“A Perfect Storm of Budget Uncertainty”: DOD Responds to Budget Impasse

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Publication date: 
11 January 2013

At a briefing yesterday, Defense Secretary Leon Panetta described the budget uncertainty facing the Pentagon because of the threat of sequestration, short-term flat funding expiring in late March, and the threat of government default.  “Looking at all three of those, we have no idea what the hell’s going to happen,” he said.

Responding to this uncertainty, Deputy Secretary of Defense Ashton Carter sent a memorandum to all Department of Defense components yesterday, instructing them to take a series of near-term actions that will, in his words, “help mitigate our budget execution risks.”  Among them:

“Clear all R&D and production contracts and contract modifications that obligate more than $500 million with the USD(AT&L) [Under Secretary of Defense for Acquisition, Technology, and Logistics] prior to award.

“For Science and Technology accounts, provide the USD(AT&L) and the Assistant Secretary of Defense (Research & Engineering) with an assessment of the impact that budgetary uncertainty may have on meeting Departmental research priorities.”

Although Panetta’s remarks and Carter’s memo concerned only the Department of Defense, they are indicative of the challenges facing senior officials in every federal department and agency, including those that support research and development.

In his memo entitled “Handling Budget Uncertainty in Fiscal Year 2013” Carter wrote:

“Two sources of uncertainty are creating budgetary challenges for the Department of Defense (DoD) in 2013.  The first is the fact that the Department is operating under a Continuing Resolution (CR) through at least March 27, 2013.  Because most operating funding was planned to increase from Fiscal Year (FY) 2012 to FY 2013, but is instead being held at FY 2012 levels under the CR, funds will run short at current rates of expenditure if the CR continues through the end of the fiscal year in its current form.  The Secretary [of Defense] will continue to urge the Congress to enact appropriations bills for FY 2013.  But if the CR were to be extended through the end of the fiscal year, it would hinder our ability to maintain a ready force.

“The second source of uncertainty is the potential sequestration recently deferred from January 2, 2013 to March 1, 2013 by the American Taxpayer Relief Act of 2012.  The possibility of sequestration occurring as late as the sixth month of the fiscal year creates significant additional uncertainty for the management of the Department.

“Either of these problems, in isolation, would present serious budget execution challenges to the Department, negatively impacting readiness and resulting in undesirable outcomes.  This situation would be made even more challenging by the need to protect funds for wartime operations.”

Carter presented a series of actions for the near-term and for the longer-term to “help mitigate our budget execution risks.”  The two actions above regarding R&D were in the category of Approved Near-Term Actions, with Carter stating “any actions taken must be reversible at a later date in the event that Congress acts to remove the risks I have described.  The actions should be structured to minimize harmful effects on our people and on operations and unit readiness.”

Under “Intensified Planning for Longer-Term Budgetary Uncertainty” Carter outlined actions including releasing temporary employees, hiring freezes, and employee furloughs.  In a subsection entitled “For the investment portions of the DoD budget (procurement, RDT&E, construction” he instructed:

“Protect investments funded in Overseas Contingency Operations if associated with new urgent operational needs.

“To the extent possible, protect programs most closely associated with the new defense strategy.

“Take prudent steps to minimize disruption and added costs (e.g., avoid penalties associated with potential contract cancellations where feasible; prudently manage construction projects funded with prior-year monies).

Draft plans that assume a continuation of flat 2013 funding and the 9.4 percent reduction mandated by sequestration are to be submitted to the Defense Comptroller by February 1.    

During yesterday’s briefing, Secretary Panetta spoke of the $487 billion in agreed-to mandated reductions that the Pentagon will be making in projected spending over the next decade. On top of this is $45 billion more in cuts that would be made in the remaining months of this fiscal year required by sequestration.  If sequestration runs its ten year course, up to $500 billion will be cut from projected spending, in addition to the $487 billion that was mandated in the Budget Control Act passed in 2011.

For this year alone, the continuation of flat funding for the remainder of this fiscal year that ends on September 30, and this year’s sequestration, would result, Panetta warned, in a “19 to 20 percent reduction in the base budget operating dollars for active units, including what looks like a cut of almost 30 percent for the Army.”  These cuts would be implemented in such a manner to protect units in Afghanistan.  Panetta cautioned there would be “disruptions to almost every weapons modernization and research program.”

Panetta has served in Washington for several decades in both Congress and the executive branch.  He was asked what has changed in how Washington works to account for this continuing fiscal impasse.  Panetta responded:

“You know, during the time that I worked in the Congress and served in the Congress, and was involved in past administrations, governing was good politics.  If you governed the nation, if you solved the problems, if you took the risks that you have to take in order to deal with the challenges that were out there, in the end, we felt it was good politics. 

“When we dealt with Reagan as president, and when we dealt with Bush as president, it was a Democratic Congress.  The [House] speakers at the time really felt that if we could work out agreements with the president, that even though a Republican president would benefit, a Democratic Congress would benefit, as well, by governing the nation. 

“For whatever reason, that concept has been lost.  And I think that there's an attitude that governing isn't necessarily good politics, that gridlock and confrontation is good politics.  And I think we pay a price for that.  And that's what's happening.” 

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