revengeofareasonablemind

Continuing Resolutions Keep the Government Shutdown Suspense Going and Create Havoc for Government Agencies January 19, 2018

There will be no government shut down….again. Or, maybe there will be. Sooner or later the Congress will pass another Continuing Resolution (CR) stopgap appropriation to keep the government open a little while longer, this year. This foolishness is more that enough to prompt the revenge of a reasonable mind.

Congress will have kicked the government-funding can down the road. Senators and congressional representatives will pat themselves on the back for coming together to avert a government-closing crisis that would have impacted our military members and government workers around the world.

It is one of the consistent perversities of congressional behavior. Had they done their jobs, there would have been an FY2018 appropriations bill that funded the government back in September of calendar year 2017.

The truth is that all Congress has done is heap budget uncertainty up on budget uncertainty that will gobble up nearly half of the FY2018 funding year. The January 2018 AGA Corporate Partner Advisory Group Survey, accomplished with the support of Grant Thornton’s Public Sector group asked the Chief Financial Officers of federal, state and other government agencies what the greatest current challenge was. Of the 60 percent of those surveyed who were federal government CFOs, 41 percent said that biggest current challenge was budget uncertainty. When asked what they “anticipated being your greatest future challenge,” 45 percent said budget uncertainty. Such findings are not unusual, but very similar from year to year, yet congress evidently sees no evidence of the enormous problem.

Government contracts that were to have started back in October, November, December, or January will not start, because the serial CRs prescribe no new starts. Companies that would have hired new workers for the new contracts will not. And, if a company had anticipated increasing a current contract’s production rate and perhaps hiring additional workers, that company cannot. One of the odious aspects of the CR is that as long as the CR is in place (not replaced by a real appropriations bill) government agency spending is capped at the level of spending in the previous year. The Defense Department is particularly hard hit by CRs by virtue of the sheer magnitude and number of its budget and global operations.

Year after year, CRs cost the taxpayer real money. Put simply funding uncertainty is risk and risk is money. The time that the CRs cost in planning, purchasing and manufacturing also costs a great deal. When hamstrung by the CR’s there are “no new military construction projects.” For example, when project schedules are delayed the delays contain potential cost increases.

For FY2018 planned programs include 37 Navy projects, 38 Army projects and 16 Air Force projects. Companies doing business with the government do what they can to mitigate risk. That means recovering contract costs from the customer, in this case the government. Another example is workforce hiring and training has to be held them in abeyance or early hiring results in layoffs, re-hiring and re-training. That costs a lot of money. Companies beholding to stockholders will recover that cost, in some fashion. The loser is the taxpayer.

Perhaps worse, is that some companies, faced with the uncertainty of CRs every year, refuse to do business with the government. As a result, oftentimes valuable suppliers and their products are not available to government contracts. Sandra Erwin, last December, in Space News described the dwindling defense supplier base this way: “Unstable budget cycles have become the norm in a deeply divided Washington, although so far the impact on the economy has not been noticeable. The unpredictability of funding, however, is taking a toll on industries that heavily depend on government work.”

The taxpayer also pays a higher bill for companies not being able to increase production rates according to plan and contract terms. The price for a product normally depends on the number of products produced in a given year. In a September 8, 2017 letter to the Chairman of the Senate Armed Services Committee, Secretary of Defense James Mattis points out, “As is the case in the private sector, DoD saves money by buying in quantity. When we are forced to sever contracts and renegotiate terms with each CR, our costs grow to offset risks and delays; we offer vendors less stability and predictability, and pay accordingly.”

As Secretary Mattis implies, if a production rate that was to increase during the annual funding cycle is capped at the previous years’ lower rate, unit costs go up and so does the price. Imagine, hypothetically, if an aircraft company anticipates producing 84 aircraft this year and was producing 60 last year or five aircraft per month, the expected increase of 24 aircraft or an additional two per month is wiped out by the CR.

Unfortunately, if Congress does not pass an appropriations bill in February, half the production year (October through March) will have passed. If the 84 unit production rate can be reached, a production line original geared for seven aircraft per month will now be expected go from producing six aircraft per month under the CR to producing nine to achieve the contractually agreed to 84 aircraft. That is an increase of 50% in production in the last six months of the year. That is a stretch for any aerospace company, not to mention all the suppliers. More than likely, some portion of the 34 additional aircraft would be pushed to subsequent years at a higher unit cost.

Production rates aren’t pulled out of thin air. They are derived from mission requirements, retirement of old weapon systems and other factors that comprise the force’s needs.

It’s not just the taxpayer that foots the bill. The Defense Department customer for products and services suffers as well. In his letter to the SASC, the Secretary of Defense also identified other downsides for the Defense Department with a 90-day CR. Keep in mind we are now looking at over 140 days of CR. Secretary Mattis explained that training for readiness of our military forces is in jeopardy. He said, “Impacts begin immediately, within the first 30-days of a CR. By 90-days, the lost training is unrecoverable due to subsequent scheduled training events. These training losses reduce the effectiveness of subsequent training events in FY18 and in subsequent years.” We are already looking at over 140 days, not just 30. It should be remembered that one of the findings in the U.S. Navy’s investigation of the U.S. destroyers USS Fitzgerald the USS McCain collisions with larger commercial vessels was lack of training.

What were once conceived-of as emergency, stopgap measures to address unforeseen circumstances that delayed passing an appropriations bill by September 30 each year, CRs have become a way of life. The Hill reported back in December that Senator John McCain and Representative Adam Smith, “have noted, it is well past time for Congress to return to regular order. We eagerly join this chorus, but are not optimistic that a return to normal budget processes is likely anytime soon.”

Since the Congress has passed a full appropriations bill only four times since 1970, the folks at The Hill are probably safe in their skepticism. At this writing, there are less than 13 hours to go before the government does not down as this CR runs out. The Senate is already talking about extending the current CR a “few days.”