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2012 federal budget seeks $75 billion in savings

Jun. 14, 2010 - 06:00AM   |  
By TIM KAUFFMAN and TOM SPOTH   |   Comments
Above, Office of Management and Budget Director Peter Orszag unveils the Obama administration's budget plans June 8 in a speech at the Center for American Progress.
Above, Office of Management and Budget Director Peter Orszag unveils the Obama administration's budget plans June 8 in a speech at the Center for American Progress. (Chip Somodevilla / Getty Images)

The Obama administration last week directed agencies to prepare as much as $75 billion worth of discretionary budget cuts for 2012.

To achieve the cuts, the Office of Management and Budget said, agencies will:

Shed excess properties and facilities.

Improve productivity through greater reliance on information technology.

Streamline operations, such as by consolidating expensive data centers.

Cut or reduce programs contributing little to their agencies' missions.

Reduce improper payments.

Consolidate contracts to achieve better bulk discounts on popular goods and services.

Reorganize staffs to be more efficient.

That's easier said than done.

"This is the beginning of a long set of tugging and pulling between agencies and OMB," said Jonathan Breul, executive director of the IBM Center for the Business of Government and former OMB executive.

Resistance to program cuts, a lack of good data on which to base budget-cutting decisions, and concerns that some agencies are already overextended are sure to complicate the plan, Bruel and other experts say.

But even once the cuts are determined, they won't translate into a smaller budget. OMB will redirect that freed-up money to higher-priority initiatives. The administration intends to make 2012 the second year of a three-year freeze in non-security discretionary spending, which OMB Director Peter Orszag projects will save $250 billion over a decade.

Some agencies and priority programs will see increases, Orszag said in a June 8 speech at the Center for American Progress, where he unveiled the budget plans. For example, the administration intends to increase the number of contracting officers to ensure the government is providing effective oversight of contracts. The amount spent on federal contracts roughly doubled during the past decade, while the number of contracting officers remained flat.

The biggest slice: program cuts

The bulk of the potential 2012 cuts $54 billion across all agencies would come from terminating or trimming discretionary programs that are not contributing to their agencies' missions. Orszag said the government must crack down on poorly performing, unnecessary or redundant programs that drain resources from needed activities.

He cited three examples:

More than 110 programs in science, technology, engineering and mathematics education across 14 departments and agencies.

More than 100 youth mentoring programs across 13 agencies.

More than 40 programs in 11 departments that provide employment and training assistance.

OMB wants agencies to identify far bigger discretionary program cuts than in recent years. In 2011, the administration proposed $23 billion in program cuts, of which only $10 billion were for discretionary programs. In 2010, the administration proposed $17 billion in program cuts, of which $12 billion were for discretionary programs.

Federal budget experts said the process could get ugly. Agencies often lack good data and tools to measure program performance, and political considerations may trump the desire to improve efficiency.

Better information technology could help, said former Agriculture Department chief financial officer Charles Christopherson. Modern business-intelligence tools can analyze program data and point officials toward areas where costs are higher than expected. For instance, one segment of an agency might have unusually high travel costs, or different offices might be buying the same things independent of each other.

"If you don't have that information, that's the beginning of bad decisions," Christopherson said.

And even if agencies have the means to accurately gauge performance and identify low-priority initiatives, they might not do it.

"Agencies are likely to put the best face on their programs, and not necessarily be candid," said Robert Shea, OMB's associate director for administration and government performance in the Bush administration. "Getting more money is what a lot of people think their job is."

One way to short-circuit the administration's efforts would be to sacrifice programs that have strong political backing on Capitol Hill, said Shea and John Mercer, a governmental performance and accountability consultant and former counsel to the Senate Governmental Affairs Committee.

Mercer also said agencies are still waiting for OMB to come out with a performance management system promised in October by federal chief performance officer Jeffrey Zients.

"People are hesitating to do much because they still don't know what OMB wants," Mercer said.

OMB stressed that agencies should select programs that are least critical to advancing their missions. That raises the question of whether agencies should recommend ending programs that are performing well but have little do to with their missions, rather than get rid of poorly performing programs that are vital to agency goals.

"If there's a terrific program within [the Housing and Urban Development Department] that doesn't accomplish HUD's goal, that's a really difficult question," said Craig Jennings, director of federal fiscal policy at the nonprofit OMB Watch.

Other areas on the chopping block

The remainder of cuts ordered by Orszag approximately $22 billion will come from a 5 percent cut in discretionary spending at non-security agencies. Departments that would be hardest hit are Health and Human Services ($4.1 billion), Transportation ($4.0 billion), Education ($2.5 billion), Housing and Urban Development ($2.1 billion) and Justice ($1.4 billion).

Agency managers who are unsure where to start can look at three areas targeted by President Obama last week: data centers, real property and improper payments.

While leading private-sector companies have reduced the number of data centers they're operating to save money, the federal government's numbers have exploded from 432 in 1998 to more than 1,100 today, Orszag said. Last week, Obama ordered a moratorium on any expansion in the number of federal data centers and ordered agencies to submit plans by Aug. 30 to "consolidate and significantly reduce" them within five years.

The government overall has a dismal track record when it comes to modernizing operations, Orszag said. Most top corporations kill roughly one-third of their new IT projects within the first six months, choosing to take an early loss rather than continue with a failing project. Yet the government terminates almost none, with disastrous results.

Orszag highlighted the Census Bureau's botched attempt to develop handheld computers for its census takers. The agency spent $600 million over two years on the aborted project, only to send census workers out with pens and paper this year.

Still, there has been some recent progress toward finding and killing failing IT projects in government. Using the government's online IT dashboard, the Veterans Affairs Department identified 45 at-risk projects and terminated 12 of them, saving $54 million this year.

Agencies also can generate big savings by dumping unneeded office buildings and other properties. The White House last week ordered agencies to cut $3 billion from their real estate budgets by October 2012.

Agencies are holding on to more than $1.2 billion in properties that have been declared excessive or are vacant. Obama ordered agencies to speed efforts to get rid of excess properties, eliminate leases that aren't cost effective, and promote telework and other techniques to make better use of space.

The administration is continuing its push to cut improper payments. Last week, Obama ordered the Health and Human Services Department to cut in half by 2012 the rate of improper payments to doctors and other care providers treating Medicare patients. Improper payments in the fee-for-service program totaled $24 billion in 2009, about a fourth of the government's $100 billion total in improper payments.

"Some of the largest problems that we've had ... have occurred in the Medicare program, and we are acting aggressively to cut down on them," Orszag said.

Agencies have until Sept. 13 to submit their fiscal 2012 budget requests.

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