Calming 'sequesteria'

There were always two shells in the double-barreled shotgun aimed at the Defense Department. One was sequester. The other -- the one the Pentagon was really worried about -- was the continuing resolution that expires March 27.

Well, now, the Congress has just begun to unload one of the two barrels. Although sequester is still underway, the House has removed a big source of the Pentagon's "sequesteria" by passing a real appropriations bill for the Department of Defense and the Department of Veterans Affairs. (The rest of government will have to make do with the continuing resolution, which the bill prolongs through the end of the fiscal year.)

The bill, from the chairman of the House Appropriations Committee, Harold Rogers, did not attempt to fix the sequester -- as I predicted last week, that was too high a hurdle -- but it does make it easier for the Pentagon to survive. In writing a full appropriations bill, Rogers gave the Obama administration pretty much all the money it asked for in its request for crucial operational accounts. The bill increases the funds for operations and maintenance by more than $10 billion above the FY 2012 (and, thus, the continuing resolution) level.

That doesn't eliminate the sequester, but it raises the baseline from which sequester is measured for the accounts most directly affected. That gives some relief to the services, easing about 25 percent of the pain they see coming. And, who knows, if there is actually progress on the broader budget negotiations the president is lobbying for, the whole sequester thing itself might become meaningless.

That's the other big takeaway since we moved into sequester-land last Friday. Everybody is suddenly making nice. The president is phoning the Hill, even talking to Republicans. And Barbara Mikulski, the new chair of the Senate Appropriations Committee, wants to write a bill similar to the House legislation, perhaps providing real appropriations language for a few more agencies and departments, rather than just prolonging the continuing resolution for everyone but DOD and Veterans Affairs.

So the March 27 deadline that I argued was the real deal may go away quietly. Some kind of appropriations bill will pass before then, in all likelihood. And the Pentagon seems likely to get the flexibility and additional funds it needs to avoid some of the damage expected from sequester. That has not prevented the "doomsday drumbeat" from continuing at DOD, with sequester threatening everything from readiness to the Asian pivot, to nuclear strategy, to band concerts. But some politics die hard.

Gee, have we entered an era of peace and budgetary harmony? Not likely. Paul Ryan's budget resolution for FY 2014 is coming next week; a Senate version from Patty Murray will follow. They will differ. And the Obama administration will send up its budget someday -- rumor has it either March 25 or April 8. And "Debt Ceiling: The Second Sequel" will hit theaters this summer. Lots of targets if anybody wants to continue to fight.


National Security

Howling into the wind

It has been said that the definition of insanity is continuing to do the same failing thing, hoping the outcome will be different the next time. A good part of the U.S. defense industry is clearly stuck in this pattern.

CQ/Roll Call ran a piece over the weekend that lays bare the time warp some contractors and their trade associations are stuck in.

The headline talks about how the industry is facing its "moment of truth." The content makes it clear that the industry, and its spokesperson, the Aerospace Industry Association, is far, far from facing the truth about the defense budget.

If this piece is any indication, the industry continues to live in a hermetically sealed box, telling itself its own dream-like stories, and expecting to be "saved" by actors on the Hill who are in the box with them.

The reality is that sequester is now underway, not because the industry lobbying campaign failed in some technical way, as some in the industry seem to think. Millions of dollars ($27 million in campaign contributions alone), numerous road shows (McCain, Graham, and Ayotte visit carefully pre-selected friendly audiences), thousands of interviews (will Buck McKeon ever sit down?), factory-floor lobbying, visits to the Hill -- they were all done to a fare-thee-well. These are tried and true lobbying techniques, which I described at length in my 1980 study, The Iron Triangle.

But the techniques only work if the message is in tune with the voters at large and the majority of the members of Congress. The industry's problem is not technical, it is the failure to recognize we are in a defense drawdown. The budgetary party is over.

Defense budgets rise and fall in response to changing international and political conditions. And those have changed dramatically: The end of the war in Iraq and the coming end of the war in Afghanistan lower significantly the level of public and congressional attention and concern about national security.

And some in the industry seem not to have noticed that we are in a major budget battle, and have been for two years. It is a much bigger battle than the one over the defense budget; that smaller fight is a side show. And as long as some Democrats do not want to change entitlements and Republicans do not want to put tax expenditures on the table, the drive-by budgetary victim of that battle is discretionary spending.

Last time I looked, defense was about 55 percent of discretionary spending, and the third largest cause of the U.S. debt more than doubling since 2001. Of course it is on the table; does the industry still think it is going to get a pass?

The days of ever upwards on defense are over. Sequester or not, defense budgets are going down and sequester just accelerates the pace. The industry should be prepared for the projected defense budgets over the next 10 years to fall at least 20 percent in constant dollars, or roughly a trillion dollars from the current forecast of more than $5 trillion.

When the industry still tries to argue that Leon Panetta "cut" defense $487 billion over 10 years, when all he did was flatten the projected growth in defense, leaving it to grow with inflation, they are not being realistic.

When they think Rep. Harold Rogers, the appropriations chair in the House, is going to save their bacon by giving DOD flexibility on sequester, when that will never survive the Senate, they are not being realistic.

When they think just a little more money to the Aerospace Industries Association to fund more misleading studies about the jobs impact of sequester will be adequate to turn the public around, they are not being realistic.

The realistic companies have been coping for two years: attrition and layoffs, buying in capacity they used to contract out, selling divisions that are less strong in a declining market -- they know what to do. The rest of the industry seems to be howling into the wind.