By Larry Jones
March 28, 2011

President Barack Obama signed a sixth continuing resolution March 18 that will keep federal agencies and programs operating through April 8. This latest action gives budget negotiators three additional weeks to reach compromise on a final budget that will fund programs through the remainder of Fiscal Year 2011, which ends September 30. Similar to the last continuing resolution, which reduced spending on federal programs by $4 billion, the new measure calls for an additional $6 billion in cuts below current spending levels. Included in the latest round of spending cuts are reductions in spending or terminations in a total of 25 programs for a savings of $3.5 billion; and the elimination of funding for a number of earmarks (spending on congressional members’ special projects) for an additional savings of $2.6 billion.

Although these cuts may affect a limited number of local governments (in that some, for example, receive earmarks and would therefore be affected by those cuts), the overall impact on most local governments is expected to be minimal. The continuing resolution calls for full funding (funding at the FY 2010 levels) of most local priority programs including Community Development Block Grants; COPS hiring and retention; high-speed rail and the transit formula program; job training programs; Child Care Development Block Grants; and the Drinking Water Revolving Loan Funds.

Partisan disagreement over spending cuts and policy riders have been the main stumbling blocks preventing budget negotiators from reaching agreement on a final 2011 budget. The White House and Democrats in Congress are generally pushing for smaller, more targeted cuts in federal programs, while Republicans are backing significantly higher cuts and restrictions that prohibit spending on the new health care reform law and planned-parenthood.

Last month, the Republican led House passed a bill that would reduce spending on federal programs for the remainder of FY 2011 by 62.5 percent. The Senate, led by Democrats, voted the House measure down. If adopted, the House bill would drastically reduce most local priority programs. The Community Development Block Grant formula program, for example, would be reduced from $3.99 billion to $1.5 billion. The problem this presents is if local communities have spend one half of the available funds ($1.95 billion) in the first half of the year, they have already exceeded the total amount in the House bill.

With the federal budget deficit projected to be around $1.5 trillion this year, Republicans believe immediate action must be taken to reduce the deficit and improve the nation’s fiscal outlook. On the other hand, Democrats believe drastic cuts in federal programs will adversely affect economic recovery and job growth, which have shown consistent signs of gradual improvement over the last year.

The good news is that Democratic and Republican leaders are optimistic about reaching a compromise on a final FY 2011 spending bill in the next few weeks. Based on recent reports, Republican leaders are beginning to focus more on making deeper cuts in the FY 2012 budget. Since the current fiscal year is half way over, there is growing concern that deep cuts would seriously disrupt programs in the second half of the year. Republican leaders believe the opportunity for deeper cuts will be far better in the FY 2012 budget. They are also expected to push for cuts in entitlement programs such as Social Security and Medicare which account for over 40 percent of the total federal budget but have been considered off limits in the negotiations on the 2011 budget. For their part, Democratic leaders will most likely insist on including revenue measures in any discussions on reducing the deficit in the FY 2012 budget.