Pentagon would furlough all civilians under revised sequestration, analyst says

Unless Congress achieves a deal to head off the revised schedule for across-the-board spending cuts, the Defense Department in March will be forced to begin rotating monthly furloughs of all 791,000 of its civilian employees, a prominent budget analyst said on Wednesday.

“This would be a contracting nightmare for DoD because civilian contracting officers would be furloughed for a month,” Todd Harrison, senior fellow at the Center for Strategic and Budgetary Assessments, told reporters.

Using “back of the envelope” calculations interpreting the new American Taxpayer Relief Act, he said the roughly 8.8 percent cut that would kick in under the sequestration penalties would have “a real impact” on the $70 billion a year spent on the civilian workforce -- the equivalent of a 15 percent cut over the remaining seven months of the fiscal year.

“There’s no way to avoid it unless Congress changes the law,” Harrison said in releasing a new paper on the impact of the so-called fiscal cliff that projects revised cuts aimed at the Pentagon of about $48 billion in fiscal 2013. “Not all the furloughs would happen at the same time,” he said, but planners should decide soon who would be furloughed in what month and make it public “to help inform public debate so we could make a good decision as a nation on what we are going to do.”

The new law, which cuts about $12 billion from the caps on national-security-related spending, delayed the sequestration deadline by two months, pro-rated the amount the defense budget would be cut automatically on March 1, and “diluted” the overall spending caps on defense to widen their impact by concentrating more cuts in fiscal 2014 than in 2013, Harrison said.

The changes designed to mitigate the harm from deep cuts are technically in violation of the 2011 Budget Control Act, he said. The projected defense budget for 2013 would be about $486 billion, according to his paper. Harrison’s figure of $48 billion in total sequestration cuts is close to the $45 billion Pentagon Comptroller Robert Hale estimated on Monday. “It’s not quite precise, because you have to estimate the unobligated balances in accounts,” and contract officers in theory could sign new contracts up until March 1, Harrison said.

“There won’t be many contract terminations because no account would be cut to zero,” Harrison said. But many program managers let new awards this fall in anticipation of possible sequestration, and they have a self-interest that differs from the Pentagon’s big-picture planners, Harrison said. “In terms of how you can game the system, a program manager has an incentive to get as much of a program obligated by March 1. But if you’re [Deputy Secretary of Defense] Ashton Carter or the Defense secretary, you have the opposite incentive -- you don’t want people obligating money by March 1 because that narrows the areas where cuts can be applied.”

The numbers in the base budget do not include spending on the war in Afghanistan, though “overseas contingency operations” would count in sequestration’s percentage reductions. Military personnel is the opposite, Harrison said; it’s exempt from the cuts, but does count against overall caps.

Also threatened under across-the-board cuts is $3 billion in defense health spending, though Congress may step in to protect it, Harrison noted.

Automatic cuts might also mean cuts in weapons systems, such as the multi-service Joint Strike Fighter, Harrison said. Though contractors can continue manufacturing using existing funds, many contracts could be renegotiated or delayed, which means “the unit price goes up.” An example is Raytheon Co.’s Tomahawk missile, for which the Pentagon orders 200 a year. “It’s not just 9 percent fewer missiles,” but more money spent for each, he said. “DoD pays for the industrial base that supports it, and in the long run, sequestration would reduce its purchasing power.”

Defense planners could also try to reprogram funds to be more selective in cuts, but Congress would have to approve it.

Harrison said the Pentagon could consider delaying weapons maintenance, but that would create a backlog. Or it could implement a hiring freeze and reduce the workforce through attrition “to create some headroom. Or they could lay people off, but my understanding is that’s a last resort,” he said.

He was surprised, Harrison said, that Secretary Leon Panetta put out a warning of furloughs “late in the game,” on Jan. 2.

At a Pentagon briefing on Thursday, spokesman George Little said the so-called triple fiscal cliff coming in two months “is just not the right way to go about business.” The department is “doing some serious planning for sequestration. We hope to avoid it. We don’t want there to be uncertainty, but …we need to be ready,” he said.