The

Soter Group

September 2012 Issue #2

Perspectives Sequestration and FY13 Homeland Security Mission Funding

Introduction On September 14, 2012, the Office of Management and Budget (OMB) released a report mandated by the Sequestration Transparency Act of 2012 (STA) detailing the potential consequences of sequestration on the fiscal year (FY) 2013 budget. While certain categories of spending are exempted or protected from sequestration, the bulk of budget accounts and the programs within those accounts are subject to very specific percentage cuts (e.g., 8.2 percent reductions in non-exempt non-defense discretionary funding). Federal funding of the homeland security mission spans across 30 agencies and over 330 budget accounts making the potential affects of sequestration complex for government agencies and the private sector alike. Total Homeland Security Mission Funding In March 2012, The Soter Group released an analysis of homeland security mission funding across the entire Federal government and indicated that the enacted FY12 budget authority (BA) in support of this mission totaled $68.0 billion. If sequestration were to be ordered in January 2013, homeland security mission funding would be reduced by an estimated $4.6 billion (B) a decline of 6.8% to $63.4B in FY13. Agency DHS DoD HHS DOJ DOE VA SSA All Others TOTAL FY12 BA $35.1 17.4 4.1 4.1 1.9 0.4 0.2 4.8 $68.0 Estimated Sequester Amount $2.5 0.9 0.3 0.3 0.2 0.0 0.0 0.4 $4.6 Estimated FY13 BA after Sequestration $32.6 16.5 3.8 3.7 1.7 0.4 0.2 4.4 $63.4 % Reduction in BA 7.2% 5.0% 8.1% 8.2% 9.3% 0.0% 0.0% 8.1% 6.8% (in $ billions)

Under sequestration, homeland security mission funding at the two largest agencies DHS and DoD is estimated to decline by 7.2% and 5.0%, respectively, or roughly $3.5B in aggregate. Two agencies that would be unaffected are the VA and the SSA whose relevant budget accounts are generally exempted from sequestration under the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA). Homeland Security Mission Areas Under sequestration, there would be relatively minor differences in reductions in spending across the seven homeland security mission areas defined by OMB. Protecting Critical Infrastructure and Key Assets would be the least affected of the seven mission areas and would decline by an estimated $1.3B or 5.5% from FY12 levels to $22.6B. A relatively large proportion of funding for this mission area is derived from DoD military personnel budget accounts, which can be exempted from sequestration by the President.

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Mission Area Border and Transportation Security Protecting Critical Infrastructure and Key Assets Emergency Preparedness and Key Assets Domestic Counterterrorism Defending Against Catastrophic Threats Intelligence and Warning Other TOTAL Private Sector Addressable Spending FY12 BA $27.6 23.9 5.8 5.3 4.1 0.9 0.4 $68.0 Estimated Sequester Amount $2.0 1.3 0.4 0.4 0.3 0.1 <0.1 $4.6

September 2012 Issue #2

Estimated FY13 BA after Sequestration $25.6 22.6 5.4 4.9 3.8 0.8 0.3 $63.4

% Reduction in BA 7.3% 5.5% 7.1% 8.2% 8.2% 8.2% 8.2% 6.8% (in $ billions)

For the private sector, in an already challenging contracting environment, sequestration would only make budgets tighter this coming year. This analysis suggests that sequestration would further squeeze out private sector addressable spending within the Federal homeland security market, albeit by a marginal amount. Should sequestration be ordered, an estimated 36.8%, or $23.3B, of total homeland security mission funding would be addressable to private sector contractors versus 37.2%, or $25.3B, without sequestration. FY12 BA (Enacted) Estimated FY13 BA after Sequestration Total BA $68.0 $63.4 Addressable Spending $25.3 $23.3 % Addressable 37.2% 36.8% (in $ billions) Conclusion Sequestration has undoubtedly been in the minds of the Administration, appropriators, government personnel, and private sector contractors over the last year. Its ramifications are severe and hinder the Federal governments ability to prioritize specific budget accounts or programs amidst budget cuts. The White Houses recent report to Congress only further stresses the bluntness of sequestration as a tool for cutting the deficit. With just over three months remaining, Congress still has the opportunity to propose and enact a plan for reducing the deficit by $1.2 trillion by the end of fiscal year 2021. In the meantime, government contractors must recognize that competition for Federal dollars will only increase going forward.
1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.

The Soter Group

September 2012 Issue #2

Note: The Soter Group analysis of the homeland security budget presented in this article excludes funding for Project Bioshield and Biodefense Countermeasures. Some figures may deviate from other published numbers due to rounding errors and/or typographical errors in government budget documents. Estimates are based on enacted FY12 budget authority and the assumption that discretionary appropriations would be funded under a continuing resolution (CR) at the same rate of operations as in FY12. Any additional appropriations legislation enacted for FY13 would change the estimates presented in this brief.

About The Soter Group The Soter Group provides services to both the Federal government and the commercial entities that support it. Our Commercial Services Division provides market research and strategic advisory services to commercial clients seeking to enter or grow in the Federal government security market. Justin Taft, President & CEO, and Peter Wong, Associate, authored these perspectives. The Soter Group welcomes the opportunity for our research to be cited in third-party reports. To learn more, please visit www.TheSoterGroup.com and/or email info@TheSoterGroup.com. Report September 2012: Perspectives Sequestration and FY13 Homeland Security Mission Funding

1100 North Glebe Road, Suite 1010, Arlington, VA 22201 | Tel: 703.224.4407 | Fax: 703.224.8001 | info@thesotergroup.com 2012 The Soter Group. All Rights Reserved.