Federal agencies received budget guidance this week directing them to prepare their FY2013 budgets at levels five percent below that enacted for FY2011.  In a memo from OMB Director Jacob Lew, agency heads were also told to develop alternative funding cuts that would bring budget levels to 10 percent below the FY2011 enacted levels.   Lew said that by having two estimates, the president will have the information needed to “make the tough choices necessary to meet the hard spending targets in place.”

Lew told agencies that they should not use across-the-board cuts, mandatory spending cuts, or new user fees to meet funding targets. The memo did allow for “priority add-backs” to be included in agency proposals, but required them to be offset by cuts elsewhere.

The memo also asked agencies to identify programs that would “provide the best opportunity for economic growth.”  But, additional funding for these programs will have to come from cutting or eliminating funding for “low priority or ineffective programs,” consolidating redundant programs, reducing overhead costs, or introducing program reforms.

While the memo was addressed to all agencies, OMB is expected to provide separate guidance for DoD budget levels in its annual “passback” memo to the department.  This memo usually provides total budget levels, as well as some program guidance and other requests for special reports and studies. 

Nonetheless, much of OMB guidance should be very familiar to DoD’s budgeteers.  OMB’s caution to avoid across-the-board cuts and the recommendations for reducing costs to fund higher priority programs matches the approach recommended by both former Defense Secretary Gates and current Secretary Panetta to meet lower DoD budget targets in the FY2012 and FY2013 budgets.