DON'T OVERSELL IT Though industry officials say the anticipated fallout from sequestration is very, very real, some worry that companies could face a publicity backlash by being too dramatic about the potential effects. The Worker Adjustment and Retraining Notification (WARN) Act requires only that large companies notify employees of potential layoffs. And major prime contractors, whose businesses are supported by funding over multiple years, may not immediately feel the impacts of sequestration.
Gordon Adams, an American University professor of foreign policy, notes in an op-ed article in The Hill that just one-third of the one million jobs lost due to the blocking of defense funds would come from the defense industry. The other two-thirds would flow from that. Adams adds that even the size of sequestration is not as bad as some are making it out to be and that it will not be as rigid as it appears. The Pentagon is also likely to have some ability to transfer money between accounts to manage the spending cuts.
PREPARING FOR THE POSSIBILITY While virtually no one agrees that sequestration is a good way to budget, camps in both political parties are prepared to let sequestration take effect, either as a means to cutting the budget, to motivate action or because of inertia. Already, though, industry is preparing for the possibility. Early in the year, companies were optimistic about a lame-duck compromise. But when the first-quarter earnings reports were issued, “it was clear that was no longer the case,” says industry analyst Jim McAleese of McAleese and Associates. “All of the companies went into a cash-holding situation.”
For now, he says, stocks tend to be priced based on the expectation that Congress will eventually agree to a deficit-reduction deal that hands down an additional $20 billion annual decrease in the planned base defense budget over the decade.
THE VIEW FROM THE TOP Amid all of the bluster about what should be done, lawmakers generally acknowledge that Senate Democrats and House Republicans will bring this to the brink. To prevent the country from falling off the so-called “fiscal cliff,” few lawmakers are willing to step out on their own political precipices. McKeon listed moderate Republicans and Democrats who lost primary elections because they were attacked by more extreme wings of their parties. “These were solid citizens . . . who tried to work on things,” McKeon said. “It's gotten pretty devastating out there.”
And as the days of the legislative calendar slip by, the Senate Majority Leader Harry Reid (D-Nev.) is still using the threat of sequestration as a hammer to pound away at the need for deficit reduction.
“People focus on the defense [budget], as they should. They should spend a little bit of time worrying about the other $600 billion that also has an effect on other areas of peoples lives,” Reid says when asked about the impact on the defense community. “I don't intend to move on this until something comes along that's better.” c