Federal Agencies Cut Back Amid Spending Fight

As Congress inches its way closer to a final deal--or a government shutdown--over 2011 spending, federal agencies have already been forced to make do with less and prepare for the worst.

Thanks to the three short-term government funding bills that have passed since the start of fiscal 2011, federal agencies have been required to fund their year-long budget in pieces, instead of planning for a full year of spending. That means agency budget officers have had to be conservative with their funds, in some cases holding off on hiring new employees to fill vacancies and slowing down grants or other contracts that require up-front government funding. The latest funding bill expires on April 8.

Douglas Holtz-Eakin of the conservative American Action Forum, who served as head of the Congressional Budget Office from 2003 to 2005, said that in his own experience, short-term funding bills meant that he could not hire new economists at CBO.

Prior to the full-year spending legislation, Holtz-Eakin said the environment was too unpredictable to make a new hire. But by the time the office did get full funding for the year, the regular season for hiring economists had passed.

"The trouble is, your hands are really tied," Holtz-Eakin said. "It is a real sclerosis to the system. If you are worrying about a future cut, you have to be pretty confident to spend that money."

Agency-level financial planners are typically very conservative with their funds, said one former agency budget director. They do not spend in anticipation of an increased budget, and will start finding places to make room in the budget.

If the agency is personnel-heavy--for example, the Social Security Administration has 68,000 employees--then budget planners can find extra federal dollars by not filling vacancies. If the agency primarily doles out cash to contractors or grantees, they can slow down the amount of money distributed. For example, in past budget crunches the National Institutes of Health has slowed down the release of funds through research grants.

The former budget officer also said agencies try to make the best use of any leftover, year-end funds in their budget, buying whatever supplies or equipment they can to make it through the next year's funding cycle.

Agencies also get guidance from the White House on what to do during a short-term funding cycle. The Office of Management and Budget is tasked with doling out the funds each agency gets from Congress, and they issue a letter to agency heads whenever a short-term funding bill is passed to explain exactly how much they can spend.

In September 2010, OMB directed agencies to spend only a chunk of their 2011 funds, divided by the number of days the short-term spending bill covers. Should an agency need more money--say, for a multimillion dollar contract that requires upfront financing from the government--the agency must write to OMB for permission.

"Only a very limited number of written... requests are expected to be granted," OMB Acting Director Jeffrey Zients advised in his letter to the agencies.

In August of 1995, then-OMB Director Alice Rivlin wrote to the heads of federal agencies just three months before the first government shutdown of that year, offering more detailed advice on how to prepare for lower-than-expected funding.

"You have the full range of management tools at your disposal, including reductions in procurements or service contracting, furloughs, and reductions in force," Rivlin wrote.