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Looming Sequestration’s Potential Impact on the Air Force and Navy
The hot topic of budget sequestration that has been simmering all summer continues to heat up. We have been focusing efforts this week looking at the latest Office of Management and Budget (OMB) report that was released last Friday outlining the impact of potential budget sequestration on federal agencies. This entry will focus on defense – namely Air Force and Navy.
The OMB report, required under the Sequestration Transparency Act of 2012 (STA) signed by the President in early August, was intended to provide Congress with an impact assessment at the program, project, and activity (PPA) level for each agency. What OMB was able to provide, albeit a week past the STA deadline, was a much more basic assessment at the budget account level, including the top-line FY 2013 reductions by budget account and sequester/exempt classifications by budget account.
The Budget Control Act (BCA) of 2011, the law that started all the latest sequestration wrangling, established a uniform percentage reduction across “all programs, projects, and activities within a budget account” unless otherwise exempted. According to the OMB report, under the assumptions outlined by the STA, the sequestration would result in a 9.4 percent reduction in non-exempt defense discretionary funding. Sequestration would also require a 10 percent reduction to non-exempt defense mandatory programs. These rates would be applied to defense accounts related to the FY 2012 discretionary base of $580 billion and mandatory base of $679 million respectively.
OMB provides very limited detail about each budget account in the report. Yet, there is still some useful information that shows how sequestration would impact these two departments.
Notable Exemptions and Sequestration Amounts
The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) as amended, identifies programs that are exempt from sequestration and subject to special rules. Further, an administration cannot choose which programs to exempt or what percentage cuts to apply. The percentage cuts in OMB’s sequestration report and the identification of exempt and non-exempt accounts reflect the requirements set forth in the BBEDCA.
The notable exemptions (>$200m) and sequestration amounts (>$200m) per budget account for DHS are shown below.
|
Dept./Bureau
|
Budget Account
|
Total Budget Amount ($M)
|
Exempt Amount ($M)
|
Sequestration Amount ($M)
|
|
Air Force
|
|
|
|
|
|
Military Personnel
|
Military Personnel, Air Force
|
29,971
|
29,971
|
-
|
|
|
National Guard Personnel, Air Force
|
3,147
|
3,147
|
-
|
|
|
Reserve Personnel, Air Force
|
1,747
|
1,747
|
-
|
|
|
Medicare-Eligible Retiree Health Fund Contribution, Air Force
|
1,442
|
1,442
|
-
|
|
|
Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Air Force
|
277
|
277
|
-
|
|
Operation and Maintenance
|
Operation and Maintenance, Air Force
|
47,056
|
1,659
|
4,267
|
|
|
Operation and Maintenance, Air National Guard
|
6,388
|
254
|
577
|
|
|
Operation and Maintenance, Air Force Reserve
|
3,501
|
84
|
321
|
|
Procurement
|
Other Procurement, Air Force
|
24,204
|
525
|
2,226
|
|
|
Aircraft Procurement, Air Force
|
21,936
|
550
|
2,010
|
|
|
Missile Procurement, Air Force
|
7,380
|
275
|
668
|
|
Research, Development, Test, and Evaluation
|
Research, Development, Test and Evaluation, Air Force
|
35,658
|
6,758
|
2,717
|
|
Revolving and Management Funds
|
Working Capital Fund, Air Force
|
24,963
|
24,883
|
8
|
|
Dept./Bureau
|
Budget Account
|
Total Budget Amount ($M)
|
Exempt Amount ($M)
|
Sequestration Amount ($M)
|
|
Navy
|
|
|
|
|
|
Military Construction
|
Military Construction, Navy and Marine Corps
|
3,618
|
538
|
290
|
|
Military Personnel
|
Military Personnel, Navy
|
28,341
|
28,341
|
-
|
|
|
Military Personnel, Marine Corps
|
14,316
|
14,316
|
-
|
|
|
Reserve Personnel, Navy
|
2,037
|
2,037
|
-
|
|
|
Medicare-Eligible Retiree Health Fund Contribution, Navy
|
1,409
|
1,409
|
-
|
|
|
Medicare-Eligible Retiree Health Fund Contribution, Marine Corps
|
880
|
880
|
-
|
|
|
Reserve Personnel, Marine Corps
|
672
|
672
|
-
|
|
Operation and Maintenance
|
Operation and Maintenance, Navy
|
50,979
|
5,330
|
4,291
|
|
Procurement
|
Other Procurement, Navy
|
7,656
|
289
|
692
|
|
|
Aircraft Procurement, Navy
|
23,837
|
5
|
2,240
|
|
|
Shipbuilding and Conversion, Navy
|
22,774
|
-
|
2,141
|
|
|
Procurement, Marine Corps
|
3,943
|
45
|
366
|
|
|
Weapons Procurement, Navy
|
3,926
|
4
|
369
|
|
|
|
|
|
|
|
Research, Development, Test, and Evaluation
|
Research, Development, Test and Evaluation, Navy
|
19,120
|
221
|
1,777
|
|
Revolving and Management Funds
|
Working Capital Fund, Navy
|
25,488
|
25,488
|
-
|
Implications
As was widely expected across the industry, the key areas impacted by sequestration would be Operation and Maintenance and the procurement of aircraft, shipbuilding and weapons systems. Research, Development, Test and Evaluation activities would also be significantly impacted. Personnel areas are exempt.
While it will take time for the details to fully come to light on which specific programs would be impacted, if sequestration were to occur what it would mean is a natural disruption to those O&M and procurement contracts. In addition, some contracts that may duck the sequestration bullet in these areas may experience collateral damage of delays, postponements and scope reductions. At this point, without detailed PPA information, that may be as precise as we can be.
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