What Does Sequestration Mean to Southern Maryland?

November 16, 2012

by Lee Moon, Iona Moon – president and founder of Iona Moon, a California, MD-based defense management consulting firm with over 300 clients nationwide; and

by Larry Groves, GCC Associates – a retired Marine Colonel and president of GCC Associates, a Vienna, VA-based defense acquisition consulting firm.

 

The impending ‘fiscal cliff’ has the potential to seriously impact the Southern Maryland region if it is not avoided by a cooperative effort of the administration and congress in the next few weeks. When the subject was brought up in the final presidential debate both candidates agreed it could not be allowed to happen. So far, neither has brought forth a substantive plan to prevent it, yet an agreement must be reached soon if it is to be avoided.

The ‘fiscal cliff’ is actually a perfect storm of mandatory budget cuts across all federal programs, and expiring tax credits that will reduce the government’s ability to borrow. On Jan. 2, 2013, without interventions, these measures become law. Together they represent the greatest government austerity since 1968.

‘Sequestration’ has the most potential to devastate the defense industry that is the economic backbone of this region, removing nearly $500B from the defense budget over next ten years. The same dollar amount will be cut from programs across all other government spending, however defense shoulders 50 percent of the cuts, although it accounts for only 20 percent of the federal budget.

This results in a cut of 9.4 percent from DoD budgets and 8.2 percent from civilian agencies in FY 2013. Worse, because DoD leaders have refused to plan for sequestration, the Defense Department will have already spent 25 percent of its pre-sequestration budget when the cuts occur, leaving the savings to be found within the remaining 75 percent of the ’13 budget.

In order to comply with the law, all major programs will take a hit. Expect to see planned procurements delayed and cancelled, contracts terminated, contract options not exercised and open procurements rescinded. As a result, the potential impacts on employment and small business are staggering (source: Aerospace Industry Association brief, October 30, 2012):

  • Over 1 million jobs lost from defense cuts alone
  • Professional/business services hardest hit
  • All states affected
  • Risk to small and defense-only suppliers
  • Risk to service and support contractors
  • Reduced investment in company R&D
  • Reduced competition, increased unit costs

The Congressional Budget Office has projected unemployment will rise to over 9 percent with a loss of 108,000 civilian jobs in DoD, and a total federal workforce reduction of twice that number. The contractor workforce will take a 450,000-jobs hit.

Secretary of Defense Leon Panetta said of the cuts: “This mechanism would force defense cuts that would do catastrophic damage to our military and its ability to protect this country.”

In addition to DoD, cuts are slated to occur to vital programs including: air traffic controllers and TSA screeners, USDA production meat inspectors, U. S. Coast Guard, Bureau of Prisons, U. S. Marshals and FBI, Head Start and support to local schools. Secretary of Education Arne Duncan said, “Sequestration would be devastating to education and Washington leaders are ‘just playing chicken with the lives of the American people.”

So what is the likelihood of this nightmare scenario becoming reality? Avoiding the ‘Fiscal cliff’ requires a lame-duck congress to cooperate with the administration to ‘kick the can’ by delaying sequestration and extending the Bush-era tax cuts. In this era of the ‘continual’ Continuing Resolution, we have become accustomed to the eleventh-hour save.

The administration certainly has a stake in preventing it. President Obama recently obligated the government to pay the legal fees for any contractor sued for not issuing layoff notices required under the WARN Act. Even lame-duck congressmen have to return to their home states and face constituents impacted if they fail to act.
The implications are real and the consequences are dire to our economy, our national security and many of our livelihoods. We can only hope our leaders place those concerns above partisan politics in the next few weeks.

 

 

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9 Responses to What Does Sequestration Mean to Southern Maryland?

  1. The Republicans on November 16, 2012 at 11:34 am

    Tell the Republicans in the house to stop paying tax payer money to defend DOMA. Also, cut the House and Senate salaries in half. That would be a start. Stop paying contractors that are late completing projects. Bring the troops home. Raise taxes on the top 2%.

  2. Anon on November 16, 2012 at 12:17 pm

    Did it ever occur to you folks of the self-serving defense contractor industry with your “perfect storm” cliches, that sequestration might be just what this country needs? Sure, it’s bad for Southern, Maryland, but it’s probably good for the country. Everybody and their brother transitioning from military service to defense contractor has created a military industrial complex so big that it’s eating itself. Using your logic, we should still be eating Hostess Twinkies today.

  3. Steve on November 16, 2012 at 4:14 pm

    I worked at Pax for 37 years +. I watched the Navy waste money with delayed projects and programs still paying the salaries of the “team”. Rather than reassigning personnel to active projects and programs they just continued to spend the money and when the program/project did get going the funding was depleted and new money was required. The navy insisted on running the place like a business. A business is in business to make money. The Navy cannot be ran like a business. It’s priority should be to efficiently spend the funding in the right places and stop wasting it paying a bunch of people that are not even actively working on the project that they are funded by. I always found it interesting that some folks were not funded while I knew folks that were 400% funded. How does a person give 400%. What that means is that persons salary is paid four times. Where does that money go? I could go on and on but also found it interesting that they use trained Electrical and Aeronautical Engineers as Personnel Managers. It was certainly a frustrating time.

  4. obama phone on November 17, 2012 at 6:18 pm

    The people voted for him and this monster he’s created. We’ll take a nose dive right of the cliff and Santa will blame the house since blaming Bush has been worn out. Socialism here we come!

    • Anonymous on November 19, 2012 at 8:21 am

      Blame Congress not our President!

      • Anonymous on November 19, 2012 at 10:33 am

        First rule of leadership, everything is your fault. Obviously, that doesn’t apply here because the POTUS blames Congress, Bush and anyone who opposes him. Stop blaming and do your job.

  5. reply to the republicans on November 18, 2012 at 9:05 am

    yeah get the top 2%, they deserve it!! kill the rich! kill jobs!

    Crush the American dream….on with class warfare! on with race and gender warfar!

    Cut congresses pay…whatever that will do! Stop paying contractors, kill jobs!

    spoken like a true socialist.

  6. benghazigate on November 18, 2012 at 9:00 pm

    raising taxes on the rich will do little to our national debt. Cut entitlement spending is where a much greater impact to our national debt occurs. God forbid people have to work for a living. Almost half the population is dependent on government for subsistence and/or pay. This is exactly how the communist liberals in our government want it. It’s like crack and crack is whack!

    • Anonymous on November 19, 2012 at 10:41 am

      Not to mention 50% of the population doesn’t pay taxes due to government entitlements – no wonder El Presidente wants to raise taxes on the rich. But raising taxes on the rich will not work because they’ll tie all thier money into investments that are tax exempt. Santa knows this and knows that everyone will toe the party line of taxing the rich. Other than that he has no other alternative to reducing our massive debt. Our dollar will continue to decline and our credit rating will drop. Before you know it the renminbi will become the new U.S. currency.