Sequestration is now in effect although for how long we do not know. If it lasts for the rest of Fiscal Year 2013 it will cut approximately $85 billion from federal spending. Over the next ten years the total reduction will be about $850 billion plus another $150 billion in savings on interest payments. This is not a large cut in absolute terms. What makes sequestration particularly difficult to implement and has led to seemingly bizarre actions by some federal agencies and departments, such as releasing detained illegal immigrants, is the lack of discretion that is built into the law. With a few exceptions, every program and activity must take an equal cut and must do so out of the funds left to them for the last seven months of the fiscal year.
Now Congress and the White House have a little under a month to deal with the next problem: the Continuing Resolution (CR) which expires on March 27. The CR is an even bigger problem for government than sequestration, at least in the short run. The CR restricts federal spending to FY2012 levels. While money can be moved around within accounts, it prohibits transferring resources between them – for example from infrastructure or procurement to operations and maintenance (O&M). The CR also prevents government departments from initiating new contracts and signing up for new multi-year procurements.
The CR does much more damage than simply restricting overall spending. It actually imposes additional burdens on government departments and increases the cost of doing business. Take the Department of Defense for example. Because of the high operational tempo across the force and the continuous demands of fighting a war in Afghanistan, there is an acute shortage of O&M funds for several of the services. At the same time, there are excess funds in the procurement accounts. The Marine Corps, for example has a $3.6 billion O&M shortfall but an almost equally large surfeit in its procurement accounts. Thus, it could balance its books, so to speak, if it had transfer authority. In the case of the Navy, it has had to delay or cancel maintenance on a number of ships, including the USS Abraham Lincoln (CVN 72) which in turn will cause ripple effects in O&M for the carrier fleet for years to come. In addition, the Navy had plans to initiate a new multi-year procurement for the V-22 Osprey and a block buy forVirginia-class SSNs. Because these programs will be delayed by the CR, the cost to the Navy will go up, reducing the savings that would have been achieved had the contracts been signed this year.
The best outcome between now and the end of the month is for the contending parties in Washington to agree on an FY2013 budget. But if agreement cannot be reached on a federal budget, what the government needs, in general, and the Pentagon, in particular, desperately requires, is transfer authority as part of a year-long CR. This will avoid the situation in which planes cannot fly and ships cannot sail but there is money lying idle in other accounts.
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