With no fiscal cliff deal in sight, painful budget cuts all but certain

Washington • It was designed to be the budget cut so painful, so indiscriminate, so downright mindless that even a gridlocked Congress wouldn't allow it to happen.

Now, it looks like it's going to happen.

Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., spent Saturday working on a last-ditch deal to spare the vast majority of Americans a dramatic tax increase on Jan. 1.

But even if they reach a stripped-down agreement, aides in both parties have said it would be unlikely to address the other part of the "fiscal cliff," an automatic $110 billion reduction in government spending, split evenly between military and domestic programs, that is scheduled to take effect the next day.

Aides said the two sides hope to secure a large spending-reduction package in the late winter - during an expected showdown over lifting the federal debt ceiling - and deal with sequestration, as the automatic cut is called in Congress-speak. But that possibility would still result in a potentially harrowing few months for agency budgets.

In the meantime, the Washington, D.C., region, home to hundreds of thousands of federal workers and an economy that was cushioned from the worst of the 2007 recession by federal spending, was bracing Saturday for an economic punch from the failure to deal now with sequestration.

Federal agencies have informed their employees that they probably wouldn't feel the impact immediately, but the reality of furloughs is setting in for a deeply anxious federal workforce.

"Undoubtedly, we will take a hit," said Rep. Gerald Connolly, D, whose Northern Virginia district is inhabited by thousands of government employees and contractors. "It's going to result in a steady retrenchment in government investment in both the civilian and defense sectors. That's going to affect employment and the robustness of our economic growth in this region."

Fiscal cliff talks remained in flux Saturday, and the details of a final deal, if there is one, remain unclear. But at a White House meeting of President Barack Obama and congressional leaders on Friday, House Speaker John Boehner, R-Ohio, said he could not agree to delay or call off the automatic cuts unless Congress agreed to enact an alternative package of reductions of matching size.

That would seem a tall order given that spending cuts have been at the heart of the partisan divide over the past two years. A House Republican said after the Friday meeting that "it was clear that the sequester is not likely to be addressed in any immediate agreement."

And although Obama vowed during an October debate with Republican presidential nominee Mitt Romney that the cuts "would not happen," White House officials were telling liberal allies on Friday that their focus for now is merely to spare the middle class a tax increase.

The development was causing near panic among industry groups and others who have prodded Congress to cancel the cuts and have long believed elected officials who said they would do so.

"It would be a grave dereliction of duty to drop" a sequestration fix from a final deal, Marion Blakey, president and chief execute of the Aerospace Industries Association, said on Saturday. The group represents 300 aerospace and defense companies. "We can't believe they would fail our military and our economy like that."

The problem with sequestration is not so much the size of the cuts but their scope.

With the exception of a few programs specifically spared by Congress - including Medicaid, Medicare benefits and food stamps - every government account would be sliced by the almost same amount.

The White House has said that all domestic programs that were not specifically shielded would face an 8.2 percent cut next year. Military programs would be cut by 9.4 percent.

Air traffic controllers, courthouse security guards, National Institutes of Health cancer researchers - all would face the same crunch.

"You do need cuts. But sequestration is not the way to go," said Rep. Frank Wolf, R-Va. "It's literally a meat ax without any thought behind it."

Federal workers are still expected to report to their jobs on Wednesday as normal. But agencies would quickly institute hiring freezes, restrict travel and reduce technology spending. And, without congressional action to reverse the cut, widespread furloughs would be possible as agencies grapple with squeezing the amount they have to spend through the end of the fiscal year on Sept. 30.

On Friday, the administration formally outlined for employees the nuts and bolts of how the temporary layoffs would work.

Particularly problematic, economically and politically, are scheduled cuts at the Pentagon, which Defense Secretary Leon Panetta has said could have a devastating impact on the military.

Rep. Howard "Buck" McKeon, R-Calif., chairman of the House Armed Services Committee, on Saturday blasted the notion of reaching a deal that would not cancel the pending military cuts.

Sequestration was always intended to be an incentive to force Congress and the White House to find a better alternative.

It was enacted in the summer of 2011 during the debt-ceiling fight, when lawmakers agreed to increase the nation's legal borrowing limit but also to cut spending by $1 trillion and to create a 12-member bipartisan "super committee" to craft a plan to reduce the debt by $1.2 trillion more.

To provide incentive for the panel, Congress hung the sword of sequestration over its head: If it did not come up with a plan by the end of 2011, government budgets would simply be reduced automatically by $1.2 trillion over 10 years.

Half the cuts would come from the military, intended to spur Republicans to act; the deep domestic cut was supposed to do the same for Democrats.

Even after the super committee disbanded without agreement late last year, Congress still had a full year to forestall the first $110 billion annual installment of cuts. It failed.

In May, the House passed a bill along party lines to deal with the sequester, but it would have merely shifted some of the military cuts onto domestic programs, an outcome Democrats said was unacceptable.

If leaders let sequestration take effect next week but promise to deal with it in a few months, when Congress debates a new debt-ceiling increase, Connolly said Americans would have the right to be skeptical.

"Never think something is unthinkable," he said. "That's been the lesson here." Leaders want votes

Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., were racing to forge a deal in time for votes Sunday night by the Senate and the House. Lawmakers expected to be briefed by Sunday afternoon.

McClatchy Newspapers