The Pentagon will move to protect major weapon programs, including those locked into fixed-price procurement deals, should mandatory U.S. government spending cuts go into effect under sequestration in January, said Pentagon Comptroller Robert Hale. (U.S. Defense Department)
The Pentagon will move to protect major weapon programs, including those locked into fixed-price procurement deals, should mandatory U.S. government spending cuts go into effect under sequestration in January.
The Defense Department would also consider furloughing civilian workers as a last-ditch way to pay for combat operations in Afghanistan, should the Pentagon have to absorb a $50 billion sequestration cut to its 2013 budget, Pentagon Comptroller Robert Hale said.
“What we will do if we have to ... is ask the services to review key contracts and try to avoid any renegotiations that are disruptive,” Hale said during an Oct. 3 interview at the Pentagon.
DoD might have a “limited ability” to reprogram funds across accounts, Hale noted, but Congress must approve funds shifted that way.
“I think for high-priority contracts, we might try to do that,” he said.
DoD leaders have consistently maintained that they are not making detailed plans for possible sequestration. Hale’s remarks, however, shed some light on how the Pentagon might proceed if further cuts are necessary.
Gordon Adams, an analyst who oversaw defense budgets during the Clinton administration, said the Pentagon would likely send a $15 billion to $20 billion reprogramming request to Congress, should sequestration go into effect.
But DoD could be playing with fire if it relies on lawmakers to shift funding, said Todd Harrison, an analyst with the Center for Strategic and Budgetary Assessments.
“There’s just a big asterisk there that they are crossing their fingers and hoping that Congress will go along with a reprogramming,” he said. “What if they don’t?”
The White House Office of Management and Budget (OMB) has yet to instruct DoD and other federal departments on how to implement the sequestration cuts, which are expected to be divvied evenly across budget coffers, with the exception of military personnel, whom the administration exempted.
The possibility of sequestration and uncertainty on how it will play out has left many program managers and defense industry leaders grappling with what to expect and how to respond.
Last month, Maj. Gen. John Thompson, who runs the Air Force’s $35 billion KC-46 tanker program, said he was afraid sequestration might force him to cancel the service’s fixed-price aircraft development contract with Boeing and renegotiate at a higher cost.
“I don’t want to break my contract, and I’m fearful sequestration may force me to do that,” he said during a Sept. 18 briefing at an Air Force Association-sponsored conference.
Hale said it is too early to signal specific programs that might fall into this category.
“I understand the worry,” he said. “It’s premature to conclude that we would have to modify a specific contract like KC-46 or even have to renegotiate future parts of it.”
If sequestration happens, DoD will implement it “in a way that minimizes the disruption and the devastation,” Hale said.
Contractors have been struggling whether to issue layoff notices in advance of the sequestration possibly going into effect. Job layoffs on the eve of a presidential election are a highly sensitive political issue, and on Sept. 28 the Obama administration advised contractors they were unnecessary, prompting Lockheed Martin and BAE Systems to cancel plans for sending out layoff notices.
Civilian Furloughs Possible
Should sequestration go into effect, DoD would look at furloughs in its more than 764,000 civilian workforce as a way to come up with money to pay for the war operations in Afghanistan.
“I think we will be forced to consider furloughs because we have to get money out of the operations and maintenance accounts quickly, and we’ll be a quarter of the way through the fiscal year when this goes into effect,” Hale said.
The Pentagon would ask the services to come up with a plan for these potential furloughs.
“I would, unfortunately, expect it to be fairly widespread because we’re going to need the money to comply with the law,” Hale said.
“I’d prefer to not get our people any more upset than we have to,” he said. “I don’t blame them for being uneasy. I’m uneasy, but we’re going to do our best to avoid the pain.”
DoD could take steps now to prepare for and minimize the impact of sequestration, according to Harrison.
“You could have a plan already put together on who you’re going to furlough on day one,” he said. “The sooner you can do that, the fewer people you have to furlough.”
Moving money around within operations and maintenance accounts — which includes civilian pay, base operations, war activities, fuel, exercises, training and education, and service contracting – has “huge fungibility” and does not necessarily require reprogramming, Adams said.
Of those, services contracting and civilian pay would most likely be hit under sequestration.
“The trend that’s already underway because we’re out of Iraq and leaving Afghanistan — which is service contracting is going down — will be accelerated a little bit,” he said.
The CR Impact
The government is operating under a continuing resolution (CR), with the Defense Department budget locked at the 2012 fiscal year appropriation of $530 billion. The Pentagon has proposed a spending plan of $525 billion in 2013, which started Oct. 1.
How sequestration could play out under the CR budget versus the 2013 request further complicates efforts to develop spending plans.
“I’m not sure of the details,” Hale said, but “in some fashion, the cuts would have to be against the CR … because that’s the appropriation that’s out there.”
The exact level of detail of those cuts is yet to be determined, he said, and decisions would be made by OMB. “We may not know that until we get close to a sequestration order,” Hale said.
Adams’ view is that the percentage of the cuts would still be applied equally across all spending accounts. So, if the top line is higher than planned, the total value of the cuts across the single year would be higher because the government must achieve a certain level of spending.
The Budget Control Act calls for about $500 billion to come out of planned Pentagon spending over 10 years through sequestration. The annual cut is about $50 billion.
DoD has received budget authority in the CR to move money around in the overseas contingency operations or war fighting accounts, Hale said.
Preparing for ’14
Despite all of the uncertainty surrounding the 2013 budget, Pentagon budget officials are preparing a 2014 spending plan, a plan that anticipates sequestration will be avoided.
Budget officials are going through the program review process, which includes making broad decisions about which weapons to purchase. More detailed budget development will occur next month.
“I am concerned about workload here, too,” Hale said. “As we do have to plan for sequestration, in many cases it’s the same people who are putting together the ’14 budget. It’s going to be a real challenge.”
Although they are not considering sequestration in the budget planning process, officials are considering consistent recommendations that have been made across all four defense oversight committees in Congress, Hale said.
Although Congress has not passed defense authorization or appropriations bills, the House and Senate Armed Services committees and Appropriations defense subcommittees have reviewed the Pentagon’s 2013 request. Those committees did not approve many Air Force aircraft retirements, re-basing requests or personnel cuts. “You have to try to make sensible assumptions,” Hale said.
Much could change between now and the official release of the 2014 budget, continuing to stress an already taxed Pentagon planning workforce.
“There’s a lot of stress,” Hale said. “It’s not just the financial management workforce. A lot of press on DoD in general.”
Over the past two years, DoD has had to actively prepare for four possible government shutdowns, which has taken away from “more productive activities,” such as looking for ways to lower the cost of acquiring weapons and making the Pentagon’s financial books auditable, Hale said.
“The same problem will occur if we get close to sequestration,” he said. “We will have to be ready, and we will be. But it will drain time from things that’d be more productive. It’s unfortunate, but it’s where we are.”