Thursday, August 9, 2012

8/9/12 RD Bulletin: DOD Closes Door on 2013 BRAC, New Cato Analysis Finds Economic Impact of Defense Reductions to be Minimal


Highlights
 
Reports: The Cato Institute has published a new report, which examines the economic impact of reductions in defense outlays.  The analysis finds that significant defense spending reductions would have a minimal impact on the U.S. economy principally because military spending accounts for less than five percent of the United States’ gross domestic product. 
 
News: Senator Diane Feinstein (D-CA) has joined a small but growing chorus of Congressional Democrats calling for an immediate delay in sequestration cuts to the federal budget.  The Chair of the Intelligence Committee has called on her colleagues to pass a six-month delay in sequestration before the November election. 
 
News: Last week, the full Senate Appropriations Committee approved its annual defense spending bill, which would provide $511.2 billion for the Pentagon’s base budget (excluding mandatory spending and military construction funding) while allocating $93.3 billion for the OCO account, roughly $5 billion more than the administration’s war funding request.
 
State of Play
 
Executive: Following vocal opposition from Congress to new rounds of domestic base closures and realignments, Secretary of Defense Leon Panetta announced this week that the Pentagon is abandoning plans to pursue a new round of BRAC in 2013.  While the Secretary acknowledged that political opposition to BRAC was too large to overcome now, he asserted that the department will still need to consolidate domestic bases as military end strength declines following the conclusion of the wars in Iraq and Afghanistan.  Panetta told attendees at the Association of Defense Communities' annual conference that, “If I'm taking the force structure down and still maintaining large infrastructure costs, then the money that ought to be going to training our soldiers is going to extra infrastructure.  It's the very definition of hollowing-out the force.”  In the administration’s FY13 budget submission, the Pentagon proposed conducting two new rounds of BRAC in 2013 and 2015. 
 
President Barack Obama has signed into law the Sequestration Transparency Act (H.R. 5872) directing the administration to detail how sequestration cuts to defense and non-defense accounts would be implemented at the “program, project and activity level.”  There is ambiguity in the law over how exactly the White House would be required to implement the across-the-board spending reductions scheduled to take effect early next year.  Senator Patty Murray (D-WA) and Representative Jeb Hensarling (R-TX), who helped usher the measure through Congress and also chaired the Joint Select Committee on Deficit Reduction, hope that the new law will help spur Congress into delaying or nullifying the sequester.  The White House will now be required to report back to Congress on the implementation of sequestration within thirty days. 
 
The Cato Institute has published new analysis which examines the economic impact of reductions in defense outlays.  The analysis, conducted by Benjamin Zycher, a former economist under President Ronald Reagan, found that significant defense spending reductions would have a minimal impact on the U.S. economy because military spending account for less than five percent of the United States’ gross domestic product.  Responding to other economic impact analyses which have predicted massive job losses as a result of reductions in defense spending, Zycher writes, “Such studies have tended to exaggerate the harmful effects of spending cuts and have ignored or understated the beneficial effects associated with redirecting resources to more productive uses.” 
 
Clark Murdock and a team of researchers at the Center for Strategic and International Studies are in the process of writing a report which will outline several alternative national security strategies that could be implemented if the Pentagon’s budget was reduced by one third in real terms over the course of twelve years from its peak in 2010.  Murdock will propose a reduction of 400,000 active duty troops by 2024 in order to bring the defense budget down to approximately $500 billion over the same time period.  At a recent briefing, during which Murdock provided a status report on the forthcoming analysis, he noted that while Congressional lawmakers are in hysterics over potential sequestration cuts to defense, “internal cost inflation is eating our lunch.”  One of the underlying premises of the report is that internal cost inflation in personnel and operations and maintenance will crowd out big-ticket weapons systems and other important modernization programs in the future – ultimately resulting in a “hollowed out” force. 
 
Legislative: Senate Intelligence Committee Chair Diane Feinstein (D-CA) has joined a small but growing chorus of Congressional Democrats calling for an immediate delay in sequestration cuts to the federal budget.  Following the recent announcement from Senate Majority Leader Harry Reid and House Speaker John Boehner that the two chambers have tentatively agreed to a six-month spending bill to keep the government funded into the spring, AOL Defense quotes Feinstein as calling for a six-month sequester delay, which would tee up nicely with the six-month Continuing Resolution.  It would also allow Congress to avoid two of the most politically sensitive issues during the lame-duck session – sequestration and appropriations – and allow lawmakers to focus exclusively on a host of expiring revenue and tax provisions.  Earlier this year, Senate Armed Services Committee Chairman Carl Levin (D-MI) called on Congress to nullify the entire sequester and replace it with approximately $200 billion in savings, split evenly between defense and non-defense.  While Levin noted that there was room for savings in the nuclear weapons budget, he has not specifically outlined where the $200 billion in savings should come from. 
 
On Thursday, the full Senate Appropriations Committee approved its annual defense spending bill, two days after the subcommittee on defense reported out the measure.  The spending bill would provide $511.2 billion for the Pentagon’s base budget (excluding mandatory spending and military construction funding) while allocating $93.3 billion for the OCO account, roughly $5 billion more than the administration’s request.  Specifically, the bill would transfer $4.1 billion from the Pentagon’s base operations and maintenance account into the OCO account, and move an additional $1.6 billion in base procurement and R&D spending into the war budget.  This proposed transfer of funding from the base defense budget into the war funding account would allow the Senate to conform to current law spending caps while fully meeting the White House’s military budget request for Fiscal Year 2013. 
 
In the committee report that accompanied passage of the spending bill, the Senate Appropriations Committee acknowledged that the Pentagon must help contribute to deficit reduction efforts via the Budget Control Act’s spending caps.  However, the committee criticized the department for choosing “to make substantial reductions in force structure and take risk in meeting U.S. military commitments around the globe,” instead of correcting years of poor fiscal discipline. 
 
Specifically, the committee hammered the department’s joint acquisition planning process, known as “Planning, Programming and Budgeting Execution,” for its lack of oversight, and expressed concern about the increasing number and size of reprogramming requests that are submitted to Congress.  If sequestration cuts are implemented on January 2, 2013, the Pentagon would likely submit a large reprogramming request in order to shift funds within its budget and protect big-ticket weapons programs and other items of significant interest. 
 
While the Senate military spending bill will not receive Floor consideration until September at the earliest, it has largely been overshadowed by Congressional agreement to advance a six-month Continuing Resolution, which would cover half of Fiscal Year 2013.  While Continuing Resolutions typically fund the federal government at the previous year’s enacted spending levels, Congressional appropriators can modify funding levels for specific programs or accounts through what are referred to as “anomalies.”  
 
The Chairman of the House defense appropriations subcommittee, Representative C.W. Bill Young (R-FL) intends to seek special provisions in the forthcoming CR to prevent the Pentagon from shifting resources from the Air National Guard to the active duty force, modernize three Navy cruisers instead of retiring them, and provide advanced appropriations for an additional Virginia-class submarine.   Despite the fact that the upcoming CR would fund the Pentagon through the spring, Young says he is hopeful that lawmakers will pass a full-year defense spending bill during the lame-duck session of Congress.  Short of that, Young thinks it’s likely that Congress will simply pass another six-month CR in the spring, before the forthcoming spending resolution expires.  (For a primer on Continuing Resolutions, click here.)
 
News and Commentary
 
In a new white paper, John Wolff examines cost growth and price escalation in defense acquisition.  Wolff notes that private, commercial technological development does not experience close to the same cost growth as defense contractors experience, but that the Pentagon has come to accept massive price escalation as a means of doing business.  Concludes Wolff, “Accepting this rate of escalation will undoubtedly lead to a gradual decline in what the department can purchase for its warfighters. To stem the tide, the DoD must change how it views escalation and what it does to mitigate it at all levels. Before doing more with less, defense programs need to make sure they are getting more out of their budgets.”  (8/7/12)
 
Bill French, a new analyst with the National Security Network, argues that reducing the size of the defense budget makes sense, not only due to fiscal pressures, but also for strategic and operational reasons.  French highlights four concepts that could help the Defense Department save money while better meeting future security challenges: payloads over platforms; increased networking across the services; additional use of the “modularity concept;” and more forward stationing of U.S. Naval assets.   (8/6/12)
 
CNN reports that the Army’s Distributed Common Ground System, an intelligence software system meant to help detect roadside bombs and predict enemy attacks, is currently under investigation by the service and Congress.  CNN obtained a memo written by the Army’s test and evaluation office which found that the Distributed Common Ground System had “significant limitations,” was unreliable, and needed to be rebooted roughly every five hours due to server failures. The memo also noted that the software system was vulnerable to cyberattacks.  (8/7/12)
 
Defense contractors and Congressional lawmakers are up in arms over potential military sequestration cuts, which would bring the defense budget down to above 2006 enacted funding levels.   The Project on Government Oversight’s Benjamin Freeman notes, however, that defense contractors employed more workers in 2006 than they did at the end of 2011, when the defense budget was significantly larger.  Freeman concludes that, “The data show… that the top five defense contractors, collectively, were cutting jobs while being awarded more taxpayer dollars.  In fact, these companies were thriving, not just in terms of federal contracts, but in overall financial performance.”  (8/6/12)
 
The USA Today editorial board opines that, while across-the-board reductions to defense spending are not the preferred way of finding savings, there is plenty of excess funding in the Pentagon’s budget to cull.  Writes the board, “This year's military outlays are expected to reach $716 billion, up from $294 billion in 2000. As troops come home and the fighting ends, it's time to cancel the post-9/11 blank check and think seriously about how big a military the nation can afford.”  The op-ed also notes that Congress has so far refused to consider many of the large cost-savings proposals that the Pentagon has put forth, including Tricare reforms and additional domestic base closures.  (8/3/12)
 
Army National Guard officer Pete Hegseth argues that while across-the-board cuts to defense are not the best way to trim excess fat from the Pentagon budget, there are plenty of savings to be found:  “Whether it's procedural inefficiencies, duplicative programs, cost overruns, or endemic waste, there are billions upon billions of Pentagon dollars that could be eliminated without undermining the Defense Department's ability to execute its Constitutional mandate-to ‘provide for the common defense.’”  Hegseth points to the Medium Extended Air Defense System (MEADS) as a prime example of an unnecessary, untested program that should be eliminated as part of a broader military builddown.  (8/3/12)
 
Larry Korb dismisses suggestions that sequestration would result in a “hollowing out” of the United States’ armed forces.  Korb notes that even in the unlikely event that the sequester takes effect, the United States would still account for 40 percent of the world’s military expenditures.   Korb concludes that the Defense Department “does not have a resource problem. It has a management problem.” (8/2/12)
 
A recent GAO report found that the Pentagon is currently funding 1,340 different programs designed to counter improvised explosive devices, but has no efficient or comprehensive way of tracking these efforts to ensure that they are not duplicative of one another.  Furthermore, a February GAO report noted that the Defense Department lacked the proper means to evaluate or assess the effectiveness of its numerous counter-IED programs.  (8/2/12)
 
Reports
 
 
Congressional Budget Office: Monthly Budget Review (8/7/12)
 
 
 
 
 
Government Accountability Office: Cancellation of the Army's Autonomous Navigation System (8/2/12)
 
 
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