Budget Issues: Effects of the Fiscal Year 1990 Sequester on the Department of Education

Published by the Government Accountability Office on 1990-08-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United   States   General   Accounting   Office   + .
CiAO            Fact Sheet for the Chairman,
                Committee on the Budget, House of

August   1990
                Effects of the Fiscal
                Year 1990 Sequester
                on the Department of
             United States
             General Accounting  Office
             Washington, D.C. 20548

             Human Resources    Division

             B-2406 11

             August 3,199O

             The Honorable Leon Panetta
             Chairman, Committee on the Budget
             House of Representatives

             Dear Mr. Chairman:

             This fact sheet is one of a series responding to your request for us to
             study the effects of the fiscal year 1990 sequester at selected agencies.
             It presents information regarding the Department of Education. The
             st,udy’s objectives were to identify (1) how resources were reduced by
             the sequester and (2) what impact the sequester had on the Depart-
             ment’s ability to fulfill its mission and on those served by its programs.

             The Balanced Budget and Emergency Deficit Control Act of 1985, as
Background   amended, establishes deficit targets to, lead to a balanced unified budget
             by fiscal year 1993. Each year the Office of Management and Budget
             (OMLI) submits an initial report on August 25 and a final report on
             October 15, projecting the fiscal year deficit. If OMB projects a deficit in
             excess of the target, amount plus $10 billion, the President must issue a
             sequester order to reduce budget resources sufficiently to reach the
             target deficit level. The amount to be sequestered must be divided
             between defense and nondefense programs. Sequestration has been
             implemented only once before, in fiscal year 1986, when defense and
             nondefense budget resources were reduced by 4.9 and 4.3 percent,

             The act set the fiscal year 1990 deficit target at $100 billion. The August
             1989 OMB report estimated a $116.2 billion deficit, exceeding the target
             by $16.2 billion; the October report slightly reduced the overall estimate
             to $116.1 billion. To comply with the act, both reports would have
             required a sequester of 4.3 percent in defense programs and 5.3 percent
             in nondefense programs. Sequestration of this magnitude, however, was
             not implemented.

             The Omnibus Budget Reconciliation Act of 1989, enacted on December
             19, 1989, reduced the mandatory sequester amount to 130/365 of the
             $16.1 billion reduction called for in OMB'S October report. This change
             effectively reduced sequester requirements to $5.7 billion-l.5    percent
             in defense programs and 1.4 percent in others. In response to this legis-
             lation, OMB published its Revised Final Sequester Report on December

             Page 1            tiAO;HRD-90.150FS   Fiscal Year 1990 Sequester:   Department of Education

              absorbed an across-the-board pay raise in addition to the sequester.
              Office for Civil Rights officials told us their office was faced with prior
              financial difficulties stemming from legislation that expanded the
              office’s authority. They maintained staff and budgetary resources had
              not kept pace with the resulting increase in work load. In addition, the
              office absorbed the costs associated with the pay raise. The factors
              affecting the two accounts, in conjunction with the sequester, generally
              resulted in Department-wide reductions in funds for computer equip-
              ment, travel, and technical assistance functions However, after the
              sequester, net appropriations for both accounts exceeded fiscal year
              1989 levels, by 9.1 and 7.1 percent, respectively. (See pp. 14-15.)

              As you requested, we examined five departments and agencies; one of
Scope and     those we selected was the Department of Education. With respect to its
Methodology   budget-about     $24 billion in budget authority for fiscal year 1990-the
              Department ranks in the middle among the five agencies examined. We
              selected the Department of Education because it administers a wide
              range of grant and loan programs. Its programs provide grants to sup-
              port educational and related services to special-needs populations,
              including disadvantaged elementary and secondary school children,
              handicapped children, and mentally and physically disabled people. In
              addition, it supports grant and loan programs to provide financial assis-
              tance to eligible students for postsecondary education.

              To determine how resources were reduced by the sequester, we obtained
              data demonstrating the Department’s allocation of the reduction by pro-
              grams within each of its 19 budget accounts receiving budget authority
              subject to sequester. We also gathered data on the Department’s avail-
              able funding for fiscal year 1989,’ and compared this with fiscal year
              1990 funding after sequester. Data for our analyses were obtained from
              The Budget of the ITnited States Government,Fiscal Year 1991 and the
              Department of Education.

              To identify the sequester’s impact, we interviewed Department officials
              regarding implementation strategies in the program offices adminis-
              tering the Department’s five largest programs, as well as officials for
              those areas the Department believes experienced the greatest negative
              impact. We also requested data from the Department to measure the

              ‘We defined available l’undmg for each budget account as the net of the appropnatmn plus other
              sources of funds. such as offsrttmg collections. unobbgatrd balances from pnor years, and transfm.
              less the seqwstrr and other hud#‘t wdwtions

              Page 3                GAO/HRD-9@150FS       Fiscal Year 1990 Sequester:   Department    oP Education

As requested by your office, we did not obtain written comments on this
fact sheet from the Department of Education or other interested parties.
However, we discussed its contents with Department officials and incor-
porated their views where appropriate.

As agreed with your office, unless you publicly announce the contents
of this fact sheet earlier, we will not distribute it until 30 days from its
issue date. At that time, we will send copies to the Secretary of Educa-
tion; the Director, om; the Director, Congressional Budget Office; other
congressional committees; and other interested parties. Should you wish
to discuss its contents, please call me on (202) 275-1793. Other major
contributors are listed in appendix IV.

Sincerely yours,

Franklin Frazier
Director, Education
  and Employment Issues

Page 6             GAO/BID90.15OFS   Fkd   Year 1990 Sequester:   Department   of Education

Table 111.1:Comparison of Fiscal Years 1989 and 1990                                   13
    Appropriations for the Department of Education’s
    Largest Grant Programs


 FTF 3     full time equivalent
 IXA       local education agency
 OMB       Office of Management and Budget
 OWE       Office of Planning, Budget, and Evaluation

 Page 7          GAO,‘HRD9@150FS   Fiscal Year 1990 Sequester:   Department   of Education
Appendix II


                                           The fiscal year 1990 sequester reduced the Department of Education’s
                                           budgetary resources by $266.1 million, or 1.1 percent, of its $24.5 billion
                                           budget authority. Using instructions issued by the Office of Management
                                           and Budget, the Department sequestered 14 of the 19 sequesterable
                                           budget accounts with budget authority. Sequestered amounts ranged
                                           from $271,000 for the Office of the Inspector General to $84 million for
                                           Student Financial Assistance, which finances Pell grants, Perkins stu-
                                           dent loans, and other campus-based student financial aid programs. (See
                                           table II. 1.)

Table 11.1: Sequester for the Department
of Education (Fiscal Year 1990)            Dollars rn thousands
                                                                                           Sequesterable                              Percent of
                                                                                                   budget                                budget
                                           Account                                               authority       ~.Sequester           authority
                                           Indian educatron                                        $74,658             $1,038                  14
                                           Impact ard                                              732,352                   0                   0
                                           Compensatory educatron                                5,434,777             66,416                  12
                                           School improvement                                    1,414,395             17,653                  1.2
                                           Bllrngual education                                     188,674                   0                   0
                                           Handcapped educatron                                  2.083.776             28,521                   14
                                           Rehabrlrtatron servtces                               1,804,870             24,658                        a
                                           Special rnstrtutrons                                    110,893              1,517                   14
                                           Vocatronal and adult educatron                        1.145,188             15,670                   14
                                           Student frnancral assrstance                          6.175.097             84.331                   14
                                           Hrgher education                                         632,736             8,205                   13
                                           Guaranteed student loans                               3,868,826            12,482                        d
                                           College housmg/ academrc facllltles                       35,129                0                      0
                                           Howard Universrtv                                        182.446                0                      0
                                           Lrbtarres                                                136,646                0                      0
                                           Research and statrstrcs                                   96,375            1,134                    12
                                           Program admrnrstration                                   276,946            3,643                    13
                                           Office for Civil Rghts                                    45,178              606                    13
                                           Offrce of the lnsoector General                           23.381              271                    12
                                           TotaP                                               $24,462,343         $266,145                     1.1
                                           ‘Sequestered amount was calculated under special rules
                                           “Other nonapproprlated   spending authority in the college houslng loans account was sequesterable,
                                           but because !t recwed    no authority I” ftscal year 1990 and no sequester was taken, we have excluded
                                           it from this table

                                           Page 9                   GAO/HRD-9@150FS      Fiscal Year 1990 Sequester:    Department   of Education
                         Appendix    II
                         Sequester   Implementation

                         The Department of Education sequestered appropriations for activities
Activities in Accounts   within budget accounts proportionally. Examples of Department of Edu-
Were Sequestered in      cation activities are the chapter 1 program’s basic and concentration
Proportion to Their      grants in the Compensatory Education for the Disadvantaged account.

Appropriations           Using this methodology, the Department generally reduced the activities
                         within a sequestered account by the same percentage as the reduction
                         against the total account. For example, activities within the Compensa-
                         tory Education for the Disadvantaged account, which included chapter 1
                         and migrant education programs, were reduced by 1.2 percent, as was
                         the total account.

                         Page 11                  GAO/HRB90-150FS   Fiscal Year 1990 Sequester:   Department   of Education
                                              Appendix III
                                              Overall Impact   on Agency Was Not Severe

Table 111.1:Comparison   of Fiscal Years 1989 and 1990 Appropriations      for the Department    of Education’s    Largest Grant Programs
Dollars I” mlllrons
                                                    Appropriations                                 Fiscal year
                                            Fiscal year            Fiscal yea;                       1990 fess     Fiscal year 1990 increase
Program                                            1989                   1990    Sequester         sequester        Amount           Percent
Chaoter 1 orants
            .,    to LEAS                         $4.026                 $4.827            $59           $4.768          $742              la.4
Pell grants                                        4,483                  4,871             67            4,804           321                72
Handicapped education state grants                 1,475                  1,564             21            1,543            68                46
Rehabllriatron serwces state grants                1,450                  1,550             22            i ,528           78                54

                                              The Department prepared a statement on the impact of the sequester on
The Department                                its five largest programs-the  four grant programs shown in table III. 1
Anticipated No                                and the Guaranteed Student Loan Program. With the exception of Pell
                                              grants, the Department concluded that the sequester would not
Adverse Impact on                             adversely affect program recipients.
Major Program
Recipients                                     The $67 million sequester of the Pell Grant Program will, for school year
                                               1990-91, eliminate grant awards averaging $200 to 14,000 students, and
                                               reduce awards to 1.3 million other students by an average of $50 each.
                                               The Department considered these reductions relatively small when com-
                                               pared to the estimated 3.2 million recipients for fiscal year 1990 whose
                                               grant awards averaged $1.600. The maximum grant is $2,300.

                                               The sequester will reduce fiscal year 1990 increases in per-pupil
                                               expenditures for both chapter 1 and handicapped education grants to
                                               states and LEAS. Due to increased 1990 appropriations, however, per-
                                               pupil-based expenditures will nonetheless exceed fiscal year I989 levels.
                                               Rehabilitation Services state grant funding increased by $78 million
                                               over fiscal year 1989, and the Department expects no recipients to
                                               suffer from lost revenues.

                                               Under the special rules, the sequester of Guaranteed Student Loan Pro-
                                               grams (1) decreased the government’s payment to lenders for the Staf-
                                               ford loans’ first-year interest subsidy and (2) increased the origination
                                               fee charged to borrowers. The Omnibus Reconciliation Act of 1989 lim-
                                               ited these measures to new loans made between October 1 and December
                                               31,1989. The Department considered the changes to be slight and
                                               expected no reductions in loan volume to result.

                                               Page 13               GAO/HRD-90.150FS     Fiscal Year 1990 Sequester:   Department   of Education
Appendix III
Overall Impact   on Agency Was K‘ot Severe

in 1988. This law restored authority limited by a 1984 Supreme Court
decision (Grove City College v. Bell, 465 U.S. 555) and triggered a dra-
matic increase in the number of discrimination complaints requiring
action. In fiscal year 1987, the office reported it began 943 complaint
investigations; for fiscal year 1990, it is projecting 1,682 such starts.
However, the office maintained that its staffing levels and other
resources failed to keep pace with the growing work load, partly
because of how the Department develops its budget, using projections
developed from current year outlays. Since fiscal year 1987, the per-
sonnel ceiling for the office decreased from 840 to 820 FTE positions for
 fiscal year 1990.’ During the same time period, the office reported a
 drop in compliance review starts-which       it considered to provide the
greatest return on its resource use-from 240 in fiscal year 1987 to 24
 in fiscal year 1990, because resources were concentrated on the growing
 complaint work load.

According to Office for Civil Rights officials, the office’s financial
problems affected its ability to (1) meet commitments on contractor-
performed school surveys, (2) upgrade obsolete computer equipment,
(3) provide training to staff and technical assistance to its constituents,
and (4) necessitated some travel restrictions. In addition, because the
office was employing more FE staff than its salaries and benefits
budget could support, they believed the sequester and other funding
shortages might result in staff furloughs unless employee attrition
increases or other financial relief is obtained.

‘OPBE indicated that for fiscal yean 1987 through 1989 the office‘s actual FTE usage was 807. 808,
and 789 compared to FTE ceilings of 840.820. and 820.

Page 15                GAO/HRD-90.16OFs      Fiscal Year 1990 Sequester:   Department   of Education
,f GAO reports   should b 5sent

ting Office
and 20877


of each report   are free. Addi tional copies are

:nt on orders for 100 or more copies mailed to a    :

aid by cash or by check or mcwey order made
ndent of Documents.
Major Contributors to This Fact Sheet

Human Resources        Joan A. Denomme, Evaluator-in-Charge
Washington, D.C.

                       Edith A. Pyles, Assistant Director
Accounting and         Barbara D. Bovbjerg, Project Manager
Financial Management
Washington, D.C.

(104666)               Page 16         GAO IHRD-90.150FS   Fiscal Year 1990 Sequester:   Department   of JMucation
                             Appendix III
                             Overall Impact on Agency Was Not Severe

                             Because factors other than the sequester also affected their budget
Two Department               resources, the Department’s account for Program Administration, which
Accounts Experienced         P rovides most of the funds for salaries, travel, and other administrative
                             activities, and the account for the Office for Civil Rights were more
More Severe Effects          adversely affected by the sequester than other accounts. Despite the
From the Sequester           sequester, however, we found that the fiscal year 1990 appropriations
                             for the Program Administration and Office for Civil Rights accounts
                             increased by 9.1 and 7.1 percent, respectively, over fiscal year 1989. In
                             addition, both accounts had 7 percent more in obligation authority in
                             fiscal year 1990 than in fiscal year 1989.

Sequester Decreased Funds    The $3.6 million sequester against the Program Administration account
                             resulted in reductions or delays in fiscal year 1990 planned travel, com-
Available for                puter procurements, and office improvements throughout the Depart-
Administrative Activities    ment. Additionally, it experienced some restraint in hiring, and expects
                             to employ about 70 full-time-equivalent (FTE) personnel less than its
                             planned fiscal year 1990 ceiling. But, because it was also forced to
                             absorb a $4.3 million across-the-board pay raise out of this account, the
                             Department found it difficult to isolate the sequester as the source of
                             the administrative reductions from other funding cutbacks.

                             Officials in the Department’s three program offices having responsi-
                             bility for the five largest programs-the Offices of Elementary and Sec-
                             ondary Education, Postsecondary Education, and Special Education and
                             Rehabilitative Services-concurred      with the description of the effects of
                             the sequester on administrative functions in their offices. The Office of
                             Postsecondary Education also attributed t,o the sequester reducing the
                             size and, therefore, information included in a student aid handbook
                             available to the public. The officials described the cuts in travel as
                             reductions in fiscal year 1990 planned trips, not as reductions below the
                             prior year’s appropriations, because travel funds increased over 1989.
                             None of the offices anticipated any adverse impact on on-board staff
                             levels-cuts or furloughs-from       the sequester.

Sequester Aggravated         Because the $0.6 million sequester and absorption of the costs associ-
Existing Financial           ated with the pay raise combined with existing financial difficulties, the
Difficulties in the Office   Office for Civil Rights was reported to be the most adversely affected of
                             the Department’s sequestered accounts.
for Civil Rights
                              According to Office for Civil Rights’ officials, the financial difficulties
                              began with enactment of The Civil Rights Restoration Act (P.L. 100-259)

                              Page 14             GAO/ HRDSO-15OFS Fiscal Year 1990 Sequester:   Department   of Education
Appendix III

Over&UImpact on Agency Was Not Severe

                       Officials in the Department’s Office of Planning, Budget, and Evaluation
                       (OPBE), which applied the sequester reductions to the budget accounts,
                       did not believe the sequester’s overall impact to be severe. Although
                       OPBE officials said that the Department’s Program Administration    and
                       Office for Civil Rights accounts were most negatively affected, their
                       budgetary resources were constrained by other circumstances as well as
                       the sequester.

                       Even with the sequester’s $266.1 million reduction, the Department’s
                       budget authority increased from $23 billion in fiscal year 1989 to $24.2
                       billion in fiscal year 1990-an increase of 6.1 percent. The impact was
                       also less severe because many of the Department’s programs are
                       forward-funded. For forward-funded programs, such as Pell grants and
                       chapter 1 grants, funds are appropriated at the start of the fiscal year;
                       however, the Department may not award or disburse funds until several
                       months later for use into the next fiscal year. This allowed the Depart-
                       ment and state and local education agencies time to make adjustments
                       with minimal disruption to the programs.

                       In addition, the Department was not mandated to take any other across-
                       the-board reductions in its fiscal year 1990 appropriations to comply
                       with other legislation. The Department’s Program Administration
                       account, however, absorbed a $4.3 million pay increase, which reduced
                       funds available for administrative activities throughout the agency.

                       Although the sequester reduced fiscal year 1990 appropriations for the
Post-Sequester         Department’s largest grant programs, total appropriations for the pro-
Funding for Largest    grams exceeded prior year levels. (See table III.1 ,)
Grant Programs
Exceeded Fiscal Year
1989 Levels

                       Page 12         GAO/HRD90-150FS   Fiscal Year 1990 Sequester:   Department   of JMucation
                         Appendix    II
                         Sequester   Implementation

                         The Department’s final sequester amount fell below the $284.7 million
Final Sequester Taken    specified in OMB'S Revised Final Sequester Report, issued December 27,
Differed From Final      1989. This occurred because certain rules apply to sequester calcula-
                         tions when agency appropriations acts are enacted after the October 15
Sequester Report         sequester deadline. Appropriations enacted for the Department’s
                         accounts in November 1989 varied from the sequester bases OMB used to
                         compute the 1.4-percent across-the-board sequester, as mandated by the
                         Omnibus Reconciliation Act of 1989.

                         Under the rules governing sequestration in these circumstances, the
                         agencies were to sequester each account on the basis of its fiscal year
                         1990 appropriation compared to the sequester base used by OMB to com-
                         pute the sequester amounts shown in its December report. The sequester
                         base for most Department of Education programs was the fiscal year
                         1989 appropriation plus an inflation factor. The maximum sequester for
                         any account was 1.4 percent, specified by OMB in its December report;
                         the minimum was ‘none” if the agency’s 1990 appropriation was less
                         than OMB'S sequester base after the 1.4-percent reduction. This method-
                         ology, reiterated by the Department in its own internal guidance,
                         resulted in five accounts being subject to the full 1.4.percent sequester
                         while the others were reduced-ranging      from 1.3 to 0 percent. See
                         appendix I for a more detailed explanation of these rules.

                         Special rules in the Balanced Budget and Emergency Deficit Control Act
Special Rules Affected   of 1985 prescribed a different methodology for applying the sequester
Two Accounts             to two of the Department’s accounts-Rehabilitation     Services and Guar-
                         anteed Student Loans. The sequester on vocational rehabilitation state
                         grants reduced the amount of the automatic cost-of-living increase
                         applied to the program. The special rule pertaining to guaranteed stu-
                         dent loans (1) reduced the first-year interest subsidy payments to
                         lenders of Stafford student loans by 0.25 percent and (2) increased the
                         origination fee charged to these loan borrowers from 5.0 to 5.5 percent.
                         IJnder the Omnibus Reconciliation Act of 1989, the sequester measures
                         applied only to those Stafford loans made between October 1 and
                         December 31, 1989. The Department did not expect the sequester to
                         otherwise alter loan availability to recipients.

                          Page 10                 GAO/HRB90-150FS   Fiscal Year 1990 Sequester:   Department   of Education
Rules for Sequestration When Appropriations
Are PassedAfter the SequesterDeadline

                                          Certain rules apply when appropriations have not been enacted by
                                          October 15, the sequestration deadline. In such cases, the law requires
                                          that an assumed appropriation level-the sequester base-be used for
                                          making the sequester c*omputation. That level in most cases is the prior
                                          year appropriation adjusted upward for price inflation, estimated as
                                          specified in the act. In the event that the appropriation finally enacted is
                                          less than the assumed level, the decrease is counted toward (“credited
                                          to”) the sequestration requirement. Depending upon the degree of the
                                          enacted decrease, the sequester amount and percentage are reduced or
                                          totally eliminated. On the other hand, if the final appropriation is larger
                                          than the assumed level, the sequestered amount does not change, but
                                          the effective sequester percentage goes down.

                                          Tables I.1 and I.2 illustrate how real increases in hypothetical appropri-
                                          ations are protected from sequestration and decreases are credited to
                                          sequestration requirements. In fiscal year 1990, the Department’s
                                          appropriations act was enacted on November 21,1989, and conse-
                                          quently the Department was subject to these rules.

Table 1.1: Hypothetical Sequester Order
Estimates Before Appropriation   Acts                     Sequester     base
                                                          appropriation      +    Sequester (1.4                Net          Percent of
                                          Account                 inflation)            percent)    appropriation         appropriation
                                          1                        $100,000                $1,400          $98,600                      14
                                          2                          100,000                1,400            98,600                     14
                                          3                          100000                 1,400            98,600                     1.4

Table 1.2: How Real Increases in
Hypothetical  Appropriations Are                                 Appropriation            Actual                Net          Percent of
Protected From Sequestration   and        Account           (fiscal year 1990)        sequester     appropriation         appropriation
Decreases Are Credited to                 1                            $110,000           $1,400         $108,600                       1.3
Sequestration   Requirements              2                               99,000             400             98,600                     04
                                          3                               98,000               0             98,000                       0

                                          Page 8           GAO JHRD-90.150FS Fiscal Year 1990 Sequester:     Department     of Education

Appendix I                                                                                                          8
Rules for
Sequestration When
Appropriations Are
Passed After the
Sequester Deadline
Appendix II
Sequester               Final Sequester Taken Differed From Final Sequester
Implementation          Special Rules Affected Two Accounts
                        Activities in Accounts Were Sequestered in Proportion to
                             Their Appropriations
                               ~            -- -
Appendix III
Overall Impact on       Post-Sequester Funding for Largest Grant Programs                                       12
                             Exceeded Fiscal Year 1989 Levels
Agency Was Not          The Department Anticipated Ko Adverse Impact on Major                                   13
Severe                       Program Recipients
                        Two Department Accounts Experienced More Severe                                         14
                             Effects From the Sequester
                             ~..              --
Appendix IV                                                                                                     16
Major Contributors to
This Fact Sheet
Tables                  Table 1.1: Hypothetical Sequester Order Estimates Before                                    8
                            Appropriation Acts
                        Table 1.2: How Real Increases in Hypothetical                                               8
                            Appropriations Are Protected From Sequestration
                            and Decreases Arc Credited to Sequestration
                        Table II. 1: Sequest.er for the Department of Education                                     9
                            (Fiscal Year 1990)

                        Page 6          GAO,‘HRDM-150FS   Fiscal Year 1990 Sequester:   Department   of Education

                     asserted impact. As agreed with your office, we did not verify the infor-
                     mation obtained.

                     Using OMB instructions, the Department of Education applied the
Sequester’s Impact   sequester of $266.1 million to 14 of its 19 sequestrable budget accounts
                     with budget authority. IJnder the sequester rules, the other five
                     accounts were not required to take any reductions. The sequestered
                     amount, which was 1.1 percent of the Department’s fiscal year 1990
                     budget authority, was below the anticipated 1.4-percent reduction
                     because appropriations passed by the Congress after the October
                     sequester deadline differed from the estimates OMI3used to calculate the
                     sequester amounts specified in its final report. Except for the Guaran-
                     teed Student Loan account and Vocational Rehabilitation state grants,
                     which were sequestered under special rules, sequesters against indi-
                     vidual accounts ranged from 1.4 to 1.2 percent, depending on each
                     account’s enacted appropriation. The Department was not subject to any
                     across-the-board reductions pertaining to other legislation.

                     The sequester’s impact on the Department’s largest programs was
                     judged by agency representatives to be minimal. For example, planned
                     increases in per-pupil expenditures under chapter 1 grants for educa-
                     tionally disadvantaged students and education grants for handicapped
                      students were reduced, but still grew beyond fiscal year 1989 levels, as
                      did grants to states for rehabilitative services. An estimated 14,000 stu-
                      dents will not receive Pell grant awards averaging $200, and grant
                      awards to about one-third of the estimated 3.2 million grantees will be
                      reduced by an average of $50. However, the Department considers this
                      reduction to be minor for the $4.8 billion Pell Grant Program.

                     Special rules under the Balanced Budget and Emergency Deficit Control
                     Act of 1985 affected the Stafford Student Loan Program. The Depart-
                     ment temporarily (1) increased fees to student borrowers who obtained
                     their first loans and (2) reduced the government’s interest subsidies.
                     These changes, which applied to only those new loans made during the
                     first 3 months of fiscal year 1990, were judged by the Department to be
                     slight and were not expected to reduce the availability of loans to eli-
                     gible students.

                     Only Program Administration and the Office for Civil Rights reported
                     negative impact, and that was the result of a combination of other
                     budget problems and not the sequester alone.

                     Page 4           GAO ,HRD90-150FS   Fiscal Year 1990 Sequester:   Department   of Education

                   27, 1989, which specified the $5.7 billion reduction. The President
                   issued the New Final Order on the same date.

                   Certain rules apply to sequestration when agency appropriations laws
                   are enacted after the October 15 sequestration deadline. The Depart-
                   ment of Education’s appropriation was not enacted until November
                   1989. As a result, the amounts and percentages by which its budget
                   accounts’ were reduced by sequestration frequently varied from the 1.4-
                   percent reductions OMH specified in its final sequester report. Some of
                   the Department’s accounts lost less through sequestration than the 1.4
                   percent shown in the report, because appropriations differed from the
                   sequester bases OMHused to compute the reductions in accordance with
                   the law. These rules are discussed in greater detail in appendix I.

                   The fiscal year 1990 sequester reduced the Department of Education’s
Results in Brief   budgetary resources by $266.1 million-l.   1 percent of its $24.5 billion
                   budget authority for the year. It decreased funding for 14 of the
                   agency’s 19 budget accounts receiving budget authority subject to
                   sequester, with reductions ranging between 1.2 and 1.4 percent for each
                   account. (See app. II.)

                   Department officials believe the sequester’s overall impact was minimal,
                   for several reasons. After the sequester, the Department’s funding was
                   5.1 percent higher than in fiscal year 1989. Although program appropri-
                   ations were reduced from initial fiscal year 1990 levels, net funding for
                   most of the Department’s programs exceeded that available in the prior
                   year. In addition, many of its programs, such as chapter 1 and Pell
                   grants, do not disburse their funds until several months into the fiscal
                   year for use into the subsequent year, allowing the Department and
                   state and local education agencies (LEAS) time t,o make adjustments with
                   minimal disruption to the programs. In general, the Department believed
                   the sequester would not adversely affect its major program recipients.
                   (See app. III.)

                   The greatest negat ivc impact was reported in two departmental
                   accounts that experienced funding difficulties beyond those created by
                   the sequester. Program Administration, which provides administrative
                   funds, including salaries and travel, for most of the Department,

                    ‘Budget accounts are the pnrndry appmpnation categories dlsplaycd in The Budget of the Lkuted
                    States Government. ExampIt+ of Ikparnnent of Education budget awounts are impact aid and higher

                    Page 2               GAO/HRD-90.150FS     Fiscal Year 1990 Sequester:   Department   of Education