Viewpoint: Five Things You Probably Didn't Know About Sequestration of the Defense Budget

June 14, 2012
Plus one thing you probably did know: There is universal agreement that sequestration is a bad idea.

Over the last several months, discussion of budget sequestration in defense circles has taken on an increasingly grim tone.

As Jan. 2 -- when automatic cuts are scheduled to trigger -- draws closer with little sign of congressional movement to avert implementation, politicians, policymakers and industry executives have begun to speak in apocalyptic terms about the potential impact.

However, relatively few people seem to understand the details of the budget law. With that in mind, I thought I'd pull together a few key facts about sequestration that seem to have eluded some players.

1. The automatic cuts in defense spending authority scheduled to take effect on Jan. 2 don't just shrink the regular military budget for fiscal 2013.

Funding for Department of Energy nuclear-weapons programs, overseas contingencies and unobligated balances from prior years also are potentially subject to cuts.

Reductions in defense-spending authority mandated by the Budget Control Act are made from a baseline that includes fiscal 2013 appropriations for the Department of Defense and Department of Energy nuclear-weapons programs ($551 billion), plus supplemental appropriations for overseas contingencies ($88 billion) and the unobligated balances carried over from previous fiscal years ($82 billion).

The resulting total of $721 billion is all treated by the budget law as subject to sequestration.

2. Although defense spending is supposed to absorb half of the $1.2 trillion in cuts mandated by the law to take place between fiscal 2013 and fiscal 2021 -- in addition to nearly half a trillion dollars in defense cuts already being implemented -- the amount of new cuts beginning in January is not $600 billion but $492 billion.

The reason why the number is less than half of $1.2 trillion is that the law takes into account savings in interest payments that accrue to the federal government as a result of having a smaller federal budget. Those interest savings are calculated to be 18% of the $600 billion total, which reduces the amount that must actually be cut between 2013 and 2021 to $492 billion.

3. If Congress approves the Obama administration's request of $551 billion in defense appropriations in 2013 (including DOE nuclear-weapons programs), the amount that will be cut in fiscal 2013 as a result of sequestration isn't $55 billion, it's $60 billion.

Although $55 billion has been widely reported as the 2013 share of $492 billion in defense cuts that must be apportioned in nine equal annual increments through 2021, the law also requires that savings previously implemented be protected.

That results in budget caps being established in fiscal 2013 for the military's base budget that reduces it from $551 billion to $546 billion -- another $5 billion cut on top of the reported $55 billion.

4. The decline in outlays for fiscal 2013 resulting from sequestration would actually be less than half of the aforementioned $60 billion.

The law appears to subject defense accounts to 10% across-the-board spending cuts in 2013, but as Byron Callan of Capital Alpha Partners has pointed out, it targets budget authority rather than outlays. Budget authority typically takes several years to translate into outlays.

That's especially true in the case of weapons accounts, where it may require the better part of a decade to expend budget authority provided in any given year for big weapons programs.

The slow pace at which cuts in budget authority translate into cuts in outlays will be magnified if the president exercises his authority under the law to exclude fast-spending military-personnel accounts from sequestration.

If all the sequestration cuts come from investment and readiness accounts, the reduction in defense outlays for 2013 will be only 5% to 6% even though budget authority has been cut at over twice that rate.

5. Even without sequestration, the defense budget is destined to fall to a small share of federal spending over the coming decade.

Military spending is barely 20% of the government's budget today, but the Office of Management and Budget estimates it will fall to 13% by 2017.

Add in sequestration and it will fall to an even smaller share, because the way the Budget Control Act is written, defense absorbs half of the automatic cuts even though it is only a fifth of overall spending.

Land of Confusion

If this all sounds confusing and contradictory to you, then join the club.

Almost nobody in Washington really understands how the sequestration provisions of the Budget Control Act would play out, and among those who claim they do, there is universal agreement that sequestration is a bad idea.

It's not that federal spending shouldn't be cut. But doing it the way the Budget Control Act requires simply contributes to the complexity and waste for which Washington is already so well known.

Loren B. Thompson, Ph.D., is chief operating officer of the Arlington, Va.-based nonprofit Lexington Institute and chief executive officer of Source Associates, a for-profit consultancy. Prior to holding his present positions, he was deputy director of the Security Studies Program at Georgetown University and taught graduate-level courses in strategy, technology and media affairs at Georgetown. He also has taught at Harvard University's Kennedy School of Government.

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