Thursday, August 1, 2013

8/1/13 RD Bulletin: Hagel Unveils Some Review Findings, Plans on Submitting Two Budgets in 2015


News: The Senate Appropriations Committee will complete consideration of its annual defense appropriations bill this week, which would provide a total of $594 billion in military spending for Fiscal Year 2014, while blocking advanced procurement funding for the F-35 in Fiscal Year 2015.  Separately, the Pentagon has tentatively concluded a deal to purchase 60 F-35 Joint Strike Fighter aircraft over the next two years – effectively ignoring sequestration.

News: Inside Defense reports that the Pentagon is still deciding whether to exempt military personnel accounts from sequestration in Fiscal Year 2014.  President Obama decided to use such an exemption in Fiscal Year 2013.  A decision is expected by next week.

News: After meeting with President Obama yesterday to discuss fiscal negotiations, Majority Leader Harry Reid (D-NV) declared that the president “will not protect defense at the detriment of non-defense spending.”  This comes in response to House Republicans who have proposed shielding the Pentagon from sequester cuts.

Guest Perspectives: Reset Defense asked several national security experts to comment on the continuing resistance at DoD to making strategic and planning adjustments in light of new budgetary realities.  This week we feature commentaries from two respondents.

State of Play

After adamantly denying that he would publicly discuss the results of the Strategic Choices and Management Review, Secretary of Defense Chuck Hagel reversed course this week and unveiled some of the recommendations of the until-now closely guarded review.  This review is intended to inform budget decisions in Fiscal Years 2015 and beyond as well as the upcoming Quadrennial Defense Review.  In conducting the strategic review, budget planners examined three different budget scenarios: President Obama’s Fiscal Year 2014 budget submission, post-sequester spending caps, and an “in-between scenario,” in which half of the sequester cuts are carried out.

Yesterday, Hagel outlined several recommendations and themes emanating from the review: he has ordered a series of efficiency initiatives that aim to save the Pentagon $10 billion over the next five years.  Separate from the efficiency measures, Hagel repeated the Obama administration’s refrain that military compensation must be reformed if sequestration remains on the books.  With respect to overall end strength, Hagel noted that the Marine Corps and Army would shrink down to 150,000 and 380,000 respectively under a full-sequester scenario.  Regarding weapons systems, Hagel said sequestration could force the Navy to cut the number of carrier groups it fields from 11 to eight or nine and could trigger a decade-long modernization “holiday.”

Ultimately, however, Hagel noted that even with all of the cuts outlined in the strategic review, the Pentagon will not be able to meet post-sequester spending caps unless Congress facilitates additional reforms and savings.  “The reality is that cuts to overhead, compensation, and forces generate savings slowly. With dramatic reductions in each area, we do reach sequester-level savings – but only towards the end of a 10-year timeframe. Every scenario the review examined showed shortfalls in the early years of $30-35 billion.”

One surprising element was Hagel's declaration that the Pentagon would begin to submit two different budget plans to Congress.  Perhaps not coincidentally, days before Hagel’s announcement, his deputy, Ash Carter, announced that Pentagon budget planners have been granted additional time to submit their Fiscal Year 2015 spending blueprints because of all the budgetary mess caused by sequestration.

The Senate Appropriations Committee is tackling its annual defense appropriations bill this week, a measure that would provide $516.4 billion for the Pentagon’s base budget plus an additional $77.8 billion in war funding.  As a result, the Senate version of this legislation is roughly $3-4 billion less than the House-passed version.  Neither bill comports with post-sequester spending caps, which will ultimately cull the Pentagon’s base budget down to roughly $475 billion (excluding war funding).  One feature of the Senate bill is that it would reduce advanced procurement funding for the F-35 Joint Strike Fighter (JSF) in Fiscal Year 2015 while still fully funding the Pentagon’s FY14 JSF request.  According to the committee report, the move is intended “to maintain focus on developmental testing and software deliveries.”

Meanwhile, the Pentagon and Lockheed Martin have tentatively announced a $7 billion deal for sixth and seventh production lot runs that ignore sequestration and would provide a total of 60 aircraft for the U.S. military.  The Pentagon had previously announced it would have to cut five planes from those buys; however, it now appears that the department will indeed be able to protect these procurement cycles.

Still, the Senate measure may never make it to the Floor for consideration due to large differences between the House and Senate spending outlines.  The House has proposed shielding the Pentagon budget from sequestration cuts while increasing spending reductions on the domestic side of the ledger.  The Senate, on the other hand, is largely proceeding along the contours of the Budget Control Act’s spending outline except that the upper chamber also is ignoring the cutbacks dictated by sequestration.  As a result, it would be exceptionally difficult, if not nearly impossible, for the two chambers to rectify differences in individual appropriations bills.  A more likely scenario is a Continuing Resolution, which largely adheres to current law spending levels.

In fact, Talking Points Memo reports that Senate Republicans may team up with Democrats in the upper chamber to put pressure on House Republicans to acquiesce to a ‘clean’ Continuing Resolution that would allow Congress to avoid a government shutdown, which currently looms menacingly over budget negotiations between the two parties.

One of the cost-saving measures proposed by the Pentagon in its most recent budget submission is a one-percent pay raise for service members – down from the traditional 1.8 percent raise that keeps pace with inflation.  Still, the decreased pay raise proposal must be approved by Congress, and the House has already taken a step toward rebuffing the Pentagon’s attempt at a smaller increase.  If Congress continues to deny the Pentagon’s attempts at saving personnel funding, Army Chief of Staff Ray Odierno recently told reporters that the service’s top acquisition priority, the Ground Combat Vehicle, could be further delayed or even axed.  “We made a recommendation this year for a military pay raise of 1 percent; [the] House passed 1.8 [percent]… We’re trying to work with Congress on this, but if we continue to have higher-level pay raises it’s going to become really a problem for us,” Odierno explained.  The Senate, meanwhile, has sided with the Pentagon on the issue.

The Ground Combat Vehicle itself has come under fire following a recent CBO report, which concluded that alternatives to the GCV are both more capable and billions of dollars less costly.  The GCV program has also been chastised for its overall weight, coming in at an estimated 84 tons, making it even heavier than the Army’s M1 Abrams tank.  The Project on Defense Alternatives has called on the Army to delay the Ground Combat Vehicle in Fiscal Year 2014 for approximately $400 million in savings.

In another cost-saving measure, the Air Force is providing early retirement options to enlisted personnel, in a move intended to help the service meet end-strength goals for Fiscal Year 2014.  Additionally, the service is exercising its ability to force early retirement for colonels and lieutenant colonels through its Temporary Early Retirement Authority.  The service is currently in the process of cutting 1,860 personnel from its ranks in order to meet its FY14 end strength goal of 327,600 airmen.

While the Air Force is engaging in early retirement and involuntary separation, the Army has taken a different approach.  In order to meet its goal of cutting 80,000 troops by Fiscal Year 2017, the Army is reinstating body-fat regulations that could cost soldiers their jobs if they are found to be overweight, which the service hopes will lead to a “leaner and meaner” force.

As a means of saving personnel funds, the Pentagon has been considering eliminating “imminent danger pay” for troops serving in the Middle East and Central Asia – a move designed to save $120 million per year.  However, CNN reports that the Pentagon is now considering shelving the idea due to a spike in violence in the two regions.  Separately, the Defense Department is urging the White House to drop consideration of a complete military withdrawal from Afghanistan in 2014.  The White House had previously leaked the idea of drawing down to zero U.S. personnel in Afghanistan after months of unflattering news stories about the leader of Afghanistan, Hamid Karzai.  Instead of a so-called ‘zero option,’ the Pentagon is advocating for a residual force of at least 9,000 troops to remain in Afghanistan past 2014.

Project on Defense Alternatives Perspective

When sequestration began this past March, the Project on Defense Alternatives observed that it was fair enough for political leaders to dislike the automatic cuts, but their refusal to make adjustments to pre-sequester plans would cause damage to the armed forces.  “It is well past the time for the Pentagon to make responsible adjustments in accord with their new budget reality,” we wrote.

At the same time, Joint Chiefs of Staff Chairman Martin Dempsey spoke about the effect of sequestration at the Center for Strategic and International Studies, saying then, “We’ll need to relook our assumptions. We’ll need to adjust our ambitions to match our abilities. That means doing less, but not doing it less well.”

Recently, we asked several national security experts to comment on the current widely-shared stance of denial in Washington regarding the need to adjust strategic ambitions in response to the political and economic conditions that Washington faces.

This week, we feature abstracts from two of our respondents:  Col. Larry Wilkerson (US Army, ret.) of William & Mary and Matthew Leatherman of the International Affairs Council of North Carolina.  The full text of their commentaries is posted on PDA’s Defense Strategy Review site.

Wilkerson argues that we can't understand the budget in strategic terms unless we aggregate all the components of what he calls the ‘national security budget:’ DoD, State, Homeland Security, Veterans, Energy, and all 17 intelligence agencies.  These agencies’ budgets total $1.2 trillion annually.  Wilkerson then says, “Since the best and only sensible strategic approach is to lead with soft rather than hard power, one realizes immediately how out of balance is the national security budget.”  With some sensible re-balancing, Wilkerson believes the national security budget can be cut by 6-8 percent over the coming decade.

Leatherman asserts that national politics cannot currently accommodate “matching strategy to sequester-level spending… So strategy stays where it is, sure to adjust because of the size of the cuts but not yet adjusted.”   Referring to Secretary Hagel's statement in a July letter to the Senate Armed Services Committee that sequester places “at much greater risk the country's ability to meet our current national security commitments,” Leatherman responds that “strategy-driven drawdowns aren't about holding current commitments constant and accepting risk everywhere.  To the contrary, they're about raising the bar so that goals our strategy prioritizes are unaffected and [lower priority] goals that barely snuck into earlier budgets fall away.”
Charles Knight is a co-founder of the Project on Defense Alternatives and a senior fellow at the Center for International Policy.


News and Commentary

Foreign Policy: The Pentagon's Stages of Budget Grief – Gordon Adams
“The defense budget is going down. The Defense Department has been through the first two stages of grief: denial and anger. Denial was from FY 2010 to FY 2012 – ‘the budget should not go down, we need more.’ Anger was 2012 -- the Aerospace Industries Association campaign to halt sequestration, Senators McCain, Graham, and Ayotte touring bases and plants, ‘defending defense’ and hoping to influence the election and reverse the tide. Now we are at ‘bargaining,’ the stage where the department and the services try to make a deal that will slow the decline, delay the effects. Secretary Chuck Hagel and Admiral Sandy Winnefeld, the vice chairman of the Joint Chiefs of Staff, made this clear on Wednesday, July 31, when they rolled out the Strategic Choices and Management Review (SCMR). The key signal that we have arrived at ‘bargaining’ was the demand the secretary made for ‘time.’ Just give us more time because these cuts cannot come so fast, he argued. We cannot manage them.”

Roll Call: Sequester Weakens Military, Fails to Address Real Pentagon WasteBob Ridder
“As deep as these cuts go, the sequester fails to address real wasteful spending in the Pentagon. For instance, underperforming and expensive development programs like the F-35 fighter jet are still burning a hole in the Pentagon budget. This new aircraft, which has been shielded from the sequester, is almost a decade behind schedule, expected to cost $1.5 trillion and yet critical systems still don’t work — from the pilot’s “augmented reality” helmet to its 10 million lines of software code. Comparing the F-35’s acceleration, maneuverability and survivability, fighter jet experts have said that the F-35 performs poorer than many legacy aircraft. So even with its problems fixed, the jet’s mediocre performance doesn’t justify its skyrocketing price tag.”  (7/29/13)

USA Today: Afghan waste: aid money squandered on conferencesTom Vanden Brook
“A U.S. program designed to promote stability in war-ravaged Afghanistan has spent $47 million money on conferences and none on grants to accomplish its aim, according to a report released Monday by the Special Inspector General for Afghan Reconstruction. SIGAR has found waste under just about every rock it's kicked over in Afghanistan. It recently found that a brand-spanking new $34 million headquarters for the Marines at Camp Leatherneck was unnecessary and may never be used.”  (7/29/13) 

The Cable: U.S. Spends $24 Million On ‘Propaganda Plane' Few Can See or HearJohn Hudson
“It's difficult to find a more wasteful government program. For the last six years, the U.S. government has spent more than $24 million to fly a plane around Cuba and beam American-sponsored TV programming to the island's inhabitants. But every day the plane flies, the government in Havana jams its broadcast signal. Few, if any, Cubans can see what it broadcasts. The program is run by the U.S. Broadcasting Board of Governors, and for the last two years, it has asked Congress to scrap the program, citing its exorbitant expense and dubious cost-effectiveness. "The signal is heavily jammed by the Cuban government, significantly limiting this platform's reach and impact on the island," reads the administration's fiscal year 2014 budget request.” (7/28/13)

Defense News: Furlough Folly: By Delaying Pain, DoD Leadership FailsMichael Cadenazzi, Chris Daehnick
“The slow motion, completely avoidable and politically unstoppable impact of sequestration will bite hard in coming weeks as one of its many anticipated horrors takes hold — specifically, reductions in spending that will furlough federal employees across the Department of Defense. Despite the rhetoric, furloughs tangibly demonstrate that DoD leadership is more concerned with loyalty than improving performance — in the Pentagon and across the defense system. The decision to exempt DoD personnel accounts, and thereby minimize the impact on active duty personnel and their families, was well received. But in cascading fashion, it added to the pressure on investment and, primarily, operations and maintenance accounts where defense civilians are funded.”  (7/28/13) 

New York Times: Few Suitors to Build a New Marine OneChristopher Drew
“Wanting to clamp down on wasteful spending, President Obama halted a project to create new presidential helicopters four years ago, saying its soaring price was a symbol of government contracting ‘gone amok.’ But to the administration’s surprise, a new competition to build the helicopters much more cheaply is also running into trouble. Industry officials said that only one company, Sikorsky Aircraft, was likely to bid on the multibillion-dollar contract this week. And some of Sikorsky’s rivals are voicing an increasingly common complaint — that bid specifications are being written so narrowly they are driving away potential competitors.”  (7/28/13) 

National Journal: The Sequester Will Lift, Not Cut, Defense CostsSara Sorcher
“Sequestration will not kill the defense industry. The military will always need weapons and equipment, which is perhaps why the pleas from Lockheed and other defense giants failed to sway Washington policymakers to compromise and avoid sequestration in the first place. But the budget downturn will be painful, and certain parts of the food chain may go hungry. Once these cuts become real, small- and medium-sized business in members’ districts will start to suffer, and that is sure to bite politically. By then, it may be too late to save them.”  (7/25/13)


Government Accountability Office: DOD’s POW/MIA Mission: Capability and Capacity to Account for Missing Persons Undermined by Leadership Weaknesses and Fragmented Organizational Structure (8/1/13) 
Government Accountability Office: Army Logistics: Container Handling Equipment Requirements, Contracts, and Inventory (7/31/13) 
Government Accountability Office: Defense Acquisitions: DOD Efforts to Adopt Open Systems for Its Unmanned Aircraft Systems Have Progressed Slowly (7/31/13) 
Government Accountability Office: Military Readiness: Opportunities Exist to Improve Completeness and Usefulness of Quarterly Reports to Congress (7/26/13) 
Government Accountability Office: Missile Defense: Precision Tracking Space System Evaluation of Alternatives (7/25/13) 
Congressional Budget Office: S. 1197, National Defense Authorization Act for Fiscal Year 2014 (7/25/13)
Congressional Budget Office: How Eliminating the Automatic Spending Reductions Specified by the Budget Control Act Would Affect the U.S. Economy in 2014 (7/25/13) 
Government Accountability Office: Navy Shipbuilding: Significant Investments in the Littoral Combat Ship Continue Amid Substantial Unknowns about Capabilities, Use, and Cost (7/23/13) 
Special Inspector General for Afghanistan Reconstruction: Stability in Key Areas (SIKA) Programs: After 16 Months and $47 Million Spent, USAID Had Not Met Essential Program Objectives (July 2013)