U.S. Agencies to Submit Plans for 5% Cut in ’91

In an early indication of Bush Administration budget strategy, Budget Director Richard G. Darman has sent a letter to all federal agency chiefs requiring them to develop plans for absorbing a 5% cut in funding in fiscal 1991.

The reductions would be reflected in one of three budget proposals that Darman asked each agency head to submit. Fiscal 1991 does not begin until Oct. 1, 1990, but key decisions about the cuts will be made over the next few months, with agencies required to submit their proposals by Sept. 1.

The memo does not cover defense spending and exempts entitlement programs such as Social Security. But Darman suggested that agency directors might also want to propose cuts in entitlement programs as a way of financing any new or increased spending.

The 1991 budget will be “a major policy document” for the Administration, a senior budget official said Thursday, because it will be the first budget that Bush and his aides develop on their own. And it is being drawn up under severe constraints as Bush tries to meet deficit-reduction targets without violating his no-new-taxes pledge.

Deficit Goals Unmet

So far, budget agreements between the Administration and Congress would not come close to meeting the 1991 deficit target of the Gramm-Rudman balanced-budget law, and “it will therefore be necessary to present the President with options for further spending reductions,” Darman wrote.

The memo, distributed to department and agency heads earlier this summer, marks a distinct change from the traditional method of developing the Administration’s annual budget proposal. In the past, federal agencies have submitted budget plans to the Office of Management and Budget in the fall. OMB officials then typically have tried to pare down the requests.

Under Darman’s plan, agencies will be required to develop budget cut proposals at the beginning of the process, a move expected to strengthen the OMB’s hand in the inevitable squabbling between agencies and the budget office over spending levels.

In addition to an agency’s normal budget request, Darman wrote, all agencies will be required to submit two additional budget plans. One would accommodate a freeze in non-defense spending other than that for entitlement programs. The second would require a 5% cut from fiscal 1990 spending levels.

The budget-cutting plans are being driven by the targets set four years ago in the Gramm-Rudman law, under which the federal deficit in 1991 is not supposed to exceed $64 billion. For 1990, the deficit is supposed to be kept below $110 million.

Tax Hike Foreseen

Both Congress and the Administration have found many ways to slip around those budget targets. Even so, meeting the 1990 target required extensive negotiations this spring. Cutting the deficit by an additional $50 billion to meet the 1991 target without increasing taxes will be difficult. Many congressional leaders predict that Bush will have to propose a tax increase.

Administration officials continue to argue that a tax increase will not be necessary, although Bush has been careful not to commit himself on how long his no-new-taxes pledge will last. The process of drawing up the 1991 budget proposal, which Bush will submit to Congress in January, is expected to dominate the Administration’s agenda for the fall.