When Congress pushed the pause button on sequestration last week, it also made some changes to how the automatic budget cuts would take place. And a new analysis suggests almost every civilian employee in the Defense Department would be forced to take a month of unpaid leave if the new version of sequestration isn’t undone.
The projections come via the Center for Strategic and Budgetary Assessments. Todd Harrison, the think tank’s senior fellow for defense budget studies already has warned that the previous version of sequestration, which Congress canceled just after the start of the new year, would have had a disproportionate impact on civilian workers. But under the new version of sequestration, things are even worse for the 791,000 civil servants in DoD. While the overall dollar amount the new version of sequestration would cut is smaller — $45 billion instead of $62 billion — the cuts now would be crammed into just seven months in fiscal 2013, a year in which DoD has already been burning through cash at a rate that assumes no cuts would be made.
“That cut comes off of the total level of funding for the year,” Harrison said. “By March, DoD already will have spent five months worth of the money in those accounts, so they have to make up that 8.8 percent reduction in the remaining seven months of the year.”
That means DoD would have to cut its payroll expenses from March through the end of September by 15 percent.
“If you’re going to reduce your payroll expenses by 15 percent for the remainder of the year, that means you have to furlough virtually every single DoD civilian for the maximum amount of time you can under the law, which is one month,” Harrison said.
Pentagon officials also have warned about the prospect of civilian furloughs under sequestration, but without as much specificity, and department spokesman George Little told reporters this week that DoD has no immediate plans to start issuing furlough notices.
But Harrison said with regard to the operations and maintenance accounts that cover civilian payrolls, DoD would have no other option besides hiring freezes and furloughs. Since the department deliberately chose to delay its planning for sequestration until the last minute, the dire effects on the civilian workforce may have caught Pentagon planners somewhat by surprise, he said.
“I think it would be a good public service for DoD to continue that detailed planning, but also to go public with it,” he said. “If everyone has to be furloughed by one month, it’s not all going to happen at the same time, so go ahead and tell people who’s going to be furloughed in the first month, who’s going to be furloughed in the second month. I think that would help inform the public debate so we can make a good decision as a nation about what we want to do.”
The civilian workforce cuts would be among the first effects the department would experience if sequestration happens, Harrison said. While the consequences for acquisition and defense contractors would be real, they wouldn’t be immediate.
“Because on March 1, if you walk into a factory where they’re working on a weapons system, all the work they’re doing at that point is based on money that’s been obligated already,” he said.
Harrison assessed it’s highly unlikely that any programs would be outright canceled. That’s because under sequestration, DoD would not zero out any specific budget line item, it is just being reduced by around 9 percent across the board.
What he does expect to see a lot of are contract renegotiations because of the reduced quantities of goods and services the Pentagon will be able to buy. And when quantities go down, prices generally go up.
“I’ll give you a great example: the KC-46A refueling tanker. We had a contract we signed with Boeing, and a rate at which we would buy those tankers. It’s been reported that Boeing bid very competitively to win that contract and that they’re losing money on the early phases of the contract,” Harrison said. “When we have to go and renegotiate that contract, do you really think we’re in a good position to maintain such a good price, or is Boeing going to walk out of that contract and be in a position where they’re no longer losing money? There are some areas where it really is going to be bad for DoD if they have to sequester these accounts.”
Regardless of how bad sequestration will be, Harrison thinks it’s more likely to happen this time around than it was during the New Year’s Eve negotiations. That’s because the deadline to undo sequestration 2.0 now coincides with other elements of the second fiscal cliff — a potential debt default and a government shutdown — that many policy experts argue would be even more devastating than sequestration.
“We could face all these crises within the space of about a month. That’s unique in American history, and it’s what I hope we can avoid,” Harrison said.
But that avoidance is especially unlikely if congressional negotiators maintain their insistence that increases in the federal debt ceiling be matched dollar-for-dollar with spending reductions, he said.
“If you want to increase the debt ceiling enough to give the federal government a year of operating time, that would be about $1 trillion. If you want to completely offset sequestration with other deficit reduction, that’s another $1 trillion. Putting those two things on the same timeline doubles the problem,” Harrison said. “I’m not confident that Congress can come up with $2 trillion in deficit reduction by that deadline. Let’s keep in mind that with the fiscal cliff, what they ended up passing reduced the deficit by less than $1 trillion, and look how hard that was. I think that both parties may end up looking at sequestration and say, ‘You know what, this is bad, this is not what we want, but it’s probably better than anything we could negotiate with the other side.'”