Walking on a Cliff

Dec. 1, 2012

Whether you bring isolated juries to mind by calling it sequestration, or prefer Federal Reserve Chairman Ben Bernanke’s dramatic “fiscal cliff” description, at the time of this writing the nation is just seven weeks from a financial disaster.

Massive, governmentwide spending cuts will automatically kick in on Jan. 2 unless Congress takes action. Falling off the fiscal cliff would be disastrous for the nation, but lawmakers have failed to act to prevent it. The nation is now left to hope a bitterly divided, lame-duck Congress will come to its senses and reach agreement.

The issue has degenerated into such a partisan blame game that it is worth reviewing how we got here and what will happen if something isn’t done.

To solve last year’s debt-ceiling crisis, Congress passed the Budget Control Act of 2011. It enjoyed broad bipartisan support and was signed into law by President Obama.

One of the provisions in the act was a bipartisan debt-reduction “supercommittee” tasked with identifying a 10-year plan to reduce government spending by $1.2 trillion. The committee failed to deliver a plan, leaving Congress until the end of this year to find $1.2 trillion to cut. If it does not, sequestration kicks in to automatically reduce the spending.

By law, half the cuts will come from national security accounts and half from nonsecurity accounts. With just two exceptions, DOD’s automatic $56.5 billion cut (just the first of 10) next year will be across the board—meaning there is nothing to plan for.

War costs and uniformed military personnel costs are exempt, but every other account will be reduced. Operations, maintenance, procurement, research, development, test, evaluation, and military construction: All will be cut by approximately 10.3 percent beginning Jan. 2. The Pentagon is not allowed to move money around to protect the most important accounts.

If sequesteration takes effect, some effects will be immediate, others will take years to develop. The law cuts budget authority, which is the permission to spend money. It does not directly cut outlays, the checks the Treasury actually writes. Some money gets spent almost immediately, but weapons purchases can take years before the equipment is ready to be paid for.

Todd Harrison, senior fellow for defense budget studies at the Center for Strategic and Budgetary Assessments, says civilian government employees will be among the first to feel the pain.

“As many as 108,000 DOD civilians could lose their jobs in the weeks immediately after sequestration goes into effect,” Harrison explains.

Overall, operation and maintenance accounts will feel the most immediate bite. Some 69 percent of O&M expenses, which pay for items as diverse as spare parts, fuel, flying hours, and training exercises, are spent the year they are authorized.

Air Force readiness will almost certainly suffer within the first year if sequestration takes place. Simply put, the force will not be prepared to fight if it cannot train. Even repairs will be cut back, creating a backlog of broken equipment at a time when the Air Force’s fleet, which has never been older, is worn down by years of war.

Procurement and industry face a slower moving problem. Under sequestration, the consequences will build slowly—but then linger.

Harrison notes that just 22 percent of Fiscal 2013’s procurement authority would be spent that same year, but 33 percent would be spent in 2014, and 21 percent in 2015. The effects will therefore ripple through the defense industry for years.

New purchases will be curtailed, unit costs will rise, and planned purchases and upgrades will be canceled. Not only will there be less money, DOD will be forced to spend it less efficiently. Contractors are already wracked with uncertainty, not knowing what programs will be funded, what research they should conduct, and what contracts are safe. DOD and industry research and development efforts that help make USAF the world’s most advanced air force will be cut short.

All of this is on top of a DOD 2013 budget request that already cut $487 billion from the military, compared to last year’s long-range plan.

Declining budgets are not necessarily a problem, because the US is out of Iraq and ending the enormously expensive war in Afghanistan. And longer term, a strong military requires a strong economy. The crushing national debt must be reduced to protect America’s economic strength.

But the Air Force—and our nation’s security—will suffer if spending cuts are not made wisely. Sequestration is “really a singularly stupid way to take money out of the Defense Department,” said Frank Kendall, DOD’s acquisition chief, at a Nov. 5 conference. “It is a ridiculous way to do it. It doesn’t allow us to prioritize; it doesn’t allow us to align our spending with the strategy.”

Sequestration is so painful Congress has no choice but to find a more reasonable alternative. Recent partisan history has shown lawmakers will not agree on that alternative.

To take a line from Winston Churchill, “Americans can always be counted on to do the right thing—after they have exhausted all other possibilities.”

The nation is at the brink of the fiscal cliff, and the other possibilities are just about exhausted. It is time for Congress to either identify the spending cuts needed to avoid sequestration, or pass the buck and craft the legislation needed to delay it until the next Congress can solve the problem in the spring.

Defense is still somewhat of an afterthought in this entire fiscal debate. Larger arguments over taxes and entitlement spending dominate the negotiations. But the US faces a new recession and long-term damage to the defense industry and national security if this problem is not solved.

Without offering specifics, President Obama said Oct. 22 that sequestration “will not happen.” For the sake of the economy and national security, he’d better be correct.