Weeding the budget of $17 billion

Obama administration proposes cuts in funding for more than 100 federal programs in latest salvo in 2010 budget fight.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- President Obama on Thursday offered a more detailed look at his 2010 budget proposal, which includes recommendations to cut funding for 121 federal programs and save $17 billion in 2010.

"There is a lot of money being spent inefficiently, ineffectively, and -- in some cases -- in ways that are actually pretty stunning," Obama said.

The $17 billion in savings amounts to roughly 0.5% of the more than $3.5 trillion in spending approved for next year, or 1.2% of the projected $1.4 trillion deficit next year if the president's overall budget is adopted.

Obama said it nevertheless is real money -- even by Washington standards.

"To put this in perspective, this is more than enough savings to pay for a $2,500 tuition tax credit for millions of students as well as a larger Pell Grant -- with enough money left over to pay for everything we do to protect the National Parks," he said.

But it's not necessarily money that would represent an actual reduction in spending. Rather, it's money that is more likely to be reallocated to other endeavors - from a program the administration assesses is not working to a similar program that is.

"The spirit is to eliminate duplication and measure what works and what doesn't and put additional resources into things that are working," said White House budget director Peter Orszag in a call with reporters.

Roughly $11.5 billion of the savings would come from the discretionary side of the fiscal 2010 budget -- that is, for programs whose funding is not automatic. And roughly half of the savings would come from non-defense programs.

The biggest proposed cuts and reductions in the president's budget are defense-related:

  • Recruiting and retention adjustments: $6.24 billion
  • Future combat systems of manned ground vehicles: $2.98 billion
  • F-22 raptor fighter aircraft: $2.9 billion
  • Transformational satellite: $768 million
  • Joint strike fighter alternate engine: $465 million

In any given year, defense spending typically accounts for more than 20% of the total budget.

Among the smaller programs on the president's chopping block are a long-range navigation system made obsolete by the GPS (cost: $35 million); an early education program called Even Start, the performance of which had been poor (cost: $66 million); and a Department of Education attaché position in Paris (cost: $632,000).

The cuts and reductions are likely to be the first of many to come, the president promised.

A few weeks ago, Obama announced that he had asked his cabinet members to cut $100 million from their agencies' expenses, a number budget analysts characterized as symbolic at best.

On Thursday, he also noted that he has moved to reform the way government funds are awarded, including ending the practice of "unnecessary" no-bid contracts, for a projected savings of up to $40 billion a year. And he has called for the elimination of subsidies paid to private insurers through Medicare, for a savings of $22 billion a year.

Whether or not lawmakers adopt the president's recommended cuts is another matter. They are likely, however, to come up with their own cost-saving proposals. House Speaker Nancy Pelosi, D-Calif., for instance, has given her House committee chairmen until June 2 to provide a list of ways they can reduce expenses.

Deficit on the horizon

Fiscal discipline is among the pillars of the new economic foundation Obama has said he wants to build.

Yet it's unlikely the $17 billion will be used to run down the deficit. A few weeks ago, in previewing the cuts to come, the president said the money saved would be put toward his proposed initiatives in health care, education and energy. Indeed, the $2,500 tuition tax credit and the larger Pell Grant are among his proposals and temporary provisions for them already exist in the $787 billion stimulus package enacted in February.

The House and Senate have agreed to amore than $3.5 trillion budget outline for fiscal 2010, which begins Oct. 1. That's roughly the size of the president's budget request. The proposals Congress and the president are making, however, would push the long-term deficit significantly higher over a 10-year period, even though they would reduce it over the first 5 years.

While few suggest the government retract its spending largesse while the economy is still struggling, deficit hawks caution that lawmakers must do more than pay lip service to the long-term debts situation.

Thanks to the financial crisis, tax receipts are down sharply this year while spending demands have grown to record levels. Forecasts of a slow recovery and estimates of a large price tag for Obama's proposed health care, energy and education initiatives have worsened somewhat the already tough fiscal outlook.

The Government Accountability Office estimates that all federal revenue will be eaten up by government costs for Medicare, Medicaid, Social Security and public debt interest by 2025. Last year, the estimate was 2030, said Charles Konigsberg, an expert on the federal budget at deficit watchdog group the Concord Coalition.

Orszag reiterated the administration's position that the biggest deficit-cutting efforts will come from curbing the growth in health care costs.

Former Congressional Budget Director Rudolph Penner, an institute fellow at the Urban Institute, agrees. And that's why he characterizes the $17 billion in proposed cuts as also largely symbolic in nature.

"It looks trivial in that it won't have a big impact on the long-term fiscal problem. ... [But] there's some symbolic merit to what he's doing," Penner said.

On top of that, the United States is borrowing near record amounts to fund the cost of reviving the economy and financial system.

But ultimately buyers of U.S. debt will want to see harder evidence that the administration is serious about dealing with the country's deficits by reforming Medicare and Social Security and demonstrating a willingness to raise taxes to keep the deficit under control, Penner said.

Cuts shouldn't be made all at once, but phased in giving future retirees time to plan for the adjustments, Penner said.

Sounding a similar note was David Walker, who runs the Peterson Foundation, which seeks to raise awareness of the country's long-term fiscal situation.

"To put things in perspective, $17 billion is equivalent to a little over 3 days of federal deficits at current rates. The federal government needs to engage in more comprehensive efforts on both the spending and tax preference sides of the ledger," Walker said in a statement.

The White House budget office's cost-saving proposals are part of a two-stage release on the final details of Obama's budget request. Next week, the OMB will release more analysis on the country's fiscal policies, along with "minor updates and changes" to the administration's summary tables of budget forecasts, first put out in February.

- CNN's Suzanne Malveaux contributed to this report. To top of page

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