The Five Percent Solution to the Deficit Problem

With the federal deficit exceeding $1.4 trillion in FY 2010 and the expectation that in FY 2011 it will be only slightly less than that, the Obama Administration has decided to focus on deficit reduction in its guidance to federal agencies as they prepare their FY 2012 budgets for submission to the Office of Management and Budget (OMB).

The President's FY 2011 budget proposal sent to the Congress in early February of this year requested a three-year freeze on overall non-security spending.  Within that overall freeze some agencies, such as the National Science Foundation (NSF), received significant proposed increases (see Update, March 8, 2010).  The President has also appointed a commission chaired by former Clinton Administration Chief of Staff Erskine Bowles and former Wyoming Republican Senator Alan Simpson that is supposed to issue a report this December indicating the path forward to reducing the deficit by 2015.

Federal agencies are always working with three budgets at any one time.  The current fiscal year (2010), in which they are spending their appropriation; the next fiscal year (2011), when they await their final spending number from the Congress; and the year after that (2012), where they are conducting internal discussions and making decisions about new programs to ask for and how to justify the spending increases they usually seek.

In a memorandum issued on June 8, OMB director Peter Orszag told the non-security agencies to forget about increases in their thinking about FY 2012 and get ready on September 13 to "submit a budget request five percent below the discretionary total provided for that agency for FY 2012 in the FY 2011 budget."   For NSF this would mean providing OMB savings of about $390 million.

In meeting that target, Orszag continued, "agencies should not simply reduce spending across the board."  Rather, he directed the agencies to "restructure their operations strategically."

According to the memo, this means eliminating low-priority programs and activities. In a separate guidance issued by OMB and White House Chief of Staff Rahm Emanuel, agencies were ordered "to identify the programs and subprograms that have the lowest impact on your agency's mission and constitute at least five percent of your agency's discretionary budget."

Restructuring also means re-engineering staff plans, improving procurement and grants management processes and strengthening information technology (IT) and financial management "to squeeze waste out of existing operations and produce better outcomes."  Improving IT was the focus of a speech Orszag delivered to the Center for American Progress on June 8.  He declared:  "Closing the IT gap [between the what is available for the private sector worker and the public sector worker] is perhaps the single most important step we can take in creating a more efficient and responsive government."

A third strategic goal, according to the Budget Guidance memo, would focus "management attention on high-priority performance goals...to deliver better service to the American people within available resources."  This includes eliminating duplication of programs.  In his speech, Orszag cited the "110 funded programs in Science, Technology, Engineering and Mathematics education in 14 departments and agencies across the federal government; over 100 programs that support youth mentoring scattered across 13 agencies; and more than 40 programs located in 11 departments with responsibility for employment and training."  "This redundancy wastes resources and makes it harder to act on each of these worthy goals," the OMB director concluded.

All of this activity will lead to the President's proposed FY 2012 budget scheduled for unveiling in early February 2011.  Within the freeze and the proposed reductions, the Administration will prioritize its funding for the agencies.  For example, will the NSF exercise under the guidance come to nothing, since the Administration has pronounced its strong support for science and for doubling NSF's budget?   

In the meantime, the FY 2011 appropriations process has barely gotten underway as neither the House nor the Senate has passed a budget resolution setting overall spending targets for the appropriations committees to use to divide the pie among its 12 Subcommittees.  As this Administration, like others before it, has discovered, requesting to eliminate or significantly reduce spending for programs cherished by members of Congress will lead to hearings punctuated by expressions of outrage at the proposals and much political grandstanding.  Add to this the exacerbation of an already fractured political system with a congressional election in November.   At this point in the FY 2011 spending process, most observers expect a Continuing Resolution when the new fiscal year begins on October 1, 2010 that would fund agencies at their FY 2010 levels until some uncertain time.

Yet, even in the midst of an uncertain economic recovery from the "great recession," it appears that the Administration and Congress are ready to heed the advice of Federal Reserve Chairman Ben Bernanke and other economists that current federal deficits are unsustainable and action must be taken.

Senate Panel Examines the Impact of the Recession on the State of the Nation's Children

On June 8, the Senate Health, Education, Labor, and Pensions Committee's Subcommittee on Children and Families, chaired by Senator Christopher Dodd (D-CT), held a hearing on "The State of the American Child." to discuss the most challenging issues facing today's young people and how Congress and the American public can help solve them.

Some indicators suggest the state of the American child is not good.   Recent studies have reported that one in a hundred children is a victim of substance abuse, a number that doubles for those below one year of age.  Nearly three quarters of a million children were abused or neglected last year.  Every 101 minutes, a child in the United States dies from an unintentional injury, such as a vehicle crash or a fire, making it the leading cause of death and disability for children ages one to 14.  The persistent achievement gap in U.S. schools has been well documented and money to fix crumbling facilities, alleviate crowded classrooms, and provide quality after school programs has become scarce. 

Dodd recalled how he has consistently worked for the rights of children and families. "I fought for the Family and Medical Leave Act and to help every family afford pediatric checkups through the CHIP (Child Health Insurance Program) program.  I've worked to build an effective Head Start program, so that every American child can be prepared to excel in school.  We've learned that, while a child's development begins at birth, it doesn't start and stop with the ring of the school bell. And so I've worked to establish safe and stimulating child care facilities, as well as quality after school programming."  "I'm proud of that work," continued Dodd "but I'm well aware that there's more work to be done."

The star witness for the hearing was Alma Powell, Chair of the America's Promise Alliance.  The Alliance, founded in 1997 with General Colin Powell as Chairman, is a cross-sector partnership of more than 300 corporations, nonprofits, faith-based organizations and advocacy groups that are passionate about improving lives and changing outcomes for children.  One of the major programs of the Alliance is Grad Nation, a 10-year mobilization campaign "to reverse the dropout crisis and enable our children to be prepared for success in college, work and life."

Powell told the Subcommittee that the U.S. faces many urgent priorities: the economy, healthcare, national security and global competitiveness but that "one of the most important issues we face as a nation is one that impacts all of these priorities - and that is the well being of our children."  She lamented that: "Sadly, our children are often overlooked when addressing many urgent issues of the time. But let there be no doubt - meeting the needs of our most vulnerable youth means building a stronger, safer, healthier, and more equitable country."

Calling attention to the high school dropout crisis, Powell testified that it not only takes a toll on our children, but it also takes an enormous and unsustainable toll on the country.  She asked the Subcommittee to consider the students from the class of 2009, calculating that had all of them stayed in school and graduated our economy would gain more than $320 billion over their working lives. 

She declared that the government has a role to play in providing the resources families need to thrive.  "I want to make it very clear that this is a crisis we can solve," said Powell. "We have seen what success looks like when sound policies and best practices are paired with strong community support," she noted.

Powell concluded that the state of our children is not simply a failure of government or of schools but that "it is a failure of all of us" and hence "Each and every one of us must be part of the solution."

Also testifying was Harry Holzer, Professor of Public Policy at Georgetown University and a Fellow of the Urban Institute's Center on Labor, Human Services, and Population.   Holzer focused his remarks on the impact of the the "Great Recession" on the well-being of American children. 

He told the panel that even in the best of times, child poverty rates in the U.S. are very high, 18 percent in 2007 before the economic downturn, and many millions of children live with unemployed parents.  Growing up in poor households or with unemployed parents has negative long-term consequences for these children, which often last for the rest of their lives, Holzer said.  For instance, those whose parents suffer a permanent job loss often have more difficulty progressing in school and have lower earnings themselves as adults. These effects, he informed the Subcommittee, are likely attributable to the lower resources, higher emotional stress and weaker perceptions of rewards for those who strive for success among children whose parents are poor or suffer joblessness.

Holzer also remarked that this recession, the most severe since the 1930s, will substantially raise child poverty rates.  He cited Brookings projections of a 25 percent rate by 2012, as well as the numbers living with parents who are involuntarily unemployed. He predicted that the recession, as reflected in the unemployment rate, will also likely persist for many years, as will the elevated rates of poverty among children.

Furthermore, he argued, these high and persisting rates of unemployment and poverty will likely "scar" children and youth in many ways, causing then significant long-term damage. This recession will damage educational attainment and earnings as adults for the children who grew up in families with high poverty or unemployment, he testified.  Given that so many young people will themselves suffer periods of unemployment, their future rates of employment and earnings will also be reduced, as the lost periods of work experience during their formative years of career-building are lost and not replaced. In addition, in this recession, large numbers of children have already or will soon suffer homelessness due to the high rates of home foreclosure among the unemployed.  Homelessness is particularly harmful to children and can have lasting negative effects on them, Holzer declared.

Holzer concluded by recommending that to limit the damage to children, policy responses should focus on bolstering employment and income support among parents and on providing direct ameliorative services to children, over both the short- and longer-terms.

Dodd announced that he plans to introduce legislation to create a national commission on children, in order to regularly and closely examine the needs of American families and identify solutions.