This post is abridged from a commentary featured on, and whose copyright is held by, Foreign Policy.
For months now the defense industry has been making an impressive effort, in the midst of a general election campaign, to exempt the defense budget from going over the fiscal cliff -- sequestration -- set to take effect on January 2, 2013. At the heart of their advocacy has been the argument that a defense sequester would be devastating to employment, forcing the layoff of hundreds of thousands, if not millions, of workers. Several threatened to send their entire workforces notifications, under the Worker Adjustment and Retraining Notification (WARN) Act, that they were at risk of layoff.
Politicians have piled on, starting with Republican defense stalwarts like Senators McCain, Graham, and Ayotte as well as House Armed Services Committee Chairman Rep. Buck McKeon. Democrats, perhaps in self-defense, joined the call, including Armed Services Chairman Sen. Carl Levin, Sen. Jeanne Shaheen, and Sen. Sheldon Whitehouse.
Now they all face the Emily Litella moment. Emily was Gilda Radner's character on Saturday Night Live, who would run through reams of erroneous commentary until someone told her that she had misunderstood the topic of conversation. Just like Litella, industry has just now caught on to the real subject at hand – a presidential election – and ended its monologue with an abrupt: “Never mind.”
Left hanging are the trade associations and politicians that had backed industry during its wrongheaded riff.
Still it took industry a long time to come to this moment. Its opening position was that the WARN Act requires it to issue layoff notices 60 days before sequestration takes effect -- i.e., on November 2, just days before the election. The Department of Labor explained in a July advisory guidance that such notices are not required because it is not certain that sequestration will actually happen and because there is no clarity that existing contracts will be affected if it does.
That was not enough for industry. On September 28, Richard Ginman, the Pentagon's director of defense procurement and acquisition policy, was even more direct: "The Department does not anticipate having to terminate or significantly modify any contracts on or about January 2, 2013." He noted that most contracts are fully funded by previously appropriated funds, which are not affected by sequestration. Moreover, any impact of sequestration on "incrementally funded" contracts would occur several months after sequestration took effect and contract officers at DOD would have latitude to work out how that took place, including reprogramming funds to fix problems.
OMB weighed in the same day. The heads of the Office of Federal Financial Management and the Office of Federal Procurement Policy said that any legal costs contractors may incur as a result of layoffs caused by a sequester would likely be "allowable costs" under their defense contracts.
Seems like that was enough reassurance to the industry, or perhaps defense contractor CEOs realized (like Litella) that they were on the wrong topic in threatening layoffs before the election. They beat a hasty retreat on jobs, including Robert Stevens of Lockheed who had been leading the charge, and it turned into an instant rout.
The politicians went ballistic. Sen. Graham attacked the administration's interpretation of the law as "exhibit A in the march toward an imperial presidency," and attacked Lockheed for caving: "Lockheed Martin will give into the administration and ignore the law at their peril."
But the battle is over, even if the jobs war, writ large, continues. In reality, this is another indication that, while the sequester would be a miserable way to manage the budget, its impact may be a lot less significant than the rhetoric from all sides suggests.
Certainly, it can be done without a bundle of layoffs on January 2.