The White House has directed the Defense Department, along with all other federal agencies, to draw up budget options for 2013 that meet the strict spending guidelines put in place by the debt-ceiling agreement signed into law Aug. 2.
In an Aug. 17 memo, Jacob Lew, director of the Office of Management and Budget (OMB), asked federal agencies for 2013 spending plans based on two scenarios: a 5 percent cut and a 10 percent cut from the 2011 enacted discretionary level.
For the Pentagon, a 10 percent reduction to its 2011 spending level would reduce the defense base budget to $477 billion, a level very close to what would happen under the 2011 Budget Control Act's "trigger" scenario.
Under the new law, if the president does not sign a bill with deficit reduction of at least $1.2 trillion by Jan. 15, 2012, a trigger of automatic spending cuts gets pulled. However, the spending cuts will not be enforced until January 2013, giving Congress and the president a year to undo or alter the law.
In 2011, the Defense Department received $530 billion for its base defense budget. Congress appropriated an additional $157.8 billion for overseas contingency operations.
Under the trigger, supplemental spending on overseas operations, like Iraq and Afghanistan, would be exempt. A handful of other defense-related accounts would also be excluded, including veterans programs. The law also gives the president the option to exempt military pay from the spending cuts.
According to an analysis by the Center for Strategic and Budgetary Assessments (CSBA), the trigger provision would automatically cut the Defense Department's 2013 base budget to approximately $472 billion.
In its 2012 budget submission, released in February, the Pentagon projected a budget of $571 billion in 2013.
At $472 billion, the Pentagon would be returned to its 2007 level of spending, adjusting for inflation, according to CSBA.
"Given the abruptness of the cuts imposed under the trigger and the real possibility that Congress may not be able to reach a deficit reduction compromise in time to avoid the trigger, DoD should immediately begin contingency planning for how to handle such a reduction," CSBA analyst Todd Harrison said in a white paper earlier this month.
Based on the new OMB guidance, it appears this is exactly what the White House is asking DoD to do.
"Unless your agency has been given explicit direction otherwise by OMB, your overall agency request for 2013 should be at least 5 percent below your 2011 enacted discretionary appropriation," Lew's memo said.
In response to an email asking if the Defense Department was exempt from the guidance, an OMB spokeswoman said, "All agencies will submit draft budgets that are informed by these targets and achieve significant savings. It's premature to know precisely what those numbers will look like."
For the Pentagon, a 5 percent reduction to its 2011 base budget would result in a cut of $26.5 billion, resulting in an overall base budget of $504 billion.
In an Aug. 18 blog post, Lew wrote, "This does not mean that we will institute either a 5 percent or 10 percent cut in an individual agency's budget or in all agency budgets."
In fact, some agencies may still see their budgets grow.
"Thus, some agency budgets will decrease (and some more than others), some will stay flat, and some may increase (and, again, some more than others) - and the same goes for programs within agencies," Lew said in his blog post.
According to OMB, the percentage targets are meant to be planning devices only.
"The guidance issued provides all agencies with a sense of the limits required in developing their FY2013 budget proposals and will allow the Administration to develop a consolidated 2013 budget that lives within the limits of the Budget Control Act," the OMB spokeswoman said. "For those agencies that have unique circumstances, like DoD for example, we work directly with them to identify possible areas for savings that are appropriate."
According to Lew's memo, the agencies can also submit "priority add-backs" with their budget requests.
OMB would like to see the agencies identify those programs that "provide the best opportunity to enhance economic growth."
The White House hopes that by eliminating low-priority, ineffective or duplicative programs, it can take some of those savings and reinvest them in the truly important stuff.
"I know this will be a difficult year, but it will also offer an opportunity to make the hard decisions to invest where we can get the most done and pare back in other areas," Lew said.
Earlier this month, the military services submitted its 2013 budget plans to the Office of the Secretary of Defense. Those plans were developed before the debt-ceiling agreement was passed and were not shaped by OMB's latest guidance.