Sequestration Hearing

Deputy Defense Secretary Ashton Carter is testifying this morning on Capitol Hill on the effects of sequestration on the Pentagon. In his prepared testimony, he focuses on the effects on the fiscal year 2013 budget:

In FY 2013 special rules govern the sequester and require an across-the-board application of the cuts that is designed to be inflexible. To determine the size of the sequester by project and account, a percentage will be calculated based on the prescribed dollar cut (almost $55 billion) and the total of the FY 2013 appropriation and unobligated balances from prior years. Obviously, that percentage cut cannot be estimated precisely until we know the level of FY 2013 appropriated funds and the level of prior-year unobligated funds.

Sequester would apply to all of the DoD budget, including the wartime or Overseas Contingency Operations (OCO) portions of the budget -- with only one potential exception that is significant. Under the 1985 Act, the President has the authority to exempt all or parts of military personnel funding from sequestration. If the President chooses to utilize this authority for FY 2013, he must notify the Congress by August 10, 2012, about the manner in which he will exercise the authority. If the President exempts military personnel funding from sequester in FY 2013, then other DoD budget accounts must be cut by larger amounts to offset the military personnel exemption. DoD estimates that the percentage reductions under sequester could range from 8 percent for all DoD accounts (if military personnel funding is fully sequestered) to 10 percent for accounts other than military personnel (if "milpers" funding is fully exempt from sequestration). These estimates assume that Congress provides funds for FY 2013 equal to the President’s request and reflects DoD’s best estimate of unobligated balances from prior years.

OMB will eventually calculate the sequester percentage and will use the percentage to calculate reductions in dollar terms for each budget account. How these reductions are applied in DoD varies between the operating and investment portions of the budget, as specified in law and applicable Congressional report language. Cuts to the operating portions of the DoD budget must be equal in percentage terms at the level of budget accounts. (Examples of budget accounts in the operating budget include Army active operation and maintenance, Navy reserve operation and maintenance, and Air Force Guard operation and maintenance.) Within each budget account in the operating portion of the budget, DoD can determine how best to allocate the reductions based on management judgments. For the investment portions of the budget, the dollar cuts must be allocated proportionally at a lower level of detail identified as "program, project, and activity (PPA)". More than 2,500 programs or projects are separately identified and must be reduced by the same percentage. Absent a reprogramming action, the inflexible nature of the sequester law means that DoD would have no authority to vary the amount of the reduction. Within a PPA, however, managers can decide how best to allocate the reductions.

It is important to note that reprogramming -- a method used by DoD to shift funding from lower to higher-priority projects during the year when funds are being executed -- would at most offer a limited ability to modify the effects of sequester. Under current law, the amount of funds that can be transferred is limited. Moreover, any reprogramming that adds funds to a program or project must be offset by a cut to another program or project, which may be difficult because, as a matter of policy, we seek Congressional approval of reprogramming actions. Reprogramming might be used to offset some effects of sequester but, realistically, it would not offer a means for making wholesale revisions.

To close this description of sequestration, let me say what sequestration would NOT do. Sequestration would generally not affect funds already obligated as of the date the sequester cuts are calculated.

To view Carter's full testimony as well as that of acting Office of Management and Budget Director Jeffrey Zients, click here.