The sunny side of sequestration

Amid all the hyperbole about sequestration’s impact on national security, it is interesting to note that, after next year, the defense budget will actually begin to grow again.

Makes no sense, you say? You thought sequestration cut defense? Indeed, it does. If you take the FY 2013 defense budget that was just passed by Congress and let the sequester happen, the Pentagon’s funding will have been cut roughly 23 percent in constant dollars (including war costs) since it peaked in FY 2010.

But take a closer look.

Under the defense budget that Leon Panetta proposed to meet the "caps" that the Budget Control Act (BCA) originally imposed on discretionary spending, the Pentagon would get about $5.1 trillion over FY 2013-2021. But if the sequester holds, lowering those caps through FY 2021, DOD will get only about $4.6 trillion. In other words, sequestration will lower the military’s projected funding by about $460 billion.

But, if you go year by year, the picture looks a little rosier. In FY 2014, the defense budget ticks down, again, about 2 percent below FY 2013 — the first fiscal year subject to sequestration. That further reduction happens because in January legislators shoved some of the adjustment in the BCA caps off into FY 2014, instead of taking all of it in FY 2013.

Then, something interesting starts to happen. According to CBO scoring (the best in town, sorry OMB), the defense budget starts to go up again, about 2 percent growth per year. Take out the inflation, it creeps upward about half a percentage point every year from FY 2015 to FY 2021, in constant dollars.

This would be good news to the Pentagon. Of course, it would rather not have the sequester — aside from a few Tea Party types, who does? — but the automatic cuts sequestration brings are a one-time thing. Once we are in the FY 2014 budget-planning cycle, the Pentagon has less money but 100 percent planning flexibility. So it can actually make choices and move monies around without a meat cleaver over their heads. And, if the numbers hold, the defense budget will start to grow again.

The tricky bit for Pentagon officials is that they have to start cutting spending now. Unfortunately, the FY 2014 budget they are about to send Congress assumes that the sequester will be lifted. So when the budget comes, CBO officials (bless them) are going to say, hey, the new Pentagon budget for FY 2014 is something like $50 billion above its cap. And we will start the defense budget hysteria all over again.

Stay tuned for the fun.