OMB: Sequestration Could Cut Defense by 9.4 Percent
Business + Economy

OMB: Sequestration Could Cut Defense by 9.4 Percent

iStockphoto/The Fiscal Times

The Obama administration on Friday added fuel to the drive to offset or postpone $110 billion of automatic spending cuts scheduled to take effect in early January with a report  spelling out the details of the savings and warning of reductions of as much as 9.4 percent in the Pentagon budget. /node/55752

The report, required by law and prepared by the Office of Management and Budget (OMB), was designed as an early warning of the long-term implication of going ahead with massive across-the-board spending cuts to achieve further deficit reduction. Lawmakers and policymakers are warning that the indiscriminate cuts could wreak havoc on government services, including scores of domestic programs that will experience automatic cuts of 8.2 percent.

The cuts were mandated under legislation approved last summer to end the debt ceiling crisis that immediately cut spending by $1 trillion and ordered an additional $1.2 trillion of automatic savings over the coming decade unless a special House-Senate super committee could agree to a package of cuts and additional revenue to meet that target. But the super committee failed to reach agreement late last year.

Now, with the first installment of the automatic cuts looming and the threat of major layoffs in the defense industry, both the White House and congressional leaders are having buyers’ remorse in an election year – and are looking for ways to head off the year-end spending cuts as well as the scheduled expiration of the Bush era tax cuts. Unless lawmakers and the administration can agree to postpone both the spending cuts and tax increases, policy experts warn the country may fall off a fiscal cliff.

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The Congressional Budget Office and other budget experts are predicting that a sequester would contribute to dragging  the economy back into a recession. And Moody’s, the bond-rating agency, is threatening to downgrade the U.S. debt unless Congress and the administration adequately address its debt, spending and tax problems.

The administration and congressional GOP leaders have clashed over how best to head off the across-the-board cuts, and the White House yesterday urged Congress to work with the president after the election to strike a compromise. “The president has already presented two proposals for balanced and comprehensive deficit reduction, but under our Constitution, he cannot do the job alone,” the report stated. “Congress also needs to act.”

Earlier this week, House Majority Leader Eric Cantor, R-Va., blamed the White House for inaction on sequestration, and said that the Republican-controlled House already has passed legislation that would blunt the automatic defense cuts. However, the administration and Senate Democrats oppose that measure because it would shift the cuts from defense to domestic programs.

The White House missed, by a couple of weeks, the deadline for issuing the report under the Sequestration Transparency Act passed earlier this year and signed by the president. Republican presidential nominee Mitt Romney has criticized Obama and congressional Republican leaders for going along with the sequestration plan, which he said will seriously hurt the military.

For the Pentagon, allowing the automatic cuts to go into effect would mean delaying new equipment purchases and repairs, reducing services for military families, and a reduction in readiness of units not actively deployed, according to the OMB report.

While the Department of Defense would be able to shift funds to ensure war fighting and critical military readiness capabilities were not degraded, sequestration would result in a reduction in the readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families, the report said.

With no guarantees that Congress will block deep new  defense spending cuts, major defense contractors and their suppliers are bracing for the worst, projecting that there could be as many as one million layoffs across the country.

Marion C. Blakey, president and CEO of the Aerospace Industries Association, said today thatthe report “is the final nail in the coffin for pollyannas still pretending that sequestration wouldn’t be that bad.” She added, “Indeed, it confirms what virtually every expert to study the problem has found – that such abrupt, indiscriminate cuts would be an economic and policy disaster for the United States of America.”

Lockheed Martin Corp., the Defense Department’s largest supplier, has said that it may have to shut down at least 10 percent of its weapons production next year, forcing massive layoffs and causing havoc with suppliers who could miss out on hundreds of millions of dollars of business. Boeing Co. says it has begun paring its workforce, consolidating manufacturing facilities and cutting overhead. The company’s defense division already shed about 8,000 of 60,000 jobs during the past 18 months.

Industry executives are contemplating pressuring the president and lawmakers by announcing plans for layoffs shortly before the November election. The federal Worker Adjustment and Retraining Notification Act (WARN) requires major employers to provide notice 60 days in advance of plant closings and mass layoffs.

The sequestration reductions would also mean fewer FBI agents and federal prosecutors, a dramatic reduction in federal scientific research, curtailed food inspections and fewer air traffic controllers, according to the detailed 400-page report prepared by OMB,  as required by a sequestration transparency law passed by Congress and signed by the president earlier this year.

Sequestration would undermine investments vital to economic growth, threaten the safety and security of the American people, and cause severe harm to programs that benefit the middle-class, seniors, and children, according to the report. Education grants to states and local school districts supporting smaller classes, afterschool programs, and children with disabilities would suffer, it also said. 

Moreover, customs and border patrol agents, correctional officers, and federal prosecutors would be slashed. The Federal Aviation Administration’s ability to oversee and manage the nation’s airspace and air traffic control would be reduced, as would the Department of Agriculture’s efforts to inspect food processing plants and prevent food-borne illnesses and the  the Environmental Protection Agency’s ability to protect air and water.

The White House said today that until Congress acts, it will continue to provide guidance for the possibility that the cuts will be made the first week in January. “However, no amount of planning can mitigate the significant impact of the sequestration,” the report stated. “The destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan.”

The report tracks the level of cuts for 1,200 separate budget line items, taking account of rules Congress agreed to last summer that protects certain budget priorities, including food stamps and Medicaid and Medicare benefits. Salaries for military personnel are also exempt, as are Medicare benefits – though Medicare providers would take a 2 percent hit.