Pentagon May Sequester 13% Of $432 Billion

Bloomberg Government defense analyst Robert Levinson explains which Department of Defense funds are subject to deficit-reduction cuts set to take effect on January 2.

Q. Which defense funds face sequestration cuts?

A. Sequestration under the 2011 Budget Control Act is slated to begin Jan. 2, 2013, with automatic budget cuts of about $55 billion each in the first year from defense and nondefense accounts. The sequestration cuts for defense apply to “total budgetary resources,” according to the law. These resources include funds appropriated for fiscal 2013 and previous years which are not yet committed to contracts. Nondefense funds from previous years are not subject to sequestration.

Q. Are any funds exempt?

A. The president has the authority to exempt personnel funds; most are for military pay. Personnel funds total $135.1 billion in President Barack Obama’s proposed non-war budget for fiscal 2013.

In November, Secretary of Defense Leon Panetta wrote that Afghanistan war funding was exempt from sequester. The Pentagon reversed this position in a May 30 e-mail to Bloomberg Government. War funds no longer are exempt. The non-personnel portion of these funds totals $74.4 billion in the 2013 budget proposal.

Both “unobligated balances” from 2013 funds and previous years become exempt when they are committed to contracts, or obligated. Funds appropriated by Congress for fiscal 2013 and obligated prior to January 2, 2013, are “not subject to sequestration,” Defense spokeswoman Lieutenant Colonel Elizabeth Robbins said in a June 8 e-mail.

Q. What are unobligated balances?

A. Congress appropriates money for agency programs whose managers obligate some or all of the funds by hiring companies to do the work. Unobligated balances occur when funds appropriated in one fiscal year are not put on contract during that year. The unobligated military balance will be $83.5 billion by September 30, the last day of fiscal 2012, according to an Office of Management and Budget estimate.

Q. How much fiscal 2013 money is subject to cuts?

A. Fiscal 2013 funds subject to sequestration probably will include the non-personnel portion of the proposed 2013 base defense budget, or about $390.3 billion. The non-personnel portion of war funding, about $74.4 billion, would be added, bringing the total to $464.7 billion.

If the Pentagon spends its proposed fiscal 2013 budget evenly throughout the year, it probably will obligate about 25 percent, or $116.2 billion, by January 2, the second day of the second quarter of fiscal 2013. All obligated funds are considered exempt from sequestration, leaving about $348.5 billion in fiscal 2013 funds subject to sequestration.

Q. How will unobligated balances affect results?

A. Bloomberg Government estimates that about $432 billion will be subject to sequestration. That’s $83.5 billion of previous years’ unobligated balances plus $348.5 billion in fiscal 2013 funds available on January 2.

Achieving the $54.7 billion reduction from $432 billion requires cutting nonexempt funds by 13 percent. This is the same percentage cut estimated by Dr. Jamie Morin, comptroller of the Air Force, during a March 1 speech at the Stimson Center in Washington, D.C.

“The fiscal year 2013 defense sequester will result in an indiscriminate 15 percent cut at the program, project, and activity level in the defense budget,” according to a Bipartisan Policy Center report published June 8. The center, a think tank promoting bipartisan policy solutions, estimated $374 billion in defense funds would be subject to sequester. The Washington, D.C.-based center used 2012 funding levels as a baseline, added funds for the Energy Department and other nuclear activities, and assumed all war funding will be excluded through legislative action.

Q. Which Pentagon budget accounts will be hit?

A. The sequestration cuts are converted to a percentage to be applied to each nonexempt “program, project and activity,” according to the 2011 Budget Control Act. The White House Office of Management and Budget will interpret the law and tell government agencies how to apply the reduction.

If OMB applies the percentage to broad categories of spending, the Pentagon may be able to protect certain programs at the expense of others. If OMB directs agencies to apply the cuts to each program element — a more granular spending level – - the cuts would be taken across the board, leaving the Pentagon little or no discretion to make reductions.

Q. Will appropriations affect the outcome?

A. If Congress and the president can’t enact a defense appropriation bill by the start of the new fiscal year on October 1, they probably will pass a stopgap spending bill known as a continuing resolution, or CR, to allow government agencies to continue operating. CR’s usually dictate spending at the previous year’s funding levels, without starting new programs. CR’s covering all or a portion of the federal government’s discretionary accounts can last a few days, weeks, months or even the entire fiscal year, depending on Congress’s ability to complete its regular appropriations bills.

Sequestration applies on January 2 to any unobligated defense funds whether they come through a new appropriation or a continuing resolution.

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