Download - Sequestration Briefing 3.21.13

Market Intelligence Briefing: Sequestration

Impact of the Debt Ceiling, Sequestration, CR, and FY14 Budgets

Presented by: Tim Larkins March 21, 2013 #fy14budget

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© 2013 immixGroup, Inc.

Company Overview

immixGroup helps technology companies do business with the government

Founded in 1997 270+ Employees Metro DC/Northern Virginia HQ Hold 30+ Contract Vehicles $1.2B Annual Sales Audited Financials ISO 9001: 2008 Certified Processes

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FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 (Plan)

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immixGroup Program Revenue Growth

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Marketing Lead Generation

Channel Development

Government Business

Infrastructure

What We Do

Provide a platform of services to technology companies

to grow their public sector business

Market Intelligence

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Agenda Continuing Resolution

– Budget Process – Four Year Recap – Update – Looking Ahead

Debt Ceiling – Budget Deficit – Outlays – National Debt – Budget Control Act

Sequestration – Macro View

Impact on Debt Impact on Spending

– Micro View Furloughs Implementation

Next Steps Conclusion

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Continuing Resolution and FY14 Budget

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Continuing Resolution – Budget Process

Agencies request funding

President submits budget request in February

House passes 12 appropriations bills followed by the Senate to fund agencies for the year, then the President gives final approval

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Continuing Resolution – Five Year Recap 2009

2010

2011

2012

10/1/08

10/1/09

10/1/10

10/1/11

9/30/09

9/30/10

9/30/11

9/30/12

3/6/09

CR OMNIBUS Appropriation

10/31/09 12/18/09

CR CR CR + Defense Appropriation

12/3/10 12/19/10 12/23/10 3/5/11 3/19/11 4/9/11 4/16/11

CR CR CR CR CR CR CR CR

11/18/11 12/16/11

CR + MINIBUS CR MEGABUS

2013

10/1/12 9/30/13 3/27/13

CR CR

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Continuing Resolution – Update

The CR will fund agencies through 9/30/13 roughly at FY12 levels or $1.04 trillion

After sequestration, agencies would have roughly $982 billion in discretionary funds for the year

After the President’s signature, the CR will give more leeway to DOD in dealing with sequestration

The CR also adds appropriations bills for civilian agencies

$546

$501

$518

$464

Defense Non-Defense

FY13 Budgets Levels Under BCA Caps ($B) CR Proposals After Sequestration ($B)

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Continuing Resolution – Looking Ahead

House and Senate have released FY14 budget proposals

– No FY14 appropriations bills have been started in the House

Net discretionary spending for FY14 is expected to total $1.05 trillion

– IT budget will shrink to $72 billion

Another CR is likely to begin FY14, but an OMNIBUS may be a possibility due to the No Budget No Pay Act

– If no budget is passed by April 15, pay will be withheld from Congress until the last day of their term

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Debt Ceiling

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Debt Ceiling – Budget Deficit

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Debt Ceiling – Due to Outlays

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Debt Ceiling – National Debt

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Gross National Debt ($T)

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Debt Ceiling – National Debt

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Debt Ceiling – Budget Control Act April 4, 2011: Treasury Secretary Timothy Geithner announces that the present debt

ceiling will soon be reached

July 31, 2011: After much infighting, President Obama and Congressional leaders of both parties pass the Budget Control Act of 2011 (BCA) raising the debt ceiling with the caveat that if a deficit reduction plan was not agreed upon, draconian cuts to spending would be implemented (which is what we call sequestration)

August 5, 2011: Credit rating agency Standard & Poor's (S&P) downgrade the US from AAA (outstanding) to AA+ (excellent), citing political brinkmanship

December 31, 2012: US again reaches the debt ceiling

January 1, 2013: American Taxpayer Relief Act of 2012 (Fiscal Cliff Deal) passes, raising taxes and delaying sequestration

Feb 4, 2013: No Budget, No Pay Act passes, allowing the Treasury to borrow what it needs

until May 19th March 1, 2013: Congress reaches no agreement on deficit reduction, sequestration

officially takes effect

Early August 2013 – Debt ceiling will again be reached unless Congress and the President can come to an agreement

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Debt Ceiling – Budget Control Act

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Sequestration

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Sequestration - Macro View

The sequestration portion of the Budget Control Act stipulated that Congress must collaborate to produce a bill yielding $1.2 trillion in deficit reduction Sequestration would draw from

all unobligated funds in both defense and non-defense discretionary accounts Sequestration will make

sweeping, across the board cuts to all eligible accounts

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Sequestration – Impact on Debt

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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Projected Annual Debt Before and After Sequestration

Projected Debt ($T) Debt After Sequestration ($T)

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Sequestration – Impact on Spending

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2016 2017

2018 2019

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Projected Federal Expenditures

Discretionary ($T) Mandatory ($T) Total After Sequestration ($T) Total Before Sequestration ($T)

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Sequestration – Impact on Spending

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2012 - 2021

Total Federal Expenditures vs. Sequestration

Total Federal Expenditures ($T) Sequestration ($T)

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Sequestration – Micro View

In FY13, sequestration will cut $85.4 billion from the budget (an equal $42.7 billion from both Defense and Non-Defense)

Because Non-Defense budgets

fund more mandatory programs, the cuts are unbalanced

Cuts will come at the “Program-Project-Activity” (PPA) level

Defense cuts equal 7.8%; executed over 7 months will feel like a 13% cut

Non-Defense cuts equal 5%; executed over 7 months will feel like a 9% cut

Defense Discretionary,

$42.7 Non-Defense Discretionary,

$26.4

Medicare, $11.1

Other Mandatory, $5.2

FY13 Cuts from Sequestration in $B

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Sequestration - Furloughs Hiring freezes will be nearly

standard government wide

Agencies may fill one position for every two openings

Significant portions of the federal workforce will be furloughed one day a week

Nearly 800,000 Civilian employees in DOD will face 22 furlough days over the remainder of the year

CR give DOD, DOC, USDA, DOJ, and DHS flexibility to reduce furloughs, and DOD will delay furlough notices 2 weeks

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Sequestration - Furloughs Agency Employees Furloughed DOD 780,000 DHS 60,000 DOT 47,000 USDA 34,000 HUD 9,000 DOL 4,700 DOC 2,600 DOJ 2,300 GAO 1,000

Total 940,600

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Sequestration - Implementation

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Sequestration - Implementation DOD Budget Account Total Budget ($M) Budget After Sequestration ($M) Total Cut ($M)

Army, O&M 59,420 54,785 4,635 Air Force, O&M 44,443 40,796 3,467 Navy, O&M 44,289 40,834 3,455 DOD Wide, O&M 39,205 36,147 3,058 Defense Health Program 36,002 33,194 2,808 Air Force, RDT&E 28,422 26,205 2,217 Air Force, Aircraft Procurement 22,803 21,024 1,779 Navy, Shipbuilding & Conversion 22,469 20,716 1,753 Navy, Aircraft Procurement 20,785 19,164 1,621 Air Force, Other Procurement 20,713 19,097 1,616 DOD Wide, RDT&E 20,356 18,754 1,602 Navy, RDT&E 18,862 17,391 1,471 Army, Other Procurement 13,066 12,047 1,019 Marine Corps, O&M 9,643 8,891 752 Army RDT&E 9,607 8,858 749

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Likely cuts in the Army: – Apache – Javelin Missile – Chinook – Grey Eagle

Likely cuts in the Air Force:

– Joint Strike Fighter

Likely cuts in the Navy: – Ship Building

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Sequestration - Implementation Agency Total Budget ($M) Budget After Sequestration ($M) Total Cut ($M)

HHS 658,682 642,807 15,875

DHS 62,639 59,450 3,189

DOL 61,928 58,778 3,150

HUD 60,254 57,241 3,013

EDU 49,487 47,085 2,393

USDA 38,614 36,671 1,943

DOTrans 38,427 36,493 1,934

DOE 28,030 26,133 1,897

DOJ 30,565 28,894 1,671

DOS 31,748 30,170 1,578

DOTreas 23,470 22,286 1,184

NASA 17,896 17,000 896

DOI 17,539 16,656 883

DOC 11,310 10,737 573

EPA 9,418 8,496 472

SSA 5,727 5,441 286

GSA 267 253 14

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Likely cuts in civilian agencies: – DHS

CIO Office - $16 million Infrastructure Protection & Information Security

Component of NPPD - $90 million

– Treasury IRS business systems - $17 million FINCEN - $6 million TIGTA - $8 million

– DOE Half of cuts will come from NNSA

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Next Steps

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Next Steps – Contracts

Terms will be modified

Awards will be delayed

Major contracts will see de-scope

Option years and re-competes may not be awarded

Very few new contracts will be introduced

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Next Steps – Listen to the Customer

Cuts focus on excessive & duplicative service contracts

Mission objectives still need to be met

Accelerating existing cost-saving measures

Potential increase in COTS spending

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Next Steps – Listen to the Customer

DOD – Tactical communication – Interoperability – Consolidation

Civilian – Mission critical

applications and systems

– Consolidation

Continued demand for cybersecurity, big data, and infrastructure from both sides

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Sequestration – Shield Yourself

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Sequestration – Shield Yourself Stay close to your customer and get answers to your

questions: – What account is going to fund this deal? – What percent of the available activity will be sequestered? – Who is working the deal with the controller’s office?

Only perfect paperwork is going to be awarded; ensure that:

– Market survey is complete – Brand specific justification is complete – Requirements are clearly defined and locked down

If you don’t have answers to these questions, your deal is at risk

Focus on deals that are priorities for the customer, that are most likely to be funded, and that have perfect paperwork

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Conclusions A new CR has been passed, funding the government for the remainder of the fiscal year,

and will offer flexibility to some agencies on how to implement sequestration

Default is unlikely but debt ceiling agreement will likely come with deficit reduction package that may include additional cuts to discretionary spending – but mandatory spending will most likely be unaltered

FY14 may see an OMNIBUS, but could begin with another CR

The budget deficit will drop below $1 trillion for the first time in four years, but national debt will rise to over $17 trillion

The Budget Control Act and Sequestration were passed to limit spending, cut debt, and reduce the deficit over the next 9 years

Sequestration will do little to reduce debt or rein in spending over the long term, but will have near term implications

Defense programs will be cut by 13% and Non-Defense programs will be cut by 9% for the remainder of FY13

Stay close to your customer, listen to their needs – they have money and will spend it

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Resources for You

Government IT Dashboard - www.itdashboard.gov immixGroup blog - www.blog.immixgroup.com

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Contributors: Tomas O’Keefe Market Intelligence Senior Analyst [email protected] Lloyd McCoy Market Intelligence Senior Analyst [email protected]

Market Intelligence Briefing: Sequestration

Impact of the Debt Ceiling, Sequestration, CR, and FY14 Budgets

Chris Wiedemann Market Intelligence Analyst [email protected] Mohamad Elbarasse Market Intelligence Analyst [email protected]

Presented by: Tim Larkins March 21, 2013

#fy14budget

Download - Sequestration Briefing 3.21.13

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