Developed for Southeast Georgia Friends of Fort Stewart and Hunter Hurt, Norton & Associates (202) 543-9398
INTRODUCTION The 2011 Budget Control Act requires the Pentagons budget to be reduced by $54.7 billion starting Jan 2nd, 2013, using a process known as sequestration. On January 2, 2013 the president must issue an order canceling funding authority for the sequestered amounts. If sequestration is never mitigated or stopped, the law requires DoD to cut $54.7 billion annually over the next 10 years. This is in addition to the $487billion DoD already plans to cut over the next 10 years. Total cuts under full sequestration = $1.2 trillion. DoD’s share is approximately $500 billion. Fort Stewart and Hunter Army Airfield could be seriously threatened through deleterious funding impacts of sequestration.
INTRODUCTION (CONT.) Defense contractors predict the $54.7 billion cut will force plant closures and trigger large layoffs. Lockheed Martin and some other defense contractors have elected NOT to send layoff notices prior to the elections. This decision was based on the guidance from the Department of Labor that said the administration would pick up the tab for contract cancellation and severance costs associated with sequestration. Congressional leaders and the president have said they want to stop the cuts, yet Congress has yet to negotiate or pass a bill that would reverse the reductions. President Obama has vowed to veto any proposal that increases the federal deficit and does not include additional revenues (increased taxes).
INTRODUCTION (CONT.) A frustrated Defense Secretary Leon Panetta recently said he would take ‘whatever the hell deal’ Congress can make on sequestration. Deputy Defense Secretary Ashton Carter recently sent a memo telling the Defense Department and military service heads to continue ‘normal’ spending operations. DoD continues to insist they are not ‘planning’ for sequestration, but will be prepared to address the sequester cuts should Congress and the president not act.
SEQUESTRATION AND THE ECONOMY The cuts impacting DOD’s budget could: Reduce the nation’s GDP by $215 billion; Decrease personal workforce earnings by $109.4 billion; Cost the U.S. economy 2.14 million jobs.• GDP growth in 2013 could be reduced by two thirds and unemployment will increase by as much as 1.5 percentage points raising the current national rate above 9 percent.
UNDOING SEQUESTRATION Only a new law can undo or delay sequestration. Stopping or delaying sequestration could take a number of forms, including: 1. The president and Congress could have reached a deal and enacted a law before the elections – Congress has adjourned for the elections so this option has been ‘overcome by events’. 2. The president and legislators may reach a long-term deal during the lame-duck session of Congress after Election Day and before Jan. 2, 2013. 3. Before Jan. 2, 2013, Congress may pass and the president may sign a law to delay sequestration to allow more time to negotiate a solution. 4. The president and Congress may work out a deal after sequestration kicks in that would retroactively restore some or all of the budget cuts. 5. Congress may pass a bill undoing sequestration and, with a two-thirds vote in both houses, override a presidential veto, should one occur.
UNDOING SEQUESTRATION (CONT.) Consulting firm insight: Congress is most likely to consider option #3: “Reach an agreement to delay sequestration for a specified number of months.” A four to six month delay until the May/June 2013 timeframe is being discussed among some lawmakers. A spending offset would be required, so defense could still experience some reductions, but not $54 billion in 9 months. Ultimately, Congress and president will have to adopt a long-term solution and enact into law.
CONTINUING RESOLUTION (CR) Sequestration will take place on Jan. 2, 2013 whether or not a fiscal 2013 defense appropriations bill has been passed. The president signed a six month CR funding the government through March 27, 2013, on Sept. 28, 2012. Funds provided by a CR are subject to the fiscal 2013 sequester in the same way as funds provided by a full appropriations law.
IMPLEMENTING SEQUESTRATION 2011 Budget Control Act, requires every "program element" be cut by an even percentage. The $54.7B represents a 9.4 percent cut to all 2013 defense appropriations not committed to contract, or exempted by law. About $500 billion is subject to sequestration - $54.7 billion = 9.4 percent.
IMPLEMENTING SEQUESTRATION (CONT.) The reductions will lead to a “near-universal disruption” to each of the Pentagon’s more than 2,500 weapons procurement and research accounts as well as operating budgets for military installations. The OMB report on sequestration released September 14, 2012, calculated the impact of the cuts to the ‘account’ level and not to the ‘program’ or ‘activity’ level. The report projected all accounts would experience about a 9.4 percent cut in 2012. Will Fort Stewart and Hunter Army Airfield be impacted by the $54.7 billion cut? The degree is unknown, but the DoD comptroller has said civilian hiring freezes and furloughs are inevitable if sequestration is not averted. In a worst case scenario, SEN Chambliss recently told community leaders the region could lose up to 7,000 jobs.
SEQUESTRATION & BRAC While sequestration and BRAC are separate issues, they are inextricably linked due to austere budget realities. If sequestration does come into effect, a future round(s) of BRAC would become virtual requirements in order to meet the terms of the defense budget reductions. If sequestration is implemented in January 2013 or is delayed, it will give the Pentagon more justification to press for a 2015 or 2017 BRAC.
POLITICAL LANDSCAPE Both political parties are playing brinksmanship with sequestration. President Obama is placing the onus on Congress. The President does not think he will be hurt in the election by not seriously addressing sequestration beforehand. If reelected, President Obama will use any sequestration deal as leverage for revenue increases (and the expiration of Bush-era tax cuts) in the lame duck session or beyond. If Obama is not reelected, he will have little incentive to make any grand bargain for sequestration during a lame-duck session – a sequestration delay would be possible with Obama as a lame-duck president, but by no means certain. GOP nominee Mitt Romney has indicated that he would protect the defense budget from sequestration if elected, and even roll back the initial tranche of $500 billion in cuts that the military has already said it could safely absorb. If Romney wins, Republicans could be less inclined to retreat on taxes and move toward a broader compromise.
WHAT TO BE DOING NOW Defense community groups and elected officials at the state and local levels must continue to press federal lawmakers to act on sequestration. Sooner is best. Since Congress has adjourned for the November elections, the earliest anything could be enacted would be during the post-election lame-duck session, which begins the week of November 12, 2012. Some Members in both the House and Senate continue to press for a deal to undo or delay sequestration. Senator Saxby Chambliss has been among the most active and vocal for such a deal. A sense of urgency is paramount: The lame-duck session will be legislatively busy, and the politics of any deal-making will be shaped by the outcome of the election. It is far preferable for sequestration to be addressed before it goes into effect on January 2, 2013. Addressing it retroactively is better than not at all, but the continued uncertainty will have detrimental effects on the Department of Defense, other federal agencies, and the defense industry as a whole.