WASHINGTON — With a Sept. 30 deadline looming, the Pentagon is coming to grips with the reality that it will be operating under the stop-gap spending measure known as a continuing resolution for the near future.
But sources warn that lawmakers are mulling the nearly unprecedented step of passing a yearlong continuing resolution (CR), which could throw carefully constructed acquisition and sustainment plans into chaos and leave industry gasping for new opportunities.
The defense world has become used to operating under continuing resolutions in recent years. Since 2009, CRs have been used every year, and in fiscal 2011, Congress passed seven, ultimately funding the government for six months — a special headache for Pentagon budgeteers — before a deal was reached.
The resolution funds the government at the previous year's level. That typically results in the services being locked into the previous year's production levels and hitting pause on new starts — a tricky situation when acquisition programs require long-lead purchases and the standing up of infrastructure, let alone the bending of metal.
A 2009 Government Accountability Office report that studied the negative impacts of continuing resolutions on federal agencies found they result in inefficiencies, including, "delays to certain activities, such as hiring, and repetitive work, including issuing multiple grants or contracts."
Todd Harrison, a senior fellow at the Center for Strategic and International Studies, said an expanded CR would be "the absolute worst" for both the Pentagon and industry.
"It really creates havoc on programs, projects and activities in the Defense Department," Harrison said.
Christine Wormuth, DoD undersecretary for policy, said at a public forum in July that while the department has adapted to past continuing resolutions, the prospect of a year-long CR, "would be pretty difficult."
"Our services aren't able to plan," Wormuth said. "Like I said, we're not able to start new programs. It's very much not the outcome that we would like to see. We really would strongly prefer to find a longer term solution to sequestration than a CR."
Former Defense Department Comptroller Bob Hale, now a Booz Allen Hamilton fellow, said that short-term CRs are doable for DoD, but, "a lousy way to run government," and "exponentially more disruptive as they extend into the calendar year.
"For two or three months, DoD knows how to hold its breath," Hale said. "Six months is highly disruptive; a classic CR for a year is a nightmare. I don't think they will do it."
Under a year-long continuing resolution, the Pentagon would wind up with $35 billion less than it requested, according to Hale. At 2015 levels, the Defense Department would have a base budget of $496 billion, $3 billion shy of the $499 billion sequestration budget cap, but $44 billion less than the president's $534 billion budget request for 2016.
Still, 2015-level wartime overseas contingency operations (OCO) funding — which is exempt from sequestration — would be $64 billion, or $13 billion above the 2016 request for $51 billion.
The difference between operating under a long-term CR and a short-term one was articulated by Adm. Jon Greenert, the outgoing chief naval officer, in an exclusive interview with Defense News on Aug. 18.
"We're assuming we will be under continuing resolution for at least the first quarter of this next fiscal year," Greenert said of the Navy. "We've looked at our programs and said, 'where do we have new starts, where do we have new projects' and from the Navy perspective, we're OK for the first quarter.
"But if we go into the second quarter and the third quarter and we're deferring important projects — shipbuilding, aircraft building — all the procurement programs are affected by that," he continued. "Then you get into the possibility of breaching multi-years, and you can just understand that cascading effect.
"So what we have to do is understand what are the consequences and when are those consequences? So for us, it's about midway through the second quarter. So we would have to kind of gird our loins and decide how do we deal with this, how do we deal with the shipbuilders, and unfortunately we have been here before when we deal with sequestration."
The Pentagon does have an option for certain projects — it can go through the Office of Management and Budget to Congress and ask for special dispensation on certain programs, so long as the Pentagon can find the funds elsewhere and win congressional approval for its reprogramming requests. And Harrison fully expects the Pentagon to try and take advantage of that.
"Even if they did a full year continuing resolution, I am 99 percent sure they would pass legislative language fixing the anomalies," he said.
But that doesn't mean doing so is easy. DoD would not have more money, but rather more authority to move money from other programs, a laborious process that would require unanimous consent from the relevant four congressional defense committees. Every offset could be politically fraught, and there is a legal ceiling on the amount of requests.
"It would be very chaotic, unpredictable and very challenging for DoD to do this. It would be a lot of difficult last-minute decisions, and it would also be unprecedented," Harrison said. "There has never been a full-year continuing resolution as far as I can see. Other parts of government have had continuing resolutions, and DoD has had shorter continuing resolutions, but never has DoD had a full-year continuing resolution."
As in past years, DoD is providing input to the Office of Management and Budget in the event Congress considers a CR.
"The Hill staff always told me that if we really did it for a year, they would look more carefully at our anomaly list, and I think they would allow a number of them, but let's hope we don't get there," Hale said.
Greenert confirmed the services are already beginning to lay out for what they will try and receive relief. Asked whether the Navy was preparing its request list for Congress, Greenert said, "we have." And while he did not specify what is on that list, he indicated long-term planning is driving at least some of those requests.
"For example, we would say, 'listen, we need an exemption in order to lay in the next contract for a ship or something.' For example, the aircraft carrier. I go back to 2013 — we needed to start the decommission of the Enterprise, start the overhaul of the Lincoln, and get the JFK and Ford both going under contract.
"So we were giving birth, we were extending one and putting another one to rest, all at the same time," he continued. "These are important measures the Congress understands the consequence of. Things like that, we'll have a conversation about."
The Air Force, in particular, could be hit hard by a long-term CR. The service is nearing a contract award on its next-generation Long Range Strike-Bomber program, ramping up procurement of the F-35A joint strike fighter, and has begun the process of selecting its T-X trainer replacement design. It is also in the midst of making decisions on its future space architecture, which require long-lead times and research funding that could go absent under a CR.
Sources indicate that both the Air Force One recapitalization and the T-X would likely be delayed under a CR, while Harrison suggested the bomber program could be pushed back as well. A CR could also delay negotiations on the F-35 low-rate initial production lot 10.
Hope for a Deal?
It is still technically possible Congress can work something out in the month before the end of the fiscal year, but no one seems to think that will happen.
When Congress resumes Sept. 8, it will have to tackle a National Defense Authorization Act (NDAA) that is near finalized, hung up in a conference committee on military pay issues, a measure to keep open Guantanamo Bay, and certain prohibitions against torture. Meanwhile, a defense appropriations bill has passed the House, while its counterpart is stalled in the Senate.
The nuclear deal with Iran is expected to dominate September, but the next priority is expected to be a short-term continuing resolution to buy time to resolve the NDAA, the major annual defense policy bill, and appropriations legislation.
The sticking point is the approach by Republicans, who want to keep defense and non-defense spending at the level of sequestration budget caps but give the Defense Department the extra money it is requesting through the emergency wartime OCO account.
The White House and top Democrats oppose that move and insist that any increase in defense spending be matched on the non-defense side. President Barack Obama has pledged to veto any bill that does not address the OCO issue.
"Republicans are having none of that, and we're at the same stand-off we've been at for awhile," Harrison said. "It remains uncertain how it gets resolved."
The best case scenario would be a deal to raise budget caps, as with the 2013 deal that eased sequestration for 2014 and 2015. Yet Democrats and Republicans remain at an impasse.
"Who is negotiating that deal right now for the Republicans and the Democrats? It's just not happening yet," Harrison said.
Others are more optimistic. According to Mackenzie Eaglen, of the American Enterprise Institute, there is near universal desire for a deal. The question is whether Obama and Democrats in Congress will accept a deal that is not equal in its treatment of defense and non-defense discretionary spending, but still increases non-defense discretionary spending.
"Leadership has yet to designate anyone to begin work on what that deal would look like, but defense hawks are presenting their own ideas and the leaders are receptive," Eaglen said.
Hale speculated there would be a short-term CR followed by a deal, possibly a continuing resolution with appropriations legislation inserted, as occurred in 2013.
"Because of all the problems we're discussing, I'd be surprised if they went for a classic CR for a year," Hale said.
Greenert is also hopeful that something will be worked out.
"The Hill discussion we have, there is some optimism, if you will, and perhaps pragmatism, that it shouldn't go longer than one quarter, and then we will have a reconciliation of one sort or another to keep us out of a continuing resolution into the next year," he said.
Although the president has threatened a veto of the NDAA over the OCO issue, Harrison said it's unlikely Obama would expend the political capital necessary to secure the veto, since the NDAA governs policy and not appropriations, and because Obama will need that capital to focus on whipping support for the Iran deal.
Further complicating matters for the president, Republican leadership is planning to move the NDAA concurrently with the Iran deal legislation, according to Eaglen.
"This is partly to make a point if the president vetoes both, and also because the bill [NDAA] should be done by then," she said.
So in the meantime, all parties involved are readying for a CR. And despite concerns for the Pentagon and industry, the sense on the Hill is that doing so might not be the worst case scenario.
"It won't be as much, but it will not be cataclysmic," said one congressional staffer. "We would manage everything by reprogramming … It's not a nightmare, it's inconvenient."