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Sequestration Effects

By Lou Caputo

On February 8, 2013, the White House Office of the Press Secretary released a Fact Sheet memorandum entitled “Examples of How the Sequester Would Impact Middle Class Families, Jobs and Economic Security.”  The memo offered hypothetical examples of how the automatic budget cuts, known as “sequestration,” could affect various federal agencies, such as the Food and Drug Administration and the Department of Agriculture, and the possible effect of those cuts on the country.   For the FDA, the White House claimed sequestration could lead to as many as 2,100 fewer food inspections and that USDA employees may suffer mandatory furloughs for possibly up to two weeks.  The White House warned that such actions could reduce food safety and cost “billions in lost food production,” and that specifically, “[t]hese reductions could increase the number and severity of safety incidents, and the public could suffer more foodborne illness, such as the recent salmonella in peanut butter outbreak and the E. coli illnesses linked to organic spinach.”

Based on the White House’s assessment, some now fear that sequestration would also cause the price of meat to rise significantly as businesses encounter large financial losses and less product is on grocery store shelves.  Those that find themselves under the purview of federal agencies have been anxiously waiting for guidance from the agencies.

The American Meat Institute (AMI), for instance, has sent letters to the Secretary of Agriculture, Tom Vilsack, and to President Obama respectively.  The AMI reminded Secretary Vilsack of “the USDA’s legal obligations to provide meat inspection even under sequestration” and questioned the assertion that furloughs were actually “necessary and legal.”  The AMI certainly did not dispute the “devastating” impact that such furloughs could have on the industry and consumers.  As formerly described by Secretary Vilsack, sequestration-induced furloughs could affect over 6,200 establishments and cost hundreds of millions of dollars in lost wages as well as billions of dollars in production losses.  AMI implored the USDA not to execute “across the board furloughs,” but rather, “examine the [other] options available to it,” such as suspending non-essential programs.  That letter is available here.  In its letter to President Obama, AMI respectfully reiterated its position and highlighted the link between meat inspection services and food safety.  The AMI noted that, “USDA inspectors have historically been deemed ‘essential’ personnel,” and that, “As the possibility of sequestration becomes more real, so does the threat to the industry’s ability to provide a critical component of the food supply.  AMI’s letter to the President can be found here.

The FDA has steadfastly not weighed in on the sequestration debate through official public comment, and thusly has not addressed any specifics of how the agency will deal with new budget shortfalls.  Others however, are saying exactly what the FDA must be thinking.  As first reported by DotMed news, the CEO of Avalere Health, a consulting firm, cautioned that “[i]f you go whack the FDA budget there will be layoffs…It’s just the only way they can survive relative to a highly labor intensive environment.”  Additionally, FDA Matters commented that, “[t]he largest threat to FDA is the potential for immediate and long-term cuts to the resources available to the agency. On March 1, FDA may lose more than 5% of its current-year funding.”

Every day we move closer to March 1 and the specter of sequestration seems more likely to become reality.  As discussed in an earlier posting, we are now seeing more debate as the March 1 sequestration deadline looms.  On Sunday, Congressman Kevin McCarthy (R-CA) even admitted in an interview that, “some conservatives are starting to say despite the fact there are a lot of defense cuts in there, this may be the only way we get real spending cuts over the next year.”  Senator Tom Coburn was more direct, “[w]e’re gonna have a sequestration.”  On the up side, the loss of revenue necessary for inspections and for enforcement will likely produce regulatory relief, at least for a time, possibly leading to more productive market activity and, ironically, higher tax revenues.




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