Monday, November 26, 2012

11/22/12 RD Bulletin: With Lame Duck Grand Compromise Unlikely, Attention Turns to Short-term Sequester Fix


Highlights
 
News: Prospects for enactment of a “grand bargain” during the current lame duck session of Congress remain dim, with focus now turning to some sort of delay or “temporary bridge” to avert sequestration.  
 
News: Despite passage of a six-month Continuing Resolution earlier this year, Congressional appropriators are crafting an omnibus spending package that could replace the current CR and fund the government for the remainder of Fiscal Year 2013.  Reportedly, appropriators are considering providing the base Pentagon budget with $518 billion in funding. 
 
Reports:  Last week, the Stimson Center published a new U.S. defense strategy that outlines ten principles to guide future defense planning, including avoiding long, protracted ground wars; making robust reductions in nuclear weapons stockpiles; and halting deployment of U.S. continental-based missile defense systems.
State of Play
 
Following post-election pledges to work together in addressing the looming “fiscal cliff” by preventing tax increases and automatic cuts to discretionary spending, leadership from both parties met at the White House this week and last to further negotiations over a compromise budget deal.  According to press accounts, however, the meetings have so far made little progress.  Politico reports, “Hill Democrats say Republicans aren’t serious about crafting a deal that President Barack Obama can accept. The GOP’s opening offer, the sources said, would freeze the Bush-era tax rates, change the inflation calculator for entitlement programs, keep the estate tax at 2012 levels and authorize a major overhaul of the Tax Code — although they did not provide a revenue target… Republicans also want to postpone the sequester.”  Meanwhile, CQ Today says Democrats are pushing for a “down payment” of $1.6 trillion over ten years to prevent sequestration – half of which would come from increased taxes on high-income earners.  Republicans on the other hand seem more interested in providing a smaller down payment comprised mostly of discretionary spending cuts to domestic programs. 
 
Pessimism over the prospects of a “grand bargain” coming to fruition during the current lame duck remains strong.  American University professor and Stimson Center fellow Gordon Adams recently told This Week in Defense News that “I don’t think you are really going to get a grand bargain. I think you are going to get sausage.”  Congressional sources confirmed that the most-likely scenario is that Congress delays the automatic spending cuts until sometime next year while perhaps setting up an agreement to have the next session of Congress enact long-term deficit reduction that could include reforms to earned-benefit programs and an overhaul of the federal tax code. 
 
With much of the November election and preceding campaign focused on tax and entitlement reform, major defense contractors now worry that defense spending will take a back-seat in current negotiations over the fiscal cliff.  Moreover, the defense industry is concerned that Congress may embrace the plan put forth by the co-chairs of the Fiscal Commission, known as Simpson Bowles, which would cut defense spending even further than sequestration entails.  Unnamed industry executives told National Defense Magazine that the best-case-scenario for a grand bargain would be inclusion of an additional $100 billion in defense cuts, an idea put forth by Senate Armed Services Chairman Carl Levin (D-MI) earlier this year.  David Berteau of the Center for Strategic and International Studies told the magazine that he expects any long-term deal to stave off sequestration to include at least $30-40 billion in defense cuts per year, but that they would be delayed until 2016 at the earliest allowing the department time to budget for the reductions. 
 
Regarding the prospects for inclusion of additional defense spending reductions in any short-term deal to stave off Fiscal Year 2013 sequestration, scheduled to occur on January 2, 2013, the Center for Strategic and Budgetary Assessments’ Todd Harrison predicts that “the defense portion of that deal will be cuts [at] about half the level that sequestration would require.  Instead of an even $25 billion across every year for the next 10 years, it could be more back-loaded and it certainly would give DoD the flexibility to target those cuts, to allocate them in a thoughtful, strategic manner.”  Inside Defense reports that the Pentagon ended Fiscal Year 2012 with $105.7 billion in unobligated funds, “exposing modernization accounts to a larger portion” of sequestration cuts, should they occur as scheduled next year. 
 
Meanwhile, House and Senate appropriations aides are working feverishly to assemble an omnibus appropriations bill that could fund the federal government through the end of the fiscal year, even though Congress has already enacted a six-month Continuing Resolution covering half of the current fiscal year.  According to CQ Today, significant progress has been made on crafting the Defense and Homeland Security portions of the omnibus, the two highest priority sections for Congressional appropriators.  The topline amount appropriated for defense under the omnibus is expected to come in at $518 billion – which would represent a freeze in funding from last year’s enacted level.  Aides also confirm that an omnibus spending package could be passed without having resolved the debate over coming sequestration cuts.  An omnibus appropriations bill could help Congress achieve additional near-term spending reductions compared to the six-month CR, because the latter bill funds most federal programs at the level at which they were funded in the previous fiscal year – even if some programs are slated for cancellation or reduced funding. 
 
In a recent report, GAO has taken issue with Air Force and Navy plans to extend the service life of 300 F-16s and 150 F/A-18s by 2,000 and 1,400 flight hours respectively.  Specifically, the GAO report noted that though the Air Force and Navy's cost estimates appear comprehensive, there are a lack of contingency cost estimations in the event that the program is expanded or additional upgrades are made. This concern is particularly poignant as the services have specifically mentioned that the plan could be expanded to include 350 more F-16s and 130 more F/A-18s. GAO has recommended that the Air Force and Navy include a costs range in their plans to cover these possibilities as well as potentially soliciting independent estimates. The Department of Defense agreed with all of the GAO recommendations.
 
 
The Stimson Center’s “New Defense Strategy for a New Era”
 
In a major release, the Stimson Center has published a new U.S. defense strategy proposal that recognizes and addresses the fiscal pressures facing the United States.  Funded by the Peter G. Peterson Foundation, the report, entitled A New US Defense Strategy for a New Era, was developed by a bipartisan group of fifteen former military officers, academics, defense strategists, and diplomats.  The report outlines ten principles to guide future U.S. defense planning, including avoiding long, protracted ground wars; making robust reductions in nuclear weapons stockpiles; and halting deployment of U.S. continental-based missile defense systems.  It recommends prioritizing “vital” missions, such as protecting the U.S. homeland and global commons over “conditional” interests, which include humanitarian missions or stabilization operations. 
 
With these principles established, the report examines four separate force posture options and how much savings or cost each one involves. The baseline is President Obama's FY-13 ten-year plan.  The second is a build-up option that adds resources to the Obama baseline.  The third assumes that sequestration occurs; the fourth, assumes an even deeper cut. Complementing these options are a series of proposed efficiency measures which, if successfully implemented, would subtract $200-$400 billion from the cost of each option over ten years.  In the baseline case -- the Obama plan -- the efficiency savings permit a budget cut of $200-$400 billion with no reduction in planned forces. 
 
In the build-up option, only $230 billion is added to the budget, but the efficiency savings allow the forces to buy a total of $430-$630 billion new capability.   In the sequestration case, the budget declines $550 billion from the Obama level, but the efficiency savings soften the impact on the forces, who need to cut only $150-$350 billion in capability.  And in the fourth option, dubbed "Historic Drawdown," budget savings are $790 billion, but force posture and modernization need be cut by only $390-$590 billion.
 
In a commentary, one of the members of the commission that developed the report, Gordon Adams, raises doubts about whether the efficiency savings can be realized to the extent the report assumes.  Adams also criticizes the report for prioritizing the protection of the “global commons,” a responsibility that international organizations should uphold instead of requiring the United States to shoulder this burden. 
 
The Stimson Center's third and fourth budget options bear some resemblance to PDA's Reasonable Defense proposal, also published last week. PDA's proposed reductions fall somewhere in between the two Stimson options.  But the PDA proposal assumes less in efficiency savings, relying more on force structure and modernization reductions to achieve assured savings.
 
 
News and Commentary
 
“On the floor of the Senate last week, Republican Senator Chuck Grassley of Iowa continued banging the drum on what he calls weak oversight by the Defense Department Office of Inspector General and the Pentagon’s continuing challenges with achieving private sector-style accounting.  ‘This story is about a difficult audit where the inspector general apparently got a bad case of weak knees and caved under pressure,’ Grassley said. ‘The inspector general dropped the ball on an audit that should be a critical component in Secretary Panetta’s effort to bring the Defense Department into compliance with the Chief Financial Officers (CFO) Act.’”  (11/20/12)
 
From the Center for American Progress’ Larry Korb, “As Congress looks for more areas to cut in this time of austerity, lawmakers must remember that the Department of Defense has continued to receive a disproportionate amount of the nation's security funding -- in spite of unprecedented cost overruns and incidents of gross mismanagement -- while the State Department remains chronically underfunded and continually subject to the threat of cuts.  Despite some promising rhetoric from Pentagon officials, rebalancing the international affairs and defense budgets continues to be more of a talking point than a reality. In the last two years, the base -- or non-war budget -- of the Pentagon has shot up to an astounding $553 billion in FY 2012 and now easily eclipses average spending during the Cold War.”  (11/19/12)
 
“To avoid further damage, new cuts must skirt areas that affect core U.S. forces, such as troops, equipment, training and the modernization of weapons systems. While there is potential for substantial reductions outside these areas, achieving them would require a sea change in Congress, which has shielded the fat of the Pentagon budget.  A starting point would be the legions of analysts and other staff posted to military headquarters and to the Pentagon itself; though 100,000 layoffs are not called for, thousands of duplicative jobs could be trimmed. Next would come changes in costly and wasteful health-care programs, which consume nearly 30 percent of the budget. Even simple reforms, such as giving military personnel incentives to use generic drugs and making the government a secondary payer for health costs of retirees with private-sector jobs, could save billions. Last but hardly least, unneeded defense infrastructure could be shut down if Congress would only allow it: bases, depots, National Guard facilities and more.” (11/19/12)
 
“With no major power threat, no real threat to the American homeland and no military that can transit two major oceans without being detected and destroyed by the most powerful military in history, the Pentagon is in deep denial about what it really needs… What’s needed is an independent citizens group to review the Pentagon’s budget one line at a time. The president promised but failed to do this himself so he would truly understand the amount of waste in his defense budget. Programs should be mapped out against the Quadrennial Defense Review strategy and validated against realistic assumptions about forces, threats, modernization and costs by those paying the bills instead of vested interests.”  (11/19/12)
 
“There is no shortage of proposals on how the Pentagon could downsize responsibly. Just this week, defense think tanks, special advisory panels and lawmakers have unleashed a torrent of studies and recommendations. They all agree on one fundamental point: The nation’s current defense apparatus will no longer be affordable, even if sequestration cuts are avoided.” (10/18/12)
 
“Budget discipline might finally force the Defense Department to make strategic choices and systemic reforms that are worth doing on the merits. Over the years, think tanks within the military and without have produced an immense, rich literature on how to make prudent sense out of austerity. Almost everyone starts with a significant cut in active-duty ground forces and the heavy vehicles and artillery that go with them. Keeping America and its allies safe these days depends more on our formidable array of ships, aircraft and precision-guided munitions, plus small units of highly trained special ops and drones to combat terrorist cells. With the cold war over, we can afford to slash nuclear arsenals without diminishing our deterrent.” (11/18/12)
 
“Even if the U.S. Congress is able to hammer out a debt deal that avoids sequestration in January, the resulting agreement will likely result in billions of dollars in additional cuts to the Defense Department — perhaps as much as $25 billion — likely forcing the military to alter its roles and missions.  ‘If they come up with a deal to avert sequestration, I think the defense portion of that deal will be cuts [at] about half the level that sequestration would require,’ said Todd Harrison, an analyst with the Center for Strategic and Budgetary Assessments.”  (11/18/12)
 
“The Defense Department has not made the most of consolidations set in motion seven years ago by the Base Closure and Realignment Commission, according to a new report that found savings have fallen short of projections for joint bases.  The Office of the Secretary of Defense ‘has not developed or implemented a plan to guide joint bases in achieving cost savings and efficiencies,’ Government Accountability Office auditors said in a report released Thursday. Hence, the estimated savings from combining necessary base services such as information technology communication, bus transport, facilities maintenance and emergency services management have fallen 90 percent.”  (11/16/12)
 
“The defense budget is going down, and the really hard question is how to bring it down sensibly. Coburn's "waste" proposals do not get us there because they do not actually save money -- they just spend it on more combat-related things. That's good, but it won't help manage a defense draw-down.”  (11/16/12)
 
Loren Thompson writes, “Whether we get budget sequestration or some alternative in the new year, it's pretty clear that military spending will continue drifting downward as our divided political system grapples with deficit reduction. Maybe that wouldn't be so obvious if the nation were facing urgent threats, but the first lesson of the Petraeus Affair is that Washington isn't real [sic] worried about threats right now. With 9-11 and Iraq having receded in the popular consciousness, politicians are much more likely to keep cutting the Pentagon than rein in entitlement spending or raise tax rates.”  (11/16/12) 
 
Via the Center for Arms Control and Non-Proliferation’s Kingston Reif, “Every dollar spent to modernize and replace aging nuclear weapons systems is a dollar that cannot be spent on defense priorities that are far more relevant to the 21st century security environment, such as upgrading conventional air and naval power projection capabilities.  The assumptions that undergird the current U.S. arsenal of approximately 5,000 nuclear warheads were devised for a confrontation with the Soviet Union that no longer exists. As the Obama administration contemplates its second term defense priorities in a time of budget austerity, it should not let outdated Cold War constructs such as the triad stand in the way of reshaping U.S. nuclear policy.”  (11/16/12)
 
U.S. News and World Report: The Pentagon Will Survive the Fiscal Cliff
From the Cato Institute’s Justin Logan, “America is so comparatively wealthy that it has spent roughly what the entire rest of the world spent on defense for 20 years. Even this figure is somewhat misleading, since if you include the spending of our allies and partners across the world—whom one presumes we're not preparing to fight wars against—we currently spend between two-thirds and three-fourths of world military spending.  Only the recent fiscal crunch, caused by ballooning government spending (including defense), relatively low taxes, and an economic collapse, made us consider trimming our sails a little. Not much, though: Even if sequestration happens, which seems unlikely, military spending would wind up at 2007 levels in 2013—2007 was hardly a lean year at the Pentagon.”   (11/15/12)
 
 
Reports
 
Citizens for Responsibility and Ethics in Washington (CREW): Strategic Maneuvers: The Revolving Door from Pentagon to the Private Sector (11/19/12)
 
 
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