Sequestration Squeezes the Maritime Community

Once again the nation’s opposing political parties have inflicted an unnecessary wound on our nation’s economy, security, and maritime community. On March 1, the previously “unthinkable” $85 billion in discretionary budget cuts for the remainder of this fiscal year, labeled “sequestration,” took effect. They were originally scheduled for January 1 but were postponed in the hope that saner minds would prevail to avoid the budgetary vise of sequestration. Alas, the commencement of the cuts confirmed the paucity of not just funding but sanity.  

Sequestration and Its Impacts 

The Budget Control Act of 2011 mandated $1.2 trillion in automatic spending cuts over a decade. Because of the political compromise embedded in the legislation, the cuts were split evenly between security and non-security discretionary spending, meaning the security portion of the budget, which represents about 20 percent of federal spending, including entitlements, must absorb a larger share of the cuts than the non-security portion.

Nonpartisan experts have estimated the cuts will reduce economic growth by between one-half and one percent, which amounts to a 25-50 percent reduction in an era of roughly two percent annual growth. In anticipation of the cuts, federal defense spending plummeted in the last quarter of 2012, leaving the nation’s economy with a meager 0.1 percent quarterly growth rate.

The impact of reduced federal defense spending is not theoretical; it is demonstrable. Job losses are estimated to exceed 750,000 jobs this year alone, over one million in the next two years, and over two million over all. For people who are experiencing prolonged periods of unemployment, these developments are life-altering. Federal Reserve Vice Chairman Janet Yellen recently explained that in these circumstances millions of affected Americans and their families will likely never recover.

How Did This Happen?

Why are we suffering another self-inflicted wound? Ostensibly, sequestration was designed in 2011 as part of a compromise to avert the threat by House Republicans to refuse to increase the debt limit and thereby force Congress, through a “super committee,” to agree to measures to reduce the debt. The new orthodoxy of congressional Republicans now blames President Obama for originally proposing sequestration, but at the time it was the Republicans who trumpeted sequestration as an achievement. Former Republican Vice Presidential candidate Paul Ryan (R-WI) took credit for sequestration in August 2011 by proclaiming, “We got that into law.”

In practice, however, the cuts have little to do with the nation’s long-term debt. It is well-recognized by both political parties that the real threat to fiscal stability arises principally from our nation’s broken health care financing system, principally Medicare and Medicaid. Yet these entitlement programs are essentially exempt from sequestration, which instead falls on the discretionary spending of the federal government’s operating agencies, including the Departments of Defense and Homeland Security. The cuts actually taking effect have very little impact on solving the real problem.

A Reality Stranger Than Fiction

What went wrong? Well, what was originally agreed by the opposing parties as plainly unthinkable in theory has in practice, two and a half years later, become the most palatable outcome. In the absence of better and politically achievable alternatives, the sequester is taking effect. House Speaker John Boehner (R-OH) has declared the sequester here to stay. Opposing sides appear dug in politically and promise to weather the political blowback. 

Each side claims it has the political advantage. Democrats have largely protected their key constituencies by insulating them from the cuts in the first place, while Republicans apparently are looking forward to what they regard as a strategic advantage associated with the imperative to increase the debt limit sometime before August. At this juncture, however, it is hard to understand how a Republican Party that will be portrayed by Democrats as threatening to default on the national debt to protect tax breaks for special interests will do itself a favor in the eyes of the majority of the electorate.

On three major issues so far in the new 113th Congress, the Republican House majority has fractured, allowing important measures to pass by relying on a majority of House Democratic votes. In other words, the House has proven to be Republican-controlled so long as real legislation doesn’t actually reach the floor. Speaker Boehner has proven willing to let such measures reach the floor without the majority support of House Republicans. It appears we are witnessing the buildup to another breakdown in party cohesion as the ability of the Tea Party wing to prevent compromise measures from reaching the floor wanes.  

The Impact on Maritime

The impact of the cuts on the maritime community may not be an “apocalypse” and just “dumb,” to use President Obama’s language. But, according to the Office of Management and Budget, the effect will be “deeply destructive.” Sadly, the impact is being realized most palpably through a reduction in maritime security.

Both the U.S. Navy and U.S. Coast Guard have announced dramatic cuts in operations.  For example, the Navy announced it would not deploy the USS Harry S. Truman carrier strike group to the Persian Gulf, and it signaled that the deployment of the USS Nimitz and USS George H.W. Bush carrier strike groups will also be delayed because of cuts to operations and maintenance funds. Additionally, the Navy announced it would not deploy six additional ships on other global missions, including two frigates for counter-drug operations in the Caribbean.  Coast Guard law enforcement detachments accompany these frigates, so the Navy platforms are lost to the Coast Guard. 

The Navy also announced it is reducing air operations in four of its air wings to only that required to maintain “minimum safe flying levels.” Ironically, this outcome conflicts with the campaign platform of the Republicans during the recent election to dramatically increase the size of the Navy. Instead, the Navy we have is being cut deeper.

Unfortunately for the nation’s shipyards and defense industry, the Navy announced it would “begin negotiating contract modifications to deobligate” funding for major investment programs, including the nuclear submarine force. Other cuts are also being felt, including cuts in training programs, elimination of temporary positions and hiring, and furloughs of its civilian personnel force.

William W. Crow, President of the Virginia Ship Repair Association, warned that “The cancellation of 11 ship maintenance schedules will cost more later as degradation of systems will require replacement versus maintenance.” U.S. Navy Admiral Bill Gortney explained that smaller ship repair and maintenance firms will likely not survive because they “live from contract to contract.” The Vice Chief of Naval Operations, Admiral Mark Ferguson, testified that the cuts threaten to “irreversibly damage the industrial base” of the nation.

Secretary of Homeland Security Janet Napolitano announced that she estimates the Coast Guard will reduce operations by 25 percent and “These reductions will impact the Coast Guard’s ability to respond to issues impacting the U.S. maritime transportation system that generates more than $3.2 trillion of total economic activity, moves 87 percent of foreign trade, and sustains over 13 million jobs each year.”

Under questioning before Congress, Vice Admiral Peter Neffinger, Deputy Commandant for Operations, testified that the cuts will force the Coast Guard to reduce its operations in the Caribbean and Pacific aimed at blocking illegal smuggling of narcotics and humans into the U.S.  While he emphasized the service would sustain its emergency response capability, it was apparent from his testimony that other operations will suffer as a result of the reshuffling of resources.   

Understanding the Cuts

Outspoken critics like influential conservative columnist George Will have slammed the Navy for its decision to cut operations, arguing that surely it can sustain important missions with a mere eight percent budget cut. But this critique ignores the high fixed overhead of federal operating agencies and the way the cuts have been mandated.

For services like the Navy and Coast Guard, most operating costs are for military personnel expenses, e.g., pay and benefits, and the law largely prohibits reductions in these costs.  Therefore, the five-to-eight percent annual budget cuts applied to these services must be obtained from the nonexempt accounts, which are not insulated from the cuts and are not as large as the military personnel accounts. As a practical matter, this mandates deeper cuts on the order of 25 percent in operations. 

For example, fuel, spare parts, training and maintenance accounts must be cut more deeply to achieve the mandated levels. Thus the decisions not to deploy ships to protect U.S. national security flow from the requirements of the sequester, not a Washington Monument-strategy by the services; and charges by critics to that effect reflect a remarkable ignorance of the reality of federal budgeting and of the sequester itself.

Likewise, other important operations performed by the Coast Guard that support the maritime community are being cut. For example, it is reducing operations to protect the nation’s Pacific fishery and also cutting aids-to-navigation servicing. Additionally, federal agencies providing services to the maritime community, e.g., Department of Homeland Security agencies like Customs & Border Protection, Immigration & Customs Enforcement, and the Transportation Security Administration, are seeing their capacity cut dramatically because of the loss of the equivalent of many thousands of agents.

According to DHS, service wait times will “substantially increase.” Thus, vessels trading in the U.S. on foreign voyages will necessarily experience delays in service, which will affect their business. In a notice to the industry, CBP warned of delays of up to five days to clear containerized cargo at the nation’s ports.

The “Stupid” Party 

Republican Governor Bobby Jindal of Louisiana recently admonished his party to stop being the “stupid” party. It turns out that, when it comes to sequestration, it’s actually sound advice for both political parties.