If Republicans Want Budget Cuts, They Must Empower The Spenders

When the sequester budget cuts went into effect in the spring, Democrats in general and multitudes of Obama Administration officials in particular warned of devastating impacts on federal government programs, employees, and citizens who depend on government services. Now, after several months and with the fiscal year nearing its conclusion, it turns out that the sequester cuts have been accomplished with little pain and much less impact than promised.

One of the major scare tactics used by the Obama Administration, made through a string of Cabinet Secretaries, was that employees would be furloughed due to the budget cuts. A furlough is a forced day off without pay, a way to implement a temporary pay cut. They were actually pretty common across state and local government during the recession. I was furloughed from my job for six days at The University of Georgia one year, amounting to a three percent pay cut. I was not a huge fan, but I survived and my furlough was certainly supported by the taxpayers of Georgia.

Labor unions do not like the idea of pay cuts, even temporary ones. Given that government employees are virtually the only source of new labor union members, this threat rallied government labor unions to the cause as well as worrying citizens about whether they would be able to access government services. Yet the reality has not lived up to the advertising, as documented by Erik Katz at Government Executive, a news service for government managers.

The Departments of Education and Justice claimed they would need furloughs, but never announced or implemented any. The Departments of Commerce, Agriculture, and Transportation and the Homeland Security Agency all projected furloughs but did not need them after Congress passed legislation providing them with additional budget flexibility.

The agencies that actually implemented furloughs have all reduced the number of furlough days. The IRS announced five furlough days but has reduced them to three. Housing and Urban Department and the Office of Management and Budget both also reduced their furlough days by two. The Department of Defense has had the biggest change. After they announced 22 furlough days for 750,000 civilian employees, they implemented 11 furlough days for 650,000 employees. This week, the Secretary of Defense announced only six furlough days will be needed, so the remaining five were cancelled.

The secret to the success agencies have had cutting their spending without the pain that was promised was additional flexibility on budget allocations from Congress in a number of cases. Most of the other agencies accomplished much the same flexibility on their own, using cost reducing strategies such as reductions in employee travel, hiring freezes, and attrition. This sort of cost management is routinely practiced by private sector firms, happens in state and local governments every time the economy turns downward, and is long overdue at the federal level. The key is to allow such budget flexibility to continue and to give agencies incentives to control their costs.

In normal federal budgeting, Congress appropriates money and agencies then go about spending it. The money stays in their budget until it gets spent, even past the end of a fiscal year. The idea is that if Congress said to spend some amount of money for a specific purpose, it shall happen and bringing projects in under budget accomplishes nothing, because the money cannot be spent on programs for which it was not appropriated. Thus, there is no incentive for federal employees to save money, unless it is saved in one part of a project in order to spend more on another part of the same project. Money has to stay within the same appropriation bucket. And Congress has taken to specifying lots of buckets, so that spending by federal agencies is highly circumcised by the amount of detail in Congress' appropriation bills.

In exchange for holding agencies to the sequester budget cuts, and in order to minimize pain to citizens, Republicans in Congress went along with granting President Obama's administration more flexibility in using their appropriations. This increased flexibility is what has allowed the sequester cuts to be carried out so far with virtually no discernible impact to the public. More budget flexibility has been a success.

When Congress returns from its August recess, nine legislative work days will remain in order to complete thirteen appropriation bills before the next federal fiscal year starts. The probability of Congress meeting that deadline is zero. Instead, we will again start a new federal budget year with at least one continuing resolution. And the battle over the continuing resolution(s) will be whether or not to base the spending levels on spending with or without the sequester cuts.

The success federal agencies have had in the last few months in delivering spending reduction through enhanced flexibility shows a clear road forward for Congressional compromise. Republicans should insist on keeping the post-Sequester spending levels in place or even increasing the budget cuts. In exchange, Republicans should allow agencies to continue to use budget flexibility. Give each agency a pot of money and the list of programs Congress is approving. Then let the President and his Cabinet Secretaries accomplish those goals in the most cost effective manner they can find. That is, make the appropriations buckets larger.

Republicans may worry that the Obama Administration will use the flexibility to selectively choose which programs to complete, ignoring or downgrading Republican priorities. For some fiscal conservatives, that would still be a worthwhile trade. For the rest, Republicans can prevent this by still specifying programs to be begun, continued, or discontinued in the continuing resolutions and eventual appropriation bills that they pass. I am proposing budgeting flexibility, not necessarily programmatic control.

It seems clear based on their performance this year that federal agencies can accomplish more budget cutting with very little loss in meeting their missions as long as Congress allows them to operate more like an ordinary business. After all, that is what executives are supposed to do. Congress should let the Executive Branch fulfill its role. Then we can get budget savings and keep the government functioning.

Instead of being adversarial and threatening or forcing a government shutdown, Republicans should go for a cooperative solution. Give the federal agencies budget flexibility and keep the budget cuts in place.