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U.S. government won't fall apart on "sequester" day of reckoning

By Richard Cowan and David Lawder

WASHINGTON (Reuters) - Just as computers worldwide did not crash on January 1, 2000, in the "Y2K" scare and Earth itself did not shatter on December 21, 2012, as some interpreters of the Mayan calendar predicted, March 1, 2013, will not be remembered as the day the U.S. government disintegrated.

The Obama administration and even some Republicans are warning of mass government layoffs and services collapsing when "sequestration" begins in 10 days, unless a gridlocked U.S. Congress finds a way to circumvent the start of the $85 billion in federal budget cuts.

But what actually happens on March 1?

"Nothing. Nothing happens," said a senior congressional aide who is keeping a close eye on the looming budget cuts.

While that might be somewhat of an exaggeration, the immediate impact is seen as minimal due to several safeguards, official and unofficial, that will keep the spending cuts from hitting Americans like a meat cleaver on March 1.

Senior administration officials on Tuesday had no concrete examples of what would immediately befall the country when the cuts begin. Ultimately, however, they would pare everything from military programs to space exploration between March 1 and the end of the fiscal year on September 30. Food inspections, air traffic control, law enforcement and education programs also would be among those hit.

"This moves forward on a rolling basis," White House budget office controller Danny Werfel acknowledged last week after testifying to Congress, explaining that the full force of the $85 billion in cuts would not be felt immediately. But, he cautioned: "It's very harmful as you go forward. On a seven-month time frame you're going to see the effects relatively quickly."

Senior administration officials said Republicans would be blamed for cuts that did come into force.

If allowed to run their course, the austerity measures could cost 750,000 jobs and keep weak economic growth stunted for the rest of 2013, the non-partisan Congressional Budget Office warns.

These spending cuts, decided in 2011 amid a fever in Congress for deficit reduction, were meant to be so painful that they would goad Republicans and Democrats into reaching an alternative agreement on where to cut back. The cuts "will visit hardship on a whole lot of people," President Barack Obama warned on Tuesday.

And they are only the first installment in a decade's worth of required cuts totaling $1.2 trillion.

While some furlough notices will be issued to government workers, there will be few outward signs on March 1 that the cuts have been launched.

Under the law, retirees are shielded and so their Social Security checks will arrive on schedule at the beginning of March and every month thereafter. Similarly, the elderly and the disabled will not see their federally backed Medicare healthcare curtailed at all over the seven months.

Every U.S. soldier will get paid and the Defense Department will be allowed to shift funds to ensure that combat operations and "critical military readiness capabilities" are not degraded, according to the Obama administration.

Unofficially, many members of Congress are betting that a few weeks into the automatic spending cuts, Democratic and Republican leaders will get serious about negotiating a replacement to the sequestration and the $85 billion in spending cuts will not have had time to really bite.

LAYOFF NOTICES

And so on March 1 and in the days immediately after, while no dramatic shakeup is anticipated, there will be some early tremors.

* Government agencies are likely to issue 30-day warnings of impending furloughs of government workers. They could be told that starting on April 1 they will have to stay home for a maximum of 22 days between March 1 and September 30.

* New government contracts could slow in anticipation of no deal being reached to replace the sequestration. This would hit defense contractors and road and bridge builders alike.

* Members of Congress, who are not exempt from the spending cuts, will be advised to begin preparing their staffs for either salary cuts or layoffs if they have to shave funds from their approximately $4 billion in annual appropriations.

* Medical research labs at universities that rely heavily on federal funds will begin deciding which projects to abandon or curtail, if they haven't already.

* Every federal agency will have to finalize their plans on how to execute the across-the-board spending cuts.

At this stage, most planned furloughs are being held to 22 days per federal employee. Anything longer is considered a formal layoff and requires more complex legal hurdles, some involving seniority, to be met.

In some cases, furlough notices won't go out until terms are negotiated with employee unions after March 1. Not all union-government contracts cover such actions, said Carl Goldman, executive director of AFSCME Council 26, which represents 8,500 federal workers from building engineers to librarians.

"The biggest thing we can do is to negotiate over the scheduling of furloughs, how much choice employees will have in selecting days furloughed," Goldman said.

Over the seven-month period, a 22-day furlough would roughly equal about one day per week, reducing workers' income by about one-fifth.

LAID-BACK CONGRESS

Congress, showing little sense of urgency, is now on a week-long "Presidents Day" recess.

When members of the Senate and House of Representatives return next week, they will begin feeling each other out for a remedy by March 27, when another budget deadline hits: the need to replenish federal funds for all government agencies.

That is a separate fight in Congress but it might become mixed in with the sequestration battle as fiscal issues come to a head.

Last week, Senate Democrats unveiled their plan to replace the sequestration with a combination of agriculture subsidy cuts and higher taxes on the richest Americans.

Senate Republicans, warning that they will reject any new tax increases, have not yet settled on a plan. But several are circulating, including replacing the sequestration with different spending cuts, giving federal agencies more flexibility in how they would carry out the existing $85 billion in cuts, or reducing the federal workforce by 10 percent through attrition.

Before going forward with any plan, Republicans might have to quell an uprising within their party that has some conservatives hoping that the meat-ax approach stays, thus ensuring some serious deficit reduction this year.

(Reporting by Richard Cowan and David Lawder; Editing by Alistair Bell and Eric Beech)

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