Budget

Sequestration outlook remains cloudy

Leon Panetta -- DOD photo

Defense Secretary Leon Panetta warns that sequestration would be devastating. (DOD photo)

The threat of sequestration continues to loom over the federal government, and perhaps the only thing more evident than concerns about deep budget cuts is the sense of paralysis surrounding the possible implementation.

It is still far from certain that the 10 percent, $1.4 trillion across-the-board cuts to federal spending will actually kick in on Jan. 2. And directives from the White House and Office of Management and Budget have reinforced that sense of mere possibility, offering little in the way of concrete guidance for agencies to prepare for the so-called fiscal cliff.

Still, there are mixed signals. Defense Department officials have continued to warn of sequestration’s devastating effects. Those calls have come as recently as Oct. 19, when Defense Secretary Leon Panetta reminded a Hampton Roads, Va., audience that such cuts would jeopardize defense operations and that Congress must act to overturn the measure, which is mandated by last year’s Budget Control Act.

“There’s still time to prevent sequestration,” Panetta said, according to a DOD statement. “Let me be clear, no one wants this to happen…but for God’s sake, don’t just kick this can down the road.”

Yet according to a TechAmerica Foundation market forecast  released this month, a most likely scenario will be just that: a plan that pushes the most dramatic action into the future, and at less-steep levels.

Under those circumstances – which TechAmerica pegged as a 35 percent chance of happening among five possible outcomes – there would be no sequestration, but instead a bipartisan deal featuring a mix of tax and spending changes that would defer discretionary cuts to out years. All told, it would result in less than $1 trillion in cuts – far short of the $1.4 trillion currently mandated by the Budget Control Act.

“We anticipate a sequestration-like cut, but it’s going to involve Congress and the next President coming together and resolving it in a political fashion,” said Trey Hodgkins, TechAmerica senior vice president of the global public sector. “It’s not changing the outcomes; it’s changing the mechanism to achieve the outcome.”

The likelihood of sequestration actually happening is not the only question mark – also debatable is the fallout if it does happen. Some reports, including one commissioned by the Aerospace Industry Association, predict job losses numbering in the millions and a significant decline to U.S. GDP. Another from the Center for Strategic Budgetary Assessment projects DOD civilian government employees would be hit first with job cuts, before contractors.

However, the Project on Government Oversight has questioned those projections. In an Oct. 17 post, POGO’s Ben Freeman pointed out that numbers are being manipulated across the board, skewing the actualities of sequestration’s potential impact. In particular, he questioned the findings in the AIA report, which featured an analysis by George Mason University professor of economics and consultant Stephen Fuller.

According to Freeman, the information Fuller presented was narrow in scope and crafted to fit a specific agenda on the part of the AIA, and actually in direct contradiction with findings by other economists and researchers.

“Even in a town known for half-truths, the sequestration debate has been riddled with misleading statistics from paid industry advocates who can find ‘statistics to support almost anything,’ as Fuller [previously] said,” Freeman wrote.

Another wildcard in the sequestration debate is the handling of job-cut notifications required under the Worker Adjustment and Retraining Notification Act. According to that law, contractors with at least 100 employees must provide written notice to workers at least 60 days ahead of a certain plant closing or mass layoffs if they are reasonably foreseeable.

In an OMB memo 7 released Sept. 28, federal officials – including the Labor Department, which is the agency responsible for administering the WARN Act – told chief financial officers and senior procurement executives that issuing WARN Act notices would be “neither necessary nor appropriate.” It also stated that, under certain circumstances, the government would reimburse contractors fined for violating WARN Act requirements.

On the same day, a DOD Director of Defense Procurement and Acquisition Policy Richard Ginman issued a letter echoing that stance, Federal News Radio reported. Shortly thereafter, at least two major defense contractors, including Lockheed Martin and BAE Systems, said they would not issue WARN Act notices.

Critics of the move, including Republican senators Chuck Grassley of Iowa and Kelly Ayotte of New Hampshire, question the legality of the White House asking companies not to issue WARN Act notices, which per the 60-day timeline would go out just days before the election.

“We are seriously concerned about the OMB’s memorandum and the DOL’s letter,” the senators wrote in a joint release announcing an inquiry into the matter. “In particular, we are concerned about the authority of the Executive Branch to instruct private employers not to comply with federal law and to promise to pay the monetary judgments and litigation costs that arise out of the lawsuits that may follow.”

House Oversight Committee Chairman Darrell Issa (R-Calif.), meanwhile, has asked 10 key defense contractors for details on the administration’s role in their decision not to issue notices.

However, Rick McHugh, an attorney with the National Employment Law Project, told the San Francisco Chronicle that potential sequestration layoffs are not subject to the WARN Act. “The obligation to give notice arises once the employer believes or should have known that a mass layoff or plant closing is going to happen at a particular worksite,” McHugh said. “At this point, no one knows with any certainty that layoffs will be taking place or not at a particular worksite.”

That uncertainty is palpable, and not just within the Beltway – but according to the Professional Services Council’s Stan Soloway, it does not mean that panic is setting in.

“We’ve been hearing people assume that [Congress] will figure something out in the lame duck…but we have yet to see anything on the table that could overcome the hurdles to stop it. There’s nothing to adequately close the gap,” Soloway said, predicting action will be punted into fiscal 2014 – and leaving agencies and companies in the lurch.
“Agencies are in a pickle,” Soloway said. “They know the cuts will be drastic, but they’re under OMB direction not to plan. There’s just only so much they can do.”

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Reader comments

Sun, Oct 28, 2012

I work for bae systems and agree it is what needs to happen but think it would be dumb to blindly cut. I also think it will not happen as suggested. No way would they cut blindly. Once president is in. Something will be done to minimize the impact. All really too little to late. Cut 200 billion and still Over spend 1 trillion, that does not fix anything. We are in over our heads.

Tue, Oct 23, 2012 OMB

Panetta said don't kick the can down the road. Excuse me??!! Sequestration cuts spending now and does NOT kick the can down the road. It's what the president and congress agreed to last yeat. Let it happen. Our country will be better off in 10 years as a result.

Tue, Oct 23, 2012 Earth

Given that our congress could be best described a party of millennialist lemmings on bath salts lead by a foreign pied piper band and another party of the type of city folk that carry around tiny little dogs in their purses, my suggestion to the citizens of the US is to find a feed and seed, buy lots of non-hybridized seeds and 10-10-10 (garden fertilizer not yard fertilizer) and get ready to live on a drip. The trickle is about to lose what little pressure it had behind it.

Tue, Oct 23, 2012 DC Fed Washington

I asked my General Counsel for guidance on notifying my contractors of possible layoffs and what my WARN obligations as a Fed manager might be toward my contractor staff. I have heard nothing. Guess we know what the administration message on that is....

Tue, Oct 23, 2012

Just let it happen, it will not be the end of the world. We will come out of this alright, have faith not in Goverment but that we as people will perservere in adversity.

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