By Austin Wright
Facing economic uncertainty, defense contractors are plotting to spur Congress to nix the automatic budget cuts set to begin next year.
The plan? Threaten to send out layoff notices - hundreds of thousands of them, right before Election Day.
Congress, industry leaders contend, has left them few options. Federal law, they say, requires employers to give notice of 60 days to workers facing layoffs.
For President Barack Obama and congressional incumbents, the timing couldn't be worse. With the automatic cuts, called sequestration, set to begin taking effect on Jan. 2, the layoff notices would have to be sent out by Nov. 2 - four days before this fall's elections.
"I've been told by some of our major employers that layoff notices are going to come before the election," said Sen. Kelly Ayotte (R-N.H.), a member of the Armed Services Committee and a vocal critic of the automatic cuts. "It's dangerous and irresponsible for Congress to play with this."
Under sequestration, New Hampshire could lose more than 3,000 full-time jobs during the next fiscal year, according to a study by George Mason University's Center for Regional Analysis. Across the country, more than 1 million jobs would be at stake.
Ayotte said she's hopeful the threat of job losses will spur a bipartisan agreement to prevent the defense cuts, which would reduce the Pentagon budget by more than $50 billion, or 10 percent, each year for the next decade.
"Negotiations in Congress can't wait for the lame-duck session because there's going to be a devastating impact to our defense industrial base before then," she told POLITICO. "A lot of our small suppliers could go away and never come back."
Without clear guidance from the Pentagon, which has been counseled by the White House Office of Management and Budget not to start planning for sequestration, defense contractors are likely to prepare for the worst, said Cord Sterling, vice president for legislative affairs at the Aerospace Industries Association.
"If there's no guidance, companies will probably have to take the most conservative approach," he said, and the number of layoff notices could be "very significant."
Officials at the OMB have been working behind the scenes to help the Pentagon determine whether certain funds, such as the money needed for the war in Afghanistan, would be subject to sequestration. Publicly, though, they maintain they have not started planning for the cuts.
"We have made it clear that we believe that the sequester is, by design, bad policy," OMB spokesman Kenneth Baer told POLITICO in a statement. "Congress should do its job and pass a balanced plan for deficit reduction as it was charged to pass under the Budget Control Act."
Still, he added, "should it get to a point where it appears that Congress will not do its job and the sequester may take effect, OMB will work with agencies regarding planning."
Lockheed Martin, the world's largest defense contractor and a bellwether of the industry, already has started preparing for the possibility of staff reductions. The company, which is dependent on government contracts for the bulk of its revenue, recently has seen its stock price slide.
At a March aerospace luncheon, Lockheed CEO Robert Stevens acknowledged the company has a legal responsibility to provide notice of layoffs. "How do we start positioning our businesses in different locales to be able to advise our employees of the consequences of sequestration?" he said. "These are not easy problems for businesses to wrestle with."
In Congress, there has been a mixed reaction to the looming cuts. For some members, sequestration is having its intended effect: Prodding lawmakers to agree to a deficit-reducing compromise - one that includes both Democratic priorities, such as new revenues, and Republican priorities, such as cuts in Medicare and other social programs.
For others, sequestration has caused them to become only further entrenched in their positions. House Majority Leader Eric Cantor (R-Va.) has indicated he doesn't favor a grand bargain with Democrats and believes the differences between the two parties will have to be decided in the Nov. 6 elections.
But if no deal is reached before the election, it could be sitting members of Congress - in both parties - who suffer.
"If it really did happen, if hundreds of thousands of layoff notices went out right before the election, it could hurt incumbents - mainly, the president," said Todd Harrison, a defense expert at the Center for Strategic and Budgetary Assessments.
"You could do a layoff notice that just informs people they might be laid off, and you could do that very broadly," Harrison added. "Do companies make the notices go to all of their employees, half of their employees or just the 10 percent of their employees who are likely to be affected?"
Jim Dyer, a lobbyist with Podesta Group who represents some of the top defense firms, including Lockheed, said he believes the threat of mass layoffs will force a compromise. But, he noted, he also had faith that the ill-fated congressional supercommittee would reach a deal.
A bipartisan panel charged with finding a way to reduce the federal deficit by $1.2 trillion over 10 years, the supercommittee was unable to agree on a plan. And its failure set in motion the looming cuts.
"Not a day goes by when I don't spend some time on sequestration," Dyer said. "Everybody's asking about it."
Still, he hasn't seen any indication on Capitol Hill that there will be a resolution soon.
"Kicking the can has become such an acceptable policy that it wouldn't surprise anybody," he said.