Lockheed Martin on Monday backed down from its summertime threat to issue layoff warnings to employees just before the November election, saying the Obama administration has given assurances that it won't immediately kill any major defense contracts when automatic spending cuts go into effect in January.
The announcement ends a months-long standoff with the administration that could have turned into a political headache, but the news drew criticism from Republicans who questioned whether the Pentagon and White House budget office even had the legal authority to give those assurances.
Lockheed Martin and other defense companies had said with massive budget cuts, known as sequesters, slated to take effect Jan. 2, they would have had to send out notices warning of potential layoffs 60 days in advance, under the federal Worker Adjustment and Retraining Notification Act, or the WARN Act.
But now, according to Lockheed, the administration has said no contracts will be canceled in January. What's more, the Office of Management and Budget said the federal government will pay for severance costs mandated by the WARN Act.
House Armed Services Committee Chairman Howard P "Buck" McKeon accused the White House of something close to extortion.
"It appears companies will bow to the threat implicit in last week's OMB guidance; withhold notices today or the government might not cover your court costs down the road," the California Republican said. "Let me be clear: Neither the OMB guidance nor the Lockheed decision will protect a single defense industry job if sequestration occurs in January."
Under the terms of last year's debt deal, the federal budget faces $109 billion in spending cuts equally divided between defense and domestic spending and due to take effect Jan. 2.
The defense side has received the most attention, with those in both parties saying the cuts could devastate the military. Still, Republicans and Democrats have found little common ground over how to replace the cuts with tax increases or trims to other federal spending.
In June, a number of defense company chiefs said the cuts could mean layoffs for their firms and that they would need to issue notices in early November under the WARN Act.
Lockheed CEO Bob Stevens said that meant his company would send notices to all 123,000 of his employees. Lockheed, EADS and several other defense giants said the legal issue was so clear that they thought they were forced to issue notices or face legal retribution from employees.
The Labor Department had said those warnings would be inappropriate because Congress and President Obama were still trying to work out a deal to end the automatic sequesters.
On Friday, the White House budget office went a step further and said the federal government would cover the costs of employee terminations if the contracts are canceled — but only if the companies do not issue the warning notices. The guidance came in a memo that said it was intended "to further minimize the potential for waste and disruption associated with the issuance of unwarranted layoff notices."
An administration official said the federal government paying for private companies' layoff costs is legal under federal acquisition regulation but that there is no reason for taxpayers to incur costs because Congress has time to avoid the defense cuts and "we are confident they will."
Sen. Lindsey Graham, South Carolina Republican, said the guidance was an election-year political maneuver and that it stood in stark contrast to 2007, when Mr. Obama, then a senator, wanted to increase the WARN Act notice time to 90 days.
"This is typical Barack Obama politics — being supportive of the WARN Act when convenient and against it when it creates a political downside," Mr. Graham said Monday in a release. "This is the most outcome-based White House in memory."
House Majority Leader Eric Cantor, Virginia Republican, also expressed outrage over the Obama administration's insistence that contractors not issue the notices about potential layoffs. He said Senate Democrats and Mr. Obama have refused to work with Republicans on ways to avert the defense cuts.
"For an administration that talks a lot about transparency, it is disappointing that they apparently think it is more important to protect their political interests than give hardworking families any indication that they might in fact lose their job in 60 to 90 days due to inaction by the president and Senate Democrats," he said.
The Jan. 2 sequesters are just the first round. Over the next eight years, another $1.1 trillion in cuts are due, also equally divided between defense and domestic spending.
House Republicans have passed several bills to replace the sequesters with cuts elsewhere, but Senate Democrats have not taken up any of those bills.
Last month, Mr. Obama, acting in accordance with a new law, released a report showing what programs would be cut on Jan. 2.
Among the biggest hits were $21.5 billion directly from operations and maintenance for the Army, Navy, Air Force and Marines and the reserves and National Guard. Tens of billions more would come from procurement and other Pentagon accounts.
Even as Congress and Mr. Obama spar over the round of sequesters, some taxpayer watchdogs are focused on the broader picture — trillions of dollars in debt that will pile up over the next decade unless Washington raises taxes or cuts more spending.
On Monday, Taxpayers for Common Sense released a report proposing $2 trillion in savings over 10 years, nearly half from cuts in special tax breaks.
The biggest cut would be to trim the federal tax deduction allowed for mortgage interest by a third, which could save $645 billion over the next decade. But the group also took aim at Pentagon spending, calling for the Defense Department to cancel an expensive fighter-jet upgrade to the F-35 and stick with the F/A-18E/F Super Hornet, for a savings of nearly $62 billion over 10 years.
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