The Outlook for Discretionary Spending

I’ve been closely following the federal budget for more than two decades, and at no point have things been more confusing, not only to observers like myself, but more importantly to federal managers and executives who are trying to plan their department budgets. A grand bargain on the budget would be welcome news not only for the country, but also for those of us who on a daily basis try and keep track of all of the budget proposals out there.

What is The Outlook?

For FY13, the federal government is operating under a continuing resolution (CR) that set discretionary spending at $986 billion. For FY14, the 2011 Budget Control Act (BCA) sets discretionary spending at $1.058 trillion, prior to sequestration. Within that, defense would be capped at $552 billion, and non-defense at $506 billion. Sequestration would reduce the total to $967 billion, a decrease of $91 billion from the BCA amount and a decrease of $19 billion from the FY13 CR. With the sequester, the BCA calls for a cap of $498 billion on defense and $469 billion on non-defense discretionary spending in FY14.

There are currently three different FY14 budgets in play: the president’s budget submission, and the House and Senate versions of the budget resolution. The president’s FY14 budget request and the Senate budget resolution both match the BCA-set level of $1.058 trillion in discretionary spending ($552B for defense, $506B for non-defense as noted above).

The House version of the budget resolution is much different. It sets discretionary spending at $967 billion, the BCA level minus the sequester amount. It deviates from the BCA, however, by taking all the cuts from non-defense agencies (leaving those with just $415 billion) while maintaining the $552 billion level for defense. Given the enormous gap in non-defense discretionary allocations between the House and Senate, it’s extremely difficult to see an end game for most appropriations bills—and maybe for any of them.

What is The End Game?

The likely outcome? 100% chance of CR for FY14—at least for the first part of the fiscal year, if not ultimately for the whole year. The CR would leave spending at the current levels, with some changes (“anomalies”) in the distribution of resources among the agencies. What could change the calculus is the impending breach of the debt ceiling sometime this fall. All bets are off as to what might be included in a bill that would increase the borrowing limit—including new levels for discretionary spending.

Read the rest of this blog post at the Government Affairs Institute