Congressional deficit anxiety, always running high amid conservative Democrats, is reaching something of a fever pitch this week — while the White House prepares to ask most federal agencies for two alternative budgets for the fiscal year that begins next fall: one that freezes spending and one with a 5 percent cut.

U.S. DOT headquarters (Photo: Capitol Riverfront)

The Wall Street Journal has the details, as part of a larger report on the Obama administration’s internal debate over whether to set aside unspent financial bailout money for deficit reduction:

The White House is in the early stages of considering what bigger
moves it might make for next year’s budget. The Office of Management
and Budget has asked all cabinet agencies, except defense and veterans
affairs, to prepare two budget proposals for fiscal 2011, which begins
Oct 1, 2010. One would freeze spending at current levels. The other
would cut spending by 5%.

OMB is also reviewing a host of tax changes. The President’s
Economic Recovery Advisory Board will submit tax-policy options by Dec.
5, including simplifying the tax code and revamping the corporate tax
code.

Matt Yglesias tackles the political motivations behind the administration’s efforts to project fiscal hawkishness while weighing new initiatives to combat rising joblessness ("without increasing the deficit"). But the signals of coming budget austerity at non-military federal agencies is another huge story in itself, and one that’s bound to have significant implications for transportation policy.

The U.S. DOT made a budget request of $73.2 billion for fiscal year (FY) 2010, which began in October, compared with $68.2 billion during the final year of the Bush administration (FY 2009) and $70.3 billion in FY 2008. According to that data, a 5 percent cut would leave the agency’s request above its FY 2009 level.

Once budget requests are forwarded to Capitol Hill, lawmakers get the final word on setting agency spending levels. But the administration’s move — which comes as more states face budget crises and find themselves at risk of losing federal matching funds for transportation — suggests that a spending freeze may indeed be the best case scenario.