Published daily by the Lowy Institute

US defence budget battle: Sequestration 101

US defence budget battle: Sequestration 101
Published 22 Feb 2013 

Erin Hurley has nearly ten years of experience working in US politics in New York and Washington DC, and served as a legislative affairs officer within the US Department of Defense.

As Washington careens from one budget crisis to another, many analysts rightly point out that America's elected officials appear at times incapable of governing. 

The complexity of the US budget process and US politics makes it difficult to draw conclusions about the likelihood of certain events and their consequences. This article tries to make sense of the current budget battle and the so called 'sequestration' of funding, particularly the implications for the US Department of Defense.

The current crisis flows from the threat of sequestration, a penalty designed as part of the Budget Control Act of 2011 (BCA) to force a compromise between Republicans and Democrats. The penalty will be triggered if lawmakers are unable to agree on a strategy to achieve $1.2 trillion in deficit reduction over the next ten years by 1 March 2013. 

Key to the expectation that sequestration will force a compromise is that sequestration requires uniform cuts of around 10% across a variety of discretionary spending areas, from support to state and local firefighters to childcare to biomedical research to national defence.  Approximately half of that $1.2 trillion will be realised through uniform cuts (exempting military personnel accounts) to the US Department of Defense (DoD).  

Defence cuts are typically unpopular in Congress due to the sensitivity of national security issues and because defence spending is directly tied to jobs in congressional districts. Further, the indiscriminate nature of these cuts is anathema to the leadership of a Department that enjoys wide bipartisan respect within the Congress.

However, Republicans, facing an assertive re-elected president, are indicating that sequestration is preferable to the compromise options advanced by the president and senate Democrats, all of which involve some revenues (mainly through closing tax loopholes). [fold]

Many Republican members of the house of representatives represent conservative districts and therefore believe they can blame the president for the cuts and insulate themselves from the political impact of sequestration. Finally, sequestration may be the Republicans' best chance to cut spending this year (noting that sequestration does nothing to address America's long term debt problem).

The political environment is toxic: the Republican speaker of the house of representatives has indicated that he will not negotiate with the president on a deficit reduction plan that involves revenues, the president is frequently criticised for his lack of engagement with Congress on the issue, and the normally pro forma confirmation hearings for defense secretary nominee Chuck Hagel were unprecedented in their rancour and obstruction. Also, the political environment includes a war-weary public and a president committed to winding down America's overseas commitments and focusing on improving the domestic economy. In this context, defence cuts are more palatable than they were in the recent past. 

Just days out, what are the likely consequences of sequestration on defence?

Secretary Panetta's FY2013 National Defense Authorization Act (FY13 NDAA) included $525.4 billion in the base budget (for the peacetime costs of the Department) and $88.5 billion for ongoing military operations ($2.9 billion for Iraq and $85.6 billion for Afghanistan). This budget request complies with a requirement within the BCA for the DoD to find $487 billion in cuts over the next 10 years and is the first budget in more than a decade to propose a real decline in spending. (These cuts are separate from the sequestration penalty and in part are possible through decreased operational tempo.) 

Despite the fact that FY13 began on 1 October 1 2012, this budget has not been passed. The Department is currently operating through a six-month continuing resolution (CR), a stopgap measure that allows the Department to spend at 2011-12 levels in the absence of a budget. The issue with the CR is not the amount of money appropriated (DoD has $8 billion more than it requested) but the fact that the money is in the wrong accounts. Money in a CR is distributed across the same accounts it was in the prior fiscal year and the Department does not have the flexibility to move that money where it is needed.

If sequestration is triggered on 1 March, that penalty will be intensified by the fact that, until very recently, the Department had not adjusted spending in anticipation of sequestration. Of minor relief, the BCA was amended in January 2013 by the American Taxpayer Relief Act (ATRA) of 2012. The key outcome of ATRA was that the date set for sequestration implementation was moved from 1 January 2013 to 1 March 2013, and the total amount of cuts required in FY2013 were reduced in proportion to that delay. As a result, the DOD will be required to find $42.7 billion in savings by 30 September 2013 (versus $54.7 billion). These savings must be realised through a 9% cut across all programs, projects and activities (except military personnel).  

The consequences of these cuts will be determined by the Service Chiefs, who have warned that they will lead to dangerously low levels of combat readiness, a concern that was validated in detail by an Office of Management and Budget report.

In addition to a civilian hiring freeze and the institution of a 20% pay cut for DoD's 700,000 civilian employees, training and maintenance within each of the services is set to be scaled back. This includes Army combat training center rotations and Air Force flying times, a significant decrease in the rehabilitation of equipment coming out of Afghanistan, and less activity in the Navy's shipyards. 

If recent history is any guide, the most likely scenario is that the sequester is triggered on 1 March but some type of short-term compromise is reached prior to the end of March (when the CR runs out). This compromise will likely allow DoD to move money between accounts to support readiness, but it is unlikely that the Department will avoid additional deep reductions over the next ten years (Mark Thompson notes on the ASPI blog that, sequester or no sequester, expect to see a 'steady erosion' of US military capability).

The combination of these reductions and a continued reliance on stopgap budget measures does not bode well for US defence planning. Todd Harrison, a defense budget analyst for the DC-based Center for Strategic and Budgetary Analysis, borrowed a metaphor from former Congressman Barney Frank in a recent interview, which aptly describes the challenges facing the Department in an age of austerity: 'Fat in the defense budget is not like fat around the edge of the steak that you can trim off neatly. The fat is marbled into the meat.' 

It's difficult to imagine how the delicate task of cutting the fat can be achieved in an uncertain and politically polarised budget environment.

Photo by Flickr user Kris Kesiak Photography.

You may also be interested in