Thursday, September 20, 2012

9/20/12 RD Bulletin: Congress Races for Recess, Leaving Debt and Sequester Unaddressed

  
Highlights
 
News: With both chambers of Congress set to recess this week, any hope that sequestration could be nullified before the coming November election is gone.  When members return in November, they will be forced to grapple with a number of highly contentious issues, including expiring income tax cuts, expiring business tax incentives, as well as the looming automatic cuts to discretionary spending. 
 
News: The armed services are in the process of writing their Fiscal Year 2014 budget requests, which will neither reflect nor incorporate the prospect of additional sequestration cuts scheduled to take effect over the next eight years.  Nor is the department currently planning for automatic cuts scheduled to take effect on January 2, 2013. 
 
Reports: Last week, the White House belatedly released a report detailing how it would implement looming sequestration cuts to the federal government.  While the report contained scant new information, it confirmed what many analysts had already concluded: that Pentagon accounts would suffer an across-the-board reduction of 9.4 percent come January 2, 2013. 
State of Play
 
Legislative: Last week, the House cleared a six month Continuing Resolution (CR) to keep the government funded through the spring – with the Senate expected to take up and pass the measure shortly.  Fiscally conservative lawmakers had demanded that the CR be “clean” of extraneous provisions and simply extend current levels of funding, with the hope that they could exert more control over spending decisions following the November election.  Senior appropriators are, however, holding out hope that Congress can conclude consideration of its regular spending bills during the lame duck session in order to respond to the specific needs of federal departments, including the Pentagon. 
 
For example, the Chairman of the House subcommittee on defense appropriations, C.W. Bill Young (R-FL), inserted in his appropriations bill additional funding for the DDG-51 destroyer and the Virginia-class submarine, neither of which were included in the Continuing Resolution.  The next generation aerial refueling tanker program, KC-X, was also expected to receive additional funding in Fiscal Year 2013, the absence of which will force Boeing into a “holding pattern,” writes CQ.  By not including the additional funding in the CR, Congressional appropriators are hoping that they can goad their colleagues into enacting a full-year defense appropriations bill sometime over the next six months, “We are trying to persuade members of the Senate to go to their leaders and say ‘Let us do the defense bill,” Chairman Young said. 
 
Meanwhile, Inside Defense reports that the Pentagon is seeking exemptions to legislative rules contained in the most recent Continuing Resolution that bars the department from starting new projects or increasing production rates of procurement items.  The Pentagon fears that these legislative prohibitions could endanger ten big-ticket programs in its budget.  Pentagon Comptroller Robert Hale and the four service vice-chiefs appeared this morning before the House Armed Services Committee where they testified on the recently released Office of Management and Budget report which detailed how the White House would likely implemented sequestration.  During the hearing, Hale indicated that the Pentagon would try and minimize the impact of sequestration on the war funding by shifting funding from the base Pentagon budget into the OCO account. 
 
Congressional Quarterly reports that Congress is considering significantly reducing future procurement of the Littoral Combat Ship due to ongoing problems and cost overruns in the new class of littoral vessels.  CQ quotes unnamed analysts and Congressional aides who are “considering whether the planned purchase of about 55 Littoral Combat Ships should be trimmed to roughly 24 ships after the first procurement cycle of the ship is completed in fiscal 2015.”  The original per-vessel cost estimate was $220 million; however the Navy has now capped the per-vessel cost at $480 million.  The service expects to spend $37.4 billion on the total LCS purchase; however, CBO recently noted that the service chronically underestimates the cost of its shipbuilding budget. 
 
Senate Armed Services Committee Chairman Carl Levin has reiterated his position that sequestration should be nullified in a fiscally responsible manner that includes additional Pentagon spending reductions over the long-term.  Previously, Levin has voiced his support for reducing military spending by $100 billion over ten years as part of a larger comprehensive deficit reduction plan that could replace the sequester in its entirety.  Levin says he is continuing to discuss a three to six month delay in sequestration with other senators, like John McCain (R-AZ), and that “Any such delay should not increase the deficit. It should address sequestration in defense and nondefense programs. And it must be balanced.”  Politico’s Tim Mack believes that as the sequester deadline of January 2, 2013 approaches, more senators and representatives might warm to the idea of a short-term delay. 
 
Executive: Last week, the White House belatedly released a report detailing how it would implement coming sequestration cuts to the federal government.  While the report contained scant new information, it confirmed what many analysts had already concluded: that Pentagon accounts would suffer an across-the-board reduction of 9.4 percent come January 2, 2013.  Furthermore, mandatory spending programs at the department would receive a ten-percent reduction from current spending levels.  This analysis takes into account the fact that the President has promised to exempt military personnel funding from the sequester, as permitted by the Budget Control Act and underlying statute.  The report noted that, “sequestration would result in a reduction in readiness of many non-deployed units, delays in investments in new equipment and facilities, cutbacks in equipment repairs, declines in military research and development efforts, and reductions in base services for military families.”  Republicans lambasted the report for failing to analyze sequestration’s impact at the program, project, and activity level, which was required by law.  (For more on the impact to specific accounts, click here for analysis conducted by Military.com’s Michael Hoffman.) 
 
Although the Department of Defense provided input to the Office of Management and Budget in order to compile the sequestration report, the Pentagon still insists that it’s not “planning” for sequestration in January, 2013.  Moreover, the department is currently crafting its Fiscal Year 2014 budget request, which also will not take into account nor budget for the impact of sequestration cuts scheduled to take effect in 2014. 
 
Last week, the Pentagon Comptroller, Robert Hale, testified before the House Armed Services Committee’s oversight panel on the Pentagon’s efforts to achieve audit readiness by 2014.  Hale told lawmakers that the department is halfway toward its goal of achieving audit-readiness. Before Congress broke for the August recess, Senator Tom Coburn (R-OK) introduced S.3487, the Audit the Pentagon Act of 2012, which currently has seven cosponsors, most of whom are conservative defense hawks.  According to an op-ed written by Senator Coburn, the bill “creates new incentives and enforcement mechanisms to force the Pentagon to pass an audit.” 
 
Following a week of protests at American embassies and diplomatic posts across the Muslim world, the Pentagon is prepositioning troops to respond to violent outbreaks in as many as 18 different countries, Secretary of Defense Leon Panetta told Foreign Policy in an interview last week.  The United States has already deployed one hundred Marines to guard diplomatic posts in Yemen and Libya. 
 
One of the only weapons systems that the Obama Administration proposed cancelling in its Fiscal Year 2013 budget submission was the Global Hawk Block 30 drone, which the Pentagon claims can be replaced with updated versions of the U-2 Dragon Lady spy plane.  However, after repeated attempts by Congress to prevent the mothballing of the Block 30 fleet, and in the absence of a National Defense Authorization Act or a regular-order defense spending bill, the Air Force is now in discussions with Northrup Grumman, the drone’s manufacturer, to keep the UAV flying through September, 2013.
 
Though the Air Force claimed to have resolved the hypoxia-like conditions affecting its F-22 pilots earlier this year, Pentagon officials admitted to Congress last week that they have been unable to find a comprehensive solution to the problem.  Moreover, the service admits that it was supposed to make fixes to the oxygen systems back in 2005.  Recently, Air Force representatives determined that they had identified faults in the upper-pressure garment and the C2A1 filter functionalities which were being resolved.  However, Congressional representatives have not been convinced by the Air Force’s corrective measures, suggesting that the service is rushing to put the controversy behind them without fully resolving it. 
 
Polling
 
National Journal recently asked its group of national security “insiders” whether they thought President Barack Obama’s commitment to reducing the Pentagon budget would hurt or help him in his campaign against former Governor Mitt Romney, who has pledged to increase defense spending by roughly $2 trillion.  Seventy percent of National Journal’s insiders believe that the issue will not hurt the President nor resonate well with the electorate.  Insiders point to the fact that the House-approved budget plan and the President’s proposed defense budget are relatively similar. 
 
Furthermore, one insider is quoted by National Journal saying, “Even with the sequester, defense spending will decline by only 10 percent (plus reductions made possible by winding down in Afghanistan and Iraq).  Most Americans will think this is reasonable, and they would be shocked if key civilian programs were gutted to spare defense cuts.”
 
 
News and Commentary
 
National Interest: Stalled Reform in the Pentagon
The Budget Control Act and growing concerns about the fiscal climate will continue to put pressure on the Pentagon’s acquisition budget observes former HASC and Pentagon staffer Anand Datla.  However, Dalta points out that neither the department nor Congress has implemented needed reforms identified by the House Committee on the Armed Services Panel on Defense Acquisition Reform in 2010.  “If the legacy of implementing changes offered by the House committee’s report is an indicator, then improving the acquisition process, even incrementally, will always be a hard slog. But budget cuts are coming—and the Pentagon’s shoppers must adapt,” concludes Dalta.   
 
The Center for Strategic and International Studies recently hosted former Secretary of Defense Robert Gates and former Chairman of the Joint Chiefs of Staff Mike Mullen at a panel discussion on federal debt and the impact of sequestration on defense.  While the two former officials repeated their concerns about the national security threat posed by the United States’ large deficit, they pointed out that the President has already cut military spending significantly, and that the defense budget as a percentage of GDP is quite low.  In a piece on Foreign Policy, Gordon Adams critiques Gates and Mullen’s assessment of the defense budget by pointing out that the military spending has only been cut from previously projected levels, not in actual terms, and that defense spending as a percentage of GDP is an irrelevant metric by which to measure the United States’ national security strength.  (9/19/12)
 
Despite the fact that many analysts and lawmakers in the nation’s capital believe that sequestration would be “devastating” to the armed forces, some prominent Washington think tanks beg to differ.  The Bipartisan Policy Center has pointed out that, under sequestration, the defense budget would fall below $500 billion next year, but would regain lost ground by 2017 and would approach $600 billion by 2020.  Another prominent think tank, the Center for Strategic and Budgetary Assessments, asserts that the Pentagon would not be forced to cancel any big-ticket weapons systems nor would it have to lay off troops or curtail benefits.  Recently, a senior defense analyst at the Cato Institute unabashedly called for Congress to allow sequestration to occur as scheduled.  (9/17/12)
 
Incoming F-35 program director Air Force Maj. Gen. Christopher Bogdan has blamed a “poor relationship between the Joint Program Office, customers and prime contractor Lockheed Martin” as the biggest impediment to the success of the program.  Specifically, Bogdan referred to contracts stipulating low rate initial production as “unacceptable”, and blamed Lockheed’s near monopoly on essential program systems for continuous shortfalls in the program.   Bogdan’s tacit admission that relations must be improved between the Pentagon and Lockheed Martin was well received on Capitol Hill where lawmakers are growing increasingly impatient over developmental problems and cost overruns in the JSF program. (9/17/12)
 
Due for an overhaul, the U.S. nuclear arsenal is set to undergo an upgrade and maintenance initiative estimated to cost $352 billion over the coming decade, reports Dana Priest.  Not only is the timing awkward in a year of impending defense spending reductions, but it is also in conflict with a military posture that is increasingly moving away from nuclear deterrence and large-scale military action.  Complications have compounded as required action includes upgrading all seven components of the nuclear arsenal, repairing decrepit facilities like Los Alamos, and even making renovations to the classified “Building 9212.”  (9/15/12)
 
Zachary Fryer-Biggs examines what will occur on January 2, 2013, if Congress fails to prevent sequestration from taking effect.  Fryer-Biggs, with the help of the Stimson Center’s Gordon Adams points out that, “On the day that sequestration would begin, the president is required by law to issue an order mandating that agencies take action to reach budget savings goals. The order itself would likely lack details, except for one critical piece of information: The document would include the final percentage figure that agencies must cut, as determined by OMB, which cannot be calculated until the last minute because of the inclusion of unobligated funds left over in agency accounts in sequestration.”  Analysts believe it could take one to two months after January 2 for the actual cuts to materialize.  (9/15/12)
 
Foreign Policy: Sequestering the Jury
Last week, the Office of Management and Budget released a report detailing how the administration would implement sequestration at the account level.  However, many Republicans criticized the report for failing to detail the cuts at the more specific program, activity, and project level.  Gordon Adams characterizes the report as simply another act in political theatre, writing, “Why would the White House want to provide such a highly aggregated analysis? For the same reason the congressional Republicans want the detail: politics. The administration is doing a good job of seizing the high ground on national security; the Republicans are desperately looking for a foothold, and a sequester looks like one to them.” (9/14/12)
 
 
Reports
 
 
Center for Strategic and International Studies: U.S. Department of Defense Contract Spending and the Supporting Industrial Base (9/18/12)
 
Congressional Research Service: Intelligence Authorization Legislation: Status and Challenges (9/18/12)
 
Congressional Budget Office: Choices for Federal Spending and Taxes (9/17/12)
 
Office of Management and Budget: OMB Report Pursuant to the Sequestration Transparency Act of 2012 (9/14/12)
 
 
 
 
 
Department of the Army: Open-Source Intelligence (July, 2012)
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