WASHINGTON — During his 30 years as a financial and national security expert in the public and private sector, David Norquist has seen the U.S. government’s budget process devolve from a fairly reliable funding method to a nearly perennial source of dysfunction.

In all but one of the last 15 budget cycles, the Pentagon was forced to rely on continuing resolutions — a stopgap measure that funds agencies at the same level as the previous year — for varying amounts of time.

Earlier this year, Congress passed a short-term spending bill set to expire Nov. 17. And if January rolls around without the government’s overdue spending bill for fiscal 2024 in place, a full-year continuing resolution — with a 1% cut to all federal agencies, including the Defense Department — will kick in.

What most concerns Norquist, who now leads the National Defense Industrial Association, is the normalization of continuing resolutions. But the regularity of CRs, Norquist said, should not obscure the harm and disruption they cause to the Pentagon and the defense industry — particularly as the U.S. tries to restock its weapons inventory and prepare for a potential fight against China.

Norquist, an Army veteran, has served as the Pentagon’s deputy defense secretary and comptroller, and held the role of chief financial officer in the Department of Homeland Security. He also worked as a professional staff member with the House Appropriations Committee’s defense panel.

Norquist spoke to Defense News on Nov. 2 about temporary spending measures and the impact on military suppliers. This interview was edited for length and clarity.

How do continuing resolutions affect the Defense Department?

No new starts, no quantity increases, and typically the dollar amount is tied to the prior years, which means you don’t usually get inflation [adjustments].

From 2016 to 2019, the department was very concerned about munitions, and every year it asked for an increase in Guided Multiple Launch Rocket Systems, and every year it got a CR. By having CRs each time, [the government has] delayed the ramp-up of production of a munition it already knew it needed, and now it’s living with the consequences.

A CR does that across the board. Even at its cleanest, it puts a brake on the things that you know you need to do.

What does that mean for defense firms?

One concern that people have about the defense-industrial base is that the number of companies willing to do business with the U.S. government is continuing to shrink, and that’s created a problem with competition. If you are a firm thinking about doing business with the government and you see this, why would you [work with the government]?

No one in the private sector freezes their behavior for three months, and then asks you to come back after that long wait and start producing the thing they negotiated with you months ago.

And it can be very disruptive. For one of the companies we work with, there’s an uncertainty about how much money an agency is going to get under a CR and whether there would be stop-work orders. The company would have to lay off a significant number of its employees. Those employees would go collect unemployment compensation, and then when the bill is enacted, the government would say: “Can you bring your people back?” Well, they’d have to go find them and hire them, or train new ones. You may have to wait on those new employees to get clearances, which means now you’ve got another delay.

This drives up the cost to the U.S. government because companies have to recover the workforce, or it simply drives firms out of the market who decide they just don’t want this hassle.

Why else might companies choose to either drop out of the defense industrial base or opt not to join it at all?

This is a form of a barrier to entry that drives out those firms that you’re most interested in getting into the business — and people in new technology areas who are used to moving much faster. High-tech firms are used to turning things in just several months, and now they’re dealing with a government buyer that is putting on the brakes. That’s not the world where they operate, and that’s not how innovation works. And so you become a very unappealing customer.

What’s the likelihood the U.S. government reaches the point in January when 1% cuts start to kick in?

There is a very high risk of the CR lasting until January. The intent of that 1% was to force people to reach an agreement before they went into the second quarter. We’ll see whether it worked as intended. I’m always hopeful they will come to an agreement and resolve things earlier. But the track record is not necessarily positive.

How would that 1% cut impact defense?

It’s a very labor-intensive, disruptive effect. It will have a significant effect on readiness and training of the force because that’s one of the first places that it hits. It’ll have an effect on a series of acquisition programs. Keep in mind we’re looking at an environment where China’s capabilities are growing, its inventories of missiles are growing.

This budget cut would go in the exact wrong direction for what everyone understands to be the pacing threat. You’ll have firms that will exit; you’ll have cost increases on systems because you’re now buying an inefficient quantity; and you’ll have parallel disruptions throughout the Defense Department in training, readiness and flying hours.

What defense programs would be most acutely affected by a full-year CR?

The Defense Department’s budget talks about significant increases in missiles and munitions and in space. What a year-long CR would say is: “We understand that those are your most pressing challenges. Don’t do anything about them. Act as if you’re going to do what you did last year, which you already know is insufficient, and instead spend the money in the areas that you’ve decided are lower priority.”

How does that affect the Pentagon’s effort to bolster munitions capacity and recover its stockpiles, particularly after nearly two years of arming Ukraine?

It creates a real problem. The conflict in Ukraine showed us what wartime consumption looked like. The U.S. defense-industrial base was sized to peacetime consumption — for training purposes or to replace one retiring generation with another. It shows you that what we currently buy is not the quantity the U.S. would need if it were involved in a conflict.

The department looked at the budget and said, “We need to be better positioned with long-range anti-ship missiles, precision-strike missiles, those types of platforms [if a conflict erupted],” and it asked for an increase.

A long CR would say: “We’re going to extend and perpetuate a shortfall in the very munitions that we believe we need for the security of the United States.”

[That also harms] your ability to deter — to convince somebody not to pick a conflict with you — because you’re showing them you have a weakness that you’re unable to close.

What do you think of new House Speaker Mike Johnson’s chances of helping Congress avoid a long-term CR?

I have optimism that, having been selected by the full range of the Republican Party, he has a level of unity to be able to move bills, negotiate, and try to get things back into regular order that the GOP did not have when it was leaderless [following the ouster of former Speaker Kevin McCarthy] or when different [factions] were in conflict.

The goal is to try individually negotiating the appropriations bills. The return to regular order is not a bad thing. The question is whether people can reach solutions that are right for the country, can move through the House and the Senate, and get signed into law.

I spoke at the 2017 Defense News Conference, and this was the subject. It’s a little bit sad that we are having the exact same conversation, with all of the same challenges and problems. “Groundhog Day” was a really funny movie, but it’s not the way you run the Department of Defense or our nation’s security.

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• Source: https://www.defensenews.com/outlook/2023/11/14/ndias-norquist-explains-the-harm-of-a-continuing-resolution/