Sequestration’s Slow-Motion Punishment

If Congress fails to reach an agreement to stave off sequestration’s automatic budget cuts next year, the defense industry will feel the pain well beyond 2013. Why? Because the largely across-the-board budget cuts brought on by sequestration will reduce the Defense Department’s budget authority. But what industry really cares about are outlays, explained Todd Harrison, senior fellow at the Center for Strategic and Budgetary Assessments, on Sept. 18 at AFA’s Air and Space Conference outside Washington, D.C. It will take three-to-five years for a one-year sequester cut to work its way through the acquisition system, said Harrison, simply because of the time lag between when equipment is ordered and when it is delivered. This means the sequester is not a one-year event, but “a long-term problem,” he said. Even though industry probably won’t see immediate contract terminations through the sequester, the awkward budget cuts will force DOD and industry to reopen contracts and renegotiate with suppliers, said Harrison. This will raise costs, multiplying the impact. Therefore, a 10.3 percent cut in a missile program’s funding will ultimately result in more than a 10.3 percent reduction in the number of missiles that DOD is able to buy, he said.