The Office of Management and Budget (OMB) gave federal agencies more guidance this week on how OMB will manage and administer the $85 billion in total cuts required by sequestration.

On March 1, 2013 the president issued a sequestration order that set in motion the across-the board cuts.  OMB followed with a memo laying out the percentage cuts to be applied to non-exempt discretionary defense and nondefense programs and sent a detailed sequestration report to Congress. 

In a memo to agency heads, OMB Controller Danny Werfel provided more detailed guidance in four areas:  use of reprogramming and transfer authority; funding for agency Inspectors General; discretionary monetary awards; and reducing the burden on state, local, and tribal governments.

Reprogramming and transfer authority:  The FY2013 Continuing Resolution provided transfer authority and other flexibilities to allow some agencies to realign funds to mitigate the negative effect of sequestration on mission priorities.  OMB guidance directs agencies to use these flexibilities, along with those already in existence, “to reduce operational risk and minimize impacts on agency’s core mission.”  The memo requires agencies to consider long-term as well as short-term needs when using transfer authority to avoid leaving them vulnerable to long-term risks if future funding is constrained.  OMB orders agencies to work closely with the OMB Resource Management Office (RMO) on any actions that would reduce carryover balances or reserve funds below historical levels.

Funding for Inspectors General:  OMB advises that funds in non-exempt accounts for agency Inspectors General (IGs) are subject to sequestration.  The memo directs agencies “to be mindful of the independence of the Office of Inspector Genera” when implementing sequestration.  Under the OMB guidance, when IG funds are in their own PPA, the IG will have full discretion on implementing the required cuts.  When IG funds are intermingled with other agency funds in a PPA, they will be cut by the same percentage as the other funds.  Agency heads are directed to defer to the IG on how to manage the reductions.

Discretionary monetary awards:  OMB prohibits issuing discretionary monetary awards from sequestered accounts during the sequestration period, unless they are legally required (e.g., under collective bargaining agreements).  These awards include annual performance awards, group awards, and special act cash awards.  The guidance does permit issuing some incentives not considered discretionary awards, but OMB directs that they be used “only on a highly limited basis.”  Nondiscretionary awards include” quality step increases (QSIs); incentives recognizing employee savings on official travel; recruiting, retention, and relocation incentives; student loan repayments; and time-off awards.

Reducing the burden for State, Local, and Tribal Governments:  OMB directs agencies to help State, Local, and Tribal governments mitigate the effect of sequestration on grants.  Consistent with legal requirements, agencies are urged to reduce administrative burdens or other standard administrative processes associated with the sequestered funds to these entities.