Defense contractors wouldn’t feel the full effect of automatic budget cuts for three or four years as weapons programs are facing only a 3.5 percent reduction next year, according to an independent research group.
While most defense programs would be reduced by 10.3 percent under the cuts, known as sequestration, they would take time to implement, budget analyst Todd Harrison said in a report released today by the Center for Strategic and Budgetary Assessments.
“It will be three or four years before defense companies feel the full impact of sequestration,” Harrison said. “This gives industry more time to adjust employment levels through natural attrition and early retirements, rather than forcing immediate layoffs.”
The delayed impact is the result of the “natural lag time” from when money is authorized by Congress to when it’s scheduled to be spent, Harrison said yesterday in an interview with Mark Crumpton on Bloomberg Television’s “Bottom Line.” Cuts in “budget authority,” or authorized spending levels, may not show up on industry accounting books until years later.
Most money authorized for weapons procurement takes several years to be spent because of the time required to award contracts, obligate funding and pay vendors. Only 22 percent of defense procurement money is spent in the same year it is authorized by Congress, according to the report.
By contrast, almost all funding for military personnel — about 94 percent next year — is paid out the same year it is appropriated.