Thursday, September 27, 2012

9/27/12 RD Bulletin: DOD Comptroller Dispels "Meat Ax" Approach to Sequestration


 
Highlights
 
News: Pentagon Comptroller Robert Hale announced this week that recent OMB guidance leads him to believe that the department does indeed have the latitude to apply sequestration cuts as it deems fit within accounts as opposed to applying the cuts equally at the program and activity level.  However, it remains unclear whether or not Hale’s interpretation of the OMB report is correct.
 
News: Bowing to Congressional opposition against proposed reductions in the Navy’s surface fleet, the service has announced that it will forgo the retirement of four cruisers which it proposed mothballing in its Fiscal Year 2013 budget.  This follows a similar move by the Air Force to continue fielding Global Hawk Block 30 drones – another program cancellation opposed by lawmakers. 
State of Play
 
Executive: Appearing alongside the four service vice-chiefs at the House Armed Services Committee’s last hearing before the November election, the Pentagon Comptroller, Robert Hale pleaded with members of Congress to pass some sort of delay or nullification of sequestration.  Hale seemed intent on dispelling the notion, being discussed by some defense analysts in Washington, that the Pentagon could safely absorb more than $50 billion in sequestration cuts if Congress provides latitude and discretion for the department to implement the cuts as it sees fit instead of the across-the-board manner that the Budget Control Act stipulates.  While the Pentagon had previously maintained that it wants sequestration negated in its entirety, Hale admitted that it is preferable that Congress simply punt on the issue rather than allow the cuts to materialize as scheduled. 
 
Hale also noted that within a month or so, the Pentagon will begin examining the impact of sequestration at the program level – something it has so far refused to do publically.  This may shine light on the impact of sequestration on specific weapons systems.  For example, the Air Force recently indicated that sequestration could imperil the service’s efforts to field a next-generation aerial refueling tanker, a program that has been beset by scandals and cost-overruns.  Ultimately, the automatic cuts to the Pentagon budget would likely force the department to reduce planned procurement purchases and/or spread them out over a long period of time, causing per-unit costs to increase.   During the hearing, Hale’s deputy, Mike McCord, said the department would try and spread procurement out over a longer period rather than attempt to renegotiate or terminate individual contracts.  However, the KC-X program may demonstrate the difficulty the Pentagon faces in implenmenting reduced procurement buys. 
 
Ironically, despite Hale’s recent testimony, he announced this week that the recent Office of Management and Budget guidance leads him to believe that the department does indeed have the latitude to apply sequestration cuts as it deems fit within accounts as opposed to applying the cuts equally at the program and activity level.  If true, this would allow the Pentagon to pick and choose winners within its accounts, specifically providing the department discretion to pick which big-ticket weapons systems it wants to protect.  Despite this recent admission by Hale, Congressional Republicans maintain that the Budget Control Act does indeed require the cuts to be applied at the program, project, and activity level. 
 
Despite ongoing problems with the F-35 Joint Strike Fighter and F-22 Raptor programs, the Pentagon believes that unless it begins developing a six-generation fighter jet by 2030, the United States will lose its five-year technological advantage over foreign militaries reports Inside Defense.  The Pentagon noted that “The longer the delay in launching a new tactical aircraft program, the longer it will take to regain lost capabilities, the more costly it will be to do so, the thinner the margin of technological superiority, the more internationalized the industrial and technological base, and the more permanent the international technological division of labor.” 
 
Recently, the Pentagon announced that it was halting the planned retirement of the Global Hawk Block 30 drone fleet, one of the only weapons systems that the department proposed canceling in its Fiscal Year 2013 budget, due to ongoing Congressional opposition to the proposed mothballing.  This week, the department agreed to halt the retirement of four aging cruisers, which it had also proposed mothballing in order to accrue savings required by the Budget Control Act.  Again, three of the four Congressional committees with purview over military issues had strongly opposed the department’s proposal.  In the absence of enacted defense authorization or appropriations bills for Fiscal Year 2013, it is likely that the Pentagon will continue to bow to pressure from lawmakers who oppose the budget cuts proposed in the department FY13 budget request. 
 
Legislative: Last week, Congress recessed for its pre-election campaign season after enacting a Continuing Resolution to keep the government funded into March.  Lawmakers left for home without addressing the looming automatic cuts known as sequestration, which are scheduled to take effect next year, nor did they attempt to tackle a host of other expiring provisions that include income tax breaks, personal tax credits, and business tax incentives.  In explaining his decision to allow senators to go home without having addressed sequestration, Majority Leader Harry Reid (D-NV) pointed to ongoing negotiations being conducted by a group of eight senators, that Reid says is making serious progress in developing a $4-5 trillion long-term deficit reduction package.  Although this package is intended to address the “fiscal cliff” over the long-term, Reid’s deputy, Senator Dick Durbin (D-IL), hopes that a smaller deficit reduction package, based on the Gang of Eight’s work, can be implemented during the lame-duck session to prevent the immediate impact of sequestration and allow lawmakers additional time to work out the details of a longer-term fix.
 
The recently enacted Continuing Resolution provided a 0.61 percent increase in spending for most government agencies while adhering to the Budget Control Act’s Fiscal Year 2013 total discretionary spending cap of $1.047 trillion.  Although, the CR adheres to BCA’s total spending cap for FY13, it does not conform to the BCA’s defense and non-defense spending caps, which were reset after the failure of the Joint Select Committee.  According to Matthew Leatherman of the Stimson Center, as a result of this reset, national defense (function 050) spending is approximately $11 billion above the BCA’s defense sub-cap.  If Congress fails to reduce function 050 spending before January, 2013, an additional “mini-sequester” will occur bringing function 050 spending down to the level authorized by the BCA’s sub-cap, approximately $546 billion.  (For additional analysis of the CR, please see Leatherman’s blog post on The Will and the Wallet, included below). 
 
Because the CR included certain legislative provisions that prevent the Pentagon from beginning new projects and limits its ability to shift previously appropriated funds, the department has submitted to Congress a reprogramming request that would allow it to use Fiscal Year 2012 funds for the scheduled maintenance and refueling of the USS Theodore Roosevelt and Abraham Lincoln.  Also included in the reprogramming submission is a request to allow for the completion of the DDG-1000 destroyer. 
 
Two of the Pentagon’s biggest supporters on Capitol Hill, Senators John McCain (R-AZ) and Lindsay Graham (R-SC), who have been working behind closed doors for months to develop a compromise budget that can replace or delay sequestration, have now endorsed using elements from the Simpson-Bowles plan to replace the automatic cuts.  It’s worth noting that the co-chairs of the National Commission on Fiscal Responsibility and Reform, former Senator Alan Simpson and Erskine Bowles, recommended reducing discretionary spending by $200 billion, split evenly between defense and non-defense. 
 
Meanwhile, McCain and Graham were joined by four other senators last week in sending a letter to Senate leadership expressing their support for a “balanced bipartisan deficit reduction package” that could replace or delay sequestration.  Despite signs of encouragement from this new group of bipartisan senators, few Republicans have publically expressed support for including revenue in a sequester replacement package – something that President Obama has demanded in exchange for nullifying sequestration.  And although several so-called “gangs” of senators are working on possible sequester alternatives, it remains unclear whether or not the Republican-controlled House would support any of the possible compromises being developed in the Senate. 
 
Before Congress broke for its most recent recess,
Congresswoman Barbara Lee (D-CA) introduced H.R.6528, the Audit the Pentagon Act of 2012, which would apply a five percent funding cut to federal agencies which did not receive an independent audit during the previous fiscal year.  In a press release, Lee notes that, “The Department of Defense’s refusal to provide an audit is recipe for waste, fraud and abuse. Nearly sixty cents of every federal discretionary dollar now goes toward defense spending, and by the Pentagon’s own admission, they cannot properly account for how the money is spent. It is time to finally do away with a culture of unlimited spending and no accountability at the Pentagon.”  She also points out that out of the 35 federal agencies, the Department of Defense is the only one which did not receive a full audit in Fiscal Year 2011.  The departments of State and Homeland Security both received partial audits during that fiscal year.
 
Project on Defense Alternatives Perspective
 
This month, the Washington Post published a two-part series by Dana Priest on the mounting costs and challenges of maintaining and modernizing the U.S. nuclear arsenal.  This story begs the question of whether it is time to further reduce and reconfigure this Cold War legacy arsenal, with savings of tens of billions of dollars over the next decade.  Furthermore, yesterday, the Department of State announced that it will be difficult to secure the funding necessary to modify the U.S. nuclear arsenal as the federal agencies responsible for doing so face tightening budgets over the next ten years. 
 
In 2010, the Sustainable Defense Task Force proposed reducing deployed warheads to 1,000 on 328 launchers.  The Project on Defense Alternatives is now preparing an update proposal: a sea-land dyad of 900 deployed warheads on 340 launchers.  This configuration would save $80 billion over ten years.  The independent U.S. Nuclear Policy Commission chaired by retired General James Cartwright has proposed similar reductions: 450 to 900 deployed warheads on 162 to 210 launchers.  In this case, the commission is calling for a sea-air dyad.  Whether it is the bombers or the ICBMs that are retired as delivery vehicles, it is time to reduce the cost and complexity of the U.S. nuclear arsenal.
 
 
News and Commentary
 
Despite Secretary of Defense Leon Panetta’s stern warnings over the past year that sequestration is a “meat ax” which will apply equally to each program and activity in the Pentagon’s budget, the Pentagon’s Comptroller, Robert Hale, recently indicated that he may have more latitude than originally thought to apply the cuts within department accounts.  Gordon Adams notes that, “For DOD, the ‘accounts as PPAs’ interpretation would provide a gift if there is a sequester: flexibility. If a 9.4 percent budget cut hit ‘Air Force procurement,’ the Pentagon would have greater flexibility to find those dollars, trading off between various aircraft programs. Defense officials could reduce the funding for additional work on the troubled F-22; they could slow the buy of the new tanker; they could protect the F-35 from the cuts.”  (9/26/12)
 
The Will and the Wallet: Continuing the Trend
Much of the attention in Washington has been focused on the roughly $109 billion sequester resulting from the failure of the Joint Select Committee.  However, if Congress appropriates defense or non-defense spending above the amount authorized by the Budget Control Act’s sub-caps, an additional sequester will occur in early January, 2013 to bring spending down to the amounts authorized by the sub-caps.  Although Congress has enacted a Continuing Resolution to keep the Pentagon funded into next spring, a smaller sequester may occur next year bringing the CR into conformity with BCA.  (9/25/12)
 
In a new five-party series, the Brookings Institution’s Peter Singer explores some of the myths surrounding sequestration and attempts to demystify many of the assumptions surrounding its potential impact on the United States’ national security.  In part one of the series, Singer explains the United States’ explosive growth in deficit spending, and its underlying causes.  Singer points out that any Congressional deal to avoid sequestration will likely include additional defense spending reductions.  In part two of the series, Singer puts U.S. defense spending in context by comparing it with the amounts our allies and potential adversaries spend, and in part three of the series, Singer examines how sequestration could impact the United States’ new pivot to the Asia Pacific region.  Ultimately, Singer believes that “the U.S. defense budget is most likely headed for cuts of significant scale.”  (9/24/12)
 
Center for Public Integrity: F-35 deputy sees challenges ahead
R. Jeffrey Smith reports on recent developments in the F-35 Joint Strike Fighter program, including the appointment of a new deputy manager, Maj. Gen. Christopher Bogdan, who recently admitted that relations between the Pentagon and the F-35’s primary contractor, Lockheed Martin, are the worst he’s ever seen between a contractor and the department.  Smith writes, “Even after sixteen years of development and six years of production, the plane’s design remains a moving target. Bogdan said that ‘one of the things in the first five weeks that really shook me a little bit about this program is the amount of change that we allow….Change in any acquisition program is destabilizing and unsettling.’  Affirming years of criticism by the Government Accountability Office, he said that allowing planes to be manufactured (32 so far) while it is still being designed is ‘the greatest of all sins in the Joint Strike Fighter Program.’"  (9/21/12)
 
While William Hartung and Stephen Miles cautiously commend the Obama administration's proposed defense cuts, they assert that the fundamental problem remains: A faulty defense industrial complex. Citing a tripling of foreign arms sales to $66 billion in 2011, a backlog of cash, and a horde of over 950 lobbyists employed by the defense industry, they write that "This combination of influence peddling and campaign cash too often trumps good policy." (9/20/12)
 
Undersecretary of Defense Robert Hale urged Congress to prevent sequester, citing disproportionate effects on "operations and training, procurement and civilian personnel," Andrea Shalal-Esa reports. Contrary to melodramatic industry threats, Hale asserted that cuts would not apply to money that had already been placed under contract. (9/20/12)
 
Though not ideal in its less-than-precise application of cuts, Veronique de Rugy asserts that sequestration may not be all bad. "When you actually look at what sequestration means, you find that it is mainly a cut to the growth of spending," she writes, "this is certainly true for defense spending." De Rugy cites not only the necessity of cutting debt, and the threat of credit downgrade, but the fact that the defense budget has more than doubled in the past decade a reason enough to weigh whether or not the sequester would really be all that bad. (9/17/12)
 
 
Reports
 
 
 
 
 
Congressional Budget Office: Choices for Federal Spending and Taxes (9/20/12)
 
Congressional Research Service: Instances of Use of United States Armed Forces Abroad, 1798-2012 (9/19/12)
 
 
 
Carnegie Endowment for International Peace: Waiting for the Taliban in Afghanistan  (September, 2012)
 
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