Government Agencies Gird for Cuts Due to Sequestration

Federal Accounts No Longer a Sure Thing for Shops; Army, Amtrak Could See Declines in Ad Spending

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Government agencies and their marketing firms are bracing for budget cuts due to sequestration -- $85 billion in mandatory, automatic reductions.

As of press time, Congress hadn't agreed on a budget to reduce the deficit to stave off cuts slated to go into effect March 1. That will force government agencies to make tough decisions on where to reallocate and cut resources, and marketing is often a place to start.

There's a lot of money at stake. The U.S. government is the country's 56th largest advertiser, laying out $738.5 million during 2011, according to Ad Age's DataCenter.

"We are prepared for the worst," said Robert Mathias, CEO of North America at Ogilvy PR, who recently served as president of Ogilvy Washington, which supports the business of at least seven government agencies. "Today I'm not revising my budget, but we could talk tomorrow and there could be a dramatically different situation. We're doing this day-to-day."

The Army, which is the government's second-largest ad spender, behind the U.S. Postal Service, will likely feel the pinch. The Army spent $47 million on advertising in the U.S. in 2011.

Spokespeople for the Army declined to comment. But it's likely that it, like other federal agencies, will examine more closely the cost-benefits of its marketing programs, which could put pressure on their shops.

Not all agencies would be affected. The USPS, whose spending doubled that of other government megabrands, including the Army and Marine Corps, said it won't feel the crunch. The organization spent $95.8 million on measured media in 2011, according to the Ad Age's DataCenter.

"Sequestration doesn't really affect us directly because the Postal Service doesn't receive tax dollars. We get our money for operating expenses from sale of postage products and services," said a spokeswoman. "Our operations will continue as usual."

Amtrak, which spent $17 million on advertising in the U.S., according to the Ad Age DataCenter, recently ended its contracts with Havas agencies, an industry executive told Ad Age. The agency declined to comment. It's not immediately clear whether the move was related to sequestration.

Amtrak would not comment on its marketing budget or agency relationships but did indicate in a statement that it's prepping for cuts. "We have been controlling our costs and managing our budget in anticipation of a possible reduction in federal funding," Amtrak said. It noted that "the continued lack of predictable federal appropriations makes proper budgeting and future planning extremely difficult."

For marketing agencies, sequestration isn't simply about cuts. It turns what was once one of the most-predictable client sectors into a category rife with uncertainty.

Mr. Mathias said that while the government is still a great client to have, "it is a wider-eyed decision to pursue [government business]."

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