Key Issues: SASC Sequester Hearing & State-of-the-Union Address

As you know, Sequester will dominate public-discussion again this week, with SASC Sequester Hearing tomorrow (Carter/Dempsey/Hale/Service Chiefs); President’s State-of-the-Union Address tomorrow night; HASC’s Sequester Hearing Wednesday (Carter/Dempsey/Service Chiefs); and SAC Sequester Hearing on Thursday (OMB/Education/DHS/ HUD/DoD). (Specific Witnesses enclosed in Attachment).

Key Themes expected:

  1. President Obama is cautiously-optimistic that March-May Sequester-compromise can be achieved; (but ratio of Spending-cuts to new Tax Reforms must give at least partial-credit to Republicans, for latest $620B Tax-increases in ATRA.) [Be alert to expected Senate companion-bill, proposing 10-month Sequester delay; with ≈$55B in new Tax Reforms, ≈$55B in Spending-cuts, and remainder in Interest-savings].
  2. Sec. Panetta and Gen. Dempsey gave SASC Preview of 2013 Sequester last week in Benghazi Hearing; explaining why Sequester-cuts collapse O&M/Readiness, with reduced 2013 Modernization impact.
  3. Gen. Dempsey explains why Sequester primarily-hits O&M/Readiness, rather than 2013 Procurement/Investment, en route to OEF.
  4. White House is now-sensitive to GDP-impact from Sequester; and is separately-raising profile on Civilian Agency Sequester, before SAC Hearing this Thursday. [New SAC Chairwoman Mikulski]
  5. DepSecDef Carter shifts from “hopeful & optimistic”, to probability that Sequester will now occur.
  6. Panetta & Dempsey preview FY2014 Budget, warning of new USAF Force Structure cuts; $30B “Efficiencies” over 2014-2018; new BRAC; and smaller Milper-raises.
  7. Navy is targeting 2013 CR & Sequester cuts to Aircraft Depot Maintenance, Ship Depot Maintenance, CVN-79 & DDG-51 Procurement; with stand-down of several Carrier Strike Groups under Sequester.
  8. Army is fighting $5B-$7B unexpected 2013 OCO/OEF Costs, $6B CR shortfall, and $5.3B Sequester [$16B-$18B total]; targeting Brigade Training, Depot Maintenance, FSRM, and Base Operations Support.
  9. USAF is targeting 2013 FSRM, Flying-Hours, Weapon Systems Sustainment, modest F-35 CTOL quantities, and KC-46A Schedule.

Jim McAleese

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  1. President Obama is cautiously-optimistic that March-May Sequester-compromise can be achieved; (but ratio of Spending-cuts to new Tax Reforms must give at least partial-credit to Republicans, for latest $620B Tax-increases in ATRA.) [Be alert to expected Senate companion-bill, proposing 10-month Sequester delay; with ≈$55B in new Tax Reforms, ≈$55B in Spending-cuts, and remainder in Interest-savings]. (White House Press Conference, February 5, 2013).
  • “[O]ver the past few years, Democrats and Republicans have still been able to come together and cut the deficit by more than $2.5 trillion [2012-2022] through a mix of spending cuts and higher rates on taxes for the wealthy.”
  • “That's more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties believe is required to stabilize our debt.”
  • “The proposals that I put forward during the ‘fiscal cliff’ negotiations in discussions with Speaker Boehner and others are still very much on the table. I just want to repeat: The deals that I put forward, the balanced approach of spending cuts and entitlement reform and tax reform that I put forward are still on the table. I've offered sensible reforms to Medicare and other entitlements…”
  • “[T]hese modest reforms in our social insurance programs have to go hand-in-hand with a process of tax reform, so that the wealthiest individuals and corporations can't take advantage of loopholes and deductions that aren't available to most Americans.” [In December, there had been informal agreement-in-principle to $1.2T Tax-increases/Tax Reforms, in exchange for $1.2T Spending-cuts; but agreement collapsed over whether to count $300B “Interest-savings” as part of $1.2T Spending-cuts].
  • “[I]f they can't get a bigger package done by the time the sequester is scheduled to go into effect, then I believe that they should at least pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months…”

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  1. Sec. Panetta and Gen. Dempsey gave SASC Preview of 2013 Sequester last week in Benghazi Hearing; explaining why Sequester-cuts collapse O&M/Readiness, with reduced 2013 Modernization impact. (February 7, 2013).
  • “If Congress fails to act and sequestration is triggered, and if we must operate under a year-long continuing resolutionwe would face a $35 billion shortfall in operating funds alone for our active forces, with only a few months remaining in the fiscal year.” [Sec. Panetta]
  • “[M]y preference…is that the Congress would do the big deal, get it done, get this behind us, de-trigger sequester, stop this constant uncertainty, this month-to-month situation where we don't know what the hell we're going to get.” [Sec. Panetta]
  • “[W]e're going to have to turn to the one area that we have in order to gain the funds necessary, and that's readiness. It's maintenance.” [Sec. Panetta]

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  1. Gen. Dempsey explains why Sequester primarily-hits O&M/Readiness, rather than Procurement/Investment, en route to OEF. (Bloomberg, February 9th, 2013).
  • “‘Some of the stuff in these big procurement accounts are already locked in for this calendar year and you just can’t touch them,’ Army General Martin Dempsey...”
  • “‘We’re just going to have to sweep up every bit of money that is not otherwise locked down,’ said Dempsey... Most of the money you can get at, on such a short timeline, happens to reside in the readiness accounts.’”

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  1. White House is now-sensitive to GDP-impact from Sequester; and is separately-raising profile on Civilian Agency Sequester, before SAC Hearing this Thursday. (White House Press Briefing by OMB Federal Controller, Dan Werfel, and National Economic Council Principal Deputy Director, Jason Furman; February 8, 2013).
  • “[Sequester] cuts must be achieved over only a seven-month period … effective [monthly] percentage reductions will be approximately 9 percent for nondefense programs and 13 percent for defense programs.” [Werfel]
  • “[S]equester would also have broader and very negative consequences for the economy[W]e got a tiny bit of a preview … in the fourth quarter GDP numbers, where GDP contracted because of a large contraction in defense spending … due just to fears about the sequester...” [Furman]
  • “[T]he impacts on our domestic priorities as a nation would be just as severe [as impacts on Defense].”
  • Six hundred thousand women and children would lose vital nutrition assistance…”[Werfel]
  • “Approximately 70,000 children would lose Head Start and Early Head Start services.” [Werfel]
  • “The Food and Drug Administration and the Department of Agriculture would have to cut back on food inspections... The FBI would have to reduce its law enforcement capacity. FEMA would have to eliminate funding for firefighters and other emergency personnel. And the Justice Department would have to furlough hundreds of federal prosecutors.” [Werfel]

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  1. DepSecDef Carter shifts from “hopeful & optimistic”, to probability that Sequester will now occur. (Deputy Defense Secretary, Ash Carter, at Munich Security Conference, Germany; February 2, 2013).
  • “So it [Sequester] can be avoided, and it can be reversed. …I used to be hopeful and optimistic, and now I'm just hopeful.”
  • “A lot of people think that Pentagon civilians are people who sit in offices in Washington, but 86 percent of them aren't even in the Washington area. They are people who repair ships, repair aircraft, they're all over the country.”
  • “We're reducing temporary term employees, deferring maintenance contracts…”
  • “And the result…very quickly, would be a readiness crisis.

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  1. Panetta & Dempsey preview FY2014 Budget, warning of new USAF Force Structure cuts; $30B “Efficiencies” over 2014-2018; new BRAC; and smaller Milper-raises. (American Forces Press Service, February 6, 2013).
  • “The fiscal year 2014 budget proposal also requests a military pay raise of 1 percent.” [down from plan of 1.7%] [Sec. Panetta]
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  • “‘We have identified $30 billion in new initiatives over the next five years to eliminate overhead and duplication,’ he said...” [Sec. Panetta]
  • “In the budget, the secretary proposes another round of base closures and realignments. ‘We will have to because … you can’t have a huge infrastructure supporting a reduced force,’ he said.” [Sec. Panetta]
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  • “The department will propose some additional cuts to the Air Force and ‘we will resubmit some of our proposed cuts to the Navy,’ Panetta said. These are proposals that Congress rejected last year.” [Sec. Panetta]
  • “The department will continue to push for growth in special operations capability and cyber warfare experts.” [Sec. Panetta]
  • “[T]he budget continues the push for tactical fighters, aerial refueling capabilities, ballistic-missile subs and bombers, Panetta said. New capabilities include sea-based unmanned aerial vehicles, cyber tools and space systems.” [Sec. Panetta]

[2014 OCO Request is expected to be submitted at a later date, than notional March 25th FY2014 DoD Budget Request]

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7. Navy is targeting CR & Sequester cuts to Aircraft Depot Maintenance, Ship Depot Maintenance, CVN-79 & DDG-51 Procurement; with stand-down of several Carrier Strike Groups under Sequester. (Navy Charts to Congressional Committees).

Tier A – Continuing Resolution ($4.6B OMN + $1.7B “New Starts”)

Tier B – Sequestration ($4.0B)

  • Cancel 10 ship avails in San Diego ($219M)”
  • Cancel 10 ship avails in Norfolk ($271M)”
  • Cancel 3rd and 4th Qtr aircraft maintenance in San Diego, Norfolk, Jacksonville, Whidbey Island, Lemoore, & Cherry Point ($433M)”
  • Reduce FSRM by 50% ($1.142B)”
  • “Cut BOS by 10% ($363M)”
  • Reduce ship ops, flying hours ($670M)”
  • “Defer ‘new start’ construction of CVN 79 ($608M)”
  • “Cancel construction of 1 DDG-51 ($1.4B) – quantity limit”
  • [No visible resolution of $1.6B Request for 2013 RCOH]
  • Flying hours on deployed carriers in Middle East reduced 55%; steaming days reduced 22%
  • “Reduce WestPac deployed ops by 35%; Non-deployed Pac ships lose 40% of steaming days”
  • “Cancel naval operations in and around S. America; cancel all non-BMD deployments to Europe”
  • Shut down all flying for 4 of 9 CVWs in Mar12. 9-12 months to restore normal readiness at 2-3 times the cost”
  • Furlough most Civilians for 22 work days ($448M)”
  • Defer emergent repairs (MIAMI - $294M in Maine, PORTER - $125M, MONTPELIER - $41M East Coast) ($505M Total)”
  • “TRUMAN and IKE CSG deployments extended indefinitely”
  • “NIM, GHWB CSGs will not be fully ready for scheduled FY2013 deployments”
  • “By Oct 13, only 1 CSG / 1 ARG (Japan-based) crisis-ready”
  • “By Oct 13, CONUS forces will require 9+ months to deploy due to maintenance and training curtailments”
  1. Army is fighting $5B-$7B unexpected OCO/OEF Costs, $6B CR shortfall, and $5.3B Sequester [$16B-$18B total]; targeting Brigade Training, Depot Maintenance, FSRM, and Base Operations Support. (Army Charts to Congressional Committees).
  • “~$5-7B Emerging OCO
    • “Increased transportation cost delay return of $20B in equipment from Afghanistan”
    • “Increased in-theater force protection and intelligence systems maintenance”
    • “Increased demand and transportation costs for food supply for civilian workforce in Afghanistan”
  • “~$6B CR Shortfall
    • Cancels 4 of 6 brigade combat team training center rotations”
    • “Reduces maintenance for non-deploying units”
    • Reduces depot maintenance workload”
      • “5,000 employees released; economic impact exceeds $2B”
      • “Stops post war repair of 1,300 vehicles; 14,000 radios; and 17,000 weapons”
    • “Reduces unit flying hours; non-deployers will not maintain air crew proficiency”
    • “Creates training backlog for aviation and intelligence occupational specialties”
  • “~$5.3B Sequestration
    • “Reduces readiness of >78% of non-deploying brigade combat teams”
    • Defers post-combat equipment repair in Active and Reserve units 3-4 years following redeployment”
    • Potentially furlough up to 251,000 Army civilians
  • “Current & Future Readiness ($34B): Near-term Actions to Reduce Spending:”
    • “Releases 1,300 temporary and term employees; implements hiring freeze”
    • “Reduces base operations up to 30%”
    • Reduces facility sustainment from 90% to 37%; reduces restoration and maintenance of facilities to 0%”
    • Cancels 3rd/4th quarter Air and Ground Depot Maintenance
       

9.USAF is targeting FSRM, Flying-Hours, Weapon Systems Sustainment, modest F-35 CTOL quantities, and KC-46A Delay. (USAF Charts to Congressional Committees).

Current Actions [$2.9B]

Sequestration Action [$3.4B]

Operation & Maintenance

  • “Reduced MAJCOM/COCOM spending targets over 10% (22% of remaining funds)
  • “Defer non-emergency facility requirements ~50% redux (90% of remaining funds)

 

Investment

  • “Delayed acquisition of SBIRS GEO 5/6, AC-130J, and JSF”

Operations & Maintenance

  • Flying Hours reduced by 18% (30% of remaining funds/~203K hrs): Sub-optimal readiness levels…will take ~6 months to regain”
  • “Prioritize ongoing named operations (OEF, POTUS Support, Nuclear Deterrence, pipeline training, etc)”
  • “Reduce Weapon System Sustainment 18% (30% of remaining funds)”
  • “Impacts over 30 weapon systems, 146 postponed depot inductions/grounded aircraft, & 85 engines pulled from service”
  • “Fleet impacted: C-17, A-10, C-130, KC-135, F-15, F-16, B-52, and E-8 JSTARS—1/3 reduction in depot workload
  • Potential furlough of ~180K civ’s for 22 days; unprecedented action”

 

Investment

  • “Without substantial reprogramming flexibility, a year-long CR and sequestration disrupts modernization programs & delays capability to warfighter (Ex: JSF quantity redux, KC-46 Contract Restructure, MQ-9 Block 5 delay) and increases cost”