Agencies should own the cuts to their budgets for 2013 and beyond.

That is the message the Office of Management and Budget is trying to send to agency leaders as they negotiate the president’s budget request for fiscal year 2013 scheduled to be sent to Congress in February.

OMB Director Jack Lew said Tuesday the White House doesn’t want to dictate how agencies make decisions.

“We want to give agencies tools and do it in a way that is perhaps less directive and more as guidance,” Lew said during a speech at the Partnership for Public Service in Washington.

“I think agencies are going to need to make those kinds of decisions and say ‘We can do deeper on the administrative side because we have to limit program cuts. Or instead of doing the depth of administrative cuts, we would rather take it more out of programs,'” Lew added. “On a macro level, I’m trying to build in to the process that kind of dialogue. I do believe ownership at departmental level at a time of constraint is important.”

Agencies sent their initial budgets to OMB earlier this month, but the process is just getting started. OMB will review the proposals and negotiate through December.

OMB issued budget guidance in August, directing agencies to revise their 2013 requests to cut 5 percent in discretionary spending and to offer ideas to cut at least another 5 percent.

Lew said so far agencies seem to understand the fiscal constraints the government is under.

“They don’t all hit the mark,” he said. ” I don’t want to say we’ve hit that point where every agency has come in at guidance and our work is done. But there does appear to be a sense of realism and I’m trying to capitalize on that because I believe partnership is actually the most effective way to work between OMB and the agencies.”

Lew added each agency will find ways to reduce its budget differently. Some will reduce spending on administrative functions. Others will cut program areas, while some will look at their workforces to find savings.

“We need to look at what the agencies do, what the state of their IT systems is and what the state of their workforce is and come up with a package that is right for the agency,” he said.

At least 14 agencies have asked the Office of Personnel Management for ” target=”_blank”>approval to offer buyouts and early retirements. Other agencies, such as the Navy, are trying to cut spending on technology systems.

Learning from mistakes

A new report from the Partnership and Booz Allen Hamilton warns against repeating the mistakes of the 1990s, when cuts to the workforce and other back-office functions left agencies in trouble.

The survey of current and former feds found that the workforce took too big of a hit. For example, the impact on NASA’s workforce was significant. For example, according to the report, 18 percent of NASA’s workforce was under 30 in 1989. By 2004, that figure dropped to 4 percent.

The study found many agencies lost their recruiting know-how and university connections, and the hiring freeze stopped the pipeline of entry-level workers, who would mature and replace older workers as they retired.

And finally, the survey said the tools used by agencies for buyouts and early retirements need to be updated since the $25,000 offer hasn’t changed since the early 1990s.

Lew said OMB is well aware of the need to balance savings and the importance of maintaining skilled and motivated workforce.

But he would not discount the possibility of more cuts to federal employee pay and benefits. The White House froze employee salaries through 2012, and just last week proposed raising the amount employees contribute to their retirement accounts.

“We are not going to be in a place where we can say there is nothing else that can happen regarding federal workers,” Lew said. “We think there is a measured way to address issues regarding federal workers while still maintaining all the incentives we need to attract and retain high quality federal employees.”

He said the issues with federal employees is part financial and part a question of respect. Lew said feds understand when there are tough financial times, they have to do their share.

“What they have a harder time understanding is when they do a good job, they are being blamed for it,” he said. ” We need to separate these issues.”

Lew’s comments about the budget aren’t to be misconstrued that OMB will not be heavily involved in the budget exercise. He said OMB still will review the budgets and will still will make changes in the passback. But agencies will have a different kind of input than before.

Stakeholder buy-in

Along with OMB, agencies will have to convince Congress, employee unions and other interested parties that the proposed budget cuts are both enough and appropriate.

Todd Grams, the Veterans Affairs Department’s executive in charge for the Office of Management and chief financial officer, said working with stakeholders at the beginning of the process is a key element of success.

He pointed to the time when he was the chief information officer at the IRS and had to shift about 1,000 employees, or 15 percent of the workforce.

The IRS wanted to consolidate data centers and move those positions to their customer service and application development offices.

“What we were able to do with the Congress is present to them a very good business case. We just kept pounding that home. We went up (to the Hill) when we needed to go up. We got ahead of the curve,” Grams said. “We didn’t surprise anyone who would be impacted by it. We worked closely with the National Treasury Employees Union so they knew we were doing everything we possibly could for the employees.”

He said out of the 1,000 jobs when they started the process, about 820 were filled with existing employees and only ended up losing about eight to retirements or buyouts.

Ron Sanders, the former chief human capital officer for the Office of National Director for Intelligence and now a senior executive adviser at Booz Allen Hamilton, said educating lawmakers, employees, unions and many others must start sooner than later.

“You can’t educate unless you’ve done your due diligence, unless you’ve got your facts. You’ve got to put in place a process that lets you address these things systematically,” Sanders said. “You can’t do it haphazardly. You can’t wait until the last minute. You’ve got to preposition the process so that when the time comes you can act on it in a disciplined way and that will give you the ammunition to deal with the stakeholder and hopefully convince them what you have in mind is really the best approach.”

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