As the Unemployed Twist in the Wind, Defense Contractors Get a Safety Net
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The Fiscal Times
April 28, 2014

As millions of jobless Americans hope Congress will take action to extend their unemployment benefits, some defense contractors aren’t feeling the same level of anxiety.  Even if the automatic budget cuts known as sequestration return next year, this protected group has nothing to worry about.

That’s because the Pentagon is preparing an initiative to invest millions of dollars in certain weapons and their components-makers who could see production lines temporarily halted if across-the-board spending cuts resume on Oct. 1, 2015.

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Elana Broitman, deputy assistant secretary of defense for manufacturing and industrial base policy, told Bloomberg News on Friday that the program will serve as a “bandage until sequestration goes away.”

Lower discretionary spending caps for defense and non-defense programs are scheduled to return in fiscal 2016. Current funding levels are higher than those imposed under the Budget Control Act of 2011, which spurred sequestration. The budget sequester is expected to continue through 2021, prompting the Pentagon and other agencies to begin planning now for what will amount to fewer dollars later.

“As we saw sequestration being a problem, the idea was to have a very modest fund” that would fast-track targeted investments, Broitman said. That fund includes $10 million from a provision in the National Defense Authorization Act for fiscal 2014, passed by Congress and signed into law by President Obama last December.

The fund, if needed, would be small compared with the Pentagon’s annual procurement budget, which has hovered near $100 billion in recent years. Last month, the White House sent Congress its fiscal 2015 budget request, which called for $496 billion in Pentagon spending. The amount included a $3.8 billion, or 4 percent, decrease in procurement costs compared with current levels.

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While the Pentagon has the authority to support defense firms considered critical and essential to national security, the means for doing so sometimes involve congressional approval, a process that can take months. The new fund would allow for a faster response time from the Defense Department and provide market certainty for the companies involved. None have been named at this point, nor have specific weapons or components manufacturers.

The Obama administration has proposed other measures for repairing the damage done by sequestration. In early March, the White House introduced a $56 billion spending package known as the Opportunity, Growth and Security Initiative, which would provide an equal amount of funding for defense and non-defense programs. Congress has not acted on it.

Meanwhile, a Senate-passed unemployment insurance bill is languishing in the Republican-controlled House of Representatives. The jobless benefits would be retroactive to Dec. 28, when Congress let the most recent extension of coverage expire. It would apply to about 2.5 million Americans at a cost of $10 billion.

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A senior writer for The Fiscal Times based in Washington, D.C., Timothy Homan covers defense and national security matters. He previously worked as an economics and congressional reporter for Bloomberg News and covered international trade for Congressional Quarterly.