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Cliff Notes: The Metamorphoses



We’re a little over two weeks away from the fiscal cliff, and Washington still doesn’t have any answers when it comes to sequestration.  What’s worse is that back in October (during the peak of campaign season), President Obama said unequivocally that the sequester “will not happen,” only to shift gears entirely last week when Treasury Secretary Timothy Geithner said that they were “absolutely” prepared to go off the cliff – and that, by the way, the Pentagon should start planning accordingly.   Since Washington has been consumed by a debate on tax rates, there’s still no plan to offset the sequester, and the mixed messages coming from the White House are leaving military families, federal agencies and businesses guessing who to trust.

Gretchen Hamel, executive director of Public Notice, issued the following statement:

“The mixed messages on the sequester from this administration create exactly the kind of uncertainty that has paralyzed the economy for the past several years. The American people can’t be expected to decipher every time Washington is just playing politics with a wink and a nod. For firms that find themselves in violation of the WARN Act and for the taxpayers, the administration owes an explanation if there will be penalties, how much they will cost, and who will pay for them.”


“Cuts looming, no answer in sight for sequestration” (Phillip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)

“No Roadmap in Sequester” (David Lawder, “Congress, dreading automatic cuts, eyes yet another trigger,” Reuters, 12/11/12)

For All The Apocalyptic Rhetoric, Nothing Has Been Able To Stop Sequestration. “They’ve tried everything they could think of and so far, none of it has worked. The Pentagon hasn’t been able to get Congress to undo sequestration. … For all the apocalyptic rhetoric, the hours upon hours of hearings, the threats and counterthreats and the dread that built with each tick of the countdown, the defense establishment has little progress to show as it enters the final days before it faces a decade of $500 billion in automatic, across-the-board budget restrictions.” (Philip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)


The Obama Administration Promised The Sequester “Will Not Happen” And Said Preparing For It Would Be “Inappropriate.”

“Obama: Defense Sequester ‘Will Not Happen.'” (Lori Montgomery, “Obama: Defense sequester ‘will not happen,'” Washington Post, 10/22/12)

Labor Department Called Preparing For Sequestration “Inappropriate.”  “The Labor Department issued guidance in July saying it would be ‘inappropriate’ for contractors to issue notices of potential layoffs tied to sequestration cuts.”  (Jeremy Herb, “Obama administration tells contractors again: Don’t issue layoff notices,” The Hill, 9/28/12)

The Office Of Management And Budget Also Promised Compensation For Contractors – But Only If They Followed Labor’s Guidance. “Friday guidance from the Office of Management and Budget raised the stakes in the dispute, telling contractors that they would be compensated for legal costs if layoffs occur due to contract cancellations under sequestration — but only if the contractors follow the Labor guidance.” (Jeremy Herb, “Obama administration tells contractors again: Don’t issue layoff notices,” The Hill, 9/28/12)

From the OMB Letter: “Specifically, if (1) sequestration occurs and an agency terminates or modifies a contract that necessitates that the contractor order a plant closing or mass layoff of a type subject to WARN Act requirements, and (2) that contractor has followed a course of action consistent with DOL guidance; then any resulting employee·compensation costs for WARN Act liability as determined by a court, as well as attorneys’ fees and other litigation costs (irrespective of litigation outcome), would qualify as allowable costs and be covered by the contracting agency, if otherwise reasonable and allocable.” (“Memorandum for the Financial Officers and Senior Procurement Executives of Executive Departments and Agencies,” Office of Management and Budget, 9/28/12)

And Defense Secretary Leon Panetta Is Telling Departments “Do Not Plan For [Sequestration].” “Lt. Gen. Jeffrey W. Talley, chief of the Army Reserve, reflected the this-isn’t-really-going-to-happen strategy when he told reporters in November, ‘I’m not . . . worrying about sequestration . . . because [Defense] Secretary [Leon E.] Panetta has told the departments, ‘Do not plan for it.’'” (Lisa Rein, “Agencies set up plans to manage cuts if Congress, Obama fail to reach deficit deal, Washington Post, 12/7/12)

But Now The White House Is “Absolutely” Prepared To Go Over The Cliff And Says It’s Time For The Pentagon, Federal Agencies To Start Planning Accordingly:

Treasury Secretary Timothy Geithner: Administration “Absolutely” Prepared To Go Over Cliff. “President Barack Obama’s administration will ‘absolutely’ let the United States fall off the fiscal cliff as scheduled, unless Republicans give in to his Obama’s demand to raise tax rates at upper income levels, Treasury Secretary Timothy Geithner said Wednesday.” (“Geithner: Obama Administration ‘Absolutely’ Willing To Go Off Fiscal Cliff,” Associated Press, 12/6/12)

White House Tells The Pentagon To Start Planning For Sequestration (On The Same Day). “The Pentagon said on Wednesday the White House budget office has directed it to begin planning how to implement billions of dollars in across-the-board spending reductions if Congress and the president fail to agree to avert the cuts before January 2.” (David Alexander, “After months of delay, Pentagon told to plan for ‘fiscal cliff’,” Reuters, 12/6/12)

“Pentagon press secretary George Little said last week that the Defense Department had begun planning for how to deal with sequestration, after more than a year of insisting it would not prepare.” (Philip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)

“The administration has repeatedly said it wants a deal to avoid indiscriminate cuts. But last week, as a precaution, it ordered agencies to lock in a plan for sharply reduced spending in case a deal does not come to pass.” (“Federal agencies brace for possible cuts,” New York Times, 12/11/12)


Sequestration Has Been “Pushed To The Side” In Washington. “[A]s a few observers predicted months ago, the potential plight of the Pentagon and its constituents isn’t even the main event as the year winds to a close. It’s been pushed to the side. Defense analyst Mackenzie Eaglen of the conservative American Enterprise Institute warned as far back as May that if Beltway denizens expected November’s election to deliver a decisive end to the battle over sequestration, they were sadly mistaken.” (Phillip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)

Senator Scott Brown (R-Mass.) Calls Lack Of Discussion “Shameful.” “‘The bottom line is that it’s [sequestration] not being addressed …  I thought the president said during the campaign that sequestration wasn’t going to happen. … We’ve heard nothing from anybody on it… We should have been working on it long before we got back. … It’s shameful that we’re not working on it.” (Philip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)

Senator John McCain (R-Ariz.) Pledges To Block Taxpayer Funds To Cover Costs Of WARN Act. “‘The WARN Act is the law of the land today, and its provisions mandate that companies must notify employees who may lose their jobs due to sequestration,’ McCain said in the statement. ‘Companies have a choice whether to rely on OMB’s politically-motivated guidance or to comply with the law. But I can assure them that I will do everything in my power to ensure that taxpayer dollars are not used to compensate contractors who do not comply with the law.'” (John T. Bennett, “McCain Would Block Funding Shifts To Cover Firms’ Sequestration Costs,” Defense News, 10/3/12)

Military Families Growing Increasingly Nervous. “Troops and their families nervously watch and wait. ‘When members of Congress start blathering on about ‘sequestration’ and ‘defense cuts’ and ‘the fiscal cliff,’ most Americans have a hard time figuring out what that stuff means to them. But not military families,’ wrote Army wife Amy Bushatz on the blog” (Philip Ewing, “Cuts looming, no answer in sight for sequestration,” POLITICO, 12/11/12)

No Answers Causing Concern For Federal Agencies. “‘We have persistently asked the agency, ‘What are the plans? Can you tell us the plans?’’ said Carolyn Federoff, a Boston-based attorney for the Department of Housing and Urban Development and an official with the American Federation of Government Employees. ‘They say, ‘Don’t worry about this, this is not going to be a problem,’’ Federoff said. ‘Truthfully, we have to be concerned.'” (Lisa Rein, “Agencies set up plans to manage cuts if Congress, Obama fail to reach deficit deal, Washington Post, 12/7/12)

Small Defense Businesses Say “No Choice But To Reduce Workforce Size” If Sequestration Takes Place. “Squeezed by looming defense cuts and the expiring Bush-era tax cuts, the defense industry’s small businesses are facing uniquely big problems.  … ‘Combined with sequestration, we would have no choice but to reduce workforce size,’ said Raj Narayanan, vice president of business development for Carbon-Carbon Advanced Technologies in Kennedale, Texas. His firm’s 45 or so employees work on the vehicle structures for rockets and hypersonic aircraft.” (Tim Mak, “Small defense businesses face big woes,” POLITICO, 11/29/12)

If Sequestration Proceeds, Lockhead Martin Could Be Forced To Lay Off 8% Of Its Workforce. “Lockheed Martin … has told Congress that across-the-board reductions could result in layoffs of 10,000 employees out of the company’s 120,000 workers.” (“Labor Department says no need for warnings on layoffs,” Associated Press, 7/30/12)


Congress Likely To Punt On Cuts Again With Another Trigger Next Summer. “Of the many distasteful elements to the year-end ‘fiscal cliff’ that Washington is desperately trying to avoid, few are more loathed than the automatic, indiscriminate spending cuts scheduled to begin on January 2. Yet a repeat of this agonizing drama could play out next summer. That is because Congress, as part of deal to avert the year-end fiscal cliff of steep tax increases and across-the-board budget cuts, is likely to enact another forcing mechanism, or trigger, to make sure it keeps its latest round of deficit-reduction promises.”  (David Lawder, “Congress, dreading automatic cuts, eyes yet another trigger,” Reuters, 12/11/12)

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