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President Obama has proposed budget cuts in 2010 totaling 17 billion dollars. How will this affect the economy?

Everyone has thrown in their two cents over the past few weeks about President Obama’s recently announced proposed budget cuts for the 2010 fiscal year. Most brought up the point that while he plans to cut out $17 billion next year, that amount is hardly even a drop in the bucket when compared to the $3.2 trillion the government is spending this year and many think it will still hurt the country overall. It seems that most of the articles available don’t dig very deeply into what exactly President Obama intends to have removed from the budget for the next year.

The White House recently published the Termination, Reductions, and Savings Report (TRSR) online.  The government contracting section contains details about the impacts of the budget cuts to the thousands of small business owners in this country doing business with the federal government. I was primarily interested in how President Obama plans to reduce the costs of being a contractor for the government during next year, while still trying to increase the opportunities for small businesses this year.  It seems to be at best a difficult task.  The primary method that has detailed in the report is to decrease the Department of Defense (DoD) budget by roughly $0.9 billion.

While $0.9 billion may not seem like very much, especially considering the $787 billion Recovery Act recently passed, it is likely to be significant next year. With any luck, unlike this year the United States won’t need another bill to help stimulate the economy, so budgets are already going to be dramatically reduced. The money that is being distributed by the ARRA (better known as the stimulus package) will still be being distributed.  The White House predicts that roughly 75% of the money will have been contracted out by August 2010, so small business contractors should be positioning now in order to be ready to take advantage of the available options and opportunities.

The primary reason that the Obama administration selected the DoD for these budget cuts instead of another federal agency is that they are the largest consumer of external contracts within the government. According to the Government Accountability Office (GAO), the DoD’s spending on contract obligations has increased roughly 83% between 1998 (when tracking was started for this category) and 2007.  2008 and 2009 have definitely added to this courtesy of the stimulus bill and the ongoing war.  One proposed government solution involves hiring about 33,500 civilian employees by the year 2015 to help internalize jobs that the DoD has historically hired contractors for. This measure is projected to save the United States about 40% on contracting dollars – per year – compared to the outsourcing option.