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“Modest reforms to pay and compensation will improve readiness and modernization. It will help keep our all-volunteer force sustainable and strong. Keeping faith also means investing sufficient resources so that we can uphold our sacred obligations to defend the nation and to send our sons and daughters to war with only the best training, leadership and equipment. We can’t shrink from our obligations to one another. The stakes are too high.”

Gen. Martin E. Dempsey

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Sequester Rules; or Does It?

We are going to be entertained for the next eight months by the ever-flowing debate over sequester, and whether it will happen, and what the draconian effects will be if it does.  Some of the residents of the defense stovepipe  - Senators McCain, Ayotte, and Graham and Rep. McKeon, for example - are working overtime to spare defense from the sequester, arguing that it would have devastating consequences for national security.

There is no question that implementing more than $54 billion in budget cuts in one year would be tough on the Defense Department, though Secretary Panetta’s “meat axe” and Deputy Secretary Carter’s “assisted suicide” metaphors may go a bit too far.  

What would make a sequester tough for any department, including Defense, is that the Budget Control Act could lead to across-the-board cuts at a very detailed budgetary level.  Folks are running around town today desperately looking for an answer to this question: what gets sequestered? (Interestingly, they only seem to be asking it about defense, though the same rule would apply to all discretionary spending, with potentially equally draconian results.)  Specifically: would the Defense Department have to cut funds in equal proportion by budget accounts and sub-accounts, or by program elements?

Let’s look at an example.  The Army has an appropriations account for “Weapons and Tracked Combat Vehicles,” a sub-account for “Tracked Vehicles” under that account, and a Program Element for the Stryker Vehicle, one step down from there.  The question is whether the sequester needs to be allocated proportionally across the accounts, leaving the Army flexibility to allocate those cuts to sub-accounts and Program Elements, or whether the sequester would apply all the way down at the Program Element level (and there are thousands of program elements).

The first approach would allow DOD the flexibility to distribute a sequester so as to cause the least harm.  The lowest level means funding for everything would be cut proportionally, or maximum pain.

Honestly, there is not an answer to this question. OMB is the keeper of the keys on this issue, and they have not issued any guidance, and may not for many months.  But there is precedent.  The sequesters that happened in the late 1980s and early 1990s were applied, according to my sources, at the Program Element level  (where program elements exist, and they do not in the Operations and Maintenance title of DOD’s budget, for example).  In other words, the last time out, OMB instructed the federal departments to go to the lowest possible level in spreading the pain.

That would make it tough, if OMB is consistent with its past behavior.  But, that is the point.  The sequester was not included in the BCA so it would happen; it is there to provide an incentive for it not to happen.  Maximum pain should be part of the picture, because the alternative should not be pretty. 

The bottom line here is not “spare defense,” as some are crying.  The bottom line here is that a budget deal is badly needed.  And for it to happen, everything needs to be on the table, including defense.  That is the only way it works economically, and, for sure, the only way it works politically.  It is why the original Gramm-Rudman-Hollings bill (1985) included all federal spending in the first place (and the Budget Enforcement Act of 1990 added the mandatories).

The solution to the debt and deficit problem lies in an agreement that covers all bases.  And it is not likely to happen until after the November election, when everyone figures out who is on first and what is on second.  So be patient, fasten your seat belt, and enjoy the show.