Cuts threaten budgets for Natives, veterans, contractors


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Automatic cuts in the Department of Defense budget of up to 18 percent are set to kick in Jan. 2, 2013, if Congress does not act. The cuts, approved by Congress in August 2011 as a part of the Budget Control Act deal to raise the national debt ceiling, trim $500 billion off Defense Department budgets from 2013 to 2021.

These cuts are in addition to $487 billion in Defense cuts President Barack Obama has said he plans to enact over the same time. The across-the-board cuts, which traverse nearly every Federal department and agency, leave active military pay and mandated spending such as Social Security and Medicaid alone, according to a summary of the Budget Control Act, or BCA, by the Bipartisan Policy Center.

Active duty military pay is exempt from the cuts and though many in Washington, D.C., including the president, have promised to make veterans benefits exempt from the sequester knife, action has yet to be taken.

Sen. Lisa Murkowski finds this particularly disconcerting.

“We need to ensure that our military is taken care of. Sequestration delivers a harsher blow (to Alaska) because of the nature of our state,” Murkowski said.

Alaska’s veteran population, at 14 percent, is nearly double that of the rest of the nation, according to the U.S. Census Bureau.

The BCA cuts will be implemented through an automatic mechanism called sequestration if Congress does not agree to balance out the cuts by agreeing to $1 trillion in spending and revenue adjustments in the next federal budget.

During an Oct. 2 briefing White House Press Secretary Jay Carney called sequester “not good policy” and said the president is disappointed Congress has to this point not been able to resolve the issue.

Rep. Don Young points out the House has passed a budget, however the Senate has been reluctant to tackle the issue. The Senate has not passed a budget since April 2009, and the federal government has been funded through a series of continuing resolutions.

“The House has done its job. The Senate’s done nothing; they haven’t passed a budget. If they passed a budget, we wouldn’t have sequestration right now,” Young said in a visit to the Journal office Oct. 8.

While he’s unsure how it will all play out, Young said he doesn’t see sequestration being applied in its current form.

“There won’t be an expansion of money. I think there will be a stabilization of money at a fixed figure, probably a 2012 figure,” Young said.

If nothing is done about sequestration soon, before the end of the year, Young estimates the Congress will “kick it down the road,” in the form of a short-term extension to delay the budget cuts.

For Alaska, the issue really hits home in terms of the possible impact on companies fulfilling defense contracts. In 2011, DOD awarded $3.1 billion in contracts to 740 companies in the state. An impact study done by the Center for Regional Analysis by George Mason University found that sequestration could cost Alaska more than 10,400 jobs, split nearly evenly between the public and the private sectors, during the first two years of the cuts. Congruent to the job losses, Alaska’s economy would take a roughly $300 million hit, the report predicts.

Nationwide, the study estimates sequestration could lead to 2.1 million jobs lost, raising unemployment to greater than 9 percent by the end of 2013 as the total blow to the economy is absorbed.

At 18 percent, defense cuts have garnered the bulk of attention surrounding sequestration, but 9 percent cuts to other government entities could be felt much the same. In all, the federal government spent $12.6 billion in Alaska during 2010, according to numbers compiled by the Alaska Department of Labor. The U.S. Department of the Interior, encompassing the Bureau of Indian Affairs, National Parks Service, and Bureau of Land Management spent $149 million on contracts and grants for private organizations over the same year, according to USA Spending, a government-run website for spending analysis.

Alaskan Natives comprise almost 15 percent of the state’s population, compared with just over one percent nationally, according to the Census Bureau.

Of the 740 companies contracted by the Pentagon in Alaska, 186 are Native corporations. Kevin Allis, executive director of the Native American Contractors Association, said the damage done by sequestration could affect more people than just those in contracting businesses.

“This whole sequester thing has been very unsettling for a lot of people, especially our contractors,” Allis said. “They’re formed to provide benefits for large communities — not minimizing the damage and impact on other contractors — but there’s a very special place for these businesses, and they perform a very vitally important service and benefit to their communities.”

The uncertainties surrounding the looming cuts go beyond simply whether or not DOD budgets are slashed. How remaining monies will be allocated to the different programs and projects throughout the department prevents contractors from effectively preparing for the future.

“Everybody has to just wait, and wait and wait. Certain contractors with certain agencies may not see a significant drop because DOD may say, ‘OK, we’re going to put more money over here, or leave money unchanged over here but we’re going to scrap this whole thing.’ We don’t know how they’re going to vet that all out,” Allis said.

The best way for defense contractors to combat the unknown right now is for them to look for new business in other areas, to focus on forming new relationships with private sector businesses, Allis noted.

To make the budget calamities even worse, not being able to count on future work prevents contractors from being able to effectively manage their current workforce. Without ample work on the horizon, some companies may have to look at trimming the size of their staff. Allis said this possibility seriously troubles him.

“It’s the end of the year. There’s a lot of things families have to plan for in November and December, there’s holidays. And to give somebody a pink slip at this time — there couldn’t be a worse time,” Allis said.

When contacted about the potential burdens of sequestration, Alaska Native organizations were reluctant to comment.

There may be legal ramifications for those companies who deem layoffs necessary. Under the Worker Adjustment and Retraining Notification, or WARN, Act, federal law requires employers with more than 100 employees to give a minimum of 60 days notice to workers affected by impending furloughs.

A letter issued by the Department of Labor on July 30 addressed widespread uneasiness felt by government contractors was issued to quell fears about complying with WARN. It points to wording in the WARN Act that gives employers some wiggle-room in instances of such uncertainty. Fines cannot be levied on employers who cut their workforce in response to “some sudden, dramatic, and unexpected action or condition outside the employer’s control,” according to the letter.

Additionally, the White House issued a memo Sept. 28 assuring employers worried about the legality of layoffs handed down as a response to sequestration that liability costs incurred by businesses will “qualify as allowable costs and be covered by the contracting agency.”

Regardless of the outcome of sequestration, Young stresses that the U.S. must return to its roots to grow the economy and solve its fiscal emergency.

“The only solution to this economic problem we have is the development of resources and the manufacturing from (resources),” Young said. “The reason this country was great was the utilization of our resources.”

 

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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