Humberto Sanchez and Kate Ackley
Despite growing warnings from GOP Senators, government contractors appear unconvinced that they must issue sequester-related layoff notices before the elections next month to comply with federal law.
Though a trio of Senators has traveled the country warning of impending job losses caused by automatic budget cuts that take effect Jan. 2, industry insiders and budget experts say defense contractors are unlikely to need to lay off workers on the day the cuts are scheduled to begin.
Assurances from the White House helped, including word from the Office of Management and Budget last week that the federal government would help cover litigation costs associated with compliance with the Worker Adjustment and Retraining Notification Act, which requires employers with at least 100 employees to provide written notice to affected employees 60 days before ordering certain plant closings or mass layoffs if they are reasonably foreseeable. If layoffs were expected Jan. 2, notices would need to go out in the first few days of November — a scenario Republicans believe could create a problem for President Barack Obama just days before the election.
Instead, the guidance “takes away from the companies the requirement to [issue notices] in order to meet that fiduciary responsibility,” said Cord Sterling, the top lobbyist with the Aerospace Industries Association.
But the White House doesn’t expect taxpayer funds will have to be spent because the automatic cuts — also known as sequestration — might never happen.
“There is no reason taxpayers should incur costs. Congress still has time to avoid the joint committee sequestration, and we are confident they will do so,” an administration official said.
Indeed, part of the Obama administration’s argument against issuing layoff notices has been that Congress is looking to avert the sequester in the coming lame-duck session.
Even if Congress doesn’t, said Todd Harrison, senior fellow for defense budget studies at the Center for Strategic and Budgetary Assessments, no government funds will need to be spent to cover WARN Act liability largely because federal spending will continue to flow after Jan. 2. Even if the sequester takes effect, contractors are unlikely to see an immediate drop-off in funding because those funds were obligated in previous fiscal years.
“All those people working on the factory floor [come Jan. 2] will continue to work,” Harrison said, adding that any program reductions and resulting layoffs would come later in plenty of time for contractors to comply with the WARN Act.
“You’ll start to see a slowdown in parts of the defense industry at different times,” Harrison said. “It will be in the months and years that follow.”
He believes that Republicans, who have been calling for WARN Act notices before the elections, are looking to score political points and draw attention to the need to address sequestration, which many lawmakers believe would hurt national security and economic growth.
On Wednesday, Sen. Kelly Ayotte (R-N.H.) said: “Sequestration is the law of the land. The administration is effectively telling defense companies to willfully ignore the WARN Act — and assures them that taxpayers will pay for their legal expenses if they do so. Rather than being transparent with American workers about the mass layoffs that will occur as a result of sequestration, the administration is skirting the law, endangering our national security and keeping defense workers in the dark. I will continue my push to get answers about the administration’s legal basis for circumventing WARN.” Ayotte has campaigned around the country, warning of the danger of the sequester with GOP Sens. John McCain (Ariz.) and Lindsey Graham (S.C.).
Defense companies, which largely injected themselves into the pre-Election Day layoff notice squabble months ago, now are caught between Senate Republicans who want them to issue the WARN Act notifications on Nov. 2 and the Obama administration.
One defense industry lobbyist said Defense Department contractors used the WARN Act notices to draw attention to the looming cuts in a way that the president and lawmakers, who are focused on Election Day, would understand.
But several big firms, such as EADS and Lockheed Martin, have backtracked and now say they do not plan to send sequestration-related WARN Act notices this year after the OMB and DOD said it was unnecessary. The administration’s guidance, Lockheed said in a statement, indicated that “DOD anticipates no contract actions on or about 2 January, 2013, and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months.”
AIA’s Sterling said that, no matter the administration’s guidelines, the industry’s message is unchanged on sequestration.
“It doesn’t change anything, whether those workers are notified in October, November or January — 2.14 million people will be losing their jobs,” he said.
Sterling added, “The only thing that will change is if Washington’s leaders come together and develop an alternative during the lame-duck session.”
Even companies that are too small to fall under the WARN Act say they could feel the coming hit if the sequester takes place.
Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers, said her group has focused on smaller businesses that supply big defense contractors.
“These companies are worried that they’re going to have to shut down,” Coleman said. “If they’re not going to have to close their business, they’re looking at having to lose a significant portion of their business.”
Those job losses will ripple through the local economies, she said, affecting businesses of all types. “There is a frustration out there that no one in Washington is trying to solve this problem,” she said.
The Center for Security Policy’s Christine Brim said the administration has knowingly created a situation of uncertainty because it has instructed the Defense Department not to make plans for the sequestration in order to avoid the pre-election layoff notices. Her organization is run by Ronald Reagan administration official Frank Gaffney.
“It’s a man-made disaster as opposed to one that just emerged on its own,” Brim said. “Nobody wants arbitrary notices to go out if they’re not needed, but because there are no plans, we cannot issue WARN Act notices because we don’t know which specific contracts would be affected. It’s a Catch-22 that’s been created here.”
At issue is $109 billion in spending cuts — including $55 billion from the Pentagon — that are set to go into effect Jan. 2. The cuts are the first installment in a total of $1.2 trillion in automatic cuts over 10 years. The cuts, part of a deal struck last year to raise the debt ceiling, were triggered by Congress’ failure to agree to its own deficit reduction package, and Republicans, along with some Democrats, have raised concerns that the cuts could hurt national defense programs.
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