Budget austerity is coming -- what should you do?

Talk about a grim budget forecast. The sky really could be falling this time.

The worst-case scenario has been in the works for months now as the two political parties remain at loggerheads over how to reduce the federal deficit. Nothing new here: The Republican approach is to cut spending drastically, with few or no increases in taxes. The Democratic strategy is to balance modest cuts with some tax hikes, particularly on the highest income earners.

The difference now is the Nov. 23 deadline imposed on the Joint Select Committee on Deficit Reduction, more commonly called the supercommittee. If that group fails to deliver a plan for $1.2 trillion in cuts or if Congress fails to pass its recommendations, draconian, automatic cuts could augur an even worse fate for agencies.

No matter who prevails in Congress, however, the prospects are good that agencies will have less money and fewer resources in the near future than they’ve had in the recent past — and many agency leaders would say even recent budgets have been too constrained for comfort.

But just how much do agencies spend? No one is sure. For IT in particular, the Government Accountability Office has found that agencies define it and report it in different ways, making the number assumed to be the government’s annual IT expense — about $79 billion — suspect, according to Federal Computer Week reporter Camille Tuutti.

Taking an austere approach to budgeting would be a big mistake, writes Matt Nesto at Yahoo! Finance, citing Barton Biggs, founder and managing partner of New York-based hedge fund Traxis Partners. Instead, Biggs touts what he calls the grand bargain: raising the retirement age to 70, raising taxes on the top 1 percent of earners and cutting military spending to no more than 2.5 percent of the gross domestic product, about half of what it is currently.

Budget reductions have been in the air all year. When President Barack Obama released his fiscal 2012 budget proposal in February, it contained $1.1 trillion in spending cuts and tax increases in the next decade. Almost half of the savings would come through a five-year freeze on discretionary spending, which could hamstring agencies’ efforts to do anything more than their minimal missions.

However, an analysis in The Economist suggests that the proposed budget — with all its cuts to programs, reductions in agency spending, freezes on civil servant salaries and increases in taxes — would fall far short of the promised deficit reductions, so agencies would have suffered through lean times with little positive return.

“Cuts now look certain; the only question is their magnitude," the unbylined Economist analysis reads. "Paul Ryan, the Republican budget committee chairman, called it ‘refreshing [that] we are debating how much to cut spending, not how much to increase spending.’ Still, the scale of cuts Republicans now want would undo a sizable portion of the stimulus of last year’s tax deal, setting back the recovery. For that reason, as well as others, Democrats are unlikely to go along.”

The bottom line for agency leaders is that they should be prepared for the sky to fall. It’s almost certain that the next budget, and probably several more after that, is going to provide far fewer dollars. We still don’t know what will be cut and by how much, but it's a safe bet that agencies are going to have less to work with.

So what are leaders to do? One possibility is to embrace the advice Army Chief of Staff Gen. Raymond Odierno recently gave for his branch of the military and apply it governmentwide. In short, don’t dust off the old “do more with less” cliché. Instead, Odierno told the Army Times, “as we move ahead under significant budget restrictions, we'll have to do less with less.”