Sequestration Delayed: Projecting The Fallout

By Paul Kruczkowski, Editor

The U.S. economy avoided driving off the infamous “fiscal cliff, if only temporarily. The proverbial car was pulled back over the ledge to safety last night, just before hurtling to the canyon floor, when the House of Representatives approved the Senate’s American Taxpayer Relief Act of 2012.

For those of you who have been living under a rock for the past year, the fiscal cliff refers to the potential economic impact of a long list of 2013 tax increases combined with budget sequestration  — $1.2 trillion in across-the-board, untargeted discretionary spending cuts, including almost $500 billion in defense spending, that will take place over the next 10 years. Congress’ actions yesterday may have succeeded in averting imminent disaster by protecting middle-class taxpayers from tax hikes and by delaying sequestration, but it merely postpones the inevitable battle over spending cuts that must now take place over the next two months.

So what happens if a permanent solution to Sequestration is not reached by March? What will it mean to the U.S. economy, to national defense and the defense industry, and to the engineering community at large?

Impact On The Economy

Much like my home town of Pittsburgh, which was strategically founded at the confluence of the Allegheny, Monongahela, and Ohio rivers in the 1700s, countless towns have grown up around military bases and the aerospace and defense contractors that have put down roots in these areas. If budget cuts force base closures and mass layoffs in industry, these towns are sure to experience severe economic challenges much like the decades-long decline Pittsburgh experienced when the steel mills closed. The National Association of Manufactures predicts that over 1 million private sector jobs, including 130,000 manufacturing jobs, will be lost by 2014 as a result of the 2011 Budget Control Act’s spending caps and the sequestration provision. This is a major concern, considering the economy has not fully recovered and such cuts could increase U.S. unemployment by 0.7 % and decrease GDP (gross domestic product) by almost 1%.

Impact On National Defense And The Military-Industrial Complex

The biggest target of sequestration is the world’s largest employer. The Department of Defense (DOD) employs 1.5 million active duty personnel, 1.1 million reserve forces, and over 800 million civilian workers. Defense spending accounts for approximately 20% of the federal budget, but it will be subjected to 42.6% of the sequestration reductions, or $492 billion over the next decade. This is a 9.4% cut in defense spending on top of the $487 billion in cuts over the next decade in the 2013 budget. Without a permanent solution to sequestration, layoffs, furloughs, contract cancelation, and renegotiations are all likely to impact the DOD and the contractors that supply support its operations.

DOD officials have said repeatedly that sequestration is detrimental to national defense. There have also been concerns raised that sequestration may not allow cuts to be administered at the account level instead of the program level, which makes these untargeted cuts even more inflexible. Although the DOD should be able to shift funds to ensure war fighting and critical military readiness capabilities are not degraded for those that are currently deployed, sequestration would result in a reduction in readiness of many non-deployed units. Cutbacks in equipment repairs and training, delays in investing in new equipment and facilities, reductions in base services for military families, and declines in military research and development efforts will all impact the DOD ability to respond to additional or future threats. Prolonged declines in military research and development efforts also diminish the capabilities of the military-industrial complex, which can’t be ramped back up overnight.

Impact On The Engineering Community

A subject that doesn’t get talked about much, but should be of great concern, is how long-term reductions in the defense budgets and indiscriminant budget gimmicks like sequestration affect the engineering community. Many of the great engineering minds of the last century were cultivated within the aerospace and defense industries. Federal funding for the DOD, DARPA, NASA, and NOAA has led to cutting-edge RF and microwave technology that not only supports a strong national defense, space exploration, and advanced understanding of weather and climates, but eventually leads to the modern conveniences that you and I take for granted, such as microwave ovens, computers, and modern communications. Deep long-term reductions in this funding will certainly eliminate many aerospace and defense engineering jobs, and when these minds are not pushing the limits of technology, they could atrophy and be lost forever. Even more insidious is the fact that the next generation of engineering minds may never be developed, because without a high-tech job market, who will invest in an engineering degree?

What Now?

So we have new legislation that saves many Americans from tax increases but does nothing to address the sequestration and debt crisis that prompted the 2011 Budget Control Act. I think the Republican-led House will now fight for spending cuts and deal with sequestration as part of a battle over raising the debt ceiling, but there are no guarantees. Elections have consequences, and the electorate chose to keep a divided Congress, so it’s no surprise that gridlock continues.

As for sequestration, a fix is essential because across-the-board cuts are unacceptable. Even if Congress decides that budget cuts must happen to protect the long-term fiscal health of the country, the cuts need to be targeted and provide the DOD the flexibility it needs to maintain the military-industrial complex and to find savings through better efficiency. The clock has reset for the new Congress, and they have two months before the stark reality of the poison pill that their predecessors administered unfolds. Hopefully, they will have the resolve to avoid the consequences of sequestration, which will include furloughs, layoffs, cancelled contracts, and perhaps worst of all, long-term depletion of engineering talent.