Monday, December 3, 2012

11/30/12 RD Bulletin: Defense Spending Notably Absent from Discussions Over Fiscal Cliff

News: Notably absent from discussions over a “grand bargain” to avoid the fiscal cliff is any mention of additional reductions to defense spending – with both sides ostensibly debating reforms to the tax code and earned benefit programs as opposed to further cuts to discretionary spending.  Defense News’ veteran reporter John Bennett observes that, “The absence of talk about the defense cuts is a sign that further Pentagon budget reductions, at some level below $500 billion, are on the table.”
News: The Senate has belatedly taken up consideration of the annual National Defense Authorization Act, with final passage expected next week.  The Office of Management and Budget has issued a weakly-worded veto threat over the measure.

State of Play
Congressional leadership emerged from high-profile meetings at the White House this week expressing pessimism that a deal can be reached to avert the “fiscal cliff” and avoid sequestration.  Senate Majority Leader Harry Reid (D-NV) admitted that little progress has been made while his counterpart, Minority Leader Mitch McConnell (R-KY), said that both sides are at an “impasse.”  Notably absent from discussions over a “grand bargain” to avoid the fiscal cliff is any mention of additional reductions to defense spending – with both sides ostensibly debating reforms to the tax code and earned benefit programs as opposed to further cuts to discretionary spending.  Defense News’ veteran reporter John Bennett observes that, “The absence of talk about the defense cuts is a sign that further Pentagon budget reductions, at some level below $500 billion, are on the table.”  Meanwhile, conservative defense analyst Mackenzie Eaglen of the American Enterprise Institute believes that SASC Chairman Carl Levin’s (D-MI) earlier proposal to cut $100 billion from the Pentagon’s budget over ten years instead of the larger $500 billion cut that sequestration entails is “gaining traction” within the halls of Congress.  However, with neither side publicly discussing Levin’s proposal, it’s difficult to ascertain whether the plan is truly being considered by Congressional leadership. 
With the end of the year rapidly approaching, and little progress to show on developing a short- or long-term deal to avert the fiscal cliff, some liberals in Congress are pushing back against the notion that the United States faces a real crisis come January 2013.  Senator Bernie Sanders (I-VT) told Politico recently that “This is not like the debt ceiling debate where in fact, if you don’t pay your bills on a certain date, there are very dramatic repercussions.  The truth of the matter is we could go into the next year, and if we can reach an agreement in the new Congress, in the first weeks or months or two, I don’t think a whole lot of people will know the difference. So it’s not like something cataclysmic happens on Dec. 31.” 
It’s generally agreed that the administration can buy itself some time to delay the immediate impact of sequestration through a process known as “apportionment.”  Congress also has the ability to retroactively raise or lower taxes – should no action be taken to extend a host of Bush-era tax provisions set to expire by the end of the year.  However, retroactive tax changes could face constitutional challenges according to analysis conducted by the Congressional Research Service
Senate Democratic leadership, for its part, is still pushing for an extension of all Bush-era tax rates, except for the wealthy, coupled with a delay in sequestration while setting up a process for the 113th Congress to tackle Medicare, Medicaid, and tax reform.  Minority Leader Mitch McConnell says the White House is also pushing Congress to eliminate the statutory debt limit, which the United States is expected to exceed sometime in February or March.  It remains to be seen what Democrats’ backup plan is in the case that their latest overtures to Republicans fall on deaf ears.  However, it appears as if some, more liberal Democrats are considering going off the “fiscal cliff” in order to bargain for a stronger deal next year.  Republican Representative Randy Forbes of Virginia told AOL Defense he believes the cliff will be averted sometime in early spring. 
In the lead-up to the election, much attention was focused on a group of bipartisan senators, alternatively dubbed the “Gang of Six” or the “Gang of Eight,” which has been trying to reach agreement on a large-scale deficit reduction plan that could entirely replace the sequester provisions of the Budget Control Act.  The common thinking in Washington goes that if a small group of senators from both parties can agree on a long-term deal, then the rest of Congress would likely go along with the plan.  However, one of the gang’s members, Senator Saxby Chambliss (R-GA), told Defense News that the group will not release the outlines of a grand compromise despite the fact that the deadline to sequestration’s enactment is less than one month away.  Instead, Chambliss suggested the group is taking yet another look at the recommendations of the co-chairs of the Fiscal Commission as the framework for a grand compromise.  The Bowles Simpson plan would likely face the same opposition it incurred when it was originally released in 2010. 
Meanwhile, the Aerospace Industries Association, a trade group that has spent the better part of the last year lobbying against reductions to defense spending, issued a statement calling for a “balanced” deficit reduction package that spares additional cuts to discretionary spending, because, as the statement argues, federal spending has already been cut enough as a result of the Budget Control Act.  Specifically, the statement calls for reforms to the tax code and earned benefit programs as a means of averting sequestration. 
The Pentagon continues to bemoan the lack of clarity surrounding its Fiscal Year 2013 and 2014 budgets.  The department is currently running off a six month Continuing Resolution for FY13 as budget planners finalize their FY14 budget submissions.  The department, however, is still not planning for sequestration to hit this fiscal year, nor is it incorporating sequestration-level reductions into its FY14 budgets.  Pentagon spokesperson Lt. Col. Elizabeth Robbins explained to Foreign Policy, “Since we don't have an appropriated FY13 budget, we are running the department on a continuing resolution while producing an FY14 budget without an approved FY13 baseline. In addition, the FY14 budget we're working on does not take into account the additional $52.3 billion of cuts required by sequestration.  So if sequestration occurs, the department will have to rework the entire FY14 budget to reflect the additional cuts, and we'll have to implement sequestration without knowing the FY13 funding levels of specific programs, projects, and activities that Congress will ultimately approve. So either a deal on sequestration will be made and we can carry on with building a FY14 budget while under a CR, or on January 3 we'll need to move quickly to adjust course.”  Should no deal be reached to shut off the automatic spending cuts by January 2013, it will still take weeks if not months for the Pentagon to determine how to implement the spending reductions, potentially buying Congress additional time to reach a deal. 
The Senate has belatedly taken up consideration of the National Defense Authorization Act, which was passed by the House earlier this year.  The Senate bill would authorize $525.8 billion for the Pentagon’s base budget with an additional $88.2 billion in war funding as well as authorizing $17.4 billion for other national security activities outside the purview of the Department of Defense.  As currently drafted, the legislation would cut the Pentagon’s civilian workforce by five percent over the next five years – a provision which resembles a recommendation issued earlier this year by analysts at the Project on Defense Alternatives and Cato Institute.  The Office of Management and Budget says it will recommend a presidential veto if the NDAA is brought to the President’s desk in its current form. 
Responding to ongoing criticism of the Littoral Combat Ship, a new, dual variant class of Navy ships, Under Secretary Robert Work told Politico Pro’s Phil Ewing that the service would consider cutting one variant of the ship if it remains unsatisfied with performance moving forward. Work emphasized the progress the program has made, echoing the tone of Admiral Jonathan Greenert who on November 16 described the ship as “still…coming into its being.” 
Within the coming weeks the White House is set to announce how many troops it expects to remain in Afghanistan after 2014 – the year in which the bulk of NATO forces will redeploy from the Central Asian country.  According to different press accounts, the White House is considering retaining 6,000 to 15,000 troops in Afghanistan to conduct counterterrorism operations and assist with training and organizing the Afghan security forces.        The United States has yet to formalize a status of forces agreement (SOFA) with Afghanistan, which would dictate, amongst a number of issues, whether U.S. troops would have immunity from local Afghan courts – an issue which derailed attempts by the United States to foster a SOFA with Iraq last year.  The Pentagon expects to finalize a SOFA with Afghanistan by May 2013. 
With the November 23 release of a request for proposals (RfP), the Navy has taken the first steps toward replacing the aging fleet of presidential helicopters. This program, called VXX , is set to acquire 23 helicopters to enter service in 2020. VXX will be the second attempt to replace existing presidential helicopters , as the previous program (running from 2003 to 2009) was cancelled due to egregious cost growth and delays.  According to DoD’s 2013 budget submission, the program will cost $1.85 billion from 2013 to 2017, with production slated to begin in 2015.
Project on Defense Alternatives Perspective
The Center for Strategic and Budgetary Assessment’s new study called “Strategic Choices: Navigating Austerity” uses an unusual method for developing strategic and budgetary options.  CSBA convened seven teams of experts who were given a set of common budget tools and a general strategic guideline, then charged with rebalancing defense investments and ultimately the military posture.  While the particulars of the seven ‘rebalancing acts’ are of interest, the concluding comments of the report’s authors, Todd Harrison and Mark Gunzinger, deserve particular attention.
They found that when participants assessed capabilities across services from a DOD-wide perspective, they were readily able “to identify overlaps, and to have a robust discussion of roles and missions.”  Such an approach would yield a less expensive military establishment, but “would require a fundamental overhaul of the Planning, Programming and Budgeting System (PPBS).”
Another finding was that if a team recognized the desirability or need to cut end-strength early, the subsequent move to a smaller force saves enough resources within a few years to allow “enhanced investment flexibility” and more “strategic options” later.  This is particularly important since service chiefs reflexively resist proposals to cut personnel numbers under their command.  Civilian leadership is required to make these changes and to make them early.
Finally, there are better overall outcomes if there choices are made early about the shape of the future force, rather than approaching the problem as a cutting exercise in multiple successive rounds.  This insight is important as the country enters the likely second round cuts during 2013 and 2014.  The next strategic adjustment must be deeper and more decisive than the first effort in 2011.
News and Commentary
Foreign Policy: Armageddon on a Budget
“As we speed toward the so-called fiscal cliff, we are confronted by dire warnings. A Thelma-and-Louise style plunge will drag the country back into recession, inflict terrible hardship on the less fortunate, and decimate our military might.  Well, perhaps. But here's a little good news: we'll still be able to nuke the bejesus out of the Russians.”  (11/29/12)
“With a record price tag — potentially in the hundreds of billions of dollars — the jet is likely to become a target for budget cutters. Reining in military spending is on the table as President Obama and Republican leaders in Congress look for ways to avert a fiscal crisis. But no matter what kind of deal is reached in the next few weeks, military analysts expect the Pentagon budget to decline in the next decade as the war in Afghanistan ends and the military is required to do its part to reduce the federal debt.” (11/28/12)
“Is stealth still America's silver bullet? Or are potential adversaries' radars getting too smart for US aircraft to keep hiding from them?  That's literally the trillion-dollar question, because the US military is investing massively in new stealth aircraft. At stake in this debate are not just budgets but America's continued ability to project power around the world.”  (11/27/12)
Foreign Policy: Budget Agreement Reached!
“Think tanks are often the canary in the coal mine when it comes to change in Washington, and their perspective on defense has changed dramatically since the election. Over the past few weeks, think tanks right, left, and center have issued reports that lay out the road to a disciplined defense drawdown, in which they rethink strategy, military force, weapons buying, and management. The reports come from the Stimson Center/Peterson Foundation, the Center for American Progress, the Project on Defense Alternatives, the Center for Strategic and International Studies, and, interestingly, the RAND Corporation. They agree on a surprising number of things, and all of them suggest deep cuts are inevitable.”  (11/27/12)
“The Air Force’s controller, Jamie Morin, admitted publicly in April that the service spent seven years and $1 billion on a logistics management system that had 'negligible' capability.  But that’s not what drove Air Force leaders to finally cancel the Expeditionary Combat Support System project this month.  And it wasn’t because technical glitches forced the Air Force to repeatedly scale back expectations for the new system — from replacing 240 legacy systems, as originally planned, to just 12.  In the end, officials canceled ECSS because continuing it would have cost another $1 billion to gain a quarter of the capability it was originally supposed to have, with fielding delayed until 2020.”  (11/26/12)
“The Navy itself has been publicly pushing the idea of a 300-plus ship fleet for years, arguing that it needs that many aircraft carriers, destroyers, cruisers and other vessels on hand to operate and respond to hot spots and emergencies around the world.  The Navy’s solution to reaching that number is the Littoral Combat Ship. The Navy plans to buy 55 of the shore-hugging vessels to counter mines and defeat submarines and fast surface ships. Even after schedule delays and cost hikes that have doubled its price since its inception in 2001, officials insist that the LCS is critical to getting to that magic 300 number.  But many outside defense analysts say they still aren’t clear exactly what role the LCS will play in the fleet. This raises the question of whether the Navy’s plan to have the LCS make up a sixth of the eventual fleet is based more on numbers than on the Navy’s expected missions. While relatively inexpensive at roughly $500 million a ship, it’s still a pricey platform for some of its expected missions, such as mine clearing.”  (11/21/12)
“The word 'sequestration' is on everyone’s lips this election season, at least those connected with the defense apparatus. Sequestration raises larger issues regarding the appropriate amount to spend on defense. Two issues stand in the foreground: America’s growing debt and a multipolar world of evolving threats. Currently, President Barack Obama plans to reduce discretionary funding by 1 percent with $525.4 billion for FY 2013. Is this too much? Is this not enough?  Ms. Mackenzie Eaglen of the American Enterprise Institute (AEI), the Project on Defense Alternatives, and Mr. Christopher Preble of the CATO Institute debate below whether the U.S. should increase or decrease its spending for defense.”  (11/15/12)
American Enterprise Institute: US Military Technological Supremacy Under Threat (11/28/12)
Center for Strategic and Budgetary Assessments: Strategic Choices: Navigating Austerity (11/27/12)
Congressional Research Service: Basic Federal Budgeting Terminology (11/26/12)
Congressional Research Service: Overview of the Authorization-Appropriations Process (11/26/12)
Congressional Research Service: Baselines and Scorekeeping in the Federal Budget Process (11/26/12)
Congressional Research Service: Budget Reconciliation Legislation: Development and Consideration (11/26/12)
Department of Defense: Autonomy in Weapon Systems (11/21/12)
Congressional Research Service: Does Foreign Aid Work? Efforts to Evaluate U.S. Foreign Assistance (11/19/12)
American Academy of Diplomacy: Diplomacy in a Time of Scarcity (October, 2012)