Automatic budget cuts due to take effect in January will drive up the cost of weapons systems and cut revenues for arms makers in the longer term, but the full brunt of the cuts will not be felt for several years, a top budget analyst said Friday.
“There’s actually some cushion here for the defense industry,” Todd Harrison of the Center for Strategic and Budgetary Assessments told reporters as he unveiled a report by the independent think tank. The cuts triggered under a process known as “sequestration” apply to funds authorized for spending, not outlays, which are often staggered over several years.
Harrison said he estimated that the Pentagon faced $56.5 billion in additional cuts in fiscal 2013, if U.S. lawmakers did not act to avert the automatic cuts triggered by Congress’ failure to find $1.2 trillion in deficit-cutting measures.
The Obama administration has already said it will exempt military personnel accounts, which means the mandatory cuts will hit the Pentagon’s other accounts — such as procurement, research and development, operations and maintenance and military construction — that much harder, he said.
Harrison’s report comes against the backdrop of mounting frustration among U.S. weapons makers about the lack of guidance they have received from the Obama administration and the Pentagon over how the automatic budget cuts will be implemented.
Industry executives have staged rallies at factories around the country, and are meeting regularly with Defense Secretary Leon Panetta to get more clarity about the cuts. They say the current budget climate has slowed their ability to invest in new technologies, and is prompting them to lay off workers while dampening interest in acquisitions and mergers.
The Aerospace Industries Association estimates that the industry stands to lose 1 million direct and supporting jobs over the next decade if Congress does not avert the cuts.