Sequester Fight Continues as Details Emerge and SecDef Amps Up Rhetoric

As the potential impact of sequestration begins to settle in — and details of its impact begin to emerge — Defense Secretary Leon Panetta is elevating his rhetoric.

In little more than a month, details have surfaced that put substance to industry worries about the effects of sequester on defense. Last month, for instance, Sen. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee, rolled out a suggestion for an additional $10 billion-per-year cut to the defense budget as the price to avoid sequester. Since then, no further elaboration has been made on that proposal. And a stream of opinions continues in the news media about sequester possibly not being as bad as advertised.

An Aug. 1 hearing of the House Armed Services Committee revealed a bleak picture. It looks as if about $22 billion of the sequester cut of $54 billion for fiscal year 2013 will come from operations and maintenance accounts. About $21 billion of the reductions will be from investments in new weapons systems and technology. These calculations come after President Obama elected to exempt personnel accounts from sequestration. That means the cuts fall on only $460 billion, rather than the $615 billion in the 2013 budget.

The Army, with an O&M budget of $65 billion, will be absorbing most of the cuts. The Air Force and Navy each spend about $45 billion on O&M. When one considers that 60 to 70 percent of O&M funding goes to operational forces training and equipment repair, that constitutes a huge hit on troops presently engaged in war, which should be unacceptable.

On the investment side, the Army starts out with a smaller account than either the Air Force or Navy, so even a smaller percentage cut still makes a small investment account even smaller. Army procurements are being slowed for many reasons, so sequester begins to impact before it is triggered. Any programs being paid for by foreign military sales will likely continue, but cuts to domestic programs in the same area will drive inefficiencies for all. It also looks like big hits could be coming for information systems procurements.

The application of the WARN Act (Worker Adjustment and Retraining Notification), which requires advance notifications to employees of probable layoffs, is now in question following a Department of Labor memo that says notices are not required under the current scenario. Some defense firms have been planning to abide by the act’s requirement to warn 60 days ahead of possible layoffs, which would occur before the election. Some states such as New York require 90 days’ notice. The Department of Labor has stated that the act gives exemptions for jobs losses that are only speculative, like sequester.

By Labor’s reckoning, sequester is only speculative, not probable, so no advance notice is required. If layoffs are necessary once sequester takes effect, then it would be OK to issue pink slips without the notice that is required in the act.

The Labor memo, however, is no guarantee or protection against lawsuits that are certain to arise if layoffs are executed inside the required notification window, so one might expect some firms to ignore it.

In any event, if the budget does shrink by 10 to 12 percent, jobs will also come down. Many in Congress say this is unacceptable, but if they truly believe that, one sees little evidence of any legislative action to address the problem.

Panetta, who has been vocal over the past year about the need to avert sequester, has recently upped the ante. In an address to a conference of The Association of Defense Communities, he defended the administration’s plan to bring down the defense budget by $487 billion as a strategic and fiscal imperative that makes the U.S. military smaller, but still agile and potent. But he drew the line at sequester, calling it “a disaster for national defense” that never was designed to be implemented. He also describes sequestration as “crazy, insane, nutty” policy.

“I have men and women in uniform putting their lives on the line every day,” Panetta said. “If they are willing to do that, our elected leaders ought to be able to find a little bit of the guts they need in order to govern this country and do the jobs we elected them to do.”

The nation’s security, he said, is being threatened by “our gridlocked political system that is unable to solve the serious problems that confront the country.”

The situation is serious. Panetta chided Congress for not allowing more rounds of base closure and for continuing to add back money to Air Force-proposed cuts in force structure. He also mentions military compensation as a trouble spot in the budget. Because the nation must keep faith with the troops, this is worrying, since the only way to address compensation is through reductions or cuts. At some point compensation and benefits will be put on the block again. It is noteworthy that the proposed benefit and compensations cuts in the president’s budget are not in the Senate appropriations bill.

Panetta strongly defended the industrial base when he said, “We cannot as a country afford to lose the industrial base that supports our national defense.”

A sense of real disaster is being felt in responsible leadership circles, and there is little prospect to forestall this. The defense budget is clearly caught up in the larger debate and disagreement on taxes. On the one hand, several lawmakers insist that sequester was never supposed to happen, but the same ones who say this appear to be doing little or nothing to work toward a solution. This fact goes a long way to explain the sharp words we hear from the secretary of defense.

Topics: Defense Department, DOD Budget