don't be dull, be fannish

The budget they're speaking of is the episode budget. :) Part of the reason it goes down every year is to offset the way all the contracts rise - the expensive people are the producers, and their contracts rise exponentially every year. There's no way around this - The CW can't lessen the amount they receive until their contracts are up (typically 7 years), so there's no such thing as a budget cut there. Contracts aren't included in the budget at all - partly because that's handled through the production company, Warner Brothers Television, who also takes part (if not all) of the burden of the contracts financially. (See! Sneaky!)