Pentagon and Contractors Need to Plan for Budget Warfare
The House’s near-unanimous passage yesterday of a bill requiring the White House to explain how it will make the severe budget cuts mandated by last summer’s debt-ceiling pact was a pleasant exhibition of bipartisan common sense.
The White House, which has been scandalously silent on the issue, needs to tell the public and lawmakers what it has in mind should so-called sequestration take place after this year. In no realm is clarity more urgent than military spending.
First, let’s be clear: The $109 billion in mandatory spending cuts due to take place in 2013, a requirement agreed to in last year’s debt-ceiling deal, would be a disaster. Combined with the end of the George W. Bush-era tax cuts and expiration of a payroll-tax reduction, the cuts would knock 3 percent off U.S. economic growth next year, according to a Bloomberg News survey of economists. And the blame for reaching this “fiscal cliff” belongs squarely to Congress, which failed to reach a compromise after last summer’s deal on the debt ceiling.
As the presidential campaign has intensified and congressional Republicans and Democrats play chicken over whether the Bush cuts should be furthered for all taxpayers or just those earning less than a certain amount, discussion of legislation to put off sequestration has stagnated. With the cliff still looming, the civilian and military agencies that would be devastated by sequestration, to the tune of $1.2 trillion over a decade, need to make contingency plans.
Consider the Pentagon’s bind. According to an analysis by Bloomberg Government, military spending on operations, procurement, research and construction must be trimmed by 12 percent, or $54.7 billion, on Jan. 2, 2013. Over 10 years, the department must cut as much as 15 percent of non-exempt budget items (personnel costs such as payroll will apparently be spared the knife). Oddly, Defense Secretary Leon Panetta has repeatedly said he is “not planning” for sequestration; Jeffrey Zients, the acting director of the Office of Management and Budget, says he isn’t coordinating sequestration planning with other agencies. This might be a bluff, but if they are assuming sequestration will be put off they are betting the nation’s security on the functionality of a Congress that has proved dysfunctional time and again.
It was proper for the House, which is also debating the 2013 military budget this week, to demand action from the administration. (The Senate has a similar language included in its farm bill.) The Defense Department, however, needs more information to do so properly. The Budget Control Act that established sequestration is vague on whether trims must be carried out evenly across the board or whether the military has discretion to make deep cuts in some areas and spare others. It would be preferable for OMB to interpret the law in a way that gives the Pentagon maximum flexibility, and for Zients to make this clear when he appears before the House Armed Services Committee, scheduled for Aug. 1.
Why does the military need latitude in making cuts? Each additional program that needs modification makes it that much more difficult for managers and contractors involved with a giant entity such as the Defense Department to assess effects and prioritize spending. Eliminating or putting off fewer, larger targets can achieve budget savings more cleanly. And plenty of big-money projects deserve reconsideration -- even if sequestration is put off. Lockheed Martin Corp.’s F-35 fighter plane and the Ford-class Supercarrier, built by Huntington Ingalls Industries Inc., come to mind.
There will be objections to this big-ticket approach. The military, traditionally a culture of shared sacrifice, will be hesitant to pick winners and losers. And members of Congress whose districts stand to lose jobs will surely balk. But in an age of austerity, national defense needs to become leaner and smarter. And there is plenty of fat in the military budget that needs judicious trimming.
It’s not only the Pentagon that has to plan ahead -- military contractors face huge obstacles. As most are required by law to give 60 days’ notice of impending layoffs, some are warning they might send out letters to employees days before the November election. (That may be an idle threat, but let’s hope it spurs Congress to reach a deal putting off sequestration.) In any case, suppliers might need to work out contingency contracts with the Pentagon, and smaller companies will need to forge survival plans in case the federal money spigot gets shut off.
About the only thing one can find wide bipartisan agreement on in Washington these days is that sequestration is a disaster that must be avoided. Yet nobody can agree on how to do it. Given the uncertainties of a presidential-election year, OMB, Congress and the Pentagon -- not to mention the civilian agencies also facing huge mandated cuts -- need to let the public know quickly whether they have backup plans in place.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.