September 14, 2018
Budget Wars-1 Trillion Deficits
September is a transition month. The warmth and humidity of summer hasn’t totally worn off yet, but some days allow for jeans and a jacket. Rain and hurricanes (sadly) are a common occurrence with, as with today, significant consequences. September is a transition from the exploration and relaxing of summer to the sober realities of fall and winter.
This week, the Congressional Budget Office (CBO) released its latest Monthly Budget Review covering the first 11 months of the federal fiscal year. https://www.cbo.gov/system/files?file=2018-09/54442-MBR.pdf. The picture is clear--$1 trillion deficits are here and here to stay. The growth in the deficit (what the government spends vs what it takes in) has also grown substantially in just one year. As the Monthly Budget Review points out:
“The federal budget deficit was $895 billion for the first 11 months of fiscal year 2018, the Congressional Budget Office estimates, $222 billion more than the shortfall recorded during the same period last year.”
As the CBO analysis points out, corporate tax receipts continue to decline (down 30%) which is consistent with their lower tax rate, and interest payments on the national debt continue to rise (up 19%).
The Trump Administration’s Office of Management and Budget (OMB) over the summer had previously acknowledged that the budget deficit will be near $1 trillion this year and will be at least $1 trillion until 2021. https://www.whitehouse.gov/wp-content/uploads/2018/07/19msr.pdf. While the assumptions that underlie OMB’s assessment may differ slightly from CBO’s, they are coming to a similar conclusion—$1 trillion deficits for the foreseeable future.
As leaders, it’s important to know that the current Congress is agreeing to fund federal agencies for 2019 before this election cycle by passing the majority of appropriations now and over the coming weeks. The future Congress will inherit these large deficits and there is yet a consensus of what will be done to address. As you continue during this September transition period, have you started to think about how actions of future Congress could affect your organization? Now is the time to plan.
October 15, 2018
$779 Billion for FY 2018
Today, the Treasury Department released its “Monthly Treasury Statement”. https://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mts0918.pdf, which details the final tally of the spending and revenue (taxes collected) for FY 2018 that ended on September 30, 2018. In short, the Trump Administration spent $779 billion more than it brought in taxes and other revenue during the past 12 months. While $779 is a big number, the deficit has climbed from $665 billion in FY 2017 to the $779 billion in FY 2018—an increase of $114 billion. Will this growth of over $100 billion per year in the deficit continue? As I have discussed previously, the deficit is projected to grow even faster to nearly $1 trillion by this fiscal year. As decision makers, have you considered where you could be affected when the deficit reduction proposals begin?
October 26, 2018
Local Sports and People are Complex
Living in a city like Washington gives you a chance to enjoy the change of climate seasons along with the change of sports seasons. This fall, our beloved soccer team, DC United, played its way from nearly last place into the playoffs on its new home field before a sellout crowd behind one of the great stars in the world, Wayne Rooney. The Washington Wizards have begun their season with significant personnel changes and are taking their time finding chemistry with the new group. The defending Stanley Cup Champion Washington Capitals have been scoring a ton to open the season where they hope to repeat. And finally, the Washington professional football team has been uneven but still providing hope to its fans.
I bring this up because as leaders we must constantly be reminded that those we lead are more than just employees—they are complex people that have passions outside of work. Maybe they are huge sports fans and know a considerable amount about your local sports franchises and want to talk with you at length about it. Or maybe they spend most of their free time as volunteer members in their community. As leaders, on occasion you may want to acknowledge that there is a world beyond the office and that their interests are of interest to you. Who knows, you may find a new passion yourself through those conversations you had not found before.
November 20, 2018
Travel, Turkey, and Touchdowns. Happy Thanksgiving everyone. It’s a time to reflect and give thanks to the wonders in your life and let those you have the pleasure of knowing that you are thankful for them. Please enjoy, be safe and in December return to the blog for my Leadership Themes of 2019. Preview, several of the old narratives are changing which we should all be aware. Happy Thanksgiving.
Fontenot Strategic Consulting LLC
November 30, 2018
Modernizing the Intelligence Community Through Shared Services
Over the past year, I've had the pleasure of working with a group that is helping the Intelligence Community with shared service implementation. Myself and the other pro bono advisors recently authored a blog about the effort. Please visit http://www.businessofgovernment.org/blog/modernizing-intelligence-community-through-shared-services to learn more.
January 31, 2019
Budget Wars--3 Weeks and $1 Trillion
Congress and the President agreed to open the government for three weeks. Thankfully, federal workers are receiving backpay this week (not all contact staff however) and some form of normal activity has begun. But in two weeks, those same employees (and contract staff) will be confronted again with the possibility of another shutdown. How will this affect their ability to enter into long term agreements within government and with the private sector if they know funding is only short term? Focusing only on the short term has hurt the private sector in the past and I fear may hold back longer-term public investments now and in the coming years of the budget wars.
As I have written over the past year, the budget situation and specifically the budget deficit situation has become one of large, permanent structural deficits for the foreseeable future. This week, the Congressional Budget Office released their latest “Budget and Economic Outlook for 2019-2029,” and the story is clear: “In CBO’s projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning in 2022.”
However, the most interesting projection in this latest outlook is the outlook for discretionary spending (the stuff not on autopilot). CBO forecasts that discretionary spending will decrease as a percent of GDP by from its current level of 6.3 percent to 5.0 percent by 2029. The place where this latest shutdown took place (annual discretionary spending) will, in the future, have even less negotiation space.
How will future legislatures react as their annual spending decisions grow more constrained? Will ultra-short-term funding become the norm?
Two weeks to go for this round….but don’t forget to look over the horizon.
August 7, 2018
Summer Break—5 Leadership Themes for Fall
August in Washington is a season unto itself. Every road seems under construction, Congress typically is in recess (although this year the Senate is still in for a couple of additional weeks), and most folks get out to the beach for vacation. Restaurants are not as full, the NATS and DC UNITED rule the summer nights, and the town is sleepy. So, before I take a break until Labor Day, I wanted to share 5 themes I think will shape this fall.
Enjoy the BBQ. See you after Labor Day.
January 10, 2019
Who’s Working Anyway?
Happy New Year. 2019, as I recently learned, is the 20-year anniversary of the first episode of “The Sopranos” television series. The show centered on an organized crime boss that while simultaneously committing unspeakable acts, tried to find the roots of his personal and business anxieties through counseling. From what I remember at the time, the show was so polarizing in that some could not see beyond the brutality and viciousness of the main characters to their humanity—which the show tried its best to also portray. One could read the writers attempt to give complexity to despicable characters and an attempt portray even your perceived enemies as complex people.
Which brings me to the US Federal Government shutdown, which has persisted for 19 days. The federal government can seem a monolith, but at its core (like all organizations) are its people. The federal employees at the shut agencies are affected in different ways because while some are furloughed, many are working. Working, how is that? That is a complicated question governed by law, guidance, and frankly judgement of each agency affected by the funding lapse. The Office of Personnel Management has had to issue guidance about this so often that it put together a guide for these shutdowns, https://www.opm.gov/policy-data-oversight/pay-leave/furlough-guidance/guidance-for-shutdown-furloughs.pdf. The guidance document lays out that those working generally are “excepted” which means:
“Excepted employees include employees who are performing emergency work involving the safety of human life or the protection of property or performing certain other types of excepted work. Agency legal counsels, working with senior agency managers, determine which employees are designated to be handling “excepted” and “non-excepted” functions.”
This definition and its application by agency leadership is how TSA is still screening passengers, and FAA has air traffic controllers in the towers, and the IRS will process tax returns and refunds. These excepted employees are not being paid during the shutdown but are compelled to work. If the shutdown continues, other changes to those deemed excepted will grow. There have been a few profiles of employees furloughed doing this shutdown, but not much light on those working without pay. If this goes further, what will be the real effect on these real people throughout the country?
While I joked in a previous post that no previous shutdowns had occurred, I was sincere in my thought that leaders needed to prepare for them over the next two years. The sad reality is that once they start, a shutdown can be difficult to end as everyone grows accustomed to the effects and changes their behavior. The longer the shutdown goes on, the longer it can go on. I hope it ends soon, but potential shutdowns should continue to be a factor in leader planning in the coming months.
September 28, 2018
Firmly in Fall
The first week of Fall in Washington was a wash out. Rain, rain, rain, and then cool temperatures were the norm for this past week and most of September. Not ideal for what is usually the most beautiful month of the year in the DC area. In contrast, the regular rhythms of Washington were still working when Congress decided before the mid-term elections to pass significant appropriations bills and keep the government open through a continuing resolution for the rest. The lack of drama surrounding this September 30 is noticeable in that agencies can and are planning for next year and the private sector has some certainty into 2019. Will this be the new norm in appropriations process in the years to come? If so, everyone needs to start paying more attention to that part of the budget that can change each year—it could affect you.
December 18, 2018
2018 Themes (Mostly) Accurate
2018 has been one for the record books. Ok maybe that is an overstatement. But if I had to sum up 2018 in two words it would be rising uncertainty. This rising uncertainty was prevalent throughout the year and gained steam over the summer. In August, I detailed the topics I thought leaders should focus on for the fall in the face of this rising uncertainty. Let’s review and see how I did.
1. International Unknowns (Trade, Growth, Tariffs Edition). —The US is bounded on two sides by oceans. Oceans that provide wonderful play and vacation areas and are also hope to vast fleets of ships and commerce connecting US hometowns to hometowns throughout the world. But barriers to those connections have increased and as reports of further tariff increases continue, businesses will have to increasingly conclude that the way they have done business may not be sustainable. New markets will need to be found and the question is, at what expense? Will export dependent business need to grow market share within the US to make up for the lost export market? Which domestic only businesses will be hurt by this recalculation of market share. Will this hurt strong US growth in addition to other factors? With additional tariffs set to take effect this fall, many unknows will be worth watching for.
Generally Correct Call. International unknowns have only increased in the last 5 months. The Brexit process is totally unclear, China trade negotiations are at a pause, the US role in implementing the Paris Accord is unknown, and France is dealing with domestic unrest over fuel taxes just to name a few issues. These international issues should still dominate leaders thinking through winter.
2. Will the Government Remain Open on October 1—Congress is set to pass several individual appropriations (spending) bills for the fiscal year that starts on October 1, 2018. President Trump, however, has signaled he may pursue a government shutdown unless his demands for border funding are included in the final package. While a shutdown will have unknown political effects, the business effects will begin even with the anticipation of a prolonged shutdown. Federal fund dependent businesses and local governments may begin to make decisions in September to put off projects until they know the final outcome. With an uncertain outcome, October 1, 2018 is a date to watch.
Generally Correct Call. The government did stay open then and may stay open at the end of this week when the latest government funding expires, based on the most recent hints from the Administration. The threat of government shut downs or partial shut downs should now be taken seriously at the end of every government funding expiration because the composition of those negotiating the deals is about to change.
3. Will Cybersecurity Finally be taken Seriously?—In an unprecedented move, the heads of the US intelligence agencies spoke from the Whitehouse on August 2, 2018 about the cybersecurity threats facing the US and promoted efforts to ensure the current elections are safe from a cyber perspective. DHS recently published a Cyber Blueprint. Will this fall be the time for cybersecurity to get out of the government and tech community and into the mainstream of America?
Generally Incomplete Call. Massive data breaches are being reported on a weekly basis at large corporations, in multiple sectors, across the United States. It’s unclear anything has changed since the summer on comprehensive cybersecurity enhancement, but the information is incomplete at this time.
4. Votes, Votes, Votes—Election in November. Enough said.
Should Have Said More Call. The election in November kept the Senate in Republican hands, but next month the House of Representatives will be run by Democrats. This new divided government operate differently and there was no better foreshadowing than the Oval Office meeting between the President and the Democratic Leaders of the House and Senate last week. Votes matter and January will show why.
5. Football, Basketball, and Soccer (you thought I was about to say baseball)—Fall is the greatest time of year because of the overlapping sports season. I know, it’s not the way it used to be—and I’m glad. We get football, basketball, hockey, and yes soccer in October—oh and the World Series. As the weather turns cool, Americans will fire up their grills, find their best team shirts and hats and belong again to their club for a least a few hours a week. Sports brings us together and provides a common language. Will the Astro’s repeat? Will the Washington Capitals? How will LeBron do on the west coast? I personally love how this tribalism also binds Americans together. This fall, I think it will too.
Can Never Say Enough Call. In my opinion, this has been over the greatest fall sports seasons in sometime. In professional football, the longtime powers of the Packers, Patriots, and Steelers have stumbled and replaced with the ascending Saints, Rams, and Chiefs. LeBron’s west coast experiment is starting to produce results, but the Warriors look vulnerable. College basketball has new faces in the top 25 such as Nevada, Buffalo, Houston, and Furman. And the Washington Capitals are looking strong (but hockey’s season is so long it too early to make any predictions). If winter continues in this fashion, this will be a great time to be a fan.
It’s the holiday season for many. A time to hopefully slow down and spend time with those you wish to, doing the things you love. I hope you enjoy your time and see you in 2019.