More News on the Spending Front!

 The Obama Administration is looking at spending once again. A day after the White House announced a plan to encourage savings by executive agencies, it has announced a required review of all agency budgets. According to an OMB memo sent today, all agencies must submit cuts for FY 2012 that total at least 5% of their FY 2010 discretionary budget. They are directed to find low-impact, low-priority, and duplicative programs to cut, so they can't simply accomplish this task by doing an across-the-board budget cut.

One important aspect of the plan is the scope of the review. The memo specifies that these cuts are designed to help accomplish the three year discretionary spending freeze proposed by Obama a few months ago. However, the freeze would exclude a big chunk of discretionary spending (security spending). If the cuts are done in a similar way, it will save significantly less money than applying 5% cuts to every agency. The memo does say "All agencies are required to undertake this review, including both security and non-security agencies," but when it comes down to it, it's uncertain whether the Administration will actually propose cuts from, say, the VA or defense.

You can see the differences in spending below. Although it is not specified, we assume that the Administration's plan to return half of agency savings back to the agencies would apply to these cuts, so the 5% cut would in effect only be a 2.5% cut. The 2.5% overall cut would save about $650 billion ($800 billion including interest) relative to the President's FY 2011 Budget, while the 2.5% non-security cut would save about $150 billion ($185 billion including interest), so there is a significant difference in savings between the two cuts.

We applaud the White House effort to bring the hammer down on discretionary spending. As we have shown in the past, discretionary spending grew faster than mandatory spending in the past decade, so its importance in the short- to medium-term should not be overlooked. And with deficits as far as the eye can see, we should look at cutting those programs that are lower priorities or flat-out unnecessary. The agency budget reviews are certainly a start down the right path. We hope that OMB and the White House will follow through with actual cuts in FY 2012 that spare no category of discretionary spending--or mandatory spending for that matter.