Sequestration looming: defense should be prepared for all possible scenarios.

• Author: Farrell, Lawrence P., Jr.
• Position: President's Perspective

If no further legislative action is taken before January, the Budget Control Act directs a reduction of $97 billion in discretionary federal spending for fiscal year 2013. The calculations work out to $42 billion from domestic programs and $55 billion from defense.

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For defense, these cuts would be piled on a $487 billion reduction over 10 years that the administration proposed. The president requested $525.4 billion for defense in 2013. Sequester would reduce that to $470.4 billion. Since the Defense Department has not done any planning or budgeting for this, the automatic salami-slice approach laid out in the law would, by all accounts, be a disaster.

The country is at this impasse because the congressional super committee failed to reach agreement on $1.2 trillion of deficit reduction over 10 years. The stalemate resulted from fundamental disagreement on additional taxes as part of the targeted reduction.

So where does this leave industry? The biggest problem for Defense Department suppliers now is the uncertainty and the lead time needed to adjust. If sequester is triggered Jan. 2, defense companies would have to fire workers. The WARN Act requires a 60 day notification if 50 or more employees are to be laid off Certain states have increased this notification to 90 days. What this means is that layoff notices will be coming out either just before the November election for the 60 day notice, or about a month earlier than that for the 90 day notice.

But attrition is already under way. Industry adviser James McAleese points out that some companies already have begun to shed employees. One company said that any employee who is not working directly on a contract might be on the chopping block. And further, for corporate acquisitions, workers who are funded by overhead accounts are being let go. So the impact to industry and workers is real. Studies have estimated that 1 million additional jobs could be lost in the defense industry if sequester is triggered.

This is not the only issue on the table for Congress and the administration to address. A large number of tax breaks are set to expire Jan. 1. The Congressional Budget Office has estimated that spending reductions via sequester and tax increases will tip the economy back into recession. Politicians on both sides of the aisle are nervous about this. Rep. Adam Smith, D-Wash., ranking minority member on the House Armed Services Committee, said that the 10 years worth of...