The Pentagon could hold onto its crown jewel weapon systems even though looming automatic federal spending cuts would inflict a $54 billion gash in the 2013 defense budget, military budget analysts say.
Instead of terminating weapons, the Pentagon could trim its projected spending under the Budget Control Act, which calls for a nearly $1.2 trillion reduction in federal spending over 10 years and mandates a 10 percent across-the-board cut in its first year, beginning Jan. 2.
While painful, the indiscriminate chopping would offer a silver lining: If a newly elected Congress next year can reach a compromise to scale back cuts in 2014 and beyond, the military would be able to save its cherished big-ticket items, such as the F-35 Joint Strike Fighter jet, a new Army troop carrier and 11 active aircraft carriers, because they would have survived the law's first year.
"For the most part they would not terminate programs in the first year," said Todd Harrison, an analyst at the Center for Budgetary and Strategic Assessment. "They would just slow them down and scale them back. They don't spend the money as quickly."
Loren B. Thompson, who heads the Lexington Institute defense think tank, has studied the law and worked the numbers for sequestration, as the mandatory cuts are called.
If the Pentagon exempts personnel cuts, as the law allows, and spreads top-line cuts to weapons production and readiness, the actual defense spending reduction in 2013 might be only 5 percent to 6 percent.
That's because the law targets money Congress authorizes, which can take several years to spend, rather than "outlays," which are government checks actually written
A 'penalty squestration'
Mr. Thompson argues in his Early Warning Blog that this may not be all bad for defense contractors.
"With everyone seeming to focus on the negative right now, it's easy to overlook the fact that cuts to budget authority made in 2013 will spread out over several years, reducing the near-term impact on contractors," he writes.
"In fact, it's possible that the cost-cutting companies like Lockheed Martin and Northrop Grumman are pursuing in anticipation of sequestration will save the companies more money than budget cuts take away."
The Pentagon has prepared a $525 billion budget for 2013, a more than 5 percent reduction from the previous fiscal year's spending plan. Sequestration would cut the 2013 its budget to about $471 billion.
Mr. Thompson sees a new Congress next year as a possible savior, "sending a signal to investors that sequestration isn't going to last for very long."
For proponents of new weapons to replace old ones, the second year of sequestration is the key.
Mr. Harrison said the law was written to spur a so-called congressional "supercommittee" last year to reach a budget compromise. It failed and was disbanded.
"In the first year, it's considered a penalty sequestration because the supercommittee failed and you have no ability to target the cuts," Mr. Harrison said. "They don't have to make many decisions at all. The decisions are made for them."
The remaining nine years of sequestration allow the Pentagon flexibility. It will have to pick winners and losers to save its top priorities instead of just slashing everything.
"I think we would see the Pentagon come in with a budget that does actually terminate some weapons systems that are lower priority so it can protect weapon systems that are a higher priority," he said.
Mr. Harrison predicts the Pentagon, in sequestration's second year, would shrink the purchase of the F-35s, cut the active carrier force down to 10 and retire more warplanes.
The Pentagon's long-range budget already has absorbed a $487 billion decrease in projected spending over 10 years. The budget law requires an additional $492 billion reduction if Congress does not step in.
Defense Secretary Leon E. Panetta and the military chiefs have invoked stark terms, such as "hollow force," to describe what the armed services would look like if nearly $1 trillion is taken out of projected spending.
Gordon Adams, senior national security budget official for former President Bill Clinton, said that once the Pentagon on Jan. 2 has suddenly to extract $54 billion in the middle of the fiscal year, the jolt will spur action.
"They are not going to plan for the out-years of the sequester anyway while the Congress is trying to figure out what to do about it," Mr. Adams said. "The reality, I think, is even if there is a sequester, Congress will do what Congress has done the last four times there was a sequester. Congress fixes it after it happens.
"What I fully expect the next step is Congress steps in with the White House and they figure out a way to fix it."
He said the Pentagon may have more flexibility in the first year than it appears now because the White House budget office has not ruled on exactly how to carry out the budget act.
"Anybody who tells you with certainty how this will happen should there be a sequester is fooling you because they don't know what options DoD is going to choose and how [the Office of Management and Budget] is going to define it," Mr. Adams said.
Rep. Howard P. "Buck" McKeon, California Republican and chairman of the House Armed Services Committee, is leading the charge to reverse sequestration.
He issued a fact sheet that declares, "In the midst of the most dynamic and complex security environment in recent memory, sequestration would severely diminish America's global posture."
Mr. McKeon said the military would have to cut 100,000 additional troops, shrink the Navy to 230 ships instead of its goal of more than 300 and fly "the smallest tactical fighter force in the history of the Air Force."
The committee chairman introduced a bill last year to head off the first year of sequestration by trimming the budget elsewhere. But Senate Democratic leaders and the White House have opposed exempting defense.
"I don't think it would lead to a hollow force," Mr. Adams said of sequestration. "I think it would lead to a one-year difficult atmosphere for management and spending, but it will not lead to a hollow force. It is the kind of thing in the long term you can plan around."
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