Sequester: Not All It's Cracked Up To Be
August 16, 2012
Correctly anticipating in May all the noise and hysteria about the "sequester" of $55 billion out of the $620+ billion Pentagon budget for 2013, Government Executive magazine asked me to write about it all for their August issue. I did; it is below: my basic theme is that the post-sequester spending levels for the Pentagon are historically very generous, and the "mindless" across the board cutting drill is not inevitable; any president worth having could use the opportunity to impose some desperately needed discipline on the out-of-control Pentagon.
The cuts won't be disastrous, but their mindless application could be avoided.
Pentagon budget watchers are fixated on Jan. 2, 2013. Because the congressional super committee in 2011 failed to secure a broad budget deal, the "trigger" enacted with the Budget Control Act automatically will remove $1.2 trillion from federal spending-apportioned unequally between discretionary and mandatory spending and payments on the national debt. A large portion of those automatic cuts will hit the Pentagon; as a result, the misinformation, hysteria and politicking from defense spending boosters are dominating the media.
The noise about sequestering defense funds is the embodiment of the dysfunction in Washington. Both Republicans and Democrats have declared themselves in a state of near-panic about it and most have a plan, which conveniently advances their own agenda to the exclusion of anyone else's.
Some say a lame duck Congress following the elections will find the common ground to undo the sequestration requirement. That would require today's horde of finger-pointers to look beyond self-indulgence. Good luck with that.
The irony is one of the few unifying beliefs in Washington- that the Defense Department must be protected from sequester-is quite misinformed. The plaything of politicians, data are not used to bridge differences; they are used to widen them, and when information suggests an outcome that is undesired or outside conventional wisdom, it is ignored.
The representations on the defense sequester are classic examples. The scope of cuts Defense faces is routinely misreported: The Congressional Budget Office repeatedly has testified the sequester would cause the defense budget to lose $492 billion over nine years, but as late as June some were saying the long-term Pentagon cuts would be $600 billion. CBO further explains that sequester would impose a $55 billion reduction in 2013; others say it would be $60 billion; still others say more. It all depends on which baseline you start with: the one set by the Budget Control Act; the larger amount of the Obama defense budget request for 2013; or the amount House Republicans are pressing for.
It gets wild when Washington debates percentages. Using various assumptions-some of them plausible, others not-two different think tanks reported that sequestration would impose 15 percent or 7.5 percent reductions on defense in 2013. CBO says 10 percent; the Congressional Research Service says 11.5 percent. By including or excluding accounts the law may or may not require to be subject to sequester, analysts change the denominator to arrive at the "indefensible" 15 percent cut, or the less intimidating 7.5 percent cut.
As the politicians pursue their agendas, they ignore important realities.
CBO reports sequester will reduce the base part of the defense budget (defense spending minus most of the costs of war) to $491 billion in 2013, and it will be supplemented by additional war spending in the overseas contingency operations account. The amount to be in the latter currently is unknown, but it may be roughly 10 percent lower than the $88.5 billion President Obama requested, or if gimmicks now being contemplated are employed, there could be an increase.
One defense budget analyst concluded that sequestration would return the base Pentagon budget to its 2007 level of spending, adjusted for inflation. The Congressional Research Service found it would return national defense spending to just under the 2005 level; CBO says 2006. In any case, spending for the Pentagon would be-historically-quite generous. The levels are more than $30 billion above average Cold War era spending, and they are about $100 billion above the previous lows following other big defense spending periods-the Korean and Vietnam wars and the Reagan era. If the overseas contingency operations account is included, the spread is larger.
Seen from the perspective of what other, potentially unfriendly countries spend on defense, the United States would remain a giant among unequals. The United States spends more than twice what China, Russia, Syria, Iran and North Korea-combined-spend on defense.
Nonetheless, there are challenges: namely, the abrupt one-year decline from 2012 to 2013, made more problematic by the mindless way sequester threatens to cut. The problems are not insurmountable. First, the president, whoever he may be in January, will have to resist the shibboleth that only more money can "fix" the Defense Department.
Next, relief is needed from the mindless cutting. While most point to statutes that seem an ironclad mandate to cut automatic and equal amounts in every program, project and activity in accounts subject to sequester, others have pointed to authorities that the president can exercise to obviate the across-all-boards nature of the cutting. The speculation is not idle; OMB has the sole authority to interpret the Budget Control Act. There have been rumors of closeted discussions and some offhand remarks that suggest the actual sequester could be something very different from what everyone expects. By exploiting any such authority and the clever budgetary legerdemain that OMB uses when it wants, the president should make the mindless into something rational.
To achieve the abrupt $55 billion drawdown in one short year, the focus should be on hardware and contracted services. The acquisition budget is stuffed with systems still in their initial testing. Termed "acquisition malpractice" by Defense's top acquisition official, this politically driven-buy it before you fly it-routine should be terminated immediately by suspending production of all hardware programs that have not completed at least initial operational testing. (Precisely how some of our most successful programs were acquired in the past.) While there would be termination costs, such a move could immediately save billions. For example, the outrageous F-35 program alone could cough up almost $6 billion in suspended procurement in 2013 and more in subsequent years.
Similarly, there are rich savings to be found in immediately suspending, if not terminating, contracting in 2013 for services that should be provided by government employees. There is a gigantic domain of more than $200 billion in total contracted services to select from.
There are other ways the abrupt one-year drawdown can be eased. For example, if Congress were willing-briefly-to incrementally fund projects being preserved, rather than pay all future years' costs upfront. There are other gimmicks; it would be a pleasant change to use them to save money rather than to squander it.
We are confronted with a panicked mentality from people who believe a historically fulsome Defense budget is somehow "doomsday." If we have a president in January 2013 worth electing, he will force them to think again. If we don't, the day of reckoning only will have been delayed.