Full Impact of Sequester Yet to be Felt, BPC Study Finds

Oct 11, 2013, 12:03 ET from Bipartisan Policy Center

WASHINGTON, Oct. 11, 2013 /PRNewswire-USNewswire/ -- The current across-the-board cuts in federal spending have already damaged both national security and the economy, with the negative impact likely to double or triple in the next two years, according to a study released today by the Bipartisan Policy Center (BPC).

The analysis was co-chaired by former Senators Pete Domenici, a BPC senior fellow, and Chuck Robb and prominent businessman Mort Zuckerman.  The report, The Sequester: From Merely Stupid to Dangerous, warns that even if Congress were to repeal the sequester, created by the Budget Control Act of 2011, the cuts in spending this year will grow significantly in the future.

"Given that the impact of the sequester has been delayed, as we had predicted it would be in our previous reports, Americans and many policymakers have claimed that the sequester hasn't really hurt the economy nor national security," said Zuckerman.  "Those claims are wrong." 

"The most pernicious aspect of the sequester, as opposed to the stark overnight impact of a government shutdown, is that its damage mounts as time passes," said Senator Domenici. "As smaller sub-contractors close, or are bought by larger contractors, the personal impact on workers will grow and the false sense of serenity most Americans now feel about the sequester will dissipate."

"Not only will our nation's economy suffer if the sequester continues, but it will leave our military unprepared - without the training or equipment it needs - to keep our nation safe against future threats," said Senator Robb. 

The report notes that the impact of the sequester on national defense and America's industrial base has been reasonably muted this year because of the unusual nature of defense spending - funds that are appropriated in one year, are spent over many years - especially in the areas of procurement and modernization.  While many federal agencies spend most of the money they receive through the congressional appropriations process within a year, defense modernization and procurement funds may not impact the federal balance sheet until years later.

Using the purchase of a new submarine as an example, the authors showed that $3.2 billion dollars authorized by Congress in Fiscal Year 2013 would produce actual spending of that money over seven years, with most of the spending occurring in Fiscal Years 2014, 2015 and 2016. 

"There are three possible reasons why there hasn't been an immediate and more severe impact on the industrial base," the analysis stated.  "The Budget Control Act's sequestration mechanism cut budget authority, not outlays;  industry cut overhead early in anticipation of a sequester; and large defense firms have backlogs of work under prior contract awards that are supporting 2013 sales and earnings."

"Force readiness is deteriorating, modernization has stalled, the decision-making process between national security interests and resources to meet those interests has been broken and the structural problems in defense spending have been exacerbated.  These conditions will reduce fighting forces by at least 50 percent by 2021."

The analysis emphasized that the structural problems plaguing the overall federal budget and the enormous projected increase in entitlement spending also afflicts the military budget.  More and more funds go to personnel and retirement and health costs, while monies for research and development, force readiness, and weapons modernization shrink.

The report found that between the Reagan Administration defense budget and the end of the sequester in FY 2021, ground divisions will drop from 20 to six, Air Force fighter and attack planes will drop by 1,632 aircraft, and naval ships will drop by 338, with the aircraft carrier force declining from 15 carriers to seven in 2021.

Read the full analysis here.

SOURCE Bipartisan Policy Center