On June 8, Office of Management and Budget (OMB) Director Peter Orszag rolled out details of the administration's FY 2012 budget guidance for federal agencies. The budget request will again attempt to strike a balance between fiscal austerity and adequate funding for government programs. In addition to the continuance of a three-year freeze on non-security discretionary spending, Orszag revealed two new initiatives that the administration hopes will help agencies achieve more with less: a government-wide initiative to improve federal acquisition and information technology (IT) processes and a requirement for agencies to identify programs that are the "least critical to advancing their agency missions."

In a six-page memorandum directed to the heads of federal agencies, Orszag lays out the administration's FY 2012 budget request guidance. And, in a second, two-page memo, Orszag requests that agencies "identify the programs and subprograms that have the lowest impact on [each] agency’s mission and constitute at least five percent of [its] discretionary budget."

The budget guidance memo is divided into two sections: budget and performance targets and government-wide initiatives. The first section provides specifics for agencies to take into consideration when submitting their budget proposals, including policy and funding priorities; terminations, reductions, and savings; and tax and spending policy integration.

Perhaps the most notable request from the president to the agencies is that their FY 2012 budget requests be at least five percent less than the discretionary total provided for each agency in the FY 2011 President’s Budget Request. Obama’s FY 2011 request would impose for three years a freeze in non-security discretionary spending; the five percent cut asked for by the administration is below that level. In remarks at the Center for American Progress (CAP) announcing the budget guidance, Orszag stressed that the administration is implementing the initiative to help agencies "live within the three-year freeze," meaning that while some agencies will see nominated cuts take effect, others will see funding boosts for other, more critical programs. This will allow the administration to freeze overall spending on non-security discretionary items. Agencies are also asked to include at least five significant terminations, reductions, and administrative savings initiatives that reduce costs below FY 2011 levels.

Orszag’s memo also specifies a slew of other rules for agencies in preparing their FY 2012 budget requests. Agencies are also asked to:

• Include specific FY 2012 performance targets for each High Priority Performance Goal (HPPG) (HPPGs were established in 2009 to help agencies execute their missions and improve the efficiency in which they do so)
• Include information showing the performance gains associated with any proposed increases above the FY 2011 Budget
• Highlight the methods used to allocate base funding, such as cost-benefit analysis or other merit-based or competitive criteria
• Use their budget submissions to reconsider the basic design of their programs to institutionalize the use of evidence, to foster innovation rooted in research, and to encourage rigorous evaluation
• Consult with each other during the budget planning process so that resources are allocated to maximize their impact and avoid inappropriate duplication

The administration also appears to be moving toward taking a more comprehensive approach toward measuring program performance by including tax expenditures as programs that should be evaluated on the basis of their effectiveness and equity. Orszag’s memo requests that agencies include an "analysis of how to better integrate key tax and spending policies with similar objectives and goals."

The second section of the memorandum covers the administration’s broader efforts to modernize and reform government through smarter IT investments and changes in federal acquisition policies. (Some of these directives were outlined in a previous memo released in March 2009.) The administration requests that agencies include in their FY 2012 budget requests:

• Specific actions for contributing to the FY 2012 government-wide goals of reducing improper payments by $20 billion and recapturing $2 billion in improper payments to vendors
• Specific actions and goals to reduce the agency’s reliance on high-risk contract vehicles, including contracts awarded noncompetitively, procurements where only one bid is received, and cost-reimbursement and time-and-materials contracts
• Appropriate funds for the continued execution of the agency’s plan for development of the agency’s acquisition workforce
• Funding for the timely execution of agency plans to consolidate data centers developed in FY 2010

In the second memorandum co-authored with White House Chief of Staff Rahm Emanuel, Orszag sets out specific additional FY 2012 budget request guidance for agencies that asks them to identify programs that have the "lowest impact" on each agency’s mission, totaling at least five percent of the agency’s discretionary budget. Indentifying these programs is part of the Obama administration’s "priority of identifying and cutting unnecessary and wasteful spending." But, as the memo mentions, the identification of these programs is a "separate exercise from the budget reductions necessary to meet the target for [each] agency’s FY 2012 discretionary budget request." While agencies are asked to identify low-impact programs, it is not certain that these programs will be cut. If the administration implements all of the cuts specified in an agency’s base budget request and if the administration eliminates all of the low-impact programs specified by an agency, then that agency would see a 10 percent total budget cut (from the FY 2012 number that was initially requested in the president’s FY 2011 budget). However, this scenario is highly unlikely.

The administration has instructed both security and non-security agencies to target programs that have "an unclear or duplicative purpose, uncertain Federal role, completed mission, or lack of demonstrated effectiveness," and to stay away from "across-the-board reductions" and "incremental savings in administrative costs."

In a recent article in the Federal Times, some budget experts worried that without "good data and tools to measure program performance," agencies may allow "political considerations [to] trump the desire to improve efficiency." Moreover, with the administration directing agencies to "disregard statutory, regulatory, or administrative challenges to actually eliminating or reducing a program," budget analysts further fret that agency heads that want to "short-circuit the administration's efforts" might suggest "programs that have strong political backing on Capitol Hill" for cuts.