July 19, 2012
As the defense industry and its allies in the Pentagon and Congress stepped up their drum beat Wednesday about the dangers that scheduled automatic cuts in the defense budget pose to national security and the economy, there could be little doubt that Congress and the White House will block or defang those cuts by the end of the year.
A formidable array of players, from Defense Secretary Leon Panetta and House Armed Services Committee Chairman Buck McKeon, R-Calif., to former Vice President Dick Cheney and the CEOs of Lockheed Martin, Pratt & Whitney and EADS North America, have mobilized against the roughly $500 billion of across the board defense cuts that are set to kick in beginning in early January absent congressional intervention.
Some defense experts and industry critics say that even if the cuts were to take effect to help reduce the deficit, the Pentagon would have more than enough in operating funds and weapons development as the U.S. winds down its presence in Afghanistan and Iraq. But House and Senate Republicans and Democrats alike are heeding Panetta’s warning that the automatic spending cuts could undermine national security. And they take seriously the repeated alarms from industry groups and the Bipartisan Policy Center that across-the-board cuts could send the shaky economy back into a recession.
A new report commissioned by the aerospace industry concluded that the scheduled budget cuts – on top of a 10 percent defense cut previously implemented by the Obama administration – could cost the country more than 2 million jobs and boost the national unemployment rate by 1.5 percentage points over the next year. Those job losses would be felt in a number of campaign battleground states with large defense contracting footprints, including Florida, Illinois, Pennsylvania and Virginia.
“The impasse, and the lack of a clear way forward, has created a chaotic and uncertain budget environment for industry and defense planners,” McKeon said today. “In addition to the issue of jobs, I worry that the cavernous silence from the President [on the likely impact of sequestration] will lead many to exit the industry or to walk away from capital investments that are in the best interest of our troops.”
The automatic, across the board spending cuts – known as sequestration – were approved by Congress and the Obama administration last July as part of major to raise the debt ceiling while reducing the long term deficit. The Budget Control Act requires $1.2 trillion in automatic cuts over the next decade, with the first $109 billion taking effect January 2, 2013, evenly divided between defense and domestic programs.
But since then, many lawmakers on both sides of the aisle have come to regret the action – fearing that it will lead to a hollow military force and pose hardships for members of the military and their families. Others wrongly assumed when they voted for the Budget Control Act that the automatic cuts would never take effect.
Panetta told a Senate Appropriations subcommittee in June that while he was all in favor of fiscal discipline, “That kind of sequestration cut across the board will have a serious impact, not only on our men and women in uniform, but our personnel and the contractors that serve the Defense establishment.”
The GOP-dominated House passed legislation a month and a half ago that would spare the Pentagon the additional cuts while shifting the burden of savings completely to domestic social programs. But Senate Majority Leader Harry Reid of Nevada argues that Congress should live up to the terms of the legislation and he has refused to go along with the House-passed measure.
The House today also passed a bill that would require the White House to detail how it would implement the roughly $110 billion in Pentagon and non-defense spending cuts scheduled for early next year. Republicans are attempting to shift blame for sequestration to President Obama, and they are complaining that he and his advisers have failed to provide adequate guidance to the defense industry and its suppliers on how best to prepare for the possible cutbacks.
“The White House refuses to answer basic questions about the law, while the Democrat-controlled Senate has refused to budget in over three years, said House Budget Committee Chairman Paul Ryan, R-Wis. The White House budget office couldn’t be reached for comment.
During a morning hearing on sequestration today before the Armed Services Committee, the major defense contractor chiefs warned of dire cutbacks in aircraft and weapons systems production and planning, massive layoffs amid tough economic times and what one executive described as “blunt force trauma” to the military-industrial complex.
“The impact on industry would be devastating, with a significant disruption to ongoing programs and initiatives, leading to facility closures and personnel reductions that would significantly disrupt advanced manufacturing operations, erode engineering expertise and accelerate the loss of skills and knowledge,” said Robert J. Stevens, chairman and chief executive officer of Lockheed Martin. “It would also directly undermine a key provision of the new national security strategy, which is to preserve the industrial base, not dismantle it.”
Stevens said that Lockheed Martin’s production of the F-35 Joint Strike Fighter, missile defense weapons, littoral combat ships and classified intelligence programs could be hardest hit by the cutbacks, and that as many as 10,000 people out of a workforce of 120,000 could be affected or laid off next year. Lockheed Martin is the Defense Department’s largest supplier.
Sean O’Keefe, chairman and CEO of EADS North America, said that the government’s reluctance to make difficult choices “and apply a well-aimed fiscal razor” will mean that the defense budget in the coming year “will get the equivalent of a shave with a chain saw.” O’Keefe said that U.S. aerospace suppliers – which provided EADS alone with nearly $15 billion in goods and services last year -- would be especially hard hit by the budget cuts.
David Hess, president of Pratt & Whitney, said that many companies were already limiting hiring and halting investments, largely due to uncertainty over how sequestration cuts would be applied. Because Pratt & Whitney manufactures jet engines for both commercial and military use, the company may be able to shift some of its workforce from defense to commercial programs for a while, Hess said.
“I can, if forced to, take some risk if there is to be a reward at the end of the day,” Hess said. “But this is putting the proverbial Band-Aid on a bullet wound.”
Critics say that defense contractors and their allies are exaggerating the problem, and that the Pentagon budget is still riddled with fat. The Fiscal 2013 defense spending bill heading to the House floor this week illustrates why it’s hard to cut defense spending, even in times of depleted resources and a rising federal debt.
The bill, passed by the House Appropriations Committee in May, provides the Defense Department with a base budget of $519.2 billion, not including $88.5 billion for war costs, according to an analysis by Taxpayers for Common Sense. That’s $3.1 billion more than the Defense Department requested, and $1 billion more than the “megabus” spending bill Congress passed just a few months ago to fund the government this year.
The Congressional Budget Office just declared that the Defense Department’s five-year budget plan will exceed the limits established in the Budget Control Act passed last summer. It was that legislation that set in motion sequestration after the House-Senate “super committee” failed late last year to reach agreement on $1.2 trillion of deficit reduction over the coming decade.
Foreign policy and defense expert Gordon Adams of the Henry L. Stimson Center wrote this week that the current projection of a flat defense budget is “the most moderate and shallow build down we have ever experienced” since the end of the Korean War. He said the last three defense build downs saw defense resources actually fall, on average, 30 percent in constant dollars over ten years. Even with a sequester, the overall cut of an additional $500 billion, in round numbers, would be only 17 percent, and that’s from a budget that was projected to grow.
“We’re a long way from doomsday,”Adams said, adding that “all the political hair tearing, garment rendering, and teeth gnashing” by defense executives and lawmakers was unfounded.