‘Devastating’ debt default threatens troop pay, defense programs

‘Devastating’ debt default threatens troop pay, defense programs

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WASHINGTON — No one knows for sure exactly what a U.S. debt default will mean for military operations and veterans support programs. But there is widespread agreement that it won’t be good.

Military paychecks could be delayed or stopped altogether. Veterans benefits checks would similarly be delivered erratically. Equipment purchases could be canceled. Contractors and civilian workers could face the choice of furloughs or working without any guarantee of stable pay.

“Unlike the government shutdowns of the past, there is no scripted playbook for how this all goes,” said Rachel Snyderman, senior associate director of economic policy for the Bipartisan Policy Center. “We have never been in such a scenario before. But we know whatever happens, it could quickly become very chaotic.”

On Tuesday, President Joe Biden was scheduled to meet with senior congressional officials in the latest attempt to broker a deal raising the country’s debt ceiling. The Treasury is expected to reach the current limit sometime around June 1 absent congressional action to raise it.

Without a solution, the country could for the first time in history default on its debts, creating a cascade of financial problems across the economy.

Defense Department leaders have already warned those financial complications would have severe consequences for the military and other federal agencies.

At a Senate hearing on May 2, Air Force Secretary Frank Kendall said a spike in U.S. interest rates would have an “absolutely devastating impact” because of skyrocketing interest rates, which he noted are “already roughly at the level of the defense budget.” Just a few days later, at a separate Senate event, Defense Secretary Lloyd Austin warned that defaulting on the U.S. debt would result in “a substantial risk to our reputation” with allies and security partners across the globe amid questions “as to whether or not we will be able to execute programs.”

But a debt default will also have tangible effects on troops, veterans and their families, even if the timing of that impact is not clear.

“Because there is no precedent for a default, it is difficult to know the precise impacts on specific federal programs,” Veterans Affairs press secretary Terrence Hayes said in a statement.

“But what is clear is that, without the ability for the federal government to borrow funds, there is a very real potential that any government program or payment would be halted or severely delayed.

According to the Bipartisan Policy Center, the Defense Department has about $12 billion in payments to military and civilian retirees due on June 1.

Roughly $7 billion is owed to defense vendors between June 5 and June 17. Another $4 billion in military salary checks are set to be sent out on June 15. Snyderman said if the debt limit is not raised, that schedule of payouts gets thrown into disarray.

“The Treasury could prioritize some payments over others, but they also may just have to wait for other money to come in,” she said. “Now this becomes a cash flow crisis for the country.”

Austin in his Senate testimony warned that “we won’t, in some cases, be able to pay our troops with any degree of predictability.” That means money families need for rent, groceries and other basic expenses could be delayed.

Similarly, about $25 billion in veterans benefits set to be paid out in June could be delayed by days or weeks, causing problems for millions of families that depend on that support for their monthly income.

If Treasury officials prioritize those payments, veterans and service members might not see any disruptions. But that would mean delays to other government payouts instead, things like Medicare support, non-defense federal salaries and interest payments on the national debt (failing to pay that would downgrade the country’s credit rating, creating even more debt).

Todd Harrison, the managing director of the national security consulting firm Metrea Strategic Insights, noted that payment delays would also affect defense contractors.

“They could continue to do work and [the Defense Department] could continue to award contracts and obligate money, but the payment of invoices would be delayed,” said Harrison. “The administration could elect to stop all new contract awards and obligations during this period, but that would make the impact even worse,” while possibly violating the law.

“If they were to halt all new contract obligations, that would have a significant and immediate impact on [Defense Department] programs and activities,” he added.

The damage only gets worse if the crisis drags on well into the summer. Another $14 billion in defense vendor payouts are due before July 15, when another $3 billion in military paychecks and bonuses are scheduled to be paid out.

Failing to pay contractors could result in a host of lawsuits and long-term delays to procurement programs. Hayes said officials worry that vendors could “decide to reduce or completely cease providing goods and services to VA if payment was uncertain.”

Failing to pay troops — and requiring them to keep working anyway — could become a political nightmare for both parties.

Lawmakers in the past have passed legislation to blunt the impact of government shutdowns on military and veterans families, ensuring that some Department of Veterans Affairs appropriations are awarded a year in advance and ensuring that military members receive pay even during an appropriations lapse.

Those protections don’t exist if the money to cut checks isn’t there for the country.

Harrison noted that the Treasury could “continue borrowing and paying bills as usual” if Biden opts to invoke a clause in the 14th amendment. But doing so would likely mean court challenges and other complications, Biden said in a press conference earlier this month.

In March, Virginia Democratic Sens. Mark Warner and Tim Kaine introduced legislation that would have enabled all government employees and contractors to postpone paying any bills during a shutdown or debt default. The proposal has not moved forward in recent weeks.

Defense leaders said the real legislative solution is simply passing a measure to increase the debt limit, as lawmakers have done 13 times since 2009.

Earlier this month, after another meeting with congressional leaders, Biden said that he was “absolutely certain” a deal could be reached and that default “is not an option.” But in the days since, no real path ahead on the issue has emerged.

Leo covers Congress, Veterans Affairs and the White House for Military Times. He has covered Washington, D.C. since 2004, focusing on military personnel and veterans policies. His work has earned numerous honors, including a 2009 Polk award, a 2010 National Headliner Award, the IAVA Leadership in Journalism award and the VFW News Media award.

Bryant Harris is the Congress reporter for Defense News. He has covered U.S. foreign policy, national security, international affairs and politics in Washington since 2014. He has also written for Foreign Policy, Al-Monitor, Al Jazeera English and IPS News.

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