BUDGET

Deep Partisan Divide Over Sequestration Making Defense Industry Uncomfortable

8/1/2012
By Sandra I. Erwin
Some defense industry executives are privately lamenting their role as political pawns in the pre-election war over federal spending and taxes.
The doomsday rhetoric about looming budget cuts has made many in industry increasingly uneasy as they see fiery partisan bickering overshadow substantive discussion, whichcould hurt the defense sector in the long run.
Republican defense hawks have framed the debate over across-the-board budget cuts scheduled to take effect Jan. 2 purely in terms of the impact those reductions would have on the military and on industry employment. Democrats also oppose sequestration, but are demanding tax revenues as part of a larger deal to avert the ax, which also would affect non-defense agencies.
Industry groups over the past year have mounted an intense lobbying effort against sequestration, and commissioned studies that warn the cuts would wipe out more than a million jobs from the U.S. economy. GOP lawmakers also have partnered with defense firms in nationwide “rallies” against sequestration.
“Defense industry and government jobs are [caught] between Democrats and Republicans over a sound way to bring down the deficit in a balanced manner that can help preserve our national security,” says Mark Jacobson, a Navy veteran and currently a military advisor to the Truman National Security Project, a progressive think tank.
“This is not a matter of choosing between security and being fiscally responsible,” says Jacobson.
In private conversations, some industry executives concede that what started out as a politics-as-usual campaign to protect the Pentagon’s budget could damage industry’s interests in the long run. Playing the jobs card and avoiding a serious examination of defense priorities are not the way to solve the nation’s fiscal crisis, an aerospace industry executive says.
Industry CEOs and Pentagon leaders have been dragged up to Capitol Hill not to discuss meaty business issues but to help to fuel fears of massive job losses that would result from sequestration, he says. Defense spending could be reduced responsibly, without sequestration, and without gutting military capabilities, he says.
The automatic cuts would wipe more than $500 billion from the Pentagon’s budget over the next decade. The first installment due in January would be an approximately $53 billion reduction from the fiscal year 2013 top line. Industry dreads this scenario because the cuts would fall disproportionately on weapons procurement programs, as personnel accounts and overseas war budgets would be exempted, according to Obama administration officials.
Contractors’ business also would be affected by sequestration cuts to military training, weapons maintenance work and support services.
If the goal is to cut $53 billion in defense spending next year, that could be done by selectively targeting bloated areas of the budget, rather than slicing across-the-board with a cleaver, the executive says. “You can meet sequestration targets without changing strategy,” he adds. “Why do they talk about catastrophe?”
Another anonymous aerospace exec expressed similar views in awhite paper published by the industry-funded Lexington Institute.
A combination of business and workforce reforms could yield more than $53 billion in savings, the paper says. The anonymous industry author attributes the bloat in the defense budget to the “tortured way government does business,” the paper says. “Requirements are out of hand. Oppressive administrative and regulatory burdens, poor public/private-sector relationships, failure to accurately account for costs, failure to leverage the power of multiyear/block buys and use of incremental funding mechanisms, and Congressional interference tremendously increase the cost of defense without contributing to the strategic posture or capability.”
The Defense Department could save billions just by matching the pay of its civilian employees with what workers are paid in the private sector, the Lexington report says. It cites a Congressional Budget Office study that concluded that federal civilian employee compensation averages 16 percent higher than market. “Since CBO reports total DoD civilian compensation is $80 billion annually, potential savings are $12.8 billion,” the executive writes.
The intensely partisan spectacle that has surrounded the sequestration debate only guarantees more uncertainty and indecision, at least until after Election Day.
Sen. Jack Reed, D-RI, says there is a “conceptual outline” for a possible budget deal that some lawmakers might consider supporting, one that would involve a mix of spending cuts and tax increases to the tune of $1.2 trillion — the amount needed to avert the sequester.
“But the devil is in the details,” Reed says during a July 31 conference call with reporters. Only if Republicans agree to new taxes is a deal even remotely possible before the sequestration deadline. “Nobody on either side of the aisle wants sequestration,” says Reed. Even the most left-leaning Democrats are against sequestration because of what the devastating cuts would mean for education, health, border security, medical research and countless other non-defense programs. A handful of Republican senators have been “talking about revenue,” says Reed. “But there is a long way between talking and voting.”
During an especially contentious hearing of the House Armed Services Committee Aug. 1, administration officials said they expect Congress to find a way out of sequestration.
Office of Management and Budget Acting Director Jeffrey D. Zients was called to testify on how the administration would apply the automatic cuts. But the discussion quickly collapsed into partisan grandstanding. Zients, who testified alongside Deputy Defense Secretary Ashton Carter, said Congress has focused on “unbalanced solutions” that emphasize the impact of defense cuts and fail to consider tax revenues.
Carter told the committee that sequestration would affect more than 2,500 programs and would cause widespread chaos to the Pentagon's budget process. He urged lawmakers to take action to avert this scenario.
“If required, OMB will be prepared to implement sequestration Jan. 2, 2013," Zients said.

Topics: Business Trends, Doing Business with the Government, Defense Department, DOD Budget, Government Policy

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