Defense Can Handle Sequestration, Specialists Say

The Defense Department is to some extent crying wolf with its dire warnings about sequestration’s effect on military readiness because the dollars being cut will become part of an inevitable longer-term budgetary drawdown, a trio of defense specialists said on Friday.

“Sequestration will create a mess and inefficiencies and is bad policy, but it will not make us a second-rate power,” said Todd Harrison, senior fellow for Defense budget studies at the Center for Strategic and Budgetary Assessments, speaking on a conference call organized by a progressive group called National Security Network.

“DoD has to be careful about its rhetoric,” he said. “Our allies and adversaries are listening and may get the wrong impression.” Harrison cited comments about becoming “second-rate” by recently departed Defense Secretary Leon Panetta and a statement by Deputy Defense Secretary Ashton B. Carter that “the wolf is at the door.”

The coming, gradual rollout of across-the-board automatic cuts will likely not be “quite as dramatic as you heard the joint chiefs testify,” said Gordon Adams, a former Office of Management and Budget national security specialist now a professor of foreign policy at American University. “What was missing over the past two or three weeks is what is being protected in order to make the changes that are going to happen.”

Calling sequestration “not a sudden event but more like a slope,” Adams said the Pentagon is beginning to look at service contracting, considering more indefinite delivery-indefinite quantity contracts, freezing new hiring and travel as well as planning furloughs for April. The delivery of military health services “could slow down over time,” as could equipment maintenance at depots, he said. But “today’s instant drama is really a reflection of a broader trend of the defense budget coming down over 10 years” to a degree that is deeper than Panetta had planned.

The Pentagon will focus on cost-cutting decisions that are “reversible,” he said, while preparing for what it knows is a tougher challenge on March 27, when the current stop-gap spending bill called the continuing resolution expires. Defense planners have been complaining that the current law allocates too much money to long-term investments and too little to operations and maintenance. Cutting without much flexibility following the sequester in what in a compressed time period amounts to 13 percent of defense spending, Adams said, would require changes in Congress’s budget rules that would not be “an easy political heavy lift.”

Adams said it is “unpredictable what will happen in the next five weeks,” adding he’d never seen such budgetary “theatrics.”

Pentagon management may have erred preparing for sequestration in assuming they would get more money, said Lawrence Korb, a Reagan administration assistant Defense secretary, now a senior fellow at the Center for American Progress. “The deputy secretary’s job is to plan not for what they expect to happen but what is law,” he said.

Korb’s past experience taught him that there’s nearly always room for good managers to cut their workforce by 10 percent. “There’s a big difference between readiness and capability,” he said. The department says it may cut flight hours by 40 percent, “but why is that if the budget cuts are only 13 percent?” Pilots can fly simulators, Korb said. He also cited the concept of “tiered readiness” -- not all units must be ready at all times.

“People talk about the hollow military,” but that notion came from 1980 when the budget was rising and was a reference to keeping pay up to recruit the all-volunteer army, Korb said. “Military pay and benefits have gone up over the past decade.” Sequestration “is not the way to run a railroad, especially for the world’s largest organization,” he added, “but they can do it without harming readiness.”

Harrison stressed that sequestration for Defense will come in two parts, $40 billion now and another $7 billion beginning the same day the continuing resolution expires. Compared with previous reductions, such as the drawdown of the late 1980s which cut defense by a third, he said, the current slice totaling about 12 percent is “much less. I wouldn’t characterize it as a catastrophe,” he said. “It’s not the magnitude, it’s the abruptness that compounds” the problem, he said, expressing worries that the $32 billion a year TRICARE health insurance program will lose $3 billion.

Without some relief from Congress, he added, the Pentagon “may be forced to default on some contracts, and will inevitably pay penalties to industry, which wastes money, though you don’t hear DoD talk about it.”

Contracting overall, however, “is not as bad as it seems because they’re not cutting outlays,” Harrison said. “Industry will see revenues decline, but gradually,” with service contractors being hit more quickly than equipment vendors, he said. “Some parts of industry may actually see their profits increase after renegotiating on more favorable terms because DoD is not in a good negotiating position.”

David Melcher, chief executive officer of ITT Exelis and a retired Army top budget officer, told Government Executive that so far, the Pentagon had not delayed payments or reopened any contracts. But, he said, contract officers have asked about the impact of spending less money on particular contracts. Until recently, he said, “no one at DoD was empowered to ask those questions.”

Melcher said he could see “these storm clouds on the horizon five years ago when he was in government.” Exelis as early as 2010 had begun “looking at ways to streamline our costs at lower spending levels.” (Exelis on Friday reported fourth-quarter financial results at an 8 percent decrease from a year earlier.)

“No one likes sequestration because it takes a big chunk out without appropriate planning” Melcher added. His company has carefully aligned its research and development investments with a defense strategy that now may change. “I was in Pentagon, and I know you spend the better part of a year preparing the president’s budget and a five-year plan,” he said. “To have that kind of planning that overlapped year after year now disrupted by cuts of this magnitude can throw the mechanism into a seizures.”

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This story was updated to correct a typo in the third reference to the company Exelis.