Let’s think about the unthinkable — sequestration.
On Jan. 2, 2013, it will kick in if Congress can’t reach agreement before then on $1.2 trillion in cuts or added revenue over the next 10 years. Sequestration will be avoided if Congress passes legislation that President Obama will sign that undoes the legal requirement in the 2011 Budget Control Act.
Otherwise, on Jan. 2 the government must begin imposing the first of 10 years of across-the-board reductions in discretionary spending accounts for defense ($500 billion) and non-defense ($700 billion).
For the Pentagon, that would be in addition to the $487 billion reduction already built into the next 10 years. The impact, according to Defense Secretary Leon Panetta, would be “devastating.” Deputy Defense Secretary Ash Carter last week called it the equivalent of “assisted suicide for the DoD [Defense Department].”
Just how bad would it be? One-quarter of Defense’s fiscal 2013 budget will already have been spent and the required additional $50 billion in cuts for the rest of the fiscal year would be much deeper. They would be even worse if the president exempts military pay, which is one-third of core Pentagon spending.
That prospect hung in the air Thursday, when 300 defense industry representatives, investors and journalists heard Rep. Adam Smith (D-Wash.), the ranking minority member on the House Armed Services Committee, tell them, “A good chunk of Congress is in denial about the deficit.”
The same applies to the rest of the country.
Although Smith added, “We have to avoid sequester” and was “confident it would never happen,” he could not predict what was going to prevent it. He painted a grim picture.
There would be a “stalemate if you can’t get tax cuts,” he said, and if a suitable compromise is not found, Democrats will just “allow some of the Bush tax cuts to expire,” which would help offset the $1.2 trillion. Smith finally predicted that if anything was to be approved to head off sequestration, it “has to happen during a lame-duck session” following the Nov. 6 presidential and congressional elections.
After lawmakers appeared at the day-long 2012 Credit Suisse/McAleese and Associates-sponsored Pentagon Conference, 11 senior Defense civilian and military officials paraded to the podium. Led by Carter and including Navy Secretary Ray Mabus, Defense Comptroller Robert Hale, and Air Force Chief of Staff Gen. Norton Schwartz, each one mentioned or was asked about sequestration. No one said they thought it would occur, though none knew what would stop it.
Carter, as Panetta told Congress earlier, said the Defense Department has yet to plan for sequester. The department was awaiting instructions from the Office of Management and Budget (OMB) which Carter said he expected to come “this summer.” Meanwhile, he said OMB and Pentagon lawyers are studying whether the across-the-board reductions will be applied to broad accounts, such as shipbuilding, or equally to each program, such as the new carrier, CVN-78, the USS Gerald R. Ford.
Hale said should sequester occur, he expected there would be some furloughs for civilian employees as a quick way to save funds. He estimated it would disrupt investment programs by 10 percent. He hoped the department would be able to selectively reduce programs rather than cutting each by the same amount.
Schwartz noted one unmentioned possible consequence of sequester. He said the contract with Boeing Co. to build the KC-46 air refueling tanker probably would have to be reopened since sequester could limit the payment program.
Mabus mentioned fuel as an unplanned cost increase that must be met, sequestration or not. He said the Navy’s 2012 plan called for paying $88 a barrel, but it had already risen to $107 a barrel. For the Navy, every dollar increase adds another $31 million to its costs, he said. Hale later picked up on fuel costs, saying they became a crisis when the price hit more than $100 a barrel, creating a $17 billion expense department-wide. As a result, Hale said they had to make up for the current increase looking “first at any operating accounts that are under-executing. But frequently the sources come from the investment accounts,” meaning procurement programs.
Hale said he feared the lack of congressional progress on sequestration was scaring “our own people [in the Defense Department] and the investment community.” While he, too, doesn’t think it will happen, he noted Congress will need to pass a new law if it is to be headed off.
Hale suggested a legislative “perfect storm” could develop in December, when a lame-duck Congress may be faced with approving a continuing resolution to cover fiscal 2013 appropriations, the need to increase the debt ceiling and legislation to stave off sequestration.
So far only two moves to stop sequester have minimal initial support. One bill introduced by Rep. Howard P. “Buck” McKeon (R-Calif.), chairman of the House Armed Services Committee, would accomplish just the first year of new, required defense savings by having attrition cut the federal workforce by 10 percent over 10 years. A bill in the Senate, co-sponsored by six Republicans, continues the pay freeze on federal employees through June 2014 and reduces the civilian workforce by hiring only two workers for every three who leave.
Neither has bipartisan backing and both probably would face a presidential veto.
Panetta, who has been involved in budget battles as a chairman of the House Budget Committee, OMB director and White House chief of staff, told the House Budget Committee Feb. 29 that he hoped Congress would “put on the table, not just discretionary alone, but mandatory spending and, yes, revenues. That is the responsible way to reduce deficits and the responsible way to avoid the sequester.”
“The Pentagon finds it ridiculous that Congress continues to avoid the tough discussions on sequestration,” a senior defense official said Monday.
In today’s political atmosphere of “party first,” I doubt that Panetta’s hopes will be fufilled, especially in a post-election, down-to-the-wire December showdown played against threats of a government shutdown and debt default.
For previous Fine Print columns, go to washingtonpost.com/fedpage.