Upcoming fights in Congress will look a lot like old ones
Republicans and Democrats on Capitol Hill have ordered another potentially fruitless “super committee” showdown by Dec. 13. It will be followed Jan. 15, 2014, with another ad hoc deadline to keep the government open, and then again Feb. 7 to have the congressionally-mandated debt ceiling raised once more.
The new dates were established by the Oct. 16 law to reopen the U.S. government and avoid defaulting on the country's debt to date. The last-minute law resolved none of the entrenched budget disagreements, however, which means the new deadlines renew the promise and peril of readdressing widespread, automatic cuts known as sequestration, as well as ratcheting up the budget anxiety already infecting the Pentagon,, and their industrial bases.
Officials and contractors continue to guess whether they face a year-long stopgap continuing resolution (CR) of appropriations, which freezes all spending authority for fiscal 2014 at prior-year levels—2011 in the case of, for instance—and whether another round of sequestration, or worse, kicks in during the next calendar year. The uncertainty is compounded by an unprecedented degree of vagueness over what Congress will appropriate for fiscal 2015 and beyond, the timeframe for which planners are now struggling to craft budgets to meet the ostensible Feb. 3 deadline.
At the Pentagon, which bears half of the annual sequestration cuts under the 2011 Budget Control Act that triggers them, the next round of slicing and dicing, scheduled for Jan. 15, would lop off more than $20 billion from the 2013 level, that was itself lowered by $37 billion when the first round of sequestration took effect last March. None of it was planned for because the on-deadline political deals that introduced and allowed sequestration occurred outside of the regular budget planning cycle for the whole government.
“Congress did not remove the shadow of uncertainty that has been cast over this department and our government much of this year,” notes Defense Secretary Chuck Hagel.
The former Republican senator openly doubts whether lawmakers can reach a compromise and provide more assurance on budget planning soon. Many analysts agree. “There is nothing in the July 2011 debt-ceiling crisis, the [original] super committee deadline of November 2011, the 'fiscal cliff' resolution at the end of 2012, and now the latest debt ceiling/CR donnybrook to suggest that a clear picture emerges on what this new committee will do until Dec. 11-13,” says Capital Alpha Partners analyst Byron Callan.
Counterparts at RBC Capital Markets echo the sentiment and predict, at best, a full-year CR and subsequent sequestration cut. What is more, “there will be plenty of further opportunities to play this high-stakes game of chicken in the run-up to the midterm [congressional] elections in November 2014,” RBC adds.
The analysts have good reason to doubt, as even the two senators who were relied upon to craft the Oct. 16 deal quickly made comments reaffirming their polar differences. Senate Minority Leader Mitch McConnell (R-Ky.) had previously joined tea party legislators in declaring sequestration a victory for the Republican Party that must be maintained. During negotiations for the Oct. 16 law, he tried to further cement sequestration as a mechanism by allowing federal agencies more flexibility in applying what appropriations they do receive.
Senate Majority Leader Harry Reid (D-Nev.) rejected the move because he and most elected Democrats do not want sequestration made easier to accept. Moreover, they hope to lean on hawkish Republicans like those on the armed services and defense appropriations committees—some of whom from the Senate sit on the new bicameral committee, albeit none from the House—who want to relieve the Pentagon of sequestration as they make a case for increasing federal revenue and shielding Social Security, Medicare and Medicaid.
Furthermore, some analysts fear worse-than-sequestration defense budget cuts could be enacted. “Even if the two sides work out a deal, any plan to replace the sequester will involve additional defense budget cuts,” laments Mackenzie Eaglen of the rightward American Enterprise Institute.
On the other hand, if they cannot agree, as was the case in October, the government could shut down again early next year. “Without a budget and a long-term agreement, we will be right back here in a few months,” notes TechAmerica CEO Shawn Osborne. “How are companies to plan and invest?”
Then there is the fact that CRs, such as the one running until Jan. 15, do not allow for changes to programs or for new ones to begin. For most Pentagon accounts, like Air Force aircraft procurement, annual budgeting works broadly with one large lump sum provided, which allows planners some flexibility in how individual programs are funded—even under a CR. Navy shipbuilding is more restrictive. Each ship program is allotted a proscribed amount of money for a year.
A Pentagon press officer says one Major Defense Acquisition Program that will be delayed is the Navy's Afloat Forward Staging Base, a planned waypoint for patrol and auxiliary boats, helicopters and Special Operations Forces at sea. Smaller programs, such as R&D projects, equipment modifications and minor equipment purchases all over the, will also be delayed under the CR, he notes.
Callan says the SSBN(X) nuclear-armed replacement submarine for the current Ohio-class also could be near the top of the list of plagued programs.
Beyond a CR, of course, are ongoing fears of the long-term effects of annual sequestrations in the decade covered by the 2011 budget law. According to a recent report by the Aerospace Industries Association (AIA), in fiscal 2013-17, the Pentagon could spend 15-20% less on R&D and procurement—what proponents call “investments”—than was projected in President Barack Obama's budget request—and for which industry planned. That means that up to $147 billion in regular, non-emergency investments for new weapons, that were once expected, will not occur.
Compared with peak investment spending around 2011, the trough will be about 40% below, according to AIA, RBC and others.
If another round (or more) of sequestration occurs in fiscal 2014, analysts, officials and officers believe it will feel twice as bad and inflict actual institutional damage in agencies and their missions. One reason is that fiscal 2013 cuts in March purposefully were more superficial than structural in the hopes that they would be undone by a grand bargain.
At the Pentagon and elsewhere, agencies used tricks like furloughing employees or tapping unobligated and leftover funds from earlier years to pay back some of what was demanded. But those funds are dwindling and furloughs will have to become layoffs, and agencies will have to make profound operational and programmatic changes in order to catch up and meet future sequestration mandates. That is particularly true if Congress continues to ban cost-saving requests from the administration, such as military pay and health-care reforms, as well as denies another round of base closures and realignment.
“The combination of sequester cuts and unaddressed cost increases will erode force readiness, stall modernization and reduce the fighting forces by at least 50% by 2021,” predicts a new Bipartisan Policy Center report.
“Many people haven't seen the economic impact because most of the economic impact is still to come,” the report states. “More pain is coming and it will be more intense.”