Late Friday evening, with only minutes remaining before a partial shutdown of the federal government, the White House, Senate Democrats and House Republicans came to an agreement on spending and policy decisions necessary to fund the federal government for the remaining six months of Fiscal Year 2011. In the end, $38.5 billion was cut from the discretionary side of the budget, i.e. spending for programs whose spending levels are not mandated by federal law such as Social Security and Medicare. While more detail will be made available in the next days and weeks about where the budget knife will fall, we know that programs at the Departments of Labor, Education and Health and Human services will be cut by $13 billion. $18 billion will come from cuts in programs considered to be “unnecessary” by the Department of Defense. The remainder will be spread across agencies ranging from State to Housing and Urban Development. In addition, some, but not all of the policy riders sought by Republicans were included, such as restrictions on the District of Columbia spending its own funds to provide abortions and requirements and the reauthorization of a program to continue a school voucher program in the District.

The compromise agreement took a lot of effort, however the work on this agreement will seem slight in comparison to the decisions needed to be made 1) on the next federal budget, for Fiscal Year 2012; and 2) on the upcoming increase needed on the federal debt ceiling. A more grueling battle in both areas is expected, with cuts in both discretionary and mandatory spending to be under consideration. We will see more detail on the President’s plan when the Obama Administration makes its own budget request of Congress this week, in response to a plan already put out by House Republicans that will cut $5 trillion over ten years.

Companies would be advised to at least monitor the budget activities, and to lobby for needed clarifications and amendment. Significant budget policies, possibly including the structuring of the tax code and other key program directions, are certain to be debated and revised.