The American Taxpayer Relief Act, Sequestration, and Defense

 

Not everyone calls it the “perfect storm.” The Military Officers Association of America, in a Jan. 4 news release, called it a “triple witching crisis.” Todd Harrison, senior fellow for Defense Budget Studies at the non-partisan Center for Strategic and Budgetary Assessments (CSBA), calls it “March Madness.”

The ATRA, in kicking sequestration down the road to March 1, has created a confluence of three looming events:

1. The Treasury Department’s inability, projected to occur in late February or early March, to meet its obligations under the current debt ceiling, which can only be increased by congressional vote. This raises the specter, once again, of a political debate precipitating the first-ever U.S. government default on its financial obligations.
2. The March 27 expiration of the continuing resolution currently funding the federal government for FY 2013 – which raises the possibility of a government shutdown.
3. The meat axe of sequestration, hanging over the entire federal budget and scheduled to fall on March 1 – and again on March 27.

If Congress does not act, all three of these things could happen within a month.

After the Nov. 6 election, with the inhibitor of campaign politics finally removed, it was widely hoped that Congress would find a way to agree on a package of budget cuts that would remove the threat of sequestration. The brinksmanship that led to the eleventh-hour passage of the ATRA, however, seems to have widened the gulf between Democratic and Republican lawmakers.

Harrison and other budget experts have come to believe that a second failed attempt to agree on federal program cuts should probably temper one’s hopes for the success of a future third attempt. The threat of sequestration exists, in the first place, because lawmakers could not agree on what to cut in the summer of 2011, when they were debating the Budget Control Act, agreeing on what will surely be much larger cuts seems nearly impossible now. “Sequestration,” said Harrison, “is now the best deal Republicans get if they want to compel spending cuts.”

For those wanting to learn in more detail what sequestration might look like for the Pentagon, Harrison has put together an explanation of the ATRA’s potential effects on the DoD budget, titled, “What the Fiscal Cliff Deal Means for Defense.” The short version is that if triggered, sequestration will indiscriminately excise 8.8 percent from every discretionary account in the FY 2013 defense budget. Since nearly half the fiscal year will already be over by the time sequestration is triggered, that total of about $48 billion will have to be cut from the remaining seven months’ expenditures.

Observers across the political spectrum have voiced discomfort with Congress’ approach to budgeting – self-imposed crises that ransom expenditures for deficit reduction – because it prevents government agencies from looking forward and planning systematically. Sequestration, if it happens, will reduce force structure, personnel, and acquisitions in ways that directly conflict with the Defense Department’s carefully laid  strategic plans. By slicing nearly 9 percent from the purchasing power of existing contracts, it will worsen the department’s bargaining position, as vendors adjust prices upward to make up the difference.

In a Washington briefing held a week after the passage of the ATRA, Harrison pointed out that the department has few options for countering the effects of sequestration. It could “reprogram” a budget to meet the reduced amount, taking more than 8.8 percent from some accounts to restore the amounts taken from others. “That’s something they should start working on now,” he said. “They should start working on it in advance, even if they don’t release it publicly. If sequestration goes into effect, I would hope they would be able to go to Congress pretty quickly with a reprogramming request and say: ‘Hey, you did this to us. Everyone agrees that the across-the-board cuts don’t make sense … Here’s our first shot to minimize the damage by reprogramming money.”

Another option is to dampen the effect of sequestration by resorting to the old gimmick of hiding base budget expenses in the war budget, whose future caps are exempt from sequestration – but this tactic is hardly more strategic than across-the-board cuts. It is, at best, a short-term solution, and would, of course, continue to increase the federal deficit. The tactic is distasteful to those who value transparency – and yet it seems increasingly likely to be revived if sequestration takes effect.

“I don’t think this is the apocalypse,” Harrison said. “I don’t agree with a lot of the over-the-top rhetoric that’s been coming out about this. I think it’s a mess. I think it forces a lot of stupid decisions. I think it is very short-sighted. But it’s not the end of the world. We’ll survive it if it happens.”

The shortcomings of the American Taxpayer Relief Act seem to have caught the DoD by surprise. In his Jan. 10 press conference, in which he began for the first time to publicly outline the steps the Defense Department might take to prepare for sequestration, Panetta said: “I thought last year that sequestration was so nuts that there wasn’t a chance that it would happen. And … there wasn’t a member of Congress I talked to that didn’t think sequestration was the wrong thing, and that it shouldn’t happen.”

The secretary’s proposed changes included a civilian hiring freeze, a delay in the award of contracts, and cuts in facility maintenance. He also announced that he had directed the services to develop a detailed plan for how they’d implement sequestration, given the limited time remaining in the current fiscal year. These plans would unavoidably, he said, involve unpaid furloughs of the entire civilian DoD work force: more than 790,000 people.

If Congress does nothing to avoid the “perfect storm” of government default, government shutdown, and sequestration, Panetta warned, the effect on the military would be compounded. “If you take the total sum of all these cuts, we’re looking at 19 percent to 20 percent reduction in the base budget operating dollars for active units,” he said, “including what looks like a cut of almost 30 percent for the Army … Looking at all three of those, we have no idea what the hell’s going to happen. All told, this uncertainty, if left unresolved by Congress, will seriously harm our military readiness.”

One thing about future defense budgets is certain: They will, for the foreseeable future, be smaller than projected a few years ago. The Pentagon is programming them to be so, and there is broad support in the Capitol to make them so. The issue to be resolved by Congress in the coming year is whether defense spending cuts will be the result of choices made as part of a long-term strategy – one focusing, according to the Pentagon’s 2013 budget overview, on transitioning from today’s wars to future challenges, while supporting the “national security imperative” of deficit reduction – or arbitrary, across-the-board cuts that leave the military less capable and less ready to confront the future.

This story was first published in Defense: Winter 2013 Edition.