Thursday, August 9, 2012

8/2/12 RD Bulletin: Congressional Leaders Reach Agreement on Near-Term Funding Levels As OMB Releases Details on Sequester Implementation

News: Speaker of the House John Boehner (R-OH) and Senate Majority Leader Harry Reid have reached an agreement with the White House to proceed with a six-month Continuing Resolution, which would keep the government funded into the spring.  This indicates that Congressional leaders do not have the political energy to debate Fiscal Year 2013 funding levels during the lame-duck session of Congress – instead choosing to focus on the expiration of the Bush-era tax cuts and the contentious battle over delaying or nullifying pending sequestration cuts. 
News: The Office of Management and Budget has notified federal agencies that it will begin working with agency heads to develop guidance on the implementation of sequestration cuts.  OMB has also indicated that President Obama will exempt military personnel funding from the automatic cuts scheduled to take effect early next year.  Meanwhile, a senior Pentagon official testified this week that sequestration cuts in Fiscal Year 2013 would force the department to cut four F-35s and delay acquisition of a new aircraft carrier. 
Reports: New analysis by the Brookings Institution’s Peter Singer finds that the Aerospace Industries Association used deeply flawed economic assumptions when preparing a recent impact study that examined the potential jobs losses from defense sequestration. 

State of Play
Legislative: This week, the Senate Appropriations Subcommittee on Defense completed work on its annual defense spending bill which matches the President’s FY13 budget request by providing $604.5 billion for the Pentagon, including war funding.  While the bill’s topline amount corresponds with the President’s request, it shifts roughly $5 billion from the Pentagon’s base budget request into the OCO account to avoid violating the Budget Control Act’s defense/non-defense spending sub-caps – thus providing $511.2 billion for the Pentagon’s base budget (not accounting for military construction or mandatory funding).   Setting aside the transfer of base budget funds into the OCO account, the Senate version of the military spending bill adheres more closely to the BCA spending caps than do the President’s budget request and the defense spending bill which cleared the House last month. 
In the Senate bill, appropriators blocked or delayed the Obama administration’s proposed mothballing of several Naval vessels as well as the Air Force’s proposed cancellation of the Global Hawk Block 30 drone and the C-27 Spartan transport aircraft.  The bill also provides funding for an additional Virginia-class attack submarine and an extra DDG-51 destroyer, and it would prevent the Air Force from implementing force structure changes until a national commission reports back to the Congress on the issue.  The full Committee is considering the legislation today; however the spending bill will not receive Senate Floor consideration until after the August recess, if at all. 
Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH) have reached an agreement to keep the government funded past the end of this fiscal year on September 30, 2012.  The six-month Continuing Resolution, which is expected to receive consideration after the August Congressional recess, would largely adhere to the Budget Control Act’s $1.047 trillion total discretionary spending cap, up from $1.043 trillion in Fiscal Year 2012.  Because conservative Republicans in the House have pressed leadership to adhere to a lower total discretionary spending level, Boehner will likely need to lean on Democratic members to help him pass the CR through the House. Ultimately, a six-month CR will allow Congress to avoid a contentious fight over federal spending levels during the lame-duck session, during which lawmakers will have to battle over other controversial issues, including the expiration of the Bush-era tax cuts and pending automatic spending reductions. 
The Senate is attempting to proceed with a cybersecurity bill (although the measure has been delayed due to a number of extraneous amendments) in the last week of session before the August recess, instead of considering the annual defense authorization act, which SASC Chairman Carl Levin (D-MI) has been pushing for.  As currently drafted, the Senate version of the NDAA is roughly $3 billion below the House version, the latter of which does not conform to current law spending caps.  Fearing that debate over the NDAA would focus on sequestration and spending limits as opposed to national defense policy, Majority Leader Reid has indefinitely delayed consideration of the measure. 
During a House Armed Services Committee hearing last week, Secretary of Defense Leon Panetta confirmed what the services have been portending for quite some time: that sequestration would force the department to remove an additional 100,000 active duty troops.  Meanwhile, Republicans in defense-heavy districts are warning the public that the Pentagon could be forced to lay off tens of thousands of civilian workers should the automatic cuts enshrined in law take effect early next year, though the department has declined to confirm an exact figure.
Executive: Yesterday, acting Office of Management and Budget Director Jeffrey Zients and deputy defense secretary Ashton Carter testified before the House Armed Services Committee regarding how the White House would implement sequestration cuts, should Congress fail to reach a deal to avert the automatic reductions by January 2, 2013.  Zients indicated that sequestration would result in a ten percent reduction in defense spending in Fiscal Year 2013, while non-defense domestic accounts would be slashed by eight percent.  However, this assumes that Congress fully funds the Pentagon’s FY13 budget request.  Prior to the hearing, Zients notified Congress in writing that the administration would exempt military personnel funding from the automatic cuts thus increasing budgetary pressure on other non-exempt military accounts.  Sequestration would also hit the Pentagon’s Overseas Contingency Operations account as well as more than $80 billion in unobligated prior-year funding. 
During the hearing, Zients repeated the administration’s refrain that they cannot plan or budget for sequestration because of the arbitrary nature of the across-the-board cuts.  OMB has notified all federal agencies that it will soon produce guidance on how the automatic cuts should be implemented.   For his part, Carter warned that sequestration would impact the training of soldiers headed to Afghanistan, could imperil new construction of military health care facilities and schools, and may lead to less Naval shipbuilding and fewer flying hours for Air Force aircraft.  Regarding specific weapons systems, Carter predicted that sequestration would force the department to “buy four fewer F-35 aircraft, one less P-8 aircraft, 12 fewer Stryker vehicles, and 300 fewer Army medium and heavy tactical vehicles,” and would delay procurement of the CVN-78 aircraft carrier as well as Littoral Combat Ships and DDG-51 destroyers. 
However, as the Congressional Budget Office recently noted, sequestration cuts would only bring the Pentagon budget down to above 2006 funding levels.  The Project on Defense Alternatives made a similar prediction back in January.  While Zients and Carter spent the hearing imploring Republicans to consider tax increases as a means of warding of sequestration, Republicans seemed intent on blaming President Obama for the Budget Control Act’s sequester provision and the looming automatic cuts it entails. 
Defense News reports that during a recent meeting between Secretary Panetta and defense industry executives, the secretary outlined four possible scenarios that the Pentagon is examining relative to scheduled sequestration cuts: (1) Congress does not act and sequestration takes effect on January 2, 2013, (2) a deal is reached during the lame-duck session of Congress to delay or nullify sequestration, (3) Congress reaches a compromise to completely cancel sequestration over the long-term by finding $1.2 trillion in federal savings or revenue, or (4) Congress punts on sequestration via a Continuing Resolution. 
Meanwhile, the White House is hitting back at defense industry executives who are threatening to send out layoff notices to employees immediately before the election.  In new guidance, the Department of Labor says it would be “inappropriate” to send out layoff notices in advance of sequestration, because there is too much uncertainty about how Congress will act to mitigate or cancel the automatic cuts.  Moreover, the Labor Department says that defense contractors will be exempted from federal regulations that require them to send out pink slips. 
The Pentagon has established a new program office to manage and develop “best practices” for the next aircraft carrier, the USS John F. Kennedy, which is currently almost $900 million over budget.  The Special Inspector General for Iraq Reconstruction released an audit report last week, which found that the United States wasted $200 million on an Iraqi police training program, in which the local government never committed to participating.  The State Department is now moving to drastically reduce the scope of the multi-billion dollar effort. 
At an Aspen Institute forum last week, assistant secretary of defense Michael Sheehan said the administration is considering new steps, including possible military intervention, to counter militant Islamic groups operating in northern Mali following a political crisis there in March.  According to Sheehan, the White House is considering a range of options for Mali, including “operating in ungoverned space,” while the president of Ivory Coast said an African-led military intervention could occur “within weeks.”  Meanwhile, Reuters broke an exclusive story this week that President Obama has secretly authorized the CIA and other federal agencies to begin providing covert assistance to Syrian rebel forces attempting to overthrow the regime of President Bashar al-Assad. 
A recent RAND Corporation report found that limiting active-duty military pay raises would have little impact on the readiness and capability of U.S. armed forces.  And following a recent independent analysis of the White House’s new pivot to Asia, which raised questions about the administration’s strategy, the Pentagon is forming a new group to “identify policy issues associated with pivoting the U.S. military to the Asia-Pacific region… and establishing an office in the Pentagon's acquisition shop focused on high-end military capabilities,” reports Inside Defense.
Project on Defense Alternatives Perspective
In a manufactured political drama worthy of an Italian opera, the pending January 2nd sequester of DoD funds is building to its predictable crescendo with administration officials reluctantly testifying on the Hill about the “devastating effects” looming for the Pentagon.  This week, Ash Carter gave the House Armed Services Committee what they were looking for when he noted concern about military training amongst a list of probable effects of sequester: "some later-deploying units (including some deploying to Afghanistan) could receive less training, especially in the Army and Marine Corps." 
Notably, Carter did not testify about how the Pentagon could work with sequester-level cuts.  First, the Administration could present an amendment to the BCA which would allow agencies to apply the cuts as they judge best, rather than applying them in equal degrees to all programs.  That one change would allow the Pentagon to readily handle concerns about training accounts.  Second, FY12 appropriated funds will continue to support many programs in 2013 so that the effective cut in available spending will be well short of the nominal $55 billion sequester.  Third, the Pentagon has taken these sorts of budget hits and survived quite well in the past.  Since 1950 there were three multi-year cuts in the DoD budget of real significance:– 1952 to 1955, it declined 43 percent in real terms in 3 years;  1968 to 1971, it declined 20 percent in 3 years inflation adjusted; 1992 to 1994, it declined 13.3 percent in 2 years, inflation adjusted. 
People on opposing sides of the debate can reasonably differ on whether these past cuts should have been bigger or smaller, but history shows that none of the past reductions were “devastating” for national security.  And finally, there are a plentitude of Pentagon programs that are spending excessively.  It is time to get serious about cutting a couple of air wings, a couple carrier groups, building more F16s and F/A18s (and keeping people employed) rather than hyper-expensive F35s.  The list of where reasonable cuts can be made is quite long.
News and Commentary
Recently, Senator John McCain (R-AZ) and a group of other GOP senators have been touring battleground states warning of the impact of sequestration cuts to the military.  Similarly, defense contractors, led by Lockheed Martin, have been issuing reports and holding press conferences warning of the devastating impact of defense spending reductions.  Winslow Wheeler wonders aloud whether or not there is a connection between Sen. McCain’s recent efforts and his hiring of a key Lockheed Martin contractor who received more than $1.6 million from the defense giant before rejoining the Senate Armed Services Committee.  Wheeler concludes, “There is no known question of legality. But there are questions that should be asked about whether the Lockheed and McCain anti-sequestration campaigns are interacting with each other in any way. It is also appropriate to suggest that if harsh rhetoric for Lockheed programs like the F-35 evolves into legislative inaction, still more questions should be asked.” 
The Will and the Wallet: Food Fight
Gordon Adams characterizes the recent hearing featuring acting OMB Director Jeffrey Zients and Pentagon deputy secretary Ashton Carter as pure political theatre, similar to the rest of the debate over potential sequestration cuts.  Writes Adams, “Let there be no mistake: sequester is not good planning or good budgeting.  It is survivable, however, if the policy-makers are so determined to avoid agreement that they let it happen. The largest damage would not be to the defense industry.  And it would certainly not diminish our national security: US global military supremacy would be unchanged.” (8/1/12)
Peter Singer of the Brookings Institution asserts that a recent AIA jobs impact study used flawed economic assumptions when it predicted that defense sequestration cuts would lead to more than one million lost jobs.  Concludes Singer, “The notion of projecting specifically what would happen all the way down to the exact job numbers lost, and in the exact location, is deeply flawed, all the more so when based on uncertain or even erroneous assumptions. Serious people working on the serious issues of defense should not give them serious credence.”  (7/31/12)
John Reed reports on two recent articles which call into question the Air Force’s solution to F-22 pilots’ hypoxia-like symptoms.  The Air Force claims that the pilots’ breathing problems are associated with the Combat Edge upper pressure garment, however several experts believe the service has simply blamed the pressure vest because they can’t find a solution to the actual problem.  (7/31/12)
Gordon Adams dissects a recent Labor Department guidance that instructed defense manufacturers not to send out pink slips as a result of pending sequestration cuts.  Adams points out that under the WARN Act, defense contractors are only supposed to notify affected workers of impending layoffs, which means the “company needs to know a) that sequester will happen; b) that DOD will execute the sequester in a specific way; and c) that DOD decisions will affect specific contracts, work locations, and employees, who need to be notified.”  Adams concludes that instead of playing scare tactics with the American public, defense contractors should begin planning for inevitable defense spending reductions.  (7/31/12)
GOP Presidential candidate Governor Mitt Romney has pledged to increase defense spending by roughly $2 trillion if he assums the Oval Office, however the candidate has not outlined how he would pay for such an increase in military spending.  In a series of charts and infographs, the Center for American Progress’s Larry Korb analyzes Romney’s proposed spending increase relative to the Defense Department’s own projected spending levels.  Korb concludes, “Gov. Romney should outline the logic behind the massive military buildup he proposes. The American people deserve an explanation of the threats he sees that our military planners do not, his plan to pay for the buildup, how the funds would be spent, and what tradeoffs would be necessary in other areas of government.”  Meanwhile, Senator James Inhofe (R-OK) has introduced legislation (S.3473) to increase defense spending up to four percent of GDP while culling $1.2 trillion from the rest of the budget in order to nullify the full impact of the nine-year sequester.  (7/31/12)
The New York Times editorial board chastises several GOP Senators who currently are on “tour” highlighting the potential impact of defense sequestration cuts.  The op-ed points out that all three senators voted for the Budget Control Act, after the Republican party refused to increase the statutory debt limit.  While Republicans continue to bemoan the “devastating” impact of automatic defense cuts, they refuse to budge on the one issue that could help save the Pentagon’s budget: increased federal revenues.  The board writes, “The Pentagon, which has had a blank check for a decade, can easily absorb hundreds of billions in cuts, but using an across-the-board cleaver is the wrong way to make them. If the senators are serious about averting a problem they helped create, they can support negotiating a deficit-reduction package that includes tax revenues from the wealthy, or they can urge that both sides of the sequester simply be set aside.”  (7/31/12)
Aaron Mehta and Lydia Mulvany report on the aging M1 Abrams tank and the battle to keep production alive despite Army opposition.  Originally slated for halted production from 2014 until 2017 for a complete redesign, popular upheaval in both chambers of Congress has resulted in proposed funding of $181 million in the House and $91 million in the Senate to “refurbish what Army chief of staff Ray Odierno described in a February hearing as ‘280 tanks that we simply do not need.’”  The authors note that over the past eleven years the M1’s manufacturer, General Dynamics, has spent at least $84 million on lobbying activities. (7/29/12)
The Army plans to reallocate resources and alter warehouse stocks reflecting the changing nature of the service’s mission following the wars in Iraq and Afghanistan. Predominantly focused on heavily armored vehicles, like the MRAP, equipment would be stored in Italy for use in Africa as well as in the western Pacific. The stated goal of the initiative is to preposition stocks for smaller-scale conflicts as well as “training and advising missions, humanitarian assistance, disaster relief and civilian evacuation operations.” (7/27/12)
Office of the Special Inspector General for Afghanistan Reconstruction: Fiscal Year 2011 Afghanistan Infrastructure Fund Projects Are behind Schedule and Lack Adequate Sustainment Plans (7/30/12)
Center for Strategic and International Affairs: U.S. Force Posture Strategy in the Asia Pacific Region: An Independent Assessment (7/27/12)
Office of Management and Budget: Fiscal Year 2013 Mid-Session Review (7/27/12)
Army Irregular Warfare Fusion: Newsletter (7/26/12)
Congressional Research Service: Major U.S. Arms Sales and Grants to Pakistan Since 2001 (7/25/12)
Bulletin of the Atomic Scientists: How risky is nuclear optimism?  (June, 2012)