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McCain Would Block Funding Shifts to Cover Firms’ Sequestration Costs

Oct. 3, 2012 - 10:27AM   |  
By JOHN T. BENNETT   |   Comments
U.S. Sen. John McCain is warning the Obama administration that he will fight efforts to use taxpayer funds to help defense contractors deal with layoffs spawned by possible budget cuts.
U.S. Sen. John McCain is warning the Obama administration that he will fight efforts to use taxpayer funds to help defense contractors deal with layoffs spawned by possible budget cuts. (Getty Images)
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A senior U.S. senator is warning the Obama administration he will fight efforts to use taxpayer dollars to help defense contractors deal with layoffs spawned by possible budget cuts.

Senate Armed Services Committee Ranking Member John McCain, R-Ariz., will issue that warning in a statement due out Oct. 3 and obtained by Defense News ahead of time, joining fellow GOP senators in a brewing battle with the White House.

At issue is whether defense firms have to abide by the Worker Adjustment and Retraining Notification (WARN) Act, which requires most companies with 100 or more employees to inform workers 60 calendar days in advance of mass layoffs. The White House says no; GOP lawmakers say yes.

The law has been in play for months as major U.S. defense contractors have been gearing up for the possible cuts to planned spending, which would be done via a process called sequestration. The firms have been warning for months the cuts would force them to issue layoff notifications this month, just days before Election Day.

The White House’s Office of Management and Budget (OMB) late last week issued guidance stating the Labor Department has determined a possible $500 billion, 10-year reduction to planned defense spending fails to create the conditions that would trigger a law requiring defense firms to issue layoff notices. The guidance also states federal agencies will pay firms’ legal bills and employee compensation costs caused by the potential cuts.

McCain took issue with OMB’s guidance.

“The WARN Act is the law of the land today, and its provisions mandate that companies must notify employees who may lose their jobs due to sequestration,” McCain said in the statement. “Companies have a choice whether to rely on OMB’s politically-motivated guidance or to comply with the law. But I can assure them that I will do everything in my power to ensure that taxpayer dollars are not used to compensate contractors who do not comply with the law.”

McCain also has warned senior Pentagon leaders against attempting to shift funds internally to cover companies’ costs, saying he would block such attempts.

Lockheed Martin reacted to the OMB guidance by announcing Oct. 1 that it will not send layoff notices to workers this year related to sequestration.

GOP lawmakers met the White House announcement with outrage, charging the administration is playing politics and essentially “bribing” the companies, as Sen. James Inhofe, R-Okla., put it in a statement this week.

The Republicans believe the firms are required to issue the notices under WARN, and believe the Obama administration is more concerned about a second term than safeguarding the workers who might lose their jobs.

McCain wants Defense Secretary Leon Panetta to inform Congress of all costs associated with picking up any private-sector tabs caused by sequestration 30 days before companies would be reimbursed.

“Furthermore, I have advised [Panetta] that I intend to deny any transfer of funds among defense accounts to pay for these costs, including transfers that currently fall below the threshold of congressional notifications,” McCain said. Such shifting of funds within the Pentagon’s accounts is typically done through reprogramming actions, which lawmakers must approve.

The exact costs the Defense Department and other federal agencies would have to pay if lawmakers fail to find a way around the defense cuts is unclear. But McCain and other GOP lawmakers say the tab could be in the billions of dollars.

“In the event sequestration does occur and as many as 1 million jobs are lost as a result, I cannot support the administration’s plan to use billions of taxpayer dollars to give defense contractors a free pass through the election,” McCain said. “In the current fiscal crisis of trillion-dollar annual deficits and crushing national debt, I cannot condone this administration’s wasteful use of taxpayer funds to buy off contractors for political gain.”

McCain’s statement and vow to fight comes one day after Republican Sens. Charles Grassley, Iowa, and Kelly Ayotte, N.H., told acting White House budget chief Jeffrey Zients in a letter they are “seriously concerned” about the instruction to contractors and the determination that the government would pay sequestration-related costs incurred by federal contractors.

“In particular, we are concerned about the authority of the executive branch to instruct private employers not to comply with federal law and to promise to pay the monetary judgments and litigation costs that arise out of the lawsuits that may follow,” Grassley and Ayotte wrote. The duo has asked Zients to deliver lawmakers reams of information explaining the executive branch’s legal justification for its recent moves.

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