Thursday, March 7, 2013

3/7/13 RD Bulletin: Sequester hits; Sky does not fall

Highlights
 
News: Bloomberg’s Tony Capaccio reports that the Pentagon’s Fiscal Year 2014 budget request will be released on April 8, 2013. 
 
News: According to Aviation Week, the Defense Department will propose cancelling the Global Hawk Block 40 drone variant in its upcoming budget submission. 
 
Project on Defense Alternatives Perspective: The reduction in aircraft carrier presence in the Persian Gulf that former Secretary of Defense Panetta announced in early February is what the U.S. should be doing despite the BCA-mandated cuts to the Pentagon budget.
 


State of Play
 
On Friday, the Office of Management and Budget formally began the process of sequestration when it issued a memo to Congress detailing the amounts and percentages of spending reductions that will occur between now and the end of Fiscal Year 2013.  A little-noticed provision included in the New Year’s Day law that delayed sequestration by two months provides a 26-day window during which the spending cuts are to be “evaluated and implemented,” providing Congress and the White House with still more time to prevent the bulk of cuts from occurring.  On March 27, OMB will issue its final sequestration guidance. 
 
According to DoD Comptroller Robert Hale, the department’s FY14 topline budget request will be $50-55 billion above the post-sequester spending caps.  Compared to the administration’s FY13 budget request, the FY14 request will only be billions of dollars less despite the onset of budget reductions mandated by current law.  Hale also confirmed this week something the administration has long said; that the strategic guidance issued in early 2012 would have to be revised given current budget circumstances.  This could occur through the next Quadrennial Defense Review process or through a revision of the current guidance – but a completely new guidance before the 2014 QDR is unlikely.  “I think we're going to have to revise it if we see these kinds of cuts,” Hale told an Aviation Week conference this week. One key aspect of the Pentagon’s recent strategic guidance is its oft-mentioned ‘pivot’ to Asia.  Even if heavy reductions to the defense budget occur, the Center for Strategic and International Studies’ Maren Leed believes the new Asia pivot can survive.  “You could still keep the desired 60-40 ratio [of ships in the Asia-Pacific region versus elsewhere] even with a smaller number of ships.  But I suspect what you’ll see is larger gaps.”  Additionally, Hale said the department will try to cut most procurement production rates by ten percent while attempting to delay decisions on large systems in the hopes that Congress will eventually retract the current spending cuts. 
 
Responding to the onset of sequestration, the Pentagon’s top acquisition chief, Frank Kendall, told an audience at the National Defense Industrial Association that the department would try to delay acquisitions and the signing of new contracts until the budget morass has been overcome, saying “To the extent we can continue operations while delaying and deferring new obligations until the uncertainty is resolved, we will do so.”  This delay strategy may serve to protect troubled weapons systems like the Joint Light Tactical Vehicle (JLTV) and Ground Combat Vehicle in the short-term. 
 
Still, the Pentagon’s long-term commitment to such programs could falter.  DoD Buzz’s Max Hoffman explains, “Because Army issued the JLTV EMD contracts to the companies before sequestration hit, the funding is currently protected. Future investment, however, could obviously take a hit and change expectations for how much the Army and Marine Corps can spend on it should those budget cuts come to pass.”  Ultimately, in the case of the Marine Corps, it will likely have to choose between acquiring the JLTV and its Marine Personnel Carrier. 
 
This week, the House of Representatives passed legislation that would provide the Pentagon with a full-year appropriations bill and mitigate some of the pain that the department has felt as a result of operating under a Continuing Resolution.  The spending measure, H.R. 933, would keep the rest of the federal government operating under a CR for the remainder of the fiscal year while providing the Departments of Defense and Veterans Affairs with regular appropriations legislation.  Specifically, it would allocate $518.1 billion for the Pentagon’s base budget plus an additional $87.2 billion in war funding.  While these funding levels do not reflect forthcoming sequester cuts, the legislation recognizes that these spending reductions will occur. 
 
Commenting on the House bill’s treatment of sequestration, the Stimson Center’s Russell Rumbaugh proclaims, “The bill does nothing to sequester. There is no blunting the effects or turning it off or changing how it is applied. Nothing. Chairman Rogers’ press release acknowledges that:  ‘This funding is subject to sequestration, bringing the top-line overall rate of spending in the CR down to the sequestration level of approximately $982 billion.’  The press release promptly obscures that by talking about the defense and VA/MILCON piece as if sequester will not happen, but that is just a rhetorical gimmick:  the defense/VA  refer to pre-sequester levels and the rest refers to post-sequester levels. Both true, but referring to different points in time.”  Rumbaugh also notes that while the legislation ameliorates some of the Pentagon’s concerns with another CR, it does nothing to blunt the impact of sequestration. 
 
All told, H.R. 933 would appropriate $1.043 trillion in non-emergency discretionary spending, which adheres to the Budget Control Act’s statutory spending cap for Fiscal Year 2013 – setting aside the pending sequestration cuts.  Once sequestration occurs, that total discretionary spending cap will be lowered to $984 billion for Fiscal Year 2013.  In addition, H.R. 933 and the New Year’s Day legislation that extended the majority of the Bush-era tax cuts collectively provided approximately $153 billion in emergency funding, which is not constrained by the statutory budget cap.  That emergency funding, which includes appropriations for the war in Afghanistan, would also be subject to a sequester of roughly $9 billion. 
 
The Pentagon has been spending on operations and maintenance (O&M) at a higher level than the current CR allows – resulting in a multi-billion dollar projected deficit in O&M funding.  According to the committee summary, the newly unveiled appropriations legislation, H.R. 933, would increase O&M funding by $10.4 billion above current spending levels while culling an equal amount collectively from military pay, research and development, and procurement.  Setting aside the proposed boost in O&M funding by the House, the Pentagon still faces an approximately $35 billion total shortfall in O&M funding, which only would be partially mitigated by the new spending measure.  Separately, the Pentagon’s modernization and acquisition accounts face a sequester cut of more than $17 billion this year.
 
The House spending measure would also match the Navy’s FY13 request for the Virginia-class submarine and provide much sought-after funding for ship maintenance and carrier nuclear refueling.  If the bill is enacted, Chief of Naval Operations Admiral Jonathan Greenert said the service will “restore the rest of this year's planned deployments, training and maintenance.”  The Navy’s recent plans to cancel deployment of a carrier strike group to the Persian Gulf have raised eyebrows in policy circles with some, including Representative Duncan Hunter, accusing the administration of engaging in sequestration politics.  Finally, H.R. 933 would provide increased funding for the KC-46 aerial refueling tanker program. 
 
While H.R. 933 sailed through the House this week, its prospects in the Senate remain unclear.  Senate Democrats seem disinclined to provide the Pentagon will a full-year appropriations act while forcing the rest of the federal government to operate under a CR.  Politico reports that Senator Barbara Mikulski (D-MD), chair of the Senate Appropriations Committee, is already working on revising the House spending measure to include full-year appropriations bills for agencies besides defense and veterans affairs.  Still, both political parties as well as the White House have pledged to avoid a government shutdown when the current CR expires on March 27.  The White House has voiced concern with the potential impact to domestic agencies operating on another six-month CR, but will not veto the measure.  The administration is clearly hoping to avoid a grueling fight over a government shutdown – and to leverage the GOP into accepting additional tax increases in exchange for blunting military reductions when they take hold later this year. 
 
Despite the fact that the administration’s FY14 budget request has been delayed until late March –  meaning Congress won’t formally receive the document until April 8 when it returns from its spring recess – the House and Senate are already holding posture hearings, which so far have focused mostly on sequestration and FY13 appropriations rather than this year’s forthcoming budget.  Meanwhile, the House Budget Committee chair, Paul Ryan (R-WI), is set to release his budget next week, which the GOP says will balance the federal budget within ten years.  It remains to be seen how the Chairman will treat defense spending reductions as he attempts to achieve budget balance. 
 
In weapons systems news, Aviation Week reports that the administration is likely to propose cancelling the Global Hawk Block 40 drone program in its upcoming budget submission.  It tried unsuccessfully to cancel the Block 30 variant last year, and is expected to press for both variants’ termination during the next budget round; another headache in a long list for prime contractor Lockheed Martin. Separately, sequestration could force the Air Force to cut up to five F-35As, another troubled Lockheed system. Additional Marine Corps and Navy variants of the F-35 also will likely face the sequestration budget ax.  Lastly, a recent GAO report found that the cost to develop the KC-46 aerial refueling tanker will exceed a spending cap of $4.7 billion after which Boeing, the primary contractor, will have to cover the overrun instead of the federal government.  Boeing expects the cost overrun to reach around $266 million, while the Pentagon pegs the number at $717 million. 
 
A diverse group of 22 conservative, liberal, and centrist think tanks recently sent a letter to Congress and the White House highlighting specific military savings recommendations that have been proposed from a wide variety of policy shops across the political spectrum.  The letter specifically notes that the Pentagon can save $50-100 billion per year over the next decade without imperiling U.S. national security.  Among the reports highlighted in the letter is Defense Sense, co-authored by analysts at the Project on Defense Alternatives and Cato Institute, which advocates reducing the Littoral Combat Ship program, slowing procurement of the Virginia-class submarine, and enacting sensible missile defense reforms.  
 
In a paper published in February, MIT security studies program defense analyst Cindy Williams presents a mix-and-match range of options to cut costs in defense spending. PDA co- founder Charles Knight noted the applications of the paper by way of its specificity: “Efforts to reduce defense spending will be complicated by the fact that costs in some parts of the defense budget are growing significantly faster than inflation. This is particularly true in the areas of health care, pay, operation and maintenance, and equipment acquisition. If left unaddressed, that cost growth will eat into the funds available for military forces. This paper suggests a range of alternatives for curbing cost growth in those areas.”
 
 
Project on Defense Alternatives Perspective
 
A week ago journalist Bob Woodward, comparing President Obama’s defense leadership unfavorably to that of presidents Reagan, Bush and Clinton, criticized the Obama for allowing the cancellation of a previously planned rotation of the aircraft carrier Harry Truman to the Persian Gulf “because of some budget document.”  He further suggested that Obama was allowing budget constraints to prevent him from doing what is needed to “protect the country.”
 
Woodward’s ‘tough-guy/wimp’ baiting of the President presumes that having two carrier groups forward deployed to the Persian Gulf region is actually good policy to “protect the country.”  Perhaps, instead, keeping most of our carriers in home water is the appropriate posture at this time.  Perhaps, the reduction in carrier presence in the Persian Gulf that former Secretary of Defense Leon Panetta announced in early February is what the U.S. should be doing despite the BCA-mandated cuts to the Pentagon budget.
 
During the Cold War the U.S. maintained a strong forward presence of troops in Europe, air forces in foreign bases, and Navy ships in the seas not far from Soviet shores.   The strategic notion was that the Soviets had such a strong military so close to Western Europe that practical containment of their power required strong forward presence.  More than twenty years later, the U.S. military is still fond of forward positioning forces, though the critical need for such a posture has mostly vanished.
 
There is an enormous financial cost to a forward posture, especially for the Navy.  It takes, under current rotation, training and maintenance schedules, between four and five carrier groups in the U.S. Navy home-based inventory to keep one routinely forward deployed.  One carrier is based out of Japan and that makes deployment to the Western Pacific a little less costly.
 
One carrier battle group in the Persian Gulf region is plenty, especially if allies contribute additional guided-missile destroyers and submarines when regional tensions are high.  If war comes or is expected soon additional carriers can be surged forward from U.S. waters to supplement the ample Navy and air assets that remain available in the Gulf region and the western Pacific.  The Project on Defense Alternatives calculates that sensible strategic adjustments in the use of our naval power will allow the U.S. to reduce its carrier battle groups to nine, noting that “re-orienting the Navy toward surging power when needed for crisis response would allow a significant reduction in fleet size.”
 
 
Polling
 
A new poll conducted by The Hill queried respondents for their thoughts on whether reducing the budget deficit was more or less important than protecting federal programs.  Fifty-eight percent of likely voters believe that cutting the deficit is more important than maintaining current levels of government spending.  Forty-nine percent of respondents said they would support military spending reductions in order to balance the budget, while 37 percent of likely voters opposed defense cuts for that purpose.  Respondents were almost evenly divided between believing that the United States spends too much on its military versus spending “just the right amount.” 
 
In a separate poll conducted by ABC News and the Washington Post, respondents were first asked if they supported an across-the-board reduction to domestic spending, and then, if they supported an across-the-board cut to military spending.  The poll found that 34 percent of those queried support reductions in military spending while 60 percent of Americans oppose it. 
 
Explaining the noticeable difference in recent polls on Americans' attitudes toward defense spending, Slate’s Matthew Yglesias writes, “Public opinion on budgetary matters is poorly structured and there isn't a clear and internally consistent policy agenda that you can read from the polls. So if you constructed any ABC-style poll in which you first ask about spending cuts and then ask about one particular program, you'd get the ABC result that people want big spending cuts but also want to exempt Program X from the cuts. But that's just a kind of cheap trick. Relative to other programs, cuts to military spending are among the least unpopular cuts around.”
 

 
News and Commentary
 
National Defense: Pentagon Still Shell-Shocked by Sequester – Sandra Erwin
“In hindsight, [deputy assistant secretary of defense] John said, the Pentagon should have anticipated the current budget crisis, regardless of sequestration. A decade of rapidly rising budgets blinded the building to reality. ‘We needed to start reducing infrastructure as we were building up for Iraq and Afghanistan,’ he said. ‘Ideally we would have established capability during the 10 year ramp-up in anticipation of having to take it down. We didn’t really do that very well,’ he sad. The Pentagon as a result is now saddled with crippling overhead costs that are spread over a declining workload.”  (3/7/13)
 
Washington Post: A special budgetary place for Defense – Walter Pincus
“Excesses in the Defense Department and Military Construction fiscal 2013 funding can be found in the 335 pages of the House-Senate Conferees’ explanation of the Continuing Resolution that was delivered Tuesday by Rep. Harold Rogers (R-Ky.), chairman of the House Appropriations Committee. One of the biggest shifts was to add nearly $11 billion to the operations and maintenance (O&M) account, in part because of concerns about readiness. At Tuesday’s House Rules Committee hearing, Rogers was asked where the money was found. About $5 billion came from saving on spare parts and $4 billion from excess funds for foreign forces, he said.”  (3/6/13)
 
Project on Government Oversight: New, Unclassified DOD Document Describes F-35A Performance in Training – Winslow Wheeler
“On February 15, 2013 the Department of Defense's Director of Operational Test and Evaluation (DOT&E) sent a memorandum and accompanying evaluation report to Congress and the DOD hierarchy describing the performance of the F-35A and its support infrastructure at Eglin Air Force Base (FL)… DOT&E's report, titled ‘F-35A Joint Strike Fighter: Readiness for Training Operational Utility Evaluation,’ reveals yet more disappointments on the status and performance of the F-35. The Operational Utility Evaluation (OUE) is particularly valuable as it focuses on the Air Force's A model of the F-35 ‘Joint Strike Fighter.’ Many in the political and think tank world have focused more on the Marine Corps B, or Short Take Off and Vertical Landing (STOVL), version or the Navy's C model with its heavier structure and larger wings.  While the B  and C are even more expensive and lower in performance-on certain key performance dimensions-than the Air Force's A model, this OUE (inadvertently) demonstrates that the A model is also flawed beyond redemption.”  (3/6/13)
 
“Over the last decade the Republican Party put militarism before limited government.  The Bush administration foolishly invaded Iraq.  Presidential candidates John McCain and Mitt Romney sounded even more extreme.  GOP politicians denounced the coming budget sequester for reducing military as well as domestic outlays. However, conservative Republicans are beginning to acknowledge that the Defense Department, too, wastes money.  And that the U.S. must take drastic steps to reign in government spending, deficits, and debt.  Explained Rep. Tom Cole (R-OK):  ‘Fiscal questions trump defense in a way they never would have after 9/11.’”  (3/4/13)
 
Salon: Homeland security offers anything but – Mattea Kramer
“Imagine a labyrinthine government department so bloated that few have any clear idea of just what its countless pieces do.  Imagine that tens of billions of tax dollars are disappearing into it annually, black hole-style, since it can’t pass a congressionally mandated audit. Now, imagine that there are two such departments, both gigantic, and you’re beginning to grasp the new, twenty-first century American security paradigm. For decades, the Department of Defense has met this definition to a T.  Since 2003, however, it hasn’t been alone.  The Department of Homeland Security (DHS), which celebrates its 10th birthday this March, has grown into a miniature Pentagon.”  (2/28/13)
 
“President Obama will soon sign a new strategic nuclear directive which reduces the number of enemy target points… A motivating factor for both the U.S. and Russia is the cost of maintaining large arsenals of nuclear weapons. Cutting its deployed strategic forces by one-third would save the U.S. tens of billions of dollars over the next ten years. While the Reasonable Defense proposal from the Project on Defense Alternatives (PDA) makes the case that smaller strategic forces actually make the U.S. more secure and calls for a larger reduction in deployed weapons, the 500-weapon reduction implied in the new directive is a significant step in the right direction.”  (2/28/13)
 
Reuters: A sequestration solution for the Pentagon – Benjamin Friedman
“The sequestration drama in Washington is less severe and intractable than you have heard. A partial solution: Block the across-the-board cut of $42.5 billion in military funds this year — the Pentagon’s portion of $85 billion due March 1 — and spread the savings over several years by tweaking military spending caps already on the books. Because this option preserves deficit reduction without raising taxes and lets the military drawdown intelligently, a congressional majority might support it.”  (2/28/13)
 
American Prospect: Lockheed, Stock, and Barrel – Jeremiah Goulka
“What stops the United States from crafting a military budget that makes sense? As this series has shown, to defend Americans and to protect American economic interests—even if broadly defined—the military would need vastly less resources than it currently enjoys. Sure, people in our defense establishment will complain about "bloat" and "waste" and "inefficiency," but when it comes to actual cuts, they just aren't done. "Now's not the time," they say, and considering the harm that sequestration cuts will likely do to many people's jobs and possibly to our economic recovery, there might be something to it—but they always say that.  So, why do conversations about possible—and advisable—cuts always end up a dead end?”  (2/27/13)
 
National Taxpayers Union: As Sequester Nears, Cutting F-35 Is a Great Place to Start – Nan Swift
“Just in time for Friday’s sequester deadline, the F-35 fighter jet is back in the news to remind us that yes, Virginia, there is room to pare back the Pentagon budget. Last week’s grounding of the entire fleet, due to a cracked engine blade, was the second time in two months that flight operations have been suspended and was well-timed with a major Time Magazine article lambasting ‘the most expensive weapon ever built.’  While NTU has long voiced concerns over several aspects of the extremely costly and extremely troubled aircraft, it’s about time others start to take notice of how the Pentagon is wasting taxpayer funds on this boondoggle.”  (2/26/13)
 
Project on Government Oversight: Meat Axe or Scalpel? – Suzanne Dershowitz
“Most experts agree that a more balanced approach with targeted cuts over a longer period of time would be a better way to tackle Washington’s spending problem, and there is increasingly broad consensus that the waste at the Pentagon must remain on the table. It is clear that the bloated defense budget is riddled with waste and there are places we can cut that will not threaten national security, but will actually allow for a sensible reshaping to make us safer. A number of plans for strategic reductions have emerged in the last year, including POGO’s with our partners at Taxpayers for Common Sense. Yesterday, Representative Mike Coffman (R-Colo.) offered his alternative plan–the Smarter Than Sequester Defense Spending Reduction Act (H.R. 804). The Act would cancel sequestration and instead require DoD to reduce spending over a 10-year period. ‘We can and must reduce government spending at all levels, including at the Pentagon,’ Coffman said. While we don’t endorse all of the cuts Rep. Coffman proposes, we applaud him for stepping up to the plate and offering some good ideas.”  (2/26/13) 
 
New York Times: Defense and the Sequester
“If the Pentagon is ill prepared to deal with the sequester, it is to some extent a self-inflicted wound. Military leaders assumed the sequester would never happen and refused to mitigate its effects in advance. The Pentagon also does itself no favor by continuing to throw money at troubled weapons. As for the sequester’s impact on defense contractors, experts say the contractors have long known military spending was on the decline and built that into their projections. Production backlogs resulting from past contracts are also expected to cushion the effect.”  (2/24/13) 
 
 
Reports
 
 
Office of the Under Secretary of Defense: Additional Guidance for Handling Budget Uncertainty in Fiscal Year 2013 (3/5/13)
 
 
 
 
 
Congressional Research Service: Department of Defense Trends in Overseas Contract Obligations (3/1/13)
 
Special Inspector General for Iraq Reconstruction: Learning From Iraq A Final Report From the Special Inspector General for Iraq Reconstruction (March 2013)
 
 
 
 
 
 
 
Congressional Research Service: Nuclear Weapons R&D Organizations in Nine Nations (2/22/13)
 
 
 
 
Congressional Research Service: Congressional Authority to Limit Military Operations (2/19/13)
 
Office of the Secretary of Defense: F-35A Ready for Training Operational Utility Evaluation (2/15/13)
 
Congressional Budget Office: Press Briefing on The Budget and Economic Outlook (2/5/13)
 
The Hamilton Project: Making Defense Affordable (February 2013)
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