Agencies Could See Deeper, Faster Cuts Than Previously Contemplated

There are at least three possible budget scenarios in play.

Most years, even in a Presidential transition, federal agencies have a pretty decent sense of where their budgets are headed. And in transition years, they are typically in overdrive trying to build a budget reflecting directions issued by the new administration. Not so this year. With no director of the Office of Management and Budget yet on board and no specific budget instructions coming from the White House, there are at least three possible budget scenarios in play. With the continuing resolution set to expire in late April, agencies face tremendous uncertainty. And it’s likely to be awhile before they have much clarity.

Here’s where we stand. The CR expires April 28. Most initial expectations were that it would essentially be extended through the rest of the fiscal year, with a few adjustments, while the administration and Congress work toward a fiscal 2018 budget plan. But given the pace and expansiveness of the earliest Trump administration actions, it is not unreasonable to expect the White House to push for significant, immediate budget adjustments and actions.

Meanwhile, there are three budget proposals on the table that need to be taken seriously. The so-called “Ryan Budget” is the one most see as the baseline for congressional Republicans. That budget would significantly boost defense spending and reduce non-defense spending to its lowest proportional level in some 50 years. But lurking in the background is the House Republican Study Conference budget proposal, fashioned by the serious deficit hawks. Their proposal would cut spending even deeper than the Ryan plan, to the tune of some $800 billion, including reductions in some entitlement programs.

While the RSC proposal has until now been mostly overshadowed by the Ryan plan, it has been given new life with the ascension of a key supporter, Rep. Mick Mulvaney, nominated to become OMB director. That thus raises more questions than usual when it comes to predicting the first Trump budget, which is not expected until late March or early April (just before the CR expires). However, reports have emerged that the administration is considering cuts on the order of $1 trillion, apparently not including any reductions in entitlement spending. Obviously, given that the discretionary budget is only slightly over $1 trillion per year, that’s not an achievable number. But the mere suggestion of such cuts along with Mulvaney’s new role raises the specter of deeper and faster cuts than anyone has previously contemplated.

As many have pointed out, the President also wants to launch a major infrastructure and jobs initiative, apparently funded mostly by tax incentives. That might put Mulvaney and the RSC in a difficult position, since such a plan would have significant deficit impacts even if it doesn’t involve direct federal spending. And don’t ignore Sen. John McCain’s proposed defense budget of $700 billion with continued annual increases. How the Arizona Republican’s plan would comport with other budget and deficit/debt proposals is anyone’s guess. Moreover, while an increase in defense spending is almost certainly in the offing, how and where that money will be focused is far from certain, particularly given the increased authority the as-yet-unseated service secretaries have over their department’s requirements.

We are well into the second quarter of the fiscal year and many federal agencies actually have less certainty about their funding for the remainder of the current year—let alone 2018 and beyond—than they’ve had at any time in recent memory, all the budget chaos notwithstanding. Indeed, some proposals on the table would require major mission changes that will affect the agencies, their workforces, their contractors and, of course, any external stakeholders that depend on their work.

Some will say that this is not unprecedented; that this is just a normal transition. But actually, it is unprecedented in scope and potential impact, both of which are exacerbated by the polarization on Capitol Hill. Not since Ronald Reagan have such major changes to the missions and priorities of government been up for discussion. But Reagan did not have even theoretical control of Congress. And he was dealing with a Congress, and, frankly, a public, that was more tolerant, indeed committed to, compromise and negotiation than is the case today. Further, while the new administration kept a normal pace of appointments for the top political jobs, it is rapidly losing ground in filling the equally critical second and third tier positions that will be charged with actually managing the government.

Unfortunately, time is growing short for the 2018 budget process to take flight. Minimally, it would be helpful if the administration were to offer its position on the next iteration of the CR and provide agencies guidance for their 2018 budgets. That would at least signal where we are headed and give everyone a chance to adjust and plan. But for now, even as the agencies try to get ahead of the coming curve by moving forward with existing plans, the chaos has left them without a map for where that curve is going to lead. And we blame the “bureaucrats” for being inefficient.

Correction: The initial version of this column incorrectly stated that the continuing resolution expires in early April. It expires on April 28.