Thursday, August 9, 2012

7/26/12 RD Bulletin: CBO Dings Pentagon Budget Plans, Again

News: Last week, the House adopted an amendment offered by Representatives Mick Mulvaney (R-SC) and Barney Frank (D-MA) to cut more than $1 billion from the annual defense appropriations bill – effectively freezing the bill’s topline amount at last year’s enacted spending level.
Reports: The Congressional Budget Office has found that the Navy underestimated the thirty-year costs of its shipbuilding plan by more than $90 billion.  This follows a recent CBO analysis which found that the Pentagon underestimated the ten-year costs of its overall budget by $123 billion.
State of Play
Legislative: Last Thursday, the House passed its annual defense appropriations bill, which would provide $518.1 billion in non-war defense funding, and $87.7 billion for Overseas Contingency Operations (OCO).  Representatives Mick Mulvaney (R-SC) and Barney Frank (D-MA) offered an amendment, which was adopted by a vote of 247-167, to cut roughly $1.1 billion from the bill’s topline appropriated amount – effectively freezing defense spending at last year’s enacted level.  Most of the Democratic leadership, including Appropriations Committee Ranking Member Norm Dicks (D-WA) and House Armed Services Committee Ranking Member Adam Smith (D-WA) supported the amendment, as well as several key allies of House Speaker John Boehner, such as Representatives Jeb Hensarling (R-TX), Tom Latham (R-IA), and Rules Committee Chairman David Dreier (R-CA).  The White House has already issued a veto threat against the House defense spending bill, because it would violate discretionary spending sub-caps implemented by the Budget Control Act.  Congresswoman Barbara Lee (D-CA) offered an amendment that would have cut roughly $7.5 billion from the bill’s topline – bringing the legislation in conformity with the Budget Control Act’s defense/non-defense sub-caps, however the amendment failed by a vote of 171-243.
During Floor debate on the House measure, Representative Mulvaney highlighted the presence of roughly $5.6 billion in personnel funding included in the OCO account – funding which has traditionally been provided out of the Pentagon’s base budget.  Since the OCO account is not subject to the same statutory budget limits as other federal accounts, the White House and Congress will likely continue to transfer funding from the base account into the OCO account as budgetary constraints increase.  While an amendment by Representative Mulvaney to transfer the funding from the OCO account back into the base budget was not ruled in parliamentary order, Mr. Mulvaney was able to pass a “messaging amendment” highlighting his concerns with OCO account budgetary gimmicks.  A recent report published by analysts at the Project on Defense Alternatives and the Cato Institute also noted the transfer of base budget funds into the OCO account and recommended rectifying this in order to enhance accountability and transparency in the defense budget.  
In new analysis provided by Russell Rumbaugh of the Stimson Center, he concludes that following House passage of the Defense, Energy and Water, Homeland Security, and Commerce, Justice and Science spending bills, all of which include some form of function 050 defense spending, the House is now approximately $6 billion above the defense sub-cap implemented by the Budget Control Act.  If the House’s spending levels are passed into law (which is unlikely), then Congress would need to deal with an additional $6 billion defense sequester on top of the roughly $55 billion defense sequester that will occur on January 2, 2013.  Says Rumbaugh, “If these amounts became law, the House would need the Budget Control Act revised not just to avoid the sequester stemming from the supercommittee failure, but because they face sequester for breaching these Budget Control Act caps.”
Since Senate Majority Leader Harry Reid has indicated he does not intend to bring any additional appropriations bills to the Senate Floor before the end of the Fiscal Year on September 30, 2012, Congress will be required to pass a Continuing Resolution either into December or past the new year and into the spring.  This will present the first serious opportunity for Congress to either delay implementation of or completely nullify the $110 billion sequestration of federal funds currently scheduled to take place on January 2, 2013. 
In reference to inclusion of a potential delay of sequestration in the Continuing Resolution, Senator Kelly Ayotte (R-NH) recently said “You could absolutely attach it to a CR.  That would be a vehicle that would work well.”   Ultimately, the final decision on the CR’s spending level will be made by Majority Leader Reid and House Speaker Boehner behind closed doors.  The two leaders will have to decide whether to adhere to the overall statutory discretionary spending cap implemented by the Budget Control Act last August or the lower discretionary spending cap approved by the House via Chairman Paul Ryan’s (R-WI) budget plan.  And it appears that some senior House Democrats, including Minority Whip Steny Hoyer (D-MD) and Appropriations Committee member Jim Moran (D-VA), seem to be warming to the idea of a six-month CR that would punt the fight over appropriations past the election and into the spring.  Moran commented, “We should delay dealing with taxes and the sequester and everything else until the results of the election sort themselves out. Then I think we ought to have a complete reset, both of the budget and of the tax code.”
In other Senate news, Majority Leader Reid has decided to proceed with a cybersecurity bill instead of bringing the National Defense Authorization Act to the Senate Floor this month, all but guaranteeing that consideration of the measure will be pushed into the fall or lame-duck session of Congress.  Voicing his concern that debate on the NDAA would focus too much on sequestration and the Budget Control Act, Reid recently said, “If we’re going to debate the defense bill, House and Senate Republicans need to make it clear they’re willing to abide by the budget levels set by law that they voted for with rare exception. We must also ensure that the defense bill is not used as a platform to advance irrelevant, partisan agendas.”
Executive: The Congressional Budget Office has released a new analysis of the Navy’s thirty year shipbuilding plan, which found that the Navy underestimated the costs of the plan by 19 percent.  The Navy envisions procuring 268 new vessels over the next thirty years – spending $16.8 billion per year for a total of $505 billion over the same time period.  However, CBO estimates that the Navy will likely spend $20 billion per year on shipbuilding for a total of $599 billion over thirty years.  If one includes the additional costs of maintaing nuclear-powered aircraft carriers, the CBO estimate rises to $22 billion per year – 37 percent more than the Navy has spent on shipbuilding over the past three decades.  This follows a recent CBO analysis which found that the Pentagon had underestimated the ten-year costs of its five-year budget by $123 billion. 
During his confirmation hearing to replace retiring Air Force Chief of Staff, Gen. Norton Schwartz, Gen. Mark Welsh admitted that the Air Force’s FY13 budget submission is “simply not executable” in the face of stiff opposition from Congress and state governments to the retirement of Air National Guard assets, but that the general still support’s the proposal.  However, Air Force Secretary Michael Donley warned Congress that it must approve the Air National Guard cuts or else risk doubling down on future cuts to the service’s active duty components.  During his confirmation, Welsh also noted that Gen. Schwartz has ordered the service to continue deployment of Global Hawk Block 30 drones despite the White House’s FY13 budget request that proposed retiring the Block 30 fleet, and told senators that he supported further consolidation and merging of Air Force facilities in Europe.  Finally, Welsh acknowledged that ongoing problems in Air Force weapons acquisition is imperiling the service’s modernization plans and causing the average age of aircraft to increase above historical rates.  Welsh asserted that successfully procuring the F-35 Joint Strike Fighter, the KC-46 next-generation tanker, and the Long-Range Strike Bomber are imperative to Air Force recapitalization efforts. 
Meanwhile, current Chief of Staff Schwartz, who is set to retire on August 10, 2012, indicated to reporters that the service plans on fielding the Long-Range Strike Bomber, also known as the next generation bomber, by the mid-2020s.  Previously, Schwartz has said that the per-unit cost of the bomber will be capped at $550 million. 
National security officials recently briefed Senate Intelligence Committee Chairwoman Diane Feintstein on cost growth associated with the B61 nuclear weapon life extension program (LEP). The B61 LEP was originally estimated to cost $4 billion, however according to the most recent estimates provided by the Pentagon’s Office of Cost Assessment and Program Evaluation, it will now cost $10 billion.  Concern in Congress is growing over the escalating costs of National Nuclear Security Administration programs, including the construction of a new uranium processing facility at the Y-12 complex in Tennessee, which has ballooned from its original 2004 cost estimate of $600 million to as much as $7.5 billion today.  In its FY13 budget request, the White House proposed delaying construction of the new Y-12 facility for $1.8 billion in savings over five years in order to free up funding for the B61 LEP, however, the estimated savings would barely cover half of the cost increase  in the B61 LEP. 
Defense Secretary Leon Panetta and his deputy, Frank Kendall, recently met with leading military contractors to discuss the impact of potential sequestration on the defense industrial base.  While industry executive did not outline a plan to push Congress into nullifying the sequester, they agreed that they must mount pressure on non-defense domestic federal agency heads to lobby Congress against the automatic cuts scheduled to take effect early next year. 
During an interview with National Journal, a top advisor to GOP Presidential candidate Gov. Mitt Romney, John Lehman, said that if Congress wants to reduce the impact that funding cuts have on the economy, then it should cut earned benefit programs, like Medicare, instead of culling savings from the Pentagon’s budget.  This, despite a recent UMASS Amherst report which found that per-billion dollars spent, health care funding is far more economically stimulative then defense spending.

Project on Defense Alternatives Perspective: The defense spending bill passed by the House last week included an amendment cutting $1.1 billion from bill’s topline amount.  As a result of the "Mulvaney-Frank" amendment (and earlier cuts to Military Construction spending), the Defense Department’s base budget will be slightly below its 2012 level, a level that may well prevail when Congress passes a Continuing Resolution in the fall.  No doubt, the Mulvaney-Frank amendment's passage is a significant defeat for defense hawks on the House Armed Services Committee who have sought to boost defense spending this year.  
Several aspects of the recently passed defense spending bill still give cause for concern:  First, it adds billions to the President’s February budget request, which was already above current law spending caps.  Second, according to Russell Rumbaugh of the Stimson Center, the House is now on track to exceed by $6 billion the function 050 defense sub-cap put in law by last year's Budget Control Act (BCA).  Third, the Administration has slipped between $4.5 – 5.6 billion in base budget funding into the Overseas Contingency Operations (OCO) account, and Congress has to date played along.  So, total military spending is currently estimated to be $10 billion to $12 billion greater than if the White House and Congress adhere to current law spending sub-caps and resist accounting tricks.  That's not small change.  It’s about a 2 percent bonus for the Pentagon.
The mischief around OCO accounting is especially vexing.  If the maneuver is allowed this year, it becomes more likely to occur again – indeed, every time there is a legislative attempt to rein-in spending.  As we and our colleagues at the Cato Institute point out in Defense Sense, the integrity of any deficit reduction process “depends on foreclosing the use of accounting measures to give the false appearance of savings.”
News and Commentary
Philip Coyle, a senior science fellow at the Center for Arms Control and Non-Proliferation, highlights two recent reports on missile defense published by the Defense Science Board and the National Research Council which show that Missile Defense Agency (MDA) programs “are chasing scientific dead ends, unworkable concepts and a flawed overall architecture.”  Coyle notes that the MDA and missile defense contractors are focused on procuring and fielding new technologies instead of ensuring that said technologies are scientifically proven and useful in the field.  Coyle writes, “Achieving effective missile-defense capability requires proven science. Without it, the current systems cannot overcome the fog and confusion of battle. Without it, deploying expensive hardware is throwing good money after bad.”  This follows a recent GAO analysis which found that many MDA programs are not following best schedule practices identified by the watchdog agency.  (7/26/12)
“The only thing that’s clear anymore about the Navy’s littoral combat ships is that they haven’t turned out as hoped,” observes Philip Ewing.  He notes that not only have whistle-blowers called out the LCS for its unpredictable performance, but increasingly the Navy is skeptical as to whether the ship can accomplish even the simplest tasks.  Ironically the service has entangled itself in both dependence upon and frustration with the LCS, as contractors modify the ship and the Navy attempts to correct the vessel’s less-than-expected role capacity. (7/24/12)
Due to Congressional intransigence and election year politicking, a Bloomberg View editorial urges the White House and OMB to begin preparing backup plans for the potential of sequestration.  Because the automatic cuts will hit big-ticket items like the F-35 Joint Strike Fighter and Virginia-class submarine, the op-ed board believes the Pentagon must begin planning now on how to reprogram the automatic cuts and ultimately pick winners and losers in the defense budget.  (7/24/12)
Battleland: What Defense Cuts?
Mark Thompson highlights a recent Congressional Budget Office chart which estimates Pentagon spending projections out over twenty years according to a number of different scenarios.  The chart shows that under BCA’s current spending caps and under sequestration, defense spending would rise with inflation over the next ten years before it begins increasing steadily again.  Thompson comments, “Only by turning your level upside down and standing on your head can you call those flat lines ‘cuts’ in the normal taxpayer sense of the word.”  (7/20/12)
Army National Guard infantry officer Peter Hegseth acknowledges that the American public supports increased defense spending reductions compared to what the White House and Congress are currently considering.  However, Hegseth warns that the so-called “meat ax” approach of sequestration would harm the United States’ troops and veterans who rely upon federal programs, and instead urges Congress to “target the systemic inefficiencies, duplicative programs, cost overruns, and endemic waste that permeates the Pentagon budget and bureaucracy.”  (7/20/12)
Former Cato Institute analyst and contributor to the Sustainable Defense Task Force report, Hans-Inge Langø argues that sequestration was an excellent incentive for Congress to achieve significant deficit reduction, but that legislative intransigence has stymied the law’s best efforts.  Langø  agrees that automatic, across-the-board cuts are not the best way to cull savings from the Pentagon’s budget, however he points out that a number of panels, including SDTF and the Dominici-Rivlin task force, have outlined ways for the defense department to achieve substantial savings over the next ten years, but rather than consider these recommendations, the department has simply resorted to fear mongering.  (7/20/12)
Commenting on a July 18 HASC hearing featuring representatives of the defense industrial base, Winslow Wheeler observes that Democrats on the panel “didn't buy any of what McKeon and the manufacturers were putting down; actually, they made the hearing into an embarrassment to McKeon and his industry sidekicks.”  Commenting on the potential of automatic sequestration cuts scheduled to take effect next year, Wheeler writes, “The truth is the amount left by the sequester is historically generous...the chasm between their rhetoric and the facts has become so gigantic that people in Washington are actually beginning to notice.”  (7/19/12)
In a comprehensive piece, Vanda Felbab-Brown reports on the logistical challenges facing the United States and NATO in redeploying massive amounts of military hardware from Afghanistan by 2014.  According to NATO estimates, “in order for all International Security Assistance Force (ISAF) military equipment to be removed from Afghanistan in time, a container would have to leave the country every seven minutes, 24 hours a day, seven days a week, starting now.”  (7/18/12)
Congressional Research Service: Defense Surplus Equipment Disposal: Background Information (7/18/12)