Sequestration and the Civil Space Industry



by Staff Writers



Bethesda MD (SPX) Mar 06, 2013



On the one hand, the bad news is that sequestration has begun. On the other hand, the good news is that the overall funding cuts represent only a very small percentage of the federal budget. But, on another hand, NASA and other space-related agencies are not exempted from the cuts. On still another hand, Congress and The White House could stop the cuts at any time.

Amazingly, the space industry appears to have survived the so called "fiscal cliff" at the end of 2012. The next big and scary fiscal event is already upon us and it is called "sequestration." Although most of us were not familiar with this term prior to 2011, it has been around for some time.

Technically, it is a legal term referring to the act of valuables being separated or taken into custody by an agent of the court and locked away for safekeeping.

The intent was to prevent property or valuables from being disposed of or being abused before a dispute over its ownership could be resolved. In this case, it is a term adapted by Congress to describe a new fiscal policy procedure originally provided for in the Gramm-Rudman-Hollings Deficit Reduction Act of 1985, i.e., an effort to reform Congressional procedures so as to assure "automatic" spending cutbacks take place.

Under a sequestration situation an amount of money equal to the difference between a spending cap set in a Budget Resolution and the amount actually appropriated is "sequestered" by the Treasury and not handed over to the agencies to which it was originally appropriated by Congress. In theory, every agency has the same percentage of its appropriation withheld in order to take back the excessive spending on an "across the board" basis.

However, Congress has exempted certain very large programs from the sequestration process, such as Social Security and certain parts of the defense budget. The number of exempted programs has increased over time, meaning that sequestration would have to take back gigantic shares of the budgets of the remaining programs in order to achieve the total required cutbacks.

The implication is that unexempted programs could be financially crippled. Thus, the prospect of sequestration has come to seem so catastrophic that Congress has not previously been willing to let it happen, that is, until this past week.

On the one hand, the bad news is that sequestration has begun. On the other hand, the good news is that the overall funding cuts represent only a very small percentage of the federal budget. But, on another hand, NASA and other space-related agencies are not exempted from the cuts. On still another hand, Congress and The White House could stop the cuts at any time.

Nevertheless, the prudent thing to do is to assume we are stuck with the coming cuts and plan accordingly. These cuts have been known for some time. NASA can expect an 8.2% cut across various budget accounts, totaling nearly $1.5 billion. Since the agency has not disclosed how it plans to implement those cuts, field centers and contractors do not yet know the impact.

The Aerospace Industries Association (AIA) released a report in December entitled, "The Economic Impact of Sequestration on Civil Space Programs" that stated, "Sequestration budget cuts ... are the single greatest threat to our space programs' continued success." This report, referring to both NASA and NOAA, warns, "Such a deep and reckless cut to these agencies would senselessly jeopardize U.S.

space leadership and stifle exactly the kind of investment in innovation that our economy needs." In conclusion, the cuts to NASA alone will result in a $2.8 billion reduction in GNP and the loss of nearly 20,700 jobs. Texas will feel the biggest impact of any single state, with a loss in total output of more than $750 million and 5,600 jobs. California follows with nearly $700 million in lost output and nearly 4,600 jobs. Colorado, Maryland and Alabama round out the top five.

It is important to note that all job losses related to NASA spending cuts would be in the private sector, because NASA is prohibited under its current authorization act from laying off civil servants through fiscal year 2013.

Estimates indicate this could mean over 20,000 contractor jobs will be lost. Of course, the exact impacts depend on a number of actions, including NASA's decisions on implementation and the time delay until the impasse between Congress and The White House is resolved.