Sequestration is not pretty and managing it is not easy. But go back a year or so, to those days when our military was about to be devastated by the sequester. The rhetoric was hyperbolic; the damage to national security would be severe.
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Just a few short months ago, DOD was handed the biggest megaphone in the executive branch to protest the consequences. Sequestration would bring Doomsday, readiness would be fatally damaged, and the United States would become a second-rate power.
During the campaign last year, the defense politicians and lobbies stepped up to the mic. Senators McCain, Ayotte, and Graham toured the country, "defending defense." With the support of the Aerospace Industries Association, George Mason regional economist Steven Fuller asserted that a million jobs would be lost as a result of the sequester.
Fooled me once, your fault. All that time, the Defense Department was better off in "sequesterland" than virtually all of the other federal agencies. DOD, it turns out, has the greatest flexibility to handle sequestration of all of them.
I have been suggesting this for months, despite the cacophony of horror stories. It was clear from the first day of the Budget Control Act that if sequestration happened, most of the defense budget would be exempt or touched only slowly. And the most vulnerable part of the defense budget had the greatest flexibility to adjust to a lower level.
Pay and benefits for military personnel -- a third of the defense budget -- would be exempt, waived by the president under the law. Contractors found out that the dollars already committed to their contracts would be untouched. Once DOD reassured them that they did not need to send WARN Act layoff notices to their workforce (and that any legal costs incurred by not doing so would be allowable costs under their contracts), the industry stepped back and became mute.
That left the military's operating funds -- about another third of the overall defense budget -- as the primary target of sequester. The Pentagon fretted heavily, trotting out the dangerous consequences. These are the funds that cover equipment repairs, training and education, wartime operations, fuel purchases, buying services, and paying civil servants. And the impact of the sequester would be severe -- perhaps a $35 billion hole in the operating budget.
The operating funds sequester problem is slowly eroding, however; the mirage of Doomsday is lifting. It turns out there is a lot more flexibility in these accounts than one thought. For one thing, last September and again this February, OMB defined the "line item-by-line item" nature of sequestration flexibly when it came to DOD operating accounts. Rather than cut equally from every training session, military exercise, fuel purchase, and civil servant, OMB said DOD would have the flexibility to lump them all together in the standard military operating accounts: Army Operations and Maintenance, for example. The Pentagon could make tradeoffs between these expenditures, setting priorities.
Then, a third of the Pentagon's problem went away when the Congress passed the full defense bill in March this year. That bill added $11 billion to the operations accounts above the level provided in the continuing resolution, just as the administration had requested.
The military services discovered that the threatened 22-day furlough of civil servants might not be needed. It dropped to 14 days, or even 7 days, and, in the Navy's case, conceivably to zero. The new bill helped, as did the search for other ways to set priorities.
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