Analyst: If Panetta Wants to Avoid Doomsday Cuts, He Should Budget for Doomsday

11/23/2011
By Sandra I. Erwin

Under the worst-case scenario now facing the Defense Department, its fiscal year 2013 budget would be $472 billion. That is $99 billion less than the $571 billion that the Obama administration requested for fiscal year 2013 last February.
The specter of these “sequestration” cuts — as a result of the failure of a congressional debt-reduction panel to produce $1.2 trillion in savings — could mean more than a half-trillion dollars worth of reductions over the next 10 years.
But so far Defense Secretary Leon Panetta has chosen to proceed as if the threat of sequestration, which he labeled a “doomsday” device, will not materialize. The fiscal year 2013 budget that the Pentagon will unveil next February must fit within a $525 billion cap set in August by the Budget Control Act. If the sequestration takes effect, as currently written in the law, by January 2013 the Defense Department would have to chop every account across the board to fit its budget within a $472 billion cap. 
There are no signs, however, that the Pentagon is “working on a contingency plan to fit within sequestration,” said Todd Harrison, senior budget analyst at the Center for Strategic and Budgetary Assessments, in Washington, D.C.
Panetta is bracing for a tough fight against sequestration, and his strategy thus far appears to be to try to avoid a self-fulfilling prophesy by not submitting a budget that fits within the sequestration caps. He has directed his staff to proceed with the 2013 budget as if this possibility did not exist.
Ignoring that reality might not be wise, Harrison warned. “It seems only prudent that DoD should be preparing,” he said Nov. 23 during a meeting with reporters.
The administration can choose to present to Congress next year any funding proposal it chooses, Harrison said, but its case against sequestration would be strengthened if it put forth a $472 billion budget for 2013 that paints for lawmakers a line-by-line picture of what Panetta’s doomsday scenario looks like.
“The threat of sequestration would be much more credible if he [Panetta] actually submitted a budget that fit within the $472 billion cap,” Harrison said. “That would show people exactly what the impact would be. You wouldn’t have to exaggerate it or talk about it in general terms. You can show them what programs would be affected,” he said. “That would send a powerful message.”
By planning for the worst, the Defense Department would be able to make “targeted cuts” aimed at low priority areas, instead of having to slash accounts across-the-board beginning in January 2013, which would likely cause major disruptions, Harrison said.
Another twist in this complex game of budget chicken is that President Obama has threatened to veto any measure that Congress might seek to enact to avert defense sequestration, unless it identifies $1.2 trillion in savings from cuts elsewhere or new revenues.
Panetta said he would support the president’s veto, but he is now in the uncomfortable position of being the guy who talks about sequestration in apocalyptic terms but also must help the president convince Congress that the veto threat is credible.
He is trying to play both sides, Harrison said. “He may have overhyped the threat so much that the credibility of sequestration going into effect has been reduced so members of Congress may not take the threat of veto as seriously as they would have otherwise,” he said. “He set the bar so high so he undercut the veto threat.”
Although Harrison believes that it would be prudent for Panetta to make contingency plans for sequestration, he acknowledges that the odds are slim that these draconian cuts will occur.
“I think there’s a fair amount of doubt. … And I share that doubt,” he said.
Investors so far are betting that Congress is likely to act to avoid the automatic cuts beginning in January 2013, said a Standard & Poor's report issued Nov. 22.
Harrison expects that during next year’s lame duck section of Congress, “at least they will find a way to delay the implementation of sequester level cuts.” Both Congress and the administration also might seek to soften the blow by shifting expenses from the Defense Department’s base budget to war spending requests, which are exempt from sequestration.
For now, all anyone can do is speculate. “A cloud of uncertainty will be hanging over the federal government’s discretionary budget, including the Defense Department, potentially for 13 months,” said Harrison. “Congress will be able to talk about this, debate it and potentially not do anything until after the 2012 elections.”

Topics: Defense Department, DOD Budget

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