Doomsday for the Defense Department
In the words of American University Professor Gordon Adams, the defense community has spent the last year “tearing at their hair, gnashing their teeth and rending their garments,” at the prospect of going off the so-called “fiscal cliff.”
While that might be a bit melodramatic, the point is well taken: Planet Pentagon, the center of a solar system filled with Beltway Bandits, think tanks, and a constellation of defense contractors that orbit a black hole through which billions of our tax dollars disappear each year, has been in quite a state. First came the $487 billion cut to projected growth over the next decade that the administration proposed earlier this year. (Charles Krauthammer called it, “a road map to America’s decline”.) Add to that the threat of “sequestration,” which could spell a $55 billion across-the-board cut to the Department of Defense in FY 2013, with an aggregate $500 billion slashed over the next 10 years. That’s close to a trillion dollars in defense-spending reductions over a decade.
This might just happen, if the White House and Congress come to no agreement and decide to go over the “fiscal cliff,” which includes not only sequestration for DoD but another half-trillion or more in automatic cuts from the rest of the federal budget, as well as tax hikes.
But after months of contractors and lawmakers threatening massive job losses, while military brass and their surrogates bandied about words like “catastrophic,” and “decimation” when describing the post-sequestration landscape (Secretary of Defense Leon Panetta once suggested sequestration would “invite aggression” from foreign enemies), it seems as if this side of Washington has finally come to terms with the reality. Whether through sequestration or a negotiated deal, dramatic reductions are inevitable.
“Wherever you are on defense, everyone is talking about how we deal with a long-term drawdown,” said Adams during a forum on budget issues sponsored by the U.S. Naval Institute in Washington last week. Until the election, the defense hawks on Capitol Hill, bolstered by CEOs and lobbyists representing the contracting industry, had attempted to make defense cuts a political issue. But today’s fiscal crisis is bigger than defense–it’s about the health of the country, said Adams, and the majority of Americans see that. A November poll (.pdf) sponsored by The Economist/YouGov found that 51 percent of those surveyed favored cutting defense to bring down the federal budget deficit, compared to 21 percent who said Medicare should be reduced and 31 percent who said Medicaid deserved a cut.
“All efforts to make defense the issue have failed. They failed because this is not the context, there was no resonance,” he said. “Everything has to be on the table and it has to be on the table because you cannot get to the goal if a little is not taken from everywhere.”
The threatened pre-pink slips from giant defense contractor Lockheed Martin, which insisted it was bound by the WARN Act to notify its employees of potential January layoffs, never came. Lockheed CEO Bob Stevens, who took home $25.8 million in compensation last year, had joined other CEOs in going public with his griping over the summer and gave plenty of fodder to Republicans like Sens. John McCain (R-Ariz.) and Kelly Ayotte (R-NH), who once remarked that sequestration would “undermine national security” and “fundamentally tear our defense industrial base.”
Today Stevens is much more sedate, acknowledging that sequestration will likely happen with only the hope that it might be delayed. Meanwhile, Lockheed is assuring shareholders that its F-35 fighter program, the most expensive in the history of the Pentagon, will not be affected by the looming defense cuts. Phew.
“They were running a furious campaign. It was all politics, all show,” Gordon told TAC in a recent interview, noting that these major companies had been anticipating the eventual drawdown for some time – they knew the high times, like the two-front war, wouldn’t last. Layoffs, consolidation, shifting priorities — all have been going on for the last few years. “Then they started this ‘save us from sequestration’ campaign. What’s fascinating is that none of that stuck — it made no difference whatsoever.”
Perhaps they would have been singing a different tune if Republican Mitt Romney, who had pledged to increase defense, had won the White House, but the CEOs are now saying they will accept more (but smaller) reductions if Congress can avoid sequestration altogether. In a recent press conference hosted by a handful of CEOs (Stevens was not one of them), company officials said they are merely looking for a way to avoid a crisis, suggesting that between $25-$150 billion in cuts would be manageable. “We need to stop pretending there’s a scenario out there that offers no defense cuts,” said David Langstaff, president and CEO of TASC Inc., suggesting “orderly” reductions were preferable.
“The defense community has stepped up to $487 billion,” he pointed out. “The heavy lifting still has to be done in other areas” of the federal budget.
The national-security think tanks in Washington, typically a reliable gauge of where the winds are blowing, seem to know better. Several have come out with detailed reports in recent weeks that find upwards of $500 billion or more in doable savings in the military budget over the next decade — a critical admission, seeing that a year ago this community considered half a trillion in additional cuts a disaster not worth contemplating.
The point that the RAND Corporation (which is partially funded by the federal government) makes, for example, is that planning for sequestration is better than sitting around unprepared. In its report, “A Strategy-Based Framework for Accommodating Reductions in the Defense Budget (.pdf),” the authors explain, “the premise is that reductions in budget authority can be accommodated with less risk and uncertainty if they are made with a clear strategic direction in mind.”
That may not be what the industry wants to hear, considering that some of the top players, like Northrop Grumman, Raytheon, and General Dynamics, get between 75 percent to 90 percent of their business from the federal government. According to defense consultant Jim McAleese, who also spoke to the Naval Institute audience, many of these companies are now scrambling to get their DoD contracts signed because any funds budgeted before Jan. 1 won’t be affected by sequestration. Military pay and all VA programs are also exempted.
“Consensus forms slowly in Washington, and it evolves slowly in Washington, but now the consensus is behind what is going to happen,” said Adams, who believes, as he did in 2009 when he began talking about it publicly, that the budget is headed for a normal drawdown that could result in a 30 percent reduction in spending over pre-Iraq War levels. This was the case in every postwar period since World War II. The trillion-dollar cut that might just become a reality would only be about 15 percent (down to 2007 spending levels), Gordon said, but he expects “gravity” will bring the spending down even further, eventually.
“It’s not catastrophic,” said Reagan administration Navy Secretary John Lehman — a Romney adviser with close ties to the ship-building industry — at the recent Naval Institute confab. He declared himself a “cliff diver” who insists the DoD procurement system “is so broken it will take a crisis to fix.” A radical notion for this crowd, but he didn’t get booed off the stage.
Coincidentally on Dec. 5 the Office of Budget and Management (OMB), which sets the parameters for the federal budget, for the first time told the Pentagon to start planning for sequestration to happen. Luckily, the think tanks have done a lot of the Defense Department’s work for it, without — so far — any tearing of hair, gnashing of teeth, and rending of clothing.
Kelley Beaucar Vlahos is a Washington, D.C.-based freelance reporter and TAC contributing editor. Follow her on Twitter.