Regulatory Focus™ > News Articles > FDA, Feds Face Three Paths to Fiscal Calamity in Next Three Months

FDA, Feds Face Three Paths to Fiscal Calamity in Next Three Months

Posted 16 January 2013 | By Alexander Gaffney, RAC

Federal regulatory agencies may have breathed a collective sigh of relief on 2 January 2013, when it was clear that US legislators had struck a last-minute deal to avert the so-called "fiscal cliff" by agreeing to a number of provisions that delayed its implementation by several months. Now, several weeks later, it's beginning to feel like déjà vu all over again.

That's because Congress will be facing a unique set of circumstances starting in just a few weeks: budget sequestration, the need to renew the continuing budget resolution now funding the government and the limit of the government's borrowing authority, also known as the "debt ceiling."

Method One: The Debt Ceiling

Treasury Secretary Timothy Geithner has said he expects the government to run out of money sometime between the middle of February and the beginning of March 2013. That's because the congressionally-approved debt limit of $16.394 trillion ran out on 31 December 2012, and Treasury Department officials have essentially been moving money around between various accounts in order to pay all of the US' bills-"extraordinary measures," it says.

Surpassing the debt ceiling would result in the US government being unable to pay all of its bills, and reports indicate that its employees may be among the first to feel the pinch. In a press conference on Monday, 14 January 2013, President Barack Obama indicated that even regulatory officials-"food inspectors" among them, likely indicating the US Food and Drug Administration (FDA) and the US Department of Agriculture (USDA)-"wouldn't get their paychecks" if the Treasury were to run out of money with which to pay its bills.

Method Two: The Sequester, Part II

But even if legislators avert that crisis by increasing the debt ceiling as most political observers expect them to do (eventually), looming budget cuts and a budget resolution set to expire will burden federal employees with additional uncertainty.

Jeffery Zients, director of the Office of Management and Budget (OMB), the powerful executive branch agency that acts as a sort of chief operating officer for the federal government, indicated in a 14 January 2013 memo that heads of agencies need to start preparing for $85 billion in budget cuts that would go into effect on 1 March 2013 without further congressional action.

"Should Congress fail to act to avoid sequestration, there will be significant and harmful impact on a wide variety of government services and operations," Zients wrote in a memo to the agency heads, including FDA Commissioner Margaret Hamburg. 

Agencies were advised to look into making any cuts necessary, including to grants, contracts, transferring program authority, reduction in civilian workforce costs and other flexibilities.

Most agencies would be required to cut between 8% and 10% of their respective budgets, and Zients noted that most agencies would be required to furlough workers in order to make the cuts without sacrificing their congressionally-mandated missions.

To assist workers should that scenario come to pass, OMB has released a guidance document for federal workers, in which the agency describes the furlough process and what federal employees can expect.

A 2012 analysis of the cuts called for by the Budget Control Act indicated that FDA would stand to lose approximately 8% of its budget, or $318 million. That number includes $112 million in industry-paid user fees, though a portion of both numbers are from food- and tobacco-related initiatives and would not affect the healthcare products industry.

Method Three: Continuing Resolution

Finally, if legislators manage to avoid the effects of both the debt ceiling and the automatic budget cuts ("sequestration"), they'll still have to find a way to get a budget passed, or more than likely a continuing resolution. The government is still being funded based on the levels set in the FY2011 budget, leaving regulatory agencies like FDA without the enhanced funding necessary to accomplish their missions more effectively.

The current resolution runs out on 27 March 2013. Failure to pass a new budget would result in a total government shutdown and the furlough of nearly all federal employees with the exception of those in mission-critical roles. 

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