Pentagon leaders and senators lamented the impact potential “sequestration” budget reductions would have on the defense industry yesterday, as Democrats and Republicans continued to clash over proposals to stop the cuts.
Deputy Defense Secretary Ashton Carter told the Senate Armed Services Committee (SASC) he no longer believes politicians will find a way to avert the decade-long sequestration cuts. The $1.2 trillion package of politically unpopular spending cuts, $500 billion of which would come from the Pentagon, is slated to start on March 1.
“I used to say that I hopeful and optimistic” about lawmakers preventing sequestration, Carter said. “Then I said I was just hopeful. And now I’m not even hopeful, (as) it’s only two weeks away.”
Sequestration already is having an impact on defense companies, and the Pentagon needs those firms “to be financially successful,” Carter told a sympathetic SASC.
“Many of our industry partners are beginning now to curb internal investment, maintain a very liquid position,” he said. “The effects of this uncertainty are beginning to show in terms of investor confidence in our industry, their ability to attract and retain workers.”
He said that while larger defense contractors have capital structures that will help them survive under sequestration, smaller companies do not.
“So I am concerned and some of our industry partners are concerned that some of them just aren’t going to make it, and then you don’t have suppliers for critical components,” Carter said. Smaller businesses also are “important” to the Pentagon because they bring new innovative ideas and people in the defense field, he added.
The Pentagon’s need to “to stretch programs, reduce buy rates…introduces inefficiency in the procurement system,” Carter said.
“All of our managers try so hard to use the taxpayer’s dollar in the best way, to get things just so, work with their industry partners to get a good deal for government,” he said. “All that stuff goes in the wastebasket in these circumstances.”
Service leaders warned their major weapons programs would be impacted by the sequester cuts.
The sequestration reductions, of roughly $46 billion from March through September, would be made in an indiscriminate, across-the-board manner to Pentagon budget accounts. In addition, the Pentagon is facing significant budgeting constraints because it is being funded in fiscal year 2013 through a bare-bones continuing resolution (CR) until March 27 that does not allow it to start new programs and keeps funding for existing programs as well as operations and maintenance accounts at FY ‘12 levels.
It is not clear if lawmakers will agree on a plan to stop sequestration or if they will pass an actual defense appropriations bill to fund the Pentagon until FY ‘13 ends Sept. 30.
Army Chief of Staff Gen. Raymond Odierno said “sequestration will result in delays to every one of our 10 major modernization programs” and “the inability to reset our equipment after 12 years of war.” Marine Corps Commandant Gen. James Amos warned of his service outright cancelling modernization programs. Air Force Chief of Staff Gen. Mark Welsh said sequestration cuts would impact “every one of” the Air Force’s investment programs; the F-35 Joint Strike Fighter program, for one, would be cut by one to two planes in the near-term, he said.
The services also emphasized concerns about sequestration halting depot-maintenance work.
Multiple SASC members quizzed Vice Chief of Naval Operations Adm. Mark Ferguson during the hearing about the cuts’ impact on Navy shipbuilding.
Ferguson said he has a significant concern that the cuts “will irreversibly damage the industrial base that we depend upon to build and maintain our ships and aircraft.”
If sequestration kicks in, the Navy would have to delay the start of construction of the USS John F. Kennedy (CVN-79) aircraft carrier and completion of the LHA-6 amphibious-assault ship, and cancel one planned DDG-51 Arleigh Burke destroyer, Ferguson said.
He also warned of the Navy deferring more ship maintenance. The service announced last week it is delaying the mid-life overhaul of the USS Abraham Lincoln (CVN-72) aircraft carrier. If sequestration cuts start, the service would put off completion of the overhaul of the USS Theodore Roosevelt (CVN-71), he said.
The Navy will notify private shipyards on Feb. 15 about expected deferrals in maintenance availabilities, Ferguson said. The ship-maintenance efforts, though, may not be delayed if the CR is replaced with an actual defense appropriations bill, he added.