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Obama to Announce Discretionary Spending Freeze – Dollars Available to contractors Will Shrink Substantially

Tuesday, January 26th, 2010

President Obama is expected to announce a three-year freeze on non-security, discretionary spending in the State of the Union address this Wednesday, January 26th, according to CNN. The three-year freeze will hold discretionary spending at the current level of $447 billion, about one-sixth of the federal budget, with a goal of creating savings of $250 billion.  The freeze does not include defense, homeland security or the so-called “entitlement” programs such as Medicaid and Social Security.  Congress will be able to shift funding from one program to another within that amount.

Aronson predicted such a drop in discretionary spending in our January 15th, New Year’s Resolution’s post: Resolution #10: We Will Prepare for the Inevitable Government Contracting Economic Crisis. Combined with the federal deficit, a drop in discretionary funding  means an economic crisis in the government contracting industry.  As noted previously, it is critical that you start to develop a contingency plan now as very few areas will be immune from the shrinking pool of money. See the key areas to incorporate in your contingency plan here. Aronson’s Government Contracts Services Group can provide  information and assistance succeeding in these tough times – contact Lexy Kessler, Lead Officer via email or at 301.231.6218.

Resolution #10: We Will Prepare for the Inevitable Government Contracting Economic Crisis

Friday, January 15th, 2010

By 2013 it is projected that the percent of the Federal budget available for discretionary funding will drop to 31% .  That means out of the entire Federal budget only 31% of the dollars will be available to fund homeland security, the new proposed health care plan and everything else. This combined with an ever growing Federal deficit, highlights that it is a only matter of time before the dollars available to contractors will shrink substantially.

To give some perspective into what this precipitous drop in discretionary funding means, in 1984 45% of the Federal budget was available for discretionary dollars. The Federal budget is a pool of dollars that is broken into two buckets. Mandatory spending which is comprised of social security, Medicare and interest costs and discretionary spending which contains the pool of dollars that is available for everything else including dollars to be awarded to contractors that do business with the federal government. If the pool shrinks, what does that mean to our industry?

What this means to our industry is we will experience our own economic crisis.  A crisis that will not garner the front headlines of the national news, but a crisis that will threaten the livelihood of businesses in which only the fundamently strong will survive. It is critical that you start to develop a contingency plan now as very few areas will be immune from the shrinking pool of money.

Some areas to incorporate in your contingency plan: (more…)