Congress and Obama at least seem to agree that Defense needs some level of relief from sequestration. (Chip Somodevilla/GETTY IMAGES)

The Defense Department could have some wiggle room to avoid major cuts in readiness as the sequester looms, according to a recent Congressional Research Service analysis by Amy Belasco, a specialist in U.S. defense policy and budgets.

Congress also could soften the impact of the $46 billion in military spending cuts required over the next seven months if lawmakers agree on legislation that expands the amount of funds that can be transferred among Defense accounts. In addition, Congress could allow new procurement starts and increases in weapon production rates.

About $22 billion would have to come from the military services’ operations and maintenance (O&M) account, which pays for readiness-related activities such as training.

Because cuts would have to be applied in the last seven months of the fiscal year, it would require an average reduction of 17.5 percent to each O&M program. Such cuts, the Joint Chiefs of Staff wrote to Congress, could put the United States “on the brink of creating a hollow force.”

The sequester deadline, March 1, is eight days away, but Congress appears unable to make the compromises needed for a realistic solution to the nation’s fiscal problems. Yet, President Obama and House and Senate Republicans seem to agree that the Pentagon, if not the rest of the government, ought to get some immediate relief.

If there’s no remedy approved before March 1, there certainly could be one worked out before March 27, when the fiscal 2013 continuing appropriations resolution (fiscal 2013 CR) runs out. Before that date, Congress can pass a full-year fiscal 2013 defense appropriations bill, which appears unlikely, or a new fiscal 2013 CR that would keep the government running through Sept. 30, the end of the fiscal year.

So far, however, Democrats and Republicans are far apart on how to make up any major funding relief provided to the Defense Department, whether by cutting more non-defense spending or providing additional revenue.

What’s possible, however, is at least giving the Pentagon authority to shift funds, which Defense Secretary Leon E. Panetta has sought for more than a year.

To understand Belasco’s analysis, you must realize that the fiscal 2013 CR for the most part linked this year’s current spending levels to those of the fiscal 2012 appropriations law.

According to Belasco, the fiscal 2012 appropriations law specified that in the personnel and operations and maintenance accounts, “there would be considerable more flexibility to allocate O&M sequester reductions applied at the account level” than the program-specific reductions for procurement and research and development.

Applying that approach to the fiscal 2013 CR, Belasco says, gives the Defense Department — and the individual services — “discretion to allocate funding within O&M accounts.” That is important because some O&M funding accounts in fiscal 2012 were lower than funds originally sought for fiscal 2013.

She writes that the Army has the greatest mismatch, a gap this year of $6 billion, because of the reset costs of forces returning from Afghanistan. However, Belasco says, that may be softened because the Army may have overestimated the funds needed to cover inflation and a requirement for a civilian pay increase that has not taken place. The Army may gain another $2.6 billion with the transfer of funds from the overseas war account to the base budget that also took place in fiscal 2012.

Overall, Belasco suggested that the Pentagon can limit “cuts to readiness-related O&M operating forces to 10 percent to 12 percent, about half the level that the Joint Chiefs warned would be dangerous in its January letter to Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee.”

Her analysis is based on Defense implementing a hiring freeze, furloughing civilian workers for 22 days over seven months, and cutting recruiting, administrative and servicewide base support, including contractors, which could reach 20 percent.

Procurement offers another opportunity. Under the fiscal 2013 CR, new starts and increases in production rates other than those provided for in fiscal 2012 are prohibited. Funding mismatches also have been created because of how major weapons systems were handled last year.

For example, Belasco notes that there was $581 million more in fiscal 2012 for Army weapons and tracked vehicles such as tanks than the Army wanted in this year’s budget. Under the fiscal 2013 CR, that large amount of money is available, but only for those kinds of weapons. On the other hand, the Army is short some $481 million for its fiscal 2013 aircraft request because its fiscal 2012 amount was that much lower than what the Army wanted for this year. The Air Force has $1.9 billion more for aircraft this year than it wanted because its fiscal 2012 amount was that much greater than this year’s request.

Sequester would cut these excesses: the Army’s down to $404 million, the Air Force to $829 million.

The services would benefit if Congress granted authority to transfer those funds, and permit new starts or increasing production numbers.

The Army, for example, cannot go ahead this year with planned procurement of 17 upgraded Paladin howitzers for $206 million because none were purchased in fiscal 2012. Under the fiscal 2013 CR, the Air Force, if authorized, could use some of its excess to increase funding of the new KC-46 tanker development program. It has $877 million, the amount it got in fiscal 2012 but had planned to increase to $1.8 billion in fiscal 2013. If it doesn’t get additional funds, the Air Force will delay this high-priority program for months.

I expect Congress to continue kicking the can down the road when it comes to solving the nation’s basic fiscal problems, but I have no doubt that lawmakers are going to find a way to ease, if not erase, Defense’s sequester.

If they do so for no other reason, it would be a fitting and perfect going away gift for Panetta.

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