Wednesday, June 27, 2012

6/27/12 RD Bulletin: Congress May Delay Sequester Until March 2013

Highlights
 
News: Reuters reports that Congressional leaders are strongly considering delaying until March 2013 sequestration cuts currently scheduled to take effect on January 2, 2013.  Under this scenario, the Bush-era tax cuts as well as current spending levels would be extended through the spring allowing lawmakers additional time to reach a comprehensive compromise on the so-called “fiscal cliff.” 
 
News: The House Rules Committee will meet tomorrow to debate a rule governing Floor consideration of the FY13 defense appropriations bill, expected to hit the House Floor sometime after the July 4 Congressional recess. 
 
Project on Defense Alternatives: PDA has released a new chart of comparative defense spending showing the United States far ahead of potential threat states, even before counting close U.S. allies.

State of Play
 
Legislative: The House Committee on Rules is expected to meet tomorrow to consider a rule governing Floor debate for the FY13 Department of Defense Appropriations Act, which is expected to hit the House Floor sometime after the July 4 Congressional recess.  This week, the House Committee on Foreign Relations is marking up its annual State Department authorization act, which has not passed both chambers of Congress and received a Presidential signature since 2003.    
 
The Hill reports that small groups of Senators who are meeting in private to discuss ways to stave off sequestration are finding it difficult to forge a bipartisan compromise.  Many are looking to Senate Armed Services leaders Carl Levin (D-MI) and John McCain (R-AZ) to take the lead on forging an alternative sequestration deal, which Levin says should include at least an additional $100 billion in Pentagon savings over ten years.  Although McCain says that “everything should be on the table,” he does not appear to be open to Levin’s proposal.  However, House Appropriations Ranking Member Norm Dicks (D-WA) recently said he was open to considering Levin’s compromise to protect the Pentagon from the full brunt of automatic cuts in exchange for $100 billion in military savings. 
 
However, according to Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, Congressional leaders are seriously considering delaying all of the automatic budget cuts until March 2013 along with an extension of the Bush-era tax cuts and a Continuing Resolution to keep the government funded into the spring.  Echoing these sentiments, House Armed Services Committee Chairman Buck McKeon (R-CA) says he has lost faith in the ability of Congress to fully dismantle the sequester provision and is now urging it to “kick the can down the road,” by delaying the implementation of automatic cuts.  However, McKeon does not believe a delay until March will give Congress adequate time to deal with the sequester in its entirety, while Levin says “I think there’s a lot of other possibilities we ought to look at before that’s even considered.”  Defense Secretary Leon Panetta also seems to loathe this idea, saying recently, “The Department of Defense is facing a crisis.  What I fear -- and I think this is a real fear -- is that both Republicans and Democrats alike will simply kick the can down the road.” 
 
House members seem even more pessimistic about the prospects for a lame duck session compromise, with senior House appropriator Jim Moran (D-VA) noting that GOP leadership has refused to budge on the issue of increased federal revenues (which both Senate Majority Leader Harry Reid and President Barack Obama insist must be a part of the compromise).  For his part, former Bush administration DoD comptroller Dov Zakheim believes Congress will address the sequester, either delaying or nullifying it, by attaching a provision to an expected Continuing Resolution to keep the government funded past September. 
 
The Office of Management and Budget has notified defense contractors that it will not begin issuing sequestration implementation guidance until after the November election.  In the Senate last week, an amendment was adopted to the farm bill that would require the Department of Defense to report back to Congress by August 15 on the impact of sequestration cuts.  The amendment would also require the Office of Management and Budget to report within thirty days on the effects of sequestration to both defense and non-defense accounts, and a similar report from the President within sixty days of enactment.  The House Budget Committee is marking up standalone legislation similar to the farm bill amendment that was adopted. 
 
Meanwhile, the National Association of Manufacturers has released a report that estimates job losses of 1.2 million if sequestration cuts to military spending accounts occur as scheduled next year.  This follows a speech by a vice-commander of the American Legion, David Voyles, who warned that military sequestration savings could create 500,000 new unemployed veterans. 
 
Executive: The Pentagon has notified members of Congress that it will halt planned transfers of Air National Guard aircraft to active duty units until Congress completes its work on the FY13 defense budget.  Many of the military spending and authorization bills currently under consideration by the House and Senate would block the administration’s proposed transfer of Air National Guard assets. 
Under the Budget Control Act of 2011, which amended earlier deficit reduction statutes, the President has the ability to exempt military personnel accounts from automatic sequestration cuts.  However, the Commandant of the Marine Corps, Gen. James Amos, says that exempting the Marine Corps personnel account would be a “recipe for a hollow force,” and that he will urge the President to avoid such an exemption for the Marine Corps.  Previously, the assistant commandant of the Marine Corps, Joseph F. Dunford Jr., testified that sequestration savings would force the Marine Corps to cut an additional 18,000 personnel from its ranks. 
 
Defense Secretary Panetta has notified Congress that the department plans on providing $75 million in counter-terrorism funding to Yemen to purchase communications equipment, night-vision goggles, vehicles, and drones.  The Army has issued a stop-work order for the Boeing-manufactured A160 Hummingbird helo-drone due to significant cost growth and the “probability of continued technical and schedule delays.”  The Director of the Defense Logistics Agency (DLA), Vice Adm. Mark Harnitchek, predicts that funding for the agency will be reduced to $30 billion annually once U.S. troops exit Afghanistan in 2014.  The DLA’s budget peaked at $46 billion last year. 
 
The Paraguayan Senate voted last Friday to remove President Fernando Lugo and replace him with Vice-President Federico Franco following a land dispute which left 17 Paraguayans dead.   Several Latin American leaders have denounced the impeachment as a political coup and refused to recognize the new leader as the former President has moved to appeal his ouster. 
 
Turkey called an emergency NATO meeting to discuss Friday’s downing of a Turkish reconnaissance aircraft by Syria off the latter’s coast.  Turkey requested NATO consultations under Article 4 of the alliance’s charter, which covers member state territorial or security violations, rather than Article 5, under which an attack on one ally is considered an attack on all NATO members.  Following the meeting, NATO Secretary-General Anders Fogh Rasmussen condemned the attack and pressed Syria to ensure it avoids future incidents.  Former Secretary of Defense William Cohen believes that if Turkey is drawn into a war with Syria, its NATO allies will inevitably become involved in the conflict. 
 
According to the Associated Press, U.S. military officials have repeatedly requested authority to launch cross-border raids, comprised of U.S. and Afghan commando teams, into Pakistan to root out the Haqqani terrorist network.  However, the White House, fearing Pakistani political blowback, has turned down the proposal. 
 
Third Way has released a new memo, The Politics of National Security, which summarizes the latest public opinion polling on a wide range of national security issues.  To see the results of Third Way and Greenberg Quinlan Rosner Research’s latest national security focus groups, click here. 
 
Project on Defense Alternatives Perspective: With the economic recovery in a near stall and elections only a few months away, there seems to be a flight from the calls for budgetary austerity that were so frequent a year ago.   Industry groups (among them, the Aerospace Industry Association and the National Association of Manufacturers) have sponsored studies counting the defense and associated jobs threatened by the Budget Control Act.   Of course, a declining defense budget means fewer jobs in that sector.  But these studies avoid looking carefully at number of jobs associated with the different options for reducing federal spending and for raising revenues. 
 
When economists look at the major categories across the range of federal taxing and spending they find that defense spending is one of the worst ways to create jobs and cutting defense is one of the best options for minimizing job losses during periods of fiscal contraction.  This two minute video by Chris Hellman of the National Priorities Project explains why.  Hellman’s data is from a study by the Political Economy Research Institute that finds that a billion dollars spent in the education sector produces nearly 27,000 jobs.  A billion in the health care sector produces 64% as many jobs.  A tax cut, 57% as many.  And a billion spent in the defense sector produces only 42% as many jobs as the same investment in the education sector. 
 
As an illustration of what this means, the United States could cut $100 billion from the defense budget and it would cost 1,120,000 jobs.  If $50 billion of the reduced defense spending went into deficit reduction and $50 billion was spent on education it would produce 1,335,000 jobs in the education sector for a net increase of 215,000 jobs.  That’s an available win-win path for both deficit reduction and more jobs.  For more on the economics of budget cuts or investments in differing sectors of the economy, click here. 
 
News and Commentary
 
PDA has released a new chart which compares U.S. military spending with the next twenty-four largest sovereign defense spenders.  The information is compiled from research conducted by the International Institute for Strategic Studies and the Stockholm International Peace Research Institute.  (6/28/12)
 
Winslow Wheeler asserts that the congressional consternation over how to shield the Pentagon from additional funding cuts is the embodiment of dysfunction in Washington because there is an easily available solution to nullifying sequestration, (comprehensive deficit reduction legislation that could achieve the same amount of savings as sequestration in a more gradual, less disruptive manner) but that neither side is willing to give ground on political sensitive issues in an election year.  Furthermore, Wheeler argues that Democrats and Republicans would rather leverage Pentagon budgets cuts as a political wedge issue during an election year rather than engage in serious bipartisan compromise.  (6/26/2)
 
Gordon Adams bemoans the hysteria over forthcoming Pentagon budget cuts.  While politicians complain about how disastrous sequestration cuts to the military would be, they fail to recognize that the United States is currently entering another military drawdown, which historically have seen defense budgets decline by as much as thirty percent.  Moreover, Adams notes that an eight percent reduction of defense spending this year, while not optimal, would not be impossible to implement without impacting the integrity of the United States’ national defense.  “Congress and the Defense Department need to focus on managing this main event, not the sideshow.”  (6/26/12)
 
In an interesting op-ed, Republican economist Bruce Bartlett argues that government spending on the military and the public sector creates the same amount of jobs, and that military spending has served as the ultimate government stimulus since the Great Depression.  Bartlett urges President Obama to increase military spending as a means of getting Republicans to support other forms of government stimulus.  (6/26/12)
 
The Defense Contract Management Agency (DCMA) will dock Lockheed Martin five percent of the price of the fifth lot of F-35 Joint Strike Fighters due to ongoing problems in the software used to audit progress on Lockheed’s aircraft programs.  (6/25/12)
 
Bill Hartung and Stephen Miles examine claims from defense contractors that possible spending reductions will throw them under the bus. The ensuing result is threats of major job cuts: “Defense contractors are… threatening [their own workers] with massive layoffs -- to scare up political opposition to any attempt to rein in runaway spending at the Pentagon.” The authors wag their fingers at Lockheed Martin in particular, who has threatened a ten percent layoff, yet made $3.98 billion in profits last year and $34.9 billion during the past eleven years. (6/26/12) 
 
The Department of Defense’s new cost-cutting strategy will face its first real test with the contract outlining the costs of thirty-two F-35s. Under the new policy, “Defense Department experts review the program’s technical requirements, production and testing processes, and staffing to determine what they think the price should be.” Skepticism remains pervasive amongst acquisition experts who point out that incremental requirements added over time are primary drivers of cost overruns. (6/23/12)
 
In a follow-up piece, the Dayton Daily News reports on the Pentagon’s decades-long effort to upgrade its computer systems.  GAO has reported that several IT system upgrades are collectively 30 years behind schedule and more than $7 billion over-budget.  “Inadequate planning, supervision and management of plans to replace system-wide business systems have led to some programs being abandoned, overhauled or delayed so long that the software technology has become obsolete.”  (6/22/12)
 
In its 2012 and 2013 budget requests, the Pentagon identified a combined $238 billion in efficiency savings which it hopes to redirect to other programs.  However, Andrew Krepinevich and Todd Harrison of the Center for Strategic and Budgetary Assessments both say that the Department’s track record of achieving desired efficiency savings is not strong, and that “To achieve that full number [$238 billion] … you have to have a perfect success rate in all these efficiency initiatives. The likelihood of that happening is low.”  (6/21/12)
 
“It makes no sense to replace Bradleys inside the existing Army force structure,” writes Doug Macgregor. He suggests that because the Ground Combat Vehicle is simply an extension of the Bradley, it provides no real advantage. Instead Macgregor suggests the Army experiment with a few prototypes within the new force design before funding is committed: “A qualitative increase in fighting power begins when the force employs new technology and develops the concepts and organizations to exploit new, emerging capabilities.” The American taxpayer cannot afford more of the same, Macgregor concludes. (6/21/12)
 
The Army is considering cutting appropriated, but unobligated, funding for the service’s next generation radio system, the Warfighter Information Network-Tactical, which is over-budget and past schedule.  Defenders of the program claim that Congress’ inability to pass appropriations bills on schedule have negatively impacted the program and exacerbated delays and cost growth.  The Lexington Institute’s Daniel Goure wonders if the Army is headed for another “acquisition debacle” with the WIN-T program.   
 
Reports
 
 
National Associated of Manufacturers: Defense Spending Cuts: The Impact on Economic Activity and Jobs  (6/21/12)
 

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