OMB Issues Memo on FY 2013 Budget Uncertainty

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Publication date: 
15 January 2013

The Office of Management and Budget released a two-page memorandum yesterday providing guidance to “the heads of executive department and agencies” on dealing with the twin problems of the March 1 implementation of sequestration and the expiration of funding on March 27.  This memorandum follows the issuance of a similar document by the Department of Defense on January 10. 

OMB Deputy Director for Management Jeffrey Zients issued yesterday’s memo.  It first discusses the two critical March deadlines:

“In the coming months, executive departments and agencies (agencies) will confront significant uncertainty regarding the amount of budgetary resources available for the remainder of the fiscal year.  In particular, unless Congress acts to amend current law the President is required to issue a sequestration order on March 1, 2013, cancelling approximately $85 billion in budgetary resources across the Federal Government.  Further uncertainty is created by the expiration of the Continuing Appropriations Resolution, 2013 (CR) on March 27, 2013.  This memorandum directs agencies to take certain steps to plan and manage this budget uncertainty.”

The memo then provides examples of the consequences of making $85 billion in funding reductions for the remainder of this fiscal year as a result of sequestration:

“The Administration continues to urge Congress to take prompt action to address the current budgetary uncertainty, including the enactment of balanced deficit reduction to avoid sequestration.  Should Congress fail to act to avoid sequestration, there will be significant and harmful impacts on a wide variety of Government services and operations.  For example, should sequestration remain in place for an extended period of time, hundreds of thousands of families will lose critical education and wellness services through Head Start and nutrition assistance programs.  The Department of Defense will face deep cuts that will reduce readiness of non-deployed units, delay needed investments in equipment and facilities, and cut services for military families.  And Federal agencies will likely need to furlough hundreds of thousands of employees and reduce essential services such as food inspections, air travel safety, prison security, border patrols, and other mission-critical activities.”

Zients then outlines preparatory actions that federal departments and agencies should take:

“At this time, agencies do not have clarity regarding the manner in which Congress will address these issues or the amount of budgetary resources that will be available through the remainder of the fiscal year.  Until Congress acts, agencies must continue to prepare for the possibility that they will need to operate with reduced budgetary resources.

“Prior to passage of the American Taxpayer Relief Act of 2012 (ATRA), the President was required to issue a sequestration order on January 2, 2013.  Although the ATRA postponed this date by two months, agencies had already engaged in extensive planning for operations under post-sequestration funding levels before this postponement was effected.  In light of persistent budgetary uncertainty, all agencies should continue these planning activities, in coordination with the Office of Management and Budget (OMB), and should intensify efforts to identify actions that may be required should sequestration occur.”

The OBM memo then sets forth specific actions that department and agency heads should take:

“Agencies should generally adhere to the following guiding principles, to the extent practicable and appropriate, in preparing plans to operate with reduced budgetary resources in the event that sequestration occurs:

use any available flexibility to reduce operational risks and minimize impacts on the agency’s core mission in service of the American people;

identify and address operational challenges that could potentially have a significant deleterious effect on the agency’s mission or otherwise raise life, safety, or health concerns;

identify the most appropriate means to reduce civilian workforce costs where necessary – this may include imposing hiring freezes, releasing temporary employees or not renewing term or contract hires, authorizing voluntary separation incentives and voluntary early retirements, or implementing administrative furloughs . . . .”

Of note:

“review grants and contacts to determine where cost savings may be achieved in a manner that is consistent with the applicable terms and conditions, remaining mindful of the manner in which individual contracts or grants advance the core mission of the agency;”

The memo continues:

“take into account funding flexibilities, including the availability of reprogramming and transfer authority; and,

be cognizant of the requirements of the Worker Adjustment and Retraining Notification (WARN) Act . . . .”

The memo cautions that no action should be taken at this time:

“While agency plans should reflect intensified efforts to prepare for operations under a potential sequestration, actions that would implement reductions specifically designed as a response to sequestration should generally not be taken at this time.”

The memo notes an important exception:

“In some cases, however, the overall budgetary uncertainty and operational constraints may require that certain actions be taken in the immediate- or near-term.  Agencies presented with these circumstances should continue to act in a prudent manner to ensure that operational risks are avoided and adequate funding is available for the remainder of the fiscal year to meet the agency’s core requirements and mission.  Should circumstances require an agency to take actions that would constitute a change from normal practice and result in a reduction of normal spending and operations in the immediate- or near-term, the agency must coordinate closely with its OMB Resource Management Office (RMO) before taking any such actions.

“All agencies should work with their OMB RMO on the appropriate timing to submit draft contingency plans for operating under sequestration for review.  Furthermore, should Congress take action that affects the current budgetary uncertainty, OMB will provide agencies with additional guidance as appropriate.”

A copy of the original January 14 memo may be viewed here.

There are no indications that any progress has been made in the negotiations between Congress and the Administration regarding these two matters.

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