August 24, 2012
Absent a new budget deal between the White House and Congress, defense spending would be hit with an immediate 10.3 percent reduction that threatens the jobs of 108,000 civilian employees, according to an analyst’s new calculations of the looming sequestration threat. Not all those cuts, however, would kick in on Jan. 2, 2013 -- considered D-Day -- because outlays of already obligated funds would continue.
A report released Friday by Todd Harrison, senior fellow in defense budget studies at the nonpartisan Center for Strategic and Budgetary Assessments, extrapolated from the Obama administration’s fiscal 2013 budget request, accompanying analysis and revised strategic plan from January to arrive at figure of $56.5 billion as the Pentagon’s likely across-the-board cut if the sequestration is allowed to take effect.
Given that military personnel and overseas contingency operations are protected, sequestration eventually “would cause overall defense outlays to drop by roughly 4.6 percent in fiscal 2013 in addition to a 2.5 percent reduction in outlays already expected due to the decline in war-related funding,” Harrison wrote. The gradual reduction in outlays for operations and maintenance would be 6.9 percent; procurement would be trimmed 3.5 percent; and research and development, test and evaluation would be cut by 5.9 percent, he said at a briefing with reporters.
“Sequestration would be messy and clumsy and nonstrategic, and was not even intended to be a good policy,” Harrison said. “The reality is bad enough, however, so there is no need to exaggerate” or perpetuate myths. He pointed out that under the 2011 Budget Control Act, there can be no base closures, no layoffs of active National Guard or Reserve members, no pay cuts for military personnel and no immediate program terminations. The exception is the $32.5 billion military health care program, which is in the operations and maintenance category and is slated for a $3 billion cut in retiree services.
Judging historically by amounts in constant dollars and as a percentage of gross domestic product, Harrison said, the Defense Department budget is still relatively large but affordable. “But military personnel expenses are not sustainable and if not addressed, the entire DoD budget will be consumed by them.”
Harrison said he takes Pentagon leaders at their word when they state that no planning for sequestration is taking place, because the goal is to broker a budget deal that heads it off. “But it would be wise to start planning,” he said, noting that the fiscal year ends in a little more than 30 days and that a year has passed since the Budget Control Act passed. Defense officials should begin work on a “reprogramming package to protect certain high-priority items,” he added. “I understand the reluctance to plan and let the public know. Because once you show the high and low priorities, the low-priority ones become targets.”
Defense industry contractors, Harrison said, are more affected by budgetary outlays than budget authority, and outlays roll out at different rates. The payroll rate rolls out fastest, and is spent nearly all in the first year of a program. Procurement and RD&TE account for less than a quarter of outlays in the first year, and it could take three or four years to impose the 10.3 percent cut in these areas, he said. “So there’s some cushion for the defense industry,” Harrison said.
Though sequestration would not hit as suddenly as a government shutdown, the deadline falls after the first quarter of fiscal 2013 already has elapsed. That means the civilian Defense workforce would have to be cut by 13.7 percent in the final nine months of fiscal 2013 to offload 108,000 full-time equivalents. “It would slow everything Defense does, from construction to training to peacetime operations,” Harrison said. “The longer they wait, the more they will have to lay off.”
Contractors would respond to a reduction in awards under sequestration by seeking to renegotiate older contracts, and Defense agencies “would not be in a strong negotiating position,” he added. “Unit costs would go up; they would be short-term savings with long-term consequences.”
August 24, 2012