The return of the fiscal cliff

Lawmakers were able to avoid going over the fiscal cliff with a last-minute Jan. 1 deal to buy more time, but the threat was only delayed, not defeated – and now it’s tied to another crucial deadline that compounds the risk, according to analysts.

If Congress does not reach a new deal by March 1 to reduce spending by $24 billion in fiscal 2013, sequestration – previously slated for implementation on Jan. 2 – will go into effect on March 27. That is the same day the continuing resolution currently funding the government is set to expire, and with another fight over the debt ceiling looming on the horizon, the mess in Washington may get worse.

According to Todd Harrison, senior analyst at the Center for Strategic Budget Analysis, sequestration is now effectively linked to the debt ceiling debate, increasing its likelihood.

“The deadline of March 1 implicitly ties any resolution of sequestration to the debt ceiling debate. Sequestration cuts are leftover from the previous debt ceiling increase; now we’re facing another moment where we have to increase the debt ceiling,” Harrison said at a Jan. 9 briefing in Washington. “What is unique about this moment in history is we have set up self-imposed deadlines where if Congress does not act, if they do not pass legislation ... we could face all of these things happening at the same time. That’s March madness.”

Harrison specifically examined the renewed impact of sequestration on the Defense Department, which would face budget reductions of nearly 9 percent across essentially all of its programs, projects and activities through the rest of the fiscal year. Like the previous sequestration deal, the civilian workforce would be hard-hit – even more so this time around, with nearly all non-military DOD employees affected.

“This will have very real impact if it happens. One of the first things we’ll see is ... DOD will have to start furloughing civilian employees,” Harrison said, which would affect roughly 790,000 civil servants in defense. “They only have seven months left remaining in the fiscal year to administer that [8.8 percent] cut ... that means you have to furlough virtually every single DOD civilian for the maximum amount of time under the law, which is a month.”

Industry would not feel immediate effects, since current activities are already funded, but the cuts would seriously undermine the private sector depending on DOD spending, he said.

“DOD is paying for the industrial base that supports it ... the long-term effects is that it will reduce DOD’s purchasing power in the future,” Harrison said. Interruptions to budgeting would mean contracts delayed by funding issues as well as modifications and renegotiations. And with civilian employees who handle contracts furloughed, the ripple effect would continue. “This is going to be a contracting nightmare for DOD.”

It also poses a serious threat to national security, he argued in his analysis.

“Every major war the U.S. has ever fought has been financed, at least in part, by borrowing. By going into a default and not being able to pay our obligations for the first time in history ... in a future crisis we might not be able to borrow sufficient funds to get us through,” Harrison said. “That’s a national security risk.”

At a Jan. 8 Pentagon press briefing, DOD Press Secretary George Little also reiterated the gravity of the situation.

“I could try to be somewhat artful and diplomatic, but I will boil it down to this. It is at this stage a mess. This is highly problematic. We don't have stability in the budget process. What we have is uncertainty,” Little said during the briefing. “It’s time for Congress to avert sequestration once and for all. This is not just about cells on an Excel spreadsheet. This is about the defense of the United States and the people who serve in the United States military and our civilian personnel, also, who carry out missions and support of the defense of this nation.”

But insiders are not optimistic things will be turning around anytime soon, and budget uncertainty could be a lasting reality rather than a passing phase.

“People keep asking, ‘When are we going to get back to normal?’” said Stan Collender, a former congressional budget staffer who is now national director of financial communications for the public affairs firm Qorvis. “This is the new normal. We’ve had four years of ad hoc decision-making, and that’s not going away anytime soon.”

That’s likely tough news to swallow for agency leaders who have struggled in recent months to prepare for the financial unknown.

For federal managers, Collender said, “this is especially hard. They will be held accountable for the projects and programs they're supposed to run, but they’re not being given the information they need to manage.”