Fiscal Year 1996 Budget Outlook

Although fiscal year 1995 is only a few weeks old, federal agencies are already into the thick of working on their budget requests for FY 1996. While there is no specific information available about individual agency budgets, it is possible to take a look at some of over-all factors controlling the 1996 budget.

Overarching the budget process are the caps on discretionary spending. Included in last year’s budget agreement, these caps are essentially a hard freeze on that federal spending which can be directly controlled (as opposed to entitlements.) The discretionary budget includes money for the National Science Foundation, NASA, Department of Energy, Department of Defense, and NIST.

The FY 1996 budget cycle formally began on September 9 when federal agencies submitted their initial budget requests to the Office of Management and Budget (OMB). As would be expected at this stage in the process, the total of the requests, using three different measurements, is wide of the mark.

It has been reported that FY 1996 requests total $20 billion more than the $516 billion budget authority cap (which is permission to incur obligations.) Commenting on this figure, an OMB official reportedly said, “we’ve got a significant problem on our hands.” By another measurement, budget outlays, the total is about $10 billion over the $547 billion cap. Outlays are the amount of money which is actually spent, an important number for long-term science spending. It is not unusual for science spending to begin at a lesser amount during early development stages, ramping up as construction starts. Past obligations complicate present cash outlays. Both of these totals could become much higher when further defense figures are included. Finally, for the first time, there is a statutory limit on the over-all number of federal employees. It has been reported that this measurement is around 20,000 individuals over the statutory limit.

Defense spending is a major factor in the FY 1996 budget. The budget agreement forced defense spending down; Senator Sam Nunn (D-GA) commented earlier this year that DOD’s real purchasing power has declined 33% since 1985. Compounding this problem are costs associated with base closings, environmental cleanups, military pay raises, and over-optimistic spending scenarios. The administration will confront tough choices in the DOD budget: maintain present defense commitments by cutting spending on R&D or in military readiness (which given the recent deployment of troops seems less likely). The alternative is cutting domestic programs, also a distasteful choice.

OMB Director Alice Rivlin will present President Clinton with her recommendations in December. One of her tasks will be bringing the initial budget requests for HUD and VA (both in competition with NSF and NASA in the appropriations bill) into line with earlier OMB guidance. As it now stands, they are reportedly multi-billions of dollars over this guidance.