The 5% Solution: The Dreaded “Across the Board” Cuts

The ultimate blunt weapon in the battle of the budget: across the board 5 percent cuts. But do they spur government to greater efficiency or inefficiency?
by | July 7, 2010 AT 3:00 AM

They are the ultimate blunt weapon in the battle of the budget: across the board 5 percent cuts. Do they spur government to greater efficiency, or merely spread panic and result in greater inefficiency?

Earlier this year, Montana Gov. Brian Schweitzer ordered 5 percent reductions in all state agencies. In California, the cuts just keep on coming. "I think there will be across the board cuts again," Gov. Arnold Schwarzenegger told the Los Angeles Times. "We are not going to go and pick and choose" between programs.

On the one hand, such cuts are clear, inescapable and easy to implement. On the other hand, they fail to distinguish between the needed, the nice to have and the nonsensical.

In fact, their generality is part of their appeal.

It turns out that if only a few selected programs are targeted for cuts, the supporters of those programs rally the troops and descend on the legislature to save them. But when every program is under the knife, the competing claims of "specialness" tend to cancel each other out. Legislators like them because they don't risk making a particular constituency unhappy with them -- everyone is in the same boat.

But what about our democratic priorities? Don't we just care more about certain programs than others? Wouldn't it make more sense to eliminate 100 percent of certain activities and leave others alone?

Theoretically, yes. But across the board cuts don't have to be "dumb" cuts. If the agency is large enough, within any across the board cut is the chance to set priorities and make such distinctions within the portfolio of an agency.

That seems to be the thinking of the Obama administration, which has jumped on the "five percent" bandwagon with both feet. On June 8, 2010, Peter Orszag, head of the Office of Management and Budget, sent a memo to all federal agency heads, outlining the administration's plan to cut costs and eliminate waste. According to the memo: "Our Nation's finances are on an unsustainable course, and it is imperative that we restore fiscal responsibility.... We can no longer afford the old way of doing business here in Washington."

The new way of doing business apparently involves 5 percent cuts. The memo directed each agency to identify 5 percent of its activities to be placed on the chopping block: "Your agency is required to identify the programs and subprograms that have the lowest impact on your agency's mission and constitute at least 5 percent of your agency's discretionary budget."

But note that under the guise of across the board cuts, agencies still have the ability to evaluate what activities they engage in that aren't delivering in terms of creating public value.

Within the Department of Agriculture, for example, the program that inspects for and controls against an avian flu pandemic might survive intact, while the USDA's customizable daily menu planner might be targeted for complete elimination. (Is it just me, or is the idea of federal menu planning not only silly but also a little creepy? I imagine USDA workers engaged in heated debate: "No, no. Tuesday should be meatloaf and mashed potatoes, not lasagna!")

Of course, simply putting something on the chopping block doesn't mean it will get chopped. Washington is famous for saving obsolete and redundant programs, so directing agencies to identify the least valuable 5 percent is a far cry from actually cutting 5 percent of anything.

Unlike the federal government with its nearly limitless power to print and borrow, state and local officials typically have to manage to a balanced budget. Finding new revenues in the current economic environment won't be easy, and across the board cuts could drive agencies to make hard choices.

Or it could just drive greater inefficiency. Desperate to generate savings quickly -- roughly $1.7 billion over 17 months -- California furloughed some 200,000 employees for up to three days each month, including the 5,300 employees of the state's tax collection agency who audit and collect state taxes. According to a report from the California Senate Office of Oversight and Outcomes, California "lost $7.15 for every dollar saved through furloughs" through missed tax revenues.

On the other hand, necessity is the mother of invention. Across the board cuts could prompt public managers to eliminate obsolete programs, find new efficiencies and figure out how to deliver more with less.

Either way, love them or hate them, you can expect to see more governments embrace the 5 percent solution as the fiscal crisis rolls on.