1/4/13 RD Bulletin: Sequester Punt May Cause FY14 DoD Budget Delay

Highlights

News: On Tuesday, Congress enacted legislation to delay by two months sequestration cuts to defense spending. According to the Stimson Center’s Russell Rumbaugh, the legislation requires a $2 billion reduction in national security spending in Fiscal Year 2013; however, it remains to be determined how much of that figure would be drawn from the Pentagon’s budget.

News: Due to budgetary uncertainty resulting from the forthcoming expiration of the Continuing Resolution as well as the temporary nature of the recently enacted sequester delay; the Department of Defense is considering delaying the release of its Fiscal Year 2014 budget submission.

PDA Perspective: Charles Knight reacts to the recent “fiscal cliff” deal and notes that the President got less than 40 percent of the revenue he was seeking. Consequently he may find himself having to move against the privileging of the Pentagon budget among national accounts.

State of Play

On New Year’s Day, Congress managed to avoid, at the last minute, the so-called “fiscal cliff” by enacting the American Taxpayer Relief Act of 2012, which extended the majority of Bush-era tax breaks, delayed by two months the onset of sequestration, and provided for expedited consideration of new tax reform legislation during the forthcoming 113th Congress. The total cost of the legislation is estimated by the Congressional Budget Office to cost almost $4 trillion over the next decade. For more information on the fiscal cliff “deal,” click here for comprehensive analysis conducted by the National Priorities Project.

In delaying sequestration by two months, Congress provided a “down-payment” of approximately $12 billion in revenue and $12 billion in discretionary spending cuts – the latter spread out over Fiscal Years 2013 and 2014. The Stimson Center’s Russell Rumbaugh explains how the $12 billion in discretionary spending cuts will be implemented: “Only $4B comes in FY13—evenly divided between security and non-security, categories created in last year’s BCA deal. And the enforcement of those reduced caps won’t happen until March 27th, when the current CR expires, meaning Congress had to reach a new agreement on appropriations levels anyway. The other $8B is cut from FY14. In the BCA, there was just a single cap for all discretionary spending. The new deal divides the cap between the traditional defense and non-defense, with each paying half of the $8B. As long as Congress gets the next deal, FY13 will be divided between security and non-security, but FY14 will be between defense and non-defense.”

Meanwhile, the Center for Strategic and Budgetary Assessments’ Todd Harrison was unimpressed by Congress’ short-term delay in sequestration: “The two big problems with sequestration are the abruptness of the cuts and the across-the-board nature of the cuts, and both of those things still exist even with this delay. This merely extends the uncertainty and perhaps increases it.” If Congress does indeed fail to delay sequestration again come March, then the Pentagon will have even less time to implement the across-the-board reductions leaving the department in an even tougher budgetary position than it was last year.

Looking out over the next few months, Congress still has a hefty list of items it must address despite having overcome the fiscal cliff in the short-term: the current Continuing Resolution will expire on March 27, sequestration will again kick-in on March 2, and the United States’ statutory debt limit must be increased within the next month or two. Though the President is refusing to bargain with the GOP over an extension of the federal borrowing limit, many analysts expect Republicans to attempt to gain concessions from Democrats in order to extend the limit. If Republicans demand spending cuts in return for extending the statutory debt limit – as they did in August of 2011 – it could set conditions for another round of defense cuts beyond those required by the Budget Control Act.

Due to the temporary nature of the delay in sequestration, the expiration of the six-month CR in March, and ongoing uncertainty over the commitment of Congress to extend the statutory debt limit, the Pentagon is seriously considering delaying the release of its Fiscal Year 2014 budget submission, which is usually issued in February. The Office of Management and Budget typically issues “passback guidance” to federal agencies in November, which provides current funding figures as well as policy guidance for the current and forthcoming fiscal years. The Pentagon, as well as other federal agencies, is still waiting for OMB passback guidance before continuing to formalize its FY14 budget.

Inside Defense reports that “absent further guidance, the Office of the Secretary of Defense has been unable to finalize its draft resource management decisions, which are supposed to determine key elements of DOD's FY-14 budget plan... And the Pentagon is still in the process of determining exactly how much it will have to cut in FY-13 and FY-14 as a result of the newly minted budget deal.” Pentagon spokesperson Jay Carney told reporters earlier this week that it is unclear when OMB will provide such passback guidance, and until the agency does, the Defense Department cannot say with certainty when it will be able to publicly issue its FY14 submission.

On Tuesday, President Obama signed into law the National Defense Authorization Act for Fiscal Year 2013, despite having issued veto threats prior to the measure’s passage. The bill authorizes $633.3 billion in national security funding for FY13. When signing the measure, the President issued a strongly worded statement chastising Congress for continuing to block efforts by the administration to curtail costs in the defense budget, which could ultimately cause detriment to the readiness of the armed forces. In his statement, the President noted that, “restrictions on the Defense Department's ability to retire unneeded ships and aircraft will divert scarce resources needed for readiness and result in future unfunded liabilities. Additionally, the Department has endeavored to constrain manpower costs by recommending prudent cost sharing reforms in its health care programs. By failing to allow some of these cost savings measures, the Congress may force reductions in the overall size of our military forces.”

Specific items that were authorized in the legislation but not requested by the administration, include: continued fielding of the Global Hawk Block 30 drone, additional upgrades to the M1 Abrams tank fleet, additional funding for construction of a nuclear weapons laboratory in Los Alamos, New Mexico, and additional funding for missile defense. The law also prevents the White House from implementing cost-control measures in the military health care system and it restricts the ability of the Pentagon to draw down the size of the Marine Corps and Army’s active duty components.

Project on Defense Alternatives Perspective

When ‘the deal’ was finalized this week in Congress, President Obama got only 40 percent of his revenue goal of $1.6 trillion over ten years. That additional $1 trillion in revenue lost in the legislative bargain would have helped ease pressure on the administration to further reduce the Pentagon’s budget.

The President says he will seek additional revenues in the next round of budget battles. That is a deeply problematic aspiration. The revenue options remaining after the deep Bush-era tax rate reductions have been made permanent for all but one percent of Americans lie mostly in the area of reducing deductions and credits, many of which have strong popular and special interest support, and which often benefit the ‘middle class’ constituents favored by Democrats.

President Obama says he will also call for additional spending cuts. Conservatives want Social Security and, especially Medicare to be on the block, but so far liberals backed by apparent majorities of the American public have successfully protected these programs. That leaves the discretionary budget which funds most all federal agencies including the Pentagon on the table. The so-called ‘non-security’ agencies have already absorbed rather severe budget cuts, and unless Congress and the White House are in favor of the effectively dismantling the federal government, there is not much there left to take.

It is the Pentagon – that sits on a base budget of more than half a trillion dollars – which is best positioned to contribute more to deficit reduction. Many in the defense establishment are claiming that the Pentagon is already doing its fair share, but in truth that share has been minimal. Recent congressional action appears to put the Pentagon on a path to a 2.3 percent real decrease in its base budget spending over two years, between 2012 and 2014. Compare that to an average 3.5 percent real growth in the Pentagon’s non-war budget for each of the twelve years from 1998 to 2010. The Pentagon may be mourning the passing of its most sustained budget growth in the last half century, but in real budgetary terms it has gotten off very easy so far in this decade of fiscal restraints.

The White House has the opportunity with its Fiscal Year 2014 budget request to put in place deeper Pentagon budget reductions as part of a reprioritization of national interests that places greater emphasis on other parts of national strategy, many of which have long been neglected in the privileging of the Pentagon above all.

News and Commentary

The New York Times: Fiscal Deal Fails to Allay Doubts on U.S. Global Power– David Sanger

“Two years ago the departing chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, declared that ‘the most significant threat to our national security is our debt.’ After a decade in which the nation had chased Al Qaeda and invaded Iraq, Admiral Mullen was saying, in essence, that the biggest enemy was us. Now that Congress and President Obama have slipped past the latest budget deadline with a bill that does little to address the country’s long-term debt issues — and by some measures might worsen them — the worries of the national security establishment have been reignited. Most pointedly, military and diplomatic experts wonder whether the United States is at risk of squandering its global influence.” (1/3/13)

The Lexington Institute: Did The Defense Industry's Campaign Against Sequestration Work?– Loren Thompson

“Over the last two weeks, several reporters have asked me why I thought the defense industry's efforts to head off sequestration had not succeeded. In light of the last-minute decision to delay implementation by two months, it seems that the premise behind the queries may have been wrong. Congress and the White House clearly did not want to see sequestration triggered on January 2 as the Budget Control Act required, and part of the reason why was undoubtedly the constant expression of concern about consequences emanating from big military contractors. I predicted in Forbes yesterday that sequestration as currently defined will not be implemented even after the two-month delay; if that proves true, then the industry campaign to avoid across-the-board cuts will have to be judged a success.” (1/3/13)

Huffington Post: Maybe We Should Have Kept Sequestration for Defense – Joseph Blady, M.D.

“Sequestration, meaning the budget cuts that would have been required had no fiscal cliff legislation passed, was not something advocated by a significant number of people. But would it have been the sort of cleanse that the body politic occasionally needs? With the nation not under existential threat, this might have been an ideal time to put Congress and the Department of Defense under the gun (so to speak) to re-examine how we spend our defense dollars.” (1/3/13)

Foreign Policy: The Fiscal Cliff Sequel – Gordon Adams

“The curtain has closed on the shadow play "The Fiscal Cliff." The actors have left and the journalists are sweeping the stage. As foretold in August 2011 it was theater, not a reality show, and certainly not reality itself. But gird your loins for the next round; the fight is far from over. The endgame drama was a tax bill, not a spending bill, and certainly not a Grand Bargain. It did not affect spending very much at all, as nearly two-thirds of the Republican members of the House pointed out yesterday in voting against the deal. Because it deferred virtually all of the spending issues, it opened up the opportunity for a new theatrical performance to come to town, one everybody will recognize: ‘The Debt Ceiling: The Sequel.’” (1/2/13)

Foreign Policy: The Art of Snore –John Arquilla

“Forget about the Pentagon as potential victim in the stylized Kabuki drama of fiscal cliff negotiations. In an era of exceptional partisan bitterness that all too often forecloses thoughtful political discourse, it is the very lack of divergent views and spirited debate about defense that endangers American national security. In the absence of a clash of ideas about military affairs, the massive Pentagon budget, holding steady in recent years at a cost of $1.75 billion per day (some $630 billion-plus, annually), will continue to be regularly, routinely passed by huge bipartisan majorities in Congress. For example, only 11 senators voted against the latest allocation for Fiscal 2013. This failure to debate means that the U.S. military will remain largely on autopilot, continuing to invest heavily in systems that are most traditional -- and most comfortable.” (1/2/13)

DoD Buzz: Phantom bombers weigh down military budget– Michael Hoffman

“The Air Force maintains a nuclear capable bomber fleet that includes the B-1, B-2 and B-52. It’s the B-1 and B-52 that makes up the majority of the phantom bombers that continue to weigh down the military’s budget. These phantom bombers cost the military extra money because of their nuclear capability. This certification forces the Air Force to maintain standards on the number of bombers in their fleet if they are still listed. This costs money even if the Air Force has no plans to use them in that role… Deactivating these bombers and removing them from the nuclear capable list would save the Air Force money… It’s unclear why the military has chosen not to deactivate them.” (12/27/12)

Huffington Post: Make Pentagon Savings Part of Budget Negotiations– Reps. Keith Ellison and Mick Mulvaney

“We encourage members of both political parties to join our efforts to identify smart savings in the Pentagon's budget. You won't be alone. The American people recognize the importance of reining in defense spending to help reduce the national debt. The true foundation of our military power is not dollars or equipment, but the men and women of our armed forces. As retired four-star general and former secretary of state Colin Powell put it, the Pentagon's budget should not be considered "sacrosanct." We hope defense savings will be considered as part of a larger plan to improve our nation's fiscal condition.” (12/21/12)

Bloomberg: Raytheon 900 Missiles Behind in Deliveries, U.S. Says– Tony Capaccio

“Raytheon Co. has fallen almost 900 missiles behind in deliveries of the military’s most advanced air-to-air weapon to the U.S. Air Force, Navy and allies because of a subcontractor’s difficulties manufacturing motors. The delayed weapons are the newest version of the Advanced Medium-Range Air-to-Air Missile. They are intended for deployment to Air Force fighter wings and Navy aircraft carriers once testing is done and they are declared combat-ready. Raytheon was to have delivered about 1,800 missiles as of last month, according to Air Force figures.” (12/21/12)

Government Executive: Defense auditors’ focus on riskiest contracts lacks plan, GAO finds– Charles Clark

“The controversial move by the Defense Contract Audit Agency to more selectively perform incurred costs audits lacks an implementation plan, a time frame and performance metrics, according to a Government Accountability Office report. Three years ago, DCAA’s newly installed Patrick Fitzgerald began refocusing resources and revamping audit procedures and training to stress quality over quantity. This type of triage meant raising by tenfold the threshold dollar amounts that trigger incurred cost audits of fixed-priced and cost-type contracts. Though ‘this initiative appears promising,’ GAO found, DCAA ‘has not fully developed the measures by which it will assess whether the initiative reduces the backlog in a manner that protects the taxpayers’ interests. Specifically, DCAA does not have a plan for how it will determine whether key features of the initiative, such as the revised risk criteria and the revised sampling percentages, should be adjusted in the future.’” (12/20/12)

Reports

Small Wars Journal: Defense Forecasting in Theory and Practice: Conceptualizing and Teaching the Future Operating Environment (1/4/13)

Congressional Research Service: Army Drawdown and Restructuring: Background and Issues for Congress (1/3/13)

Congressional Research Service: U.S. Special Operations Forces (SOF): Background and Issues for Congress (1/3/13)

Congressional Research Service: The Unified Command Plan and Combatant Commands: Background and Issues for Congress (1/3/13)

Congressional Budget Office: H.R. 8, American Taxpayer Relief Act of 2012 (1/1/13)

Congressional Research Service: Defense Acquisitions:How DOD Acquires Weapon Systems and Recent Efforts to Reform the Process (1/2/13)

Congressional Research Service: The Army’s Ground Combat Vehicle (GCV) Program: Background and Issues for Congress (1/2/12)

Congressional Research Service: Marine Corps Amphibious Combat Vehicle (ACV) and Marine Personnel Carrier (MPC): Background and Issues for Congress (1/2/13)

Department of the Army: The U.S. Army Capstone Concept (12/19/12)

Congressional Research Service: Joint Light Tactical Vehicle (JLTV): Background and Issues for Congress (1/2/13)

Office of the Secretary of Defense: Implications of Ongoing Fiscal Cliff Negotiations (12/20/12)