction on par with its budget cuts, that would lead to a reduction of approximately 1,200 FDA staff, though not all would be related to the regulation of healthcare products.

The New York Times reports that the Obama administration has recently ordered agencies to put into place a plan on how to operate with significantly constrained budgets, though it remains unclear what contingencies—if any—FDA would be able to make for such cuts.

With just 19 calendar days scheduled between now and the start of the so-called "fiscal cliff"—a term coined by Federal Reserve Chairman Ben Bernanke meant to convey his concerns that the economy could crater in the absence of a deal—Congress is fast running out of time.

The Hill reports that congressional negotiators do not seem to be close to a deal. Speaker of the House John Boehner (R-OH) has characterized President Barack Obama's offers as posturing, and has publicly asked him to "get serious." Senate Majority Leader Harry Reid (D-NV) has meanwhile expressed his feeling that reaching a deal will be "extremely difficult," and called on Republicans to release more details of their plan to reduce the deficit.

With the time frame drawing increasingly short, Reid and Boehner have told their colleagues not to plan on going home for the holidays, and to instead plan to dig in until the 1 January 2013 deadline, if needed. A congressional source directly involved in the negotiating process told Regulatory Focus that expectations are growing among some legislators that the sequestration process may go into effect, if only briefly, before legislators are able to strike a final deal. The scenario raises the question of when agencies would be required to make cuts to staff.

The Washington Post's Federal Eye Blog notes that FDA might not be required to cut employees right away. "Actions such as furloughs might be weeks, if not months, down the road. Time would be needed to finalize plans, and the required savings would not have to be spread equally over the remaining nine months of the fiscal year, only achieved by 30 September," The Post's Eric Yoder wrote on 12 December. 




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