Industry Plea: A Two-Year Sequester Delay

Pro-defense lawmakers and industry groups are promoting a plan to delay automatic spending cuts by two years. The reprieve, they contend, would give the Pentagon and the defense industry time to reorganize and adapt to lower spending levels.

A bipartisan agreement to cancel sequester for two years is seen as a long shot. But lawmakers such as Sen. Barbara Mikulski, D-Md., chair of the Senate Appropriations Committee, believe it is possible. She said she will be working the committee's ranking Republican, Sen. Richard Shelby of Alabama, on a bipartisan recommendation. 

If would be up to the House-Senate budget conference to decide how to deal with the sequester. The 29-member panel faces a Dec. 13 deadline to set funding levels for federal agencies for fiscal year 2014 and avert another government shutdown Jan. 15 — the same day when the second round of sequester kicks in. The White House, congressional Democrats and Republican defense hawks support a reversal or at least a deferral of the automatic cuts, which slash $1.2 trillion from federal agency budgets across the board through 2021. Fiscal conservatives in the House want to keep sequester in place. 

Sen. Richard Durbin, D-Ill., who chairs the Appropriations defense subcommittee, would support a sequester delay, he said Nov. 13 during a hearing where representatives from defense industry associations, labor unions and small businesses testified about the impact of the automatic cuts.

“Congress must act to avoid this irrational, irresponsible approach,” Durbin said. “The first round of sequestration hit military readiness. … The second round will cut even more deeply. It will cut into acquisition. And when we cut into acquisition, we cut jobs across America.”

Delaying sequester cuts by two years would help defense industry resize and plan for the future, said retired Air Force Lt. Gen. Lawrence Farrell, president of the National Defense Industrial Association.

Farrell noted that is not asking for more money for defense, but for a reprieve from the law’s draconian schedule that doesn’t permit a “rational reduction of force structure to achieve the necessary savings.”

“We've lost industrial capabilities in previous downturns. But the rapid pace of sequestration puts us in a lot more danger we think at this time,” Farrell said. “Sequestration abandons the regular order of budgets and rational planning. It creates uncertainty for industry and uncertainty for the military. It's impossible to project what the future budgets and priorities are going to be for industry.” Further, he said, “it is impossible to anticipate with three-month continuing resolutions and arbitrary percentage cuts where things are going.” The current exemptions to sequester, like military pay, and the abruptness of sequester will result in contractors bearing the largest share of the cuts, he said.

The Pentagon took a $37 billion cut in 2013. But because it had prior-year unspent funds to cushion the blow, the actual cut in funding outlays was just $10 billion. Those unobligated funds are drying up, so the next sequester — $52 billion for 2014 — is going to result in a $30 billion hit to outlays. For 2015, the actual cut would be $45 billion. “We've got to get a handle on this because if we have to absorb these outlay cuts in 2014 and 2015, I think all bets are off,” Farrell said. “In those years, we can expect massive disruption to investment in R&D spending and large programs.”

As a former senior budget official in the U.S. Air Force, Farrell recognized that the military cannot expect to get everything it wants. But to function properly, he insisted, it needs a predictable funding plan, at whatever level it is set. A two-year relief from sequester, he said, would give the Defense Department and industry “time to make an adjustment to the strategy." Farrell stressed that Congress needs to “give us a number. It doesn't really matter what that number is. … We know it's not going to be as good as what we've had in the past. But we need the predictability.”

It remains to be seen whether these efforts to delay sequester gain traction. By most accounts, both sides are still too far apart in forging a compromise that would replace sequester with cuts to entitlement programs or new tax revenues.

The House-Senate budget conference — led by Rep. Paul Ryan, R-Wisc., and Sen. Patty Murray, D-Wash. — is expected to consider scenarios to replace the sequester. The Pentagon assumed it would never happen and did not prepare for it. Industry groups launched a major lobbying effort in 2012 to avert the cuts, but their warnings of economic collapse did little to move the parties from their entrenched positions. Republican lawmakers have proposed giving the Defense Department greater authority to manage sequester cuts within the spending caps.

Topics: Defense Department, DOD Budget, DOD Leadership, Government Policy