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Pentagon Readies ‘Bandage’ to Help Contractors Under Budget Cuts

April 25 (Bloomberg) -- The Pentagon office that monitors the defense industry’s financial health is preparing an initiative to help contractors cope with production-line disruptions caused by automatic budget cuts.

A small fund, including $10 million that Congress approved in this year’s defense policy bill, would be used for targeted investments to make weapons systems or components more effective if production is stopped or interrupted under the funding reductions called sequestration.

It’s a “bandage until sequestration goes away,” Elana Broitman, deputy assistant secretary of defense for manufacturing and industrial base policy, said yesterday in an interview. “As we saw sequestration being a problem, the idea was to have a very modest fund” that could be put on contract faster than the current Defense Production Act or other legislation that allows for targeted investments.

Broitman said the fund is an example of the planning Pentagon officials are undertaking to cushion the scheduled return of sequestration in fiscal 2016 after a budget deal in December eased the cuts for two years.

Asked whether she thinks a deal can be reached to lift sequestration, Broitman said: “Who knows what Congress is going to do?”

While “the sky hasn’t fallen” yet, she said, the automatic budget cuts mean that procurement and research will be reduced “more than we think is advisable.”

Projected Cuts

The Pentagon’s anticipated five-year, $550 billion budget for weapons purchases would be cut by $48.3 billion if sequestration resumes, according to a detailed Defense Department assessment released this month. Its $337 billion research plan would be reduced by $18 billion.

“I am not seeing any indications” sequestration will be rolled back, General Mark Welsh, the Air Force chief of staff, said at the National Press Club in Washington on April 23.

Betsy Schmid, vice president of the Aerospace Industries Association, a trade group, told a Bloomberg Government conference in Arlington, Virginia, the same day, “I don’t think there is any appetite” to reverse sequestration before the midterm elections in November.

“While there is certainly a lot of support for defense in some areas of Capitol Hill, we’ve lost a lot of defense ‘hawks’” in both parties who supported military spending, said Schmid, who retired this year after 12 years working on the Senate defense appropriations subcommittee, including as its staff director. “A lot of those folks aren’t there anymore.”

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