University holds stake in fiscal cliff debate

Facing the fiscal cliff, Penn has a considerable amount on the line — the University could lose $50 to $60 million and Penn Medicine could see a toll of about $100 million in one year.

“Fiscal cliff” is a term used to describe automatic budget cuts and tax increases that would take effect on Jan. 2 if Congress does not reach a compromise by Dec. 31. It includes budget sequestration — broad cuts to spending for federal agencies.

“I’d say it’s reasonable to say Penn could lose $50 to 60 million in research money,” Penn’s Associate Vice President for Federal Affairs Bill Andresen said. That kind of a budget cut would likely come with an “employment effect,” he added. Although he could not yet project how many jobs would be affected, he said it would likely impact researchers, laboratory assistants and some construction jobs, among others.

As Penn has long relied on federal funding, the stakes are high. In fiscal year 2011, which ended June 30, 2011, Penn received $678 million from federal research funding from agencies such as the National Institutes of Health — 73 percent of Penn’s total research awards. The NIH, however, could lose about 8.2 percent of its discretionary budget funding over the next five years under sequestration, according to a report from the American Association for the Advancement of Science.

Penn Medicine estimates that going over the fiscal cliff could have a toll of about $100 million in the first year, according to Penn Medicine spokesperson Susan Phillips.

The toll would come from a combination of cuts to federal programs. The reduction to the NIH would account for a loss of about $40 million a year; a 2 percent reduction in Medicare provider payments would cost about $23 million; and the cut to the Sustainable Growth Rate — Medicare physician reimbursements — would cost $34 million.

“If we go into sequestration, we don’t really know how the different federal agencies are going to implement [it],” Andresen said. The federal Office of Management and Budget indicated that it would give agencies considerable leeway in dealing with the cuts, and none of the agencies have announced how they would deal with them, he added.

With the stakes so high, the University and Penn Medicine have been advocating for a compromise on Capitol Hill.

According to official reports, the University Board of Trustees has lobbied the federal government during the first and third lobbying quarters on budget sequestration. Penn specifically lobbied on the sequestration issues of the NIH, Medicare, Medicaid, the National Science Foundation and science and technology funding.

Andresen said Penn had been working with Congress to find a solution for months.

“We’ve been working with the Pennsylvania congressional delegation and others in Congress to try to urge Congress and the administration to come to some agreement that solves the problem … without having it come to sequestration,” he said.

In July, Penn President Amy Gutmann, along with about 155 other university presidents, signed a letter to President Barack Obama and congressional leadership on both sides of the aisle urging them to find a solution to the problem. In addition, Gutmann and other Pennsylvania universities wrote a letter about the issue to the Pennsylvania delegation.

Pennsylvania as a whole will be among the most affected by R&D budget sequestration, according to the AAAS report. The state is expected to lose 8.2 percent of its federal funding over the next five years.

R&D is not the only college-related area affected by sequestration. It would automatically cut federal financial aid programs for higher education. Discretionary federal student financial assistance will be cut by 8.2 percent — a total of $140 million, according the Report Pursuant to the Sequestration Transparency Act of 2012 released by OMB.

Pell Grants are safe from cuts during federal FY 2013, which ends Sept. 30, however.

Andresen cautioned that, even if Congress could not avoid sequestration, the effects might not immediately be dire.

“My expectation would be if they don’t cut a deal … they’ll come back to it after [Jan. 1] and continue negotiating,” he said. “It may well be that the agencies can cushion the impact of any costs in a period of weeks or months when the negotiations go on.”

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