Agencies Brace for a Renewed Era of Belt-Tightening

After multiple years of significant spending increases at non-defense agencies, Congress has reverted to austerity by demanding an overall freeze of discretionary funding for domestic agencies. 

The pullback, agreed to as part of a deal struck by President Biden and House Republicans to meet GOP demands for raising the debt ceiling, will force agencies to make difficult decisions as they abandon some efforts to launch new programs and grow existing ones. The 2023 Fiscal Responsibility Act set only a top-level cap for non-defense spending, leaving it to Congress to establish line-by-line funding levels across government. 

“The impacts will look different agency to agency,” said Rachel Snyderman, a senior associate director at the Bipartisan Policy Center and former Office of Management and Budget official.

Under the deal, Congress has until Jan. 1 to pass each of the 12 annual appropriations bills necessary to fund government. Current funding is set to expire after September, but the deal allows for Congress to buy additional time through a stopgap measure or—if it fails to pass anything—a government shutdown. If lawmakers fail to reach an agreement by Jan. 1, an automatic continuing resolution will kick in and cut spending in every defense and nondefense account by 1%.   

In the meantime, Congress must set the allocations for the 12 spending bills. The Senate, which must work in a bipartisan fashion to move its appropriations measures, has yet to release any of its bills but is expected to begin doing so in the coming weeks. Sen. Patty Murray, D-Wash, chairwoman of the Senate Appropriations Committee, expressed disappointment in the new caps and said she would seek to “lessen the damage of these cuts at every opportunity.”

“I am deeply concerned about how this legislation will limit our ability now to make the investments we need to help families succeed, keep communities safe, and keep our country on the cutting edge,” Murray said. 

On an overall basis, non-defense agencies saw their budgets grow by 6.7% in fiscal 2022 and—including the cost of veterans health care—by 9.3% in fiscal 2023. While some agencies are likely to absorb direct cuts and most others will do so once adjusting for inflation, Snyderman noted that they at least have time to prepare for the stark reversal. The new law also set caps for fiscal 2025, allowing for 1% increases to both defense and non-defense spending. 

“It can be seen as a positive planning mechanism,” Snyderman said, noting that at least agencies can have a general idea of what to expect. 

While Congress enacted top-line budget levels farther in advance than in years past, Tony Reardon, president of the National Treasury Employees Union, said lawmakers abdicated their responsibility to make more informed decisions. 

“Across-the-board spending cuts are a harmful detour away from the hard work that Congress should be doing to decide where the government should invest its resources,” Reardon said. 

Snyderman added the recent uptick in spending, which followed a decade of restrained budgeting thanks to the 2011 Budget Control Act, could help offset the forthcoming belt-tightening. 

“Since the pandemic, we’ve seen a monumental investment in the government,” Snyderman said, adding there has been a bipartisan recognition of a “need to arm our government and agencies with additional resources to improve services to American taxpayers.” 

Still, agencies were playing catch up from the previous decade. After accounting for inflation and population growth, non-defense spending between 2012 and 2021 fell by 3%, according to David Reich, a senior fellow at the left-leaning Center for Budget and Policy Priorities. Some of the agencies that benefited the most early in the Biden administration are now in Republican crosshairs—and much of the money they received is already obligated. 

David Coursen, who worked on budget issues during his nearly 30 years in the Environmental Protection Agency’s Office of General Counsel, noted that his former employer is set to receive billions of dollars as part of an Infrastructure Investment and Jobs Act tax that will pay for Superfund cleanup. If lawmakers provided EPA with the same total appropriation this year, the agency would in actuality have additional funds to disburse thanks to that influx. Congress could opt to make cuts, however, in at least equal amounts to that new revenue and redirect funds to other priorities.

Additionally, Coursen said, most of the money EPA will receive as part of the infrastructure law and the Inflation Reduction Act will simply pass through EPA’s grant programs. It will not support additional staffing or the agency’s program offices. 

“That’s a different pot,” he said, noting even as EPA’s budget grew in recent years, much of the agency's requests have gone unfulfilled. “If you don’t have people there, you can’t get work done.” 

The infrastructure law and Inflation Reduction Act have “reimagined the function of the agency,” Coursen added, saying the laws have not “revitalized or beefed up the regulatory programs that are really the heart of the agency.” They have transformed EPA into more of a “carrot agency” than a “stick agency,” which he said would be exacerbated if Congress fails to maintain its annual appropriation. 

“The regulatory programs have gotten short shrift,” Coursen said. “When not funded fully, there are environmental protections that are getting reduced or lost.” 

Another part of the Inflation Reduction Act provided the Internal Revenue Service with $80 billion over 10 years to improve customer service and boost enforcement of tax laws. The spending was expected to generate more than $100 billion in net revenue and allow the agency to add tens of thousands of employees to its shrunken workforce. As part of the debt ceiling deal, Biden and House Republicans agreed to reroute $20 billion from that spending to other agencies' discretionary budgets. 

NTEU’s Reardon said his organization will closely monitor how the $20 billion in reprogramming is handled and will fight for that funding to be replaced. 

“As Treasury officials have stated,” Reardon said, “we expect the IRS will have the funding it needs in the immediate future to continue replenishing staffing levels, begin modernizing and upgrading its computer systems and making sure the tax code is enforced fully and fairly for all.”

He noted IRS and other non-defense agencies will struggle to keep pace with inflationary costs over the next two years. 

“One of our concerns is that agencies, in order to live within the caps that keep spending essentially flat, will cut back on things like employee training,” Reardon said. “As we have experienced at IRS in the past, inadequate training for employees is a disservice to those employees and the American people who rely on them to be up-to-date on the skills needed to meet the mission.”

Cuts to agencies like IRS and EPA could be exacerbated if Republicans demand increases to their preferred priorities. Just law week, for example, lawmakers in both parties suggested components of the departments of Homeland Security and State were in desperate need of funding and staffing boosts. Rep. Kay Granger, R-Texas, who heads the appropriations panel in the House, has already boasted the debt ceiling and budget agreement “reduces and reallocates lower-priority spending.” 

The Bipartisan Policy Center’s Synderman, meanwhile, said agencies should at least find solace in Congress creating incentives for itself to actually pass line-by-line spending bills. 

“Having worked at OMB for a number of years, the idea that we could be starting the year operating not under a CR,” Snyderman said, “I think it’s pretty important.”