Jon Krause

Truth & Consequences

Two analysts explore the potential fallout if Congress fails to avert defense cuts triggered by the 2011 Budget Control Act.

The cuts would devastate the economy and jeopardize a generation of innovation.

By Marion C. Blakey

Sometimes it takes a looming deadline to force us to accomplish the enormous tasks we’ve put off for months. We do our taxes on April 14 and pull all-nighters on the eve of our biggest exams. 

Congress is no different. But the consequences of failing to reach an agreement on national budget priorities are much higher. Unemployment benefits expired four times in the past two years before Congress voted to renew them. Two thousand transportation workers were furloughed and 41 projects halted when Congress missed a deadline to renew the Federal Aviation Administration budget. And a super committee of 12 hand-picked members of Congress failed to meet a November 2011 deadline to agree on $1.2 trillion in spending cuts, per the Budget Control Act. 

Now Congress is facing the fallout from punting on these cuts and the consequences are severe. The process known as sequestration will slash funding for defense, space, aviation and other domestic accounts by more than $1 trillion. Added to last year’s debt ceiling cuts, the total is more than $2 trillion in spending cuts. 

An overwhelming bipartisan majority in Congress oppose these deep, across-the-board cuts. They agree it would be better to implement strategic, bipartisan budget reductions. But Congress is again procrastinating. Sequestration doesn’t technically kick in until Jan. 2, 2013, and many seem resigned to leaving the matter for the post-election lame duck session, or even until 2013. 

Sequestration is not a fictional monster under Congress’ bed—it’s the law on the books. As such, budget planners and companies that deal with the government don’t have the luxury of pretending it doesn’t exist. Programs are being slowed and scaled back to prepare for sequestration. 

The 1988 Worker Adjustment and Retraining Notification Act requires contractors to inform workers 60 days or more in advance of layoffs. So hundreds of thousands of these notices could be sent in October and November, due to the widespread layoffs sequestration will demand come January. 

These are just the first signs of the storm to come: the green cast in the air, the darkening of the sky. In 2013 alone, the Defense Department faces a $100 billion cut, and according to Defense Secretary Leon Panetta, that could slash every program by 23 percent. That would threaten all shipbuilding and base construction projects, since you can’t build three-quarters of a boat or a building. The military services will have to reduce orders for other equipment by one-third or more, driving up unit costs. Panetta predicts the budget cuts will disrupt the ongoing mission in Afghanistan. 

The 2013 cuts also would slash NASA funding by nearly 10 percent. That would make it incredibly difficult to fund our most essential space priorities such as the James Webb Space Telescope, International Space Station and the new Space Launch System without completely ending all other NASA programs. 

The annual budget for the Next Generation Air Transportation System, the air traffic control modernization effort known as NextGen, would face cuts of 30 percent to 50 percent in 2013. Experts predict that, if implemented, NextGen would deliver efficiencies and savings of $40 billion annually. So delaying this project only worsens our budget problems. 

And that’s just year one. During the next decade, defense funding would fall to the lowest level since World War II. Without enough fighters to staff the decks of our aircraft carriers, our military couldn’t execute President Obama’s East Asia strategy, or protect maritime shipping routes in the Middle East. Without enough reconnaissance drones and satellites, we’d be unable to track terrorists in Yemen and Afghanistan while also monitoring the ongoing nuclear weapons programs of North Korea and Iran. The United States truly could be reduced to a regional power. 

On the space front, sequestration could mean that America sits on the sidelines while the Russians cement their lead in space taxi services and tighten their grip on both government and commercial markets. And we could very well relive our sputnik moment if Chinese astronauts beat us back to the moon—NASA’s own mission just a few years ago. 

Delaying the NextGen digital upgrade could turn the United States into an aviation backwater. Experts predict passenger air traffic will double in the next 10 years while cargo traffic could triple. Our current system, dating to the 1960s, cannot support these additional demands. 

As these aerospace and defense capabilities wither under the poison of sequestration, so will the industry that makes them possible. Roughly 1 million workers could lose their jobs because of cuts to the defense budget alone, according to Stephen Fuller, an economist at George Mason University. The Pentagon estimates the cuts could raise the unemployment rate by an entire percentage point. And the Bipartisan Policy Center estimates these cuts, in combination with tax increases, could reduce the United States’ gross domestic product by half a percentage point, causing a significant and ill-timed drag on our economy. 

Smaller companies will have to shutter their doors forever, after selling or scrapping their tools. Once these companies have vanished, we won’t be able to easily re-create them. We’re facing the largest downsizing of our aerospace and defense industry since the end of the Cold War. We could lose an entire generation of innovation. 

Sequestration is effectively a policy of retreat, yet other nations are moving forward farther and faster than ever. China is building an aircraft carrier fleet and developing a fifth-generation stealth fighter jet. Russia is investing the equivalent of hundreds of billions of dollars in the biggest military buildup since the collapse of the Soviet Union. North Korea and Iran are developing nuclear weapons and intercontinental ballistic missiles. And as they do so, they’re also establishing a defense industrial base that will enable them to build even more fearsome weapons in the future. 

America’s military and aerospace industry is second to none. The industry supports more than 3.5 million jobs; generates more than 2 percent of the U.S. GDP; and ranks as America’s strongest manufacturing exporter, selling $90 billion annually in goods abroad. 

But we got this way because we braved great missions, dared to do great things and did the impossible under the shortest of deadlines—because we have been unwilling to retreat.

Most members of Congress want to avoid the doomsday blow that sequestration would present. I believe Congress will rise to the challenge and demonstrate why America is and always will remain truly second to none. 

Marion C. Blakey is president and chief executive officer of the Aerospace Industries Association. 
The cuts won’t be disastrous, but their mindless application could be avoided.

By Winslow T. Wheeler

Pentagon budget watchers are fixated on Jan. 2, 2013. Because the congressional super committee in 2011 failed to secure a broad budget deal, the “trigger” enacted with the Budget Control Act automatically will remove $1.2 trillion from federal spending—apportioned unequally between discretionary and mandatory spending and payments on the national debt. A large portion of those automatic cuts will hit the Pentagon; as a result, the misinformation, hysteria and politicking from defense spending boosters are dominating the media.

The noise about sequestering defense funds is the embodiment of the dysfunction in Washington. Both Republicans and Democrats have declared themselves in a state of near-panic about it and most have a plan, which conveniently advances their own agenda to the exclusion of anyone else’s. 

Some say a lame duck Congress following the elections will find the common ground to undo the sequestration requirement. That would require today’s horde of finger-pointers to look beyond self-indulgence. Good luck with that.

The irony is one of the few unifying beliefs in Washington— that the Defense Department must be protected from sequester—is quite misinformed. The plaything of politicians, data are not used to bridge differences; they are used to widen them, and when information suggests an outcome that is undesired or outside conventional wisdom, it is ignored.

The representations on the defense sequester are classic examples. The scope of cuts Defense faces is routinely misreported: The Congressional Budget Office repeatedly has testified the sequester would cause the defense budget to lose $492 billion over nine years, but as late as June some were saying the long-term Pentagon cuts would be $600 billion. CBO further explains that sequester would impose a $55 billion reduction in 2013; others say it would be $60 billion; still others say more. It all depends on which baseline you start with: the one set by the Budget Control Act; the larger amount of the Obama defense budget request for 2013; or the amount House Republicans are pressing for. 

It gets wild when Washington debates percentages. Using various assumptions—some of them plausible, others not—two different think tanks reported that sequestration would impose 15 percent or 7.5 percent reductions on defense in 2013. CBO says 10 percent; the Congressional Research Service says 11.5 percent. By including or excluding accounts the law may or may not require to be subject to sequester, analysts change the denominator to arrive at the “indefensible” 15 percent cut, or the less intimidating 7.5 percent cut.  

As the politicians pursue their agendas, they ignore important realities.

CBO reports sequester will reduce the base part of the defense budget (defense spending minus most of the costs of war) to $491 billion in 2013, and it will be supplemented by additional war spending in the overseas contingency operations account. The amount to be in the latter currently is unknown, but it may be roughly 10 percent lower than the $88.5 billion President Obama requested, or if gimmicks now being contemplated are employed, there could be an increase.

One defense budget analyst concluded that sequestration would return the base Pentagon budget to its 2007 level of spending, adjusted for inflation. The Congressional Research Service found it would return national defense spending to just under the 2005 level; CBO says 2006. In any case, spending for the Pentagon would be—historically—quite generous. The levels are more than $30 billion above average Cold War era spending, and they are about $100 billion above the previous lows following other big defense spending periods—the Korean and Vietnam wars and the Reagan era. If the overseas contingency operations account is included, the spread is larger.

Seen from the perspective of what other, potentially unfriendly countries spend on defense, the United States would remain a giant among unequals. The United States spends more than twice what China, Russia, Syria, Iran and North Korea—combined—spend on defense.   

Nonetheless, there are challenges: namely, the abrupt one-year decline from 2012 to 2013, made more problematic by the mindless way sequester threatens to cut. The problems are not insurmountable. First, the president, whoever he may be in January, will have to resist the shibboleth that only more money can “fix” the Defense Department. 

  Next, relief is needed from the mindless cutting. While most point to statutes that seem an ironclad mandate to cut automatic and equal amounts in every program, project and activity in accounts subject to sequester, others have pointed to authorities that the president can exercise to obviate the across-all-boards nature of the cutting. The speculation is not idle; OMB has the sole authority to interpret the Budget Control Act. There have been rumors of closeted discussions and some offhand remarks that suggest the actual sequester could be something very different from what everyone expects. By exploiting any such authority and the clever budgetary legerdemain that OMB uses when it wants, the president should make the mindless into something rational.  

To achieve the abrupt $55 billion drawdown in one short year, the focus should be on hardware and contracted services. The acquisition budget is stuffed with systems still in their initial testing. Termed “acquisition malpractice” by Defense’s top acquisition official, this politically driven—buy it before you fly it—routine should be terminated immediately by suspending production of all hardware programs that have not completed at least initial operational testing. (Precisely how some of our most successful programs were acquired in the past.) While there would be termination costs, such a move could immediately save billions. For example, the outrageous F-35 program alone could cough up almost $6 billion in suspended procurement in 2013 and more in subsequent years.  

Similarly, there are rich savings to be found in immediately suspending, if not terminating, contracting in 2013 for services that should be provided by government employees. There is a gigantic domain of more than $200 billion in total contracted services to select from.

There are other ways the abrupt one-year drawdown can be eased. For example, if Congress were willing—briefly—to incrementally fund projects being preserved, rather than pay all future years’ costs upfront. There are other gimmicks; it would be a pleasant change to use them to save money rather than to squander it.

We are confronted with a panicked mentality from people who believe a historically fulsome Defense budget is somehow “doomsday.” If we have a president in January 2013 worth electing, he will force them to think again. If we don’t, the day of reckoning only will have been delayed.

Winslow T. Wheeler is director of the Straus Military Reform Project of the Center for Defense Information at the Project on Government Oversight.

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