U.S. Weighs Wiggle Room for Agencies to Deal with Spending Cuts

As across-the-board spending cuts were to take effect for the U.S. government, bureaucrats on Friday were still trying to figure out how much wiggle room they have to limit the damage.

Can agencies trim some fat, cancel some travel and protect their critical missions, or will the pain described by Obama administration officials spread across the country?

The answer is yes, and yes - eventually.

After a meeting with congressional leaders on Friday failed to break new ground toward a deal to avert the cuts, President Barack Obama described their effects as a "slow grind that will intensify with each passing day."

The $85 billion in across-the-board "sequestration" cuts, to be imposed for the seven months left in this fiscal year, were meant to be so unpalatable that Congress and Obama would find another approach to reduce deficits.

Former White House budget officials and other experts say that the sequester law as written is restrictive, prescribing an equal proportion of cuts to every budget account and to every program, project and activity. In many cases, that leaves little room to move money from one activity to another.

But if the White House's Office of Management and Budget defines these projects and activities broadly, it would increase the administration's ability to move funds to critical front-line services.

"Most of these agencies don't want a catastrophe, so they will try to manage around it," said James Capretta, an associate director of the White House budget office from 2001-2004, in Republican President George W. Bush's first term.

He said if such activities are deemed to include both front-line activities and the office functions that support them, there is room to cut back on things like vehicle use and administrative hiring.

"Those kinds of discretionary decision-making processes can take place all over the government and they probably are taking place, despite all of the scare tactics," said Capretta, now a visiting fellow at the American Enterprise Institute, a conservative think-tank in Washington.

Barry Anderson, who oversaw planning for a budget sequester at OMB in 1990, applied a very narrow definition of budget activities - all the way down to maintenance for individual navigation buoys in the Chesapeake Bay.

"We went down to a very fine level of detail. We didn't want the Congress to accuse us of cutting one area more than another," said Anderson, now deputy director of the National Governors Association.

Luckily for him, those automatic cuts did not last long. Within a couple of months, Congress passed a new budget deal that rescinded the sequester by raising taxes and making cuts to the Medicare health program.

CARDS NOT SHOWN

In today's budget standoff with congressional Republicans, the Obama administration has said little publicly on how it could minimize effects of the cuts. Instead it has described potential damage such as a lack of government inspectors forcing slow-downs in meat processing plants, long security lines at airports, and college students denied loans and grants.

OMB waited until Thursday to make public its guidance to agencies to identify contracts and grants that could be canceled or delayed and to detail plans for temporary layoffs, called furloughs.

Agencies should also avoid spending money on training, travel and conferences, avoid hiring new employees, and stop issuing bonuses, Danny Werfel, the White House budget office controller, said in the guidance memo.

Werfel said earlier this week that agencies were told to make decisions on where to cut, within their limited flexibility, based on preserving their core missions.

Thus for the Transportation Department, maintaining security is a top priority, and delays and traveler frustrations will likely take a backseat, he said.

But many Republicans say the $85 billion sequester cuts are a tiny part of the $3.6 trillion annual U.S. budget, and the government must learn to tighten its belt.

Werfel said there will be major disruptions as the cuts' effects accumulate, unless Congress stops them. Shifting funds around will not make up for what OMB estimates will be a 9 percent cut for domestic agencies and a 13 percent cut for the military the rest of this fiscal year, he said.

"All of these various disruptions and harmful impacts, they're going to occur," he told reporters earlier this week.

Nonetheless, Republican Senator Tom Coburn of Oklahoma applauded the White House's guidance as an effort to make "common-sense" cuts.

Coburn is among a growing number of Republicans who want to pass legislation to give the administration more leeway to make smarter cuts than the across-the-board "meat axe" approach.

This could be attached to a Republican plan expected to get a House vote next week that would extend government funding through the end of September, in a bid go avoid another potential budget showdown at the end of March when a temporary funding measure expires.

"While some in the administration have previously dismissed these savings as a 'drop in a bucket,' the fact is each drop adds up to a torrent of savings," Coburn said. "I look forward to providing the administration with additional savings options that will allow them to avoid what they see as the harmful consequences of sequestration."

(Additional reporting by Roberta Rampton; Editing by Fred Barbash and Vicki Allen)