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Budget chaos reigns: 2012, 2013 plans in disarray in wake of debt deal

Aug. 15, 2011 - 07:28AM   |  
By SEAN REILLY   |   Comments
House Speaker John Boehner, left, and President Obama leave the Capitol in March, in the midst of trying federal budget negotiations. The sides agreed on a FY2011 spending plan just before a planned federal shutdown in April. With seven weeks remaining before the start of FY2012, Congress has not passed any of the dozen spending bills that keep the government operating; most agencies, if not all, will likely enter the fiscal year under a continuing resolution.
House Speaker John Boehner, left, and President Obama leave the Capitol in March, in the midst of trying federal budget negotiations. The sides agreed on a FY2011 spending plan just before a planned federal shutdown in April. With seven weeks remaining before the start of FY2012, Congress has not passed any of the dozen spending bills that keep the government operating; most agencies, if not all, will likely enter the fiscal year under a continuing resolution. (File photo / Getty Images)

Federal financial managers are accustomed to dealing with budget challenges. But rarely have they faced the combination of challenges now heading their way:

With seven weeks to go before the next fiscal year begins, Congress has not passed any of the dozen spending bills that keep the government operating; and most agencies, if not all, will likely enter the fiscal year under a continuing resolution.

The Office of Management and Budget has not given any guidance to agencies on how to prepare their 2013 budget submissions, which are due to OMB in only a few weeks. That OMB guidance typically goes out to agencies in June, but it has been sidetracked by uncertainty created by the lengthy and inconclusive debt ceiling negotiations.

Many experts forecast another bruising partisan clash over the 2012 budget as there was this year over the 2011 budget that may again threaten the shutdown of some agencies.

"It's been extremely difficult," Peter Grace, director of strategic planning and management at the Housing and Urban Development Department, said last week of the uncertainty.

A continuing resolution typically maintains spending at the preceding year's levels. At some agencies, such as the Veterans Affairs Department and Nuclear Regulatory Commission, that shouldn't be a problem, top officials said last week.

But the challenges are magnified for agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, which are picking up big new regulatory chores under the Dodd-Frank financial service overhaul. Another is the Social Security Administration, whose workload is swelling as baby boomers retire and the dismal economy drives more people to seek disability benefits.

"People are significantly concerned and they're stressed out," said Witold Skwierczynski, president of the American Federation of Government Employees council that represents SSA's field operations staff. "It's crisis after crisis."

The agency imposed a partial hiring freeze more than a year ago. To cut overtime, it recently announced that field offices will close to the public 30 minutes earlier each day.

In the next year, Skwierczynski said, SSA will have to shed 4,400 employees, including those who work directly for the agency and those at affiliated state offices, if the agency is forced to operate on current-level funding. Those cuts can be accomplished through attrition if the agency's budget is unchanged. But if funding is cut, employees would be furloughed one day for every $25 million in reductions, said Skwierczynski, citing official projections.

Michael Gallagher, SSA's deputy commissioner for budget, finance and management, declined an interview request. An SSA spokeswoman confirmed the potential workforce cuts, but added in an email that "we will do everything we can to avoid furloughs."

At the CFTC, which is supposed to assume oversight of a $3 trillion derivatives market, a long-term continuing resolution would mean that the agency could keep working on required rulemakings, but would otherwise have to make tradeoffs, Chairman Gary Gensler said in an interview.

That could entail shifting staff from oversight of the futures market that the commission already regulates, Gensler said. It also could slow its ability to handle a flood of new registrations from derivatives dealers. Without more resources, CFTC employees can't be "effective cops on the beat," Gensler said.

Although commission employees have so far been able to meet the challenges, he added, "they need reinforcements."

Prospects for another shutdown

Absent any clear direction from Capitol Hill, agency leaders are treading carefully.

Last month, Forest Service Chief Tom Tidwell announced a hiring "pause" at the agency and warned employees that stiff budget cuts are possible next year.

"We don't want to face a situation where the final budget levels are approved midway through the fiscal year that cause us to take unplanned and drastic action to achieve required savings," Tidwell said in an email.

In an interview, Associate Forest Service Chief Mary Wagner expected the partial hiring freeze to last a few more weeks as managers try to dovetail fiscal 2012 funding projections with workforce needs. They are also having to factor in the possible consequences of an early retirement program announced in May, she said.

Under a spending bill approved in June by the Republican-controlled House, the Forest Service would take an 11 percent cut next year. But the Democrat-controlled Senate has yet to weigh in on that legislation or most other appropriations bills.

Although nothing will happen before lawmakers return early next month from their August break, a battle is already rumbling over GOP plans to use some of the spending bills to target policies they oppose. Among them: the Health and Human Services Department's implementation of last year's health care legislation and the Environmental Protection Agency's efforts to regulate greenhouse gas emissions.

For HHS, a shutdown is "absolutely" possible if lawmakers reach a deadlock over the legislation that funds the department, former Rep. Tom Davis, R-Va., now director of federal government affairs at Deloitte & Touche LLP, said last week.

Although Davis estimated the odds of that at less than 50-50, he added that "in divided government, that's one of the most contentious bills."

Congress could also go to the brink over legislation cover ing EPA, said Manik Roy, vice president for federal government outreach at the Pew Center on Global Climate Change. While predicting that the Obama administration will "hang tough," Roy sees the bill as Republicans' best chance of getting policy changes they want.

Questions abound about 2013

Meanwhile, agencies are supposed to be putting the finishing touches on their 2013 budget requests, normally due to OMB by Sept. 12, said Thad Juszczak, a former federal budget officer. Until OMB officials provide some guidance, however, "you can't expect that to happen," he said.

OMB spokespersons did not reply to requests for information on their plans.

Other effects of a 2012 continuing resolution could end up buried in budgetary fine print. Although the debt ceiling legislation included extra money for college Pell Grants, the Education Department program could nonetheless end up short by $1.5 billion if the CR lasts all year, said Jack Jennings, president of the Center on Education Policy, a nonpartisan policy and research organization.

Agencies are soldiering on. "We're doing what we know how to do to produce the best budget we can by Sept. 12," said Todd Grams, chief financial officer at the Veterans Affairs Department.

One cushion for VA is that its vast health care system is funded a year in advance, meaning that it won't be affected by a continuing resolution, Grams said. He declined to discuss the assumptions the department is using in assembling its 2013 budget.

Meanwhile, the Forest Service is working conservatively off this year's budget in order to have the flexibility to act on whatever comes out of Congress and OMB, Wagner said.

But financial managers also face the reality that the budget crunch will last for years to come. The Justice Department's Bureau of Alcohol, Tobacco, Firearms and Explosives, for example, is trying to "right-size" its workforce to support the job it has to do, CFO Vivian Michalic said.

Plans to open 14 offices along the southwest border funded by several special appropriations from Congress have been scaled back to nine, and the agency is looking to cut 400 positions by September 2012.

Short-term cost-cutting moves such as curtailing vehicle purchases for ATF special agents "are really unsustainable in the long term," she said.

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