Thursday, August 16, 2012

8/16/12 RD Bulletin: Romney Selects VP, But Candidates Differ on Defense Spending


Highlights
 
Reports: The Project on Defense Alternatives has released a new memo which previews an alternative to the defense sequester which would achieve comparable savings over ten years.  The Reasonable Defense plan would reset America’s defense posture in light of new strategic challenges and circumstances.  Based on a more realistic and cost-effective defense strategy, the new posture would enable a sustainable balance between military power and other elements of national strength.
 
News: Despite the drama surrounding Fiscal Year 2013 defense appropriations and the prospect of additional sequestration cuts, the military services are preparing their Fiscal Year 2014 budget proposals for submission to the Pentagon’s Cost Assessment and Program Evaluation Office. 
 
Fact Sheet: Miriam Pemberton from the Institute for Policy Studies has released a new fact sheet debunking ten myths about the Pentagon budget and the impact that sequestration would have on jobs and the economy.

State of Play
 
This month marks one year since passage of the Budget Control Act, which aims to cut more than $1 trillion from discretionary spending over nine years through enactment of statutory budget caps.  If Congress appropriates funding above the statutory budget limits, then a sequester mechanism will take effect next year culling spending down to the original limits.  Furthermore, the Budget Control Act created the Joint Select Committee on Deficit Reduction, which was tasked with formulating a plan to save an additional $1.2 trillion through some combination of spending cuts, reforms to earned benefit programs, or federal revenue increases.  As a result of the Joint Committee’s failure to produce a comprehensive savings plan, the Pentagon now faces the prospect of almost $55 billion in automatic spending cuts, scheduled to take effect on January 2, 2013. 
 
Congress is currently fighting over how to nullify the automatic cuts while the Defense Department publicly refuses to outline how it would implement the sequester and what impact the cuts would have on specific programs.  According to Defense News, Senator Lindsey Graham (R-SC) is working with Senate Armed Services Committee Chairman Carl Levin (D-MI) to delay sequestration cuts until May 2013, in order to provide lawmakers additional time to develop a comprehensive deficit reduction plan that could replace the sequester.  Despite all of the political theater surrounding Fiscal Year 2013 defense appropriations and the prospect of deep reductions, the services are now preparing their initial Fiscal Year 2014 budget requests for submission to the Pentagon’s Cost Assessment and Program Evaluation Office.
 
GOP Presidential candidate, Governor Mitt Romney, has selected House Budget Committee Chairman Paul Ryan (R-WI) as his vice-presidential nominee following months of speculation over the pick.  In Chairman Ryan’s budget blueprint for Fiscal Year 2013, he proposed increasing defense spending by hundreds of billions of dollars above President’s Barack Obama FY13 budget request.  Under the Ryan budget plan, defense spending would increase above the rate of inflation and would violate the Budget Control Act’s defense sub-cap.  However, Governor Romney has previously pledged to peg military spending at four percent of gross domestic product – which defense analysts predict would require a roughly $2 trillion increase in defense expenditures over ten years – although the candidate has declined to outline how he would pay for such a dramatic increase in spending. 
 
For a comparison of the Ryan and Romney defense spending plans conducted by the Cato Institute’s Chris Preble, click here.  With respect to the differences between the Ryan and Romney proposals, Preble comments, “Still, Ryan has not (yet) endorsed the kinds of massive military spending increases that Romney champions. What’s more, the Ryan plan spelled out specific proposals for cutting domestic spending, both discretionary programs and entitlements, that would allow the Pentagon’s budget to grow above the current baseline. Mitt Romney has not.  So how will Paul Ryan help Mitt Romney make up the difference? What additional spending will be cut, taxes raised, or debt increased?”
 
Bloomberg has obtained a memo to Navy Secretary Ray Mabus written by the Director of Operational Test and Evaluation, Michael Gilmore. The memo criticized the department’s decision to delay survivability testing for the next aircraft carrier, the USS Gerald Ford, in order to save approximately $70 million.  Instead of conducting the tests on the Gerald Ford, the Navy will wait 5-7 years and conduct the “ship shock trial” on the second new carrier, the USS John F. Kennedy.  Both new aircraft carriers are almost $2 billion over their original cost estimate, and combined, the next three carriers are estimated to cost as much as $42.5 billion.  Meanwhile, National Defense has an interesting article outlining the vulnerabilities that the $14 billion carriers face from advanced area-denial capabilities being developed by potential adversaries, including China. 
 
Questions around the survivability and huge cost of U.S. aircraft carriers are causing some analysts to wonder whether the Navy will delay procurement of its third new carrier, the CVN-80.  National Defense quotes the Cato Institute’s Chris Preble saying, “Why is it that we’re investing so much money and time and effort in a single enormous ship when the technology to exploit its vulnerabilities is much cheaper and more adaptable?” Meanwhile, vice chief of naval operations, Admiral Mark Ferguson, warned this week that if sequestration takes full effect over the next nine years, it would force the Navy to reduce its fleet from its current size of 286 ships to 230 vessels by 2021 and force the service to significantly reduce its global presence. 
 
Despite the fact that the Department of Labor has explicitly notified defense contractors that they do not need to warn employees of pending layoff notices relating to automatic sequestration cuts, Lockheed Martin and Pratt & Whitney are still considering sending out pink slips to thousands of employees immediately before the election.  The two contractors claim that there is no ambiguity in the law, because current law requires roughly $55 billion in defense spending reductions on January 2, 2013.  Meanwhile, the Atlanta Journal-Constitution notes that Lockheed Martin has “cut 26,000 jobs in the past three years as it received more money from the government.  Its $42 billion in fiscal 2011 made it the nation’s largest federal contractor by far.”  This follows a more in-depth analysis of Lockheed’s recent employment practices conducted by the Project on Government Oversight. 
 
Last week, the New York Times’ Thom Shanker reported that the State Department is working with allies in the Persian Gulf to strengthen the region’s missile defense capabilities “…to protect cities, oil refineries, pipelines and military bases from an Iranian attack.”  The article concludes that  “…while all six members of the Gulf Cooperation Council share concerns over Iran, all have resisted multilateral security initiatives.”  Shanker notes that the White House is looking at increasing advanced missile defense capabilities in Qatar, Kuwait, and the United Arab Emirates, and has already informed “Congress of a plan to sell Kuwait $4.2 billion in weaponry, including 60 Patriot Advanced Capability missiles, 20 launching platforms and 4 radars. This will be in addition to Kuwait’s arsenal of 350 Patriot missiles bought between 2007 and 2010.”  And The Hill notes that the “UAE and Saudi Arabia have also purchased a combined $5.7 billion in missile systems and upgrades from the United States over the past two years.” 
 
The Pentagon’s acquisition department has begun “early acquisition planning” for replacements for Air Force One and the presidential helicopter fleet.  The previous effort to replace Marine One, the VH-71 program, was cancelled by former Secretary of Defense Robert Gates after the program experienced significant cost growth and led to a breach of the so-called Nunn-McCurdy provision.  Inside Defense reports that the Marine One replacement program, dubbed VXX, will take at least eight years to develop and field.
 
Project on Defense Alternatives Perspective
 
The sequester provisions of the Budget Control Act were designed to require such precipitous cuts to federal discretionary spending that a majority in Congress would be strongly motivated to compromise on a “grand budget bargain” in order to avoid sequester.  A year later, as if sequestration of Pentagon funds is the only option for budget restraint, the threat of sequester is being used to make further DoD budget reductions appear unreasonable and unsafe.  Despite this distraction, precipitous cuts are not the only option. 
 
A new memo from the Project on Defense Alternatives makes clear that there are ways to apply additional cuts to the Pentagon budget that avoid both institutional disruption and most of the economic pain associated with spending cuts during a period of slow recovery from recession.   A forthcoming posture plan from PDA would ratchet back the base budget to the level of 2006, but do so gradually so that the Pentagon and armed services can readily accommodate to the changes.
 
Polling
 
A new poll of 800 military voters conducted by Concerned Veterans for America and the Winston Group asked respondents what they thought was the great national security threat to the United States.  42 percent of respondents said that the U.S. economy (or its potential faltering) is the single greatest national security threat, with debt, cuts to the military, geopolitical threats, and terrorism all tied for second place at 29-30 percent.  In their press release, Pete Hegseth, CEO of Concerned Veterans for America noted, “It’s not surprising that the majority of military voters are aware of Admiral Mullen’s powerful statement. Our warfighters and veterans understand that our military might comes from economic strength. That’s why we’re fighting for policies here at home that will preserve the precious freedom and liberty we risked our lives to defend.” 
 
Earlier this year, the Stimson Center, Program for Public Consultation, and Center for Public Integrity conducted an internet survey, which provided respondents with information about the federal budget and asked them how much they would reduce Pentagon spending.  Three quarters of respondents supported decreased military spending levels, and on average, they supported an 18 percent reduction.  The survey, which was recently mentioned by Representative Roscoe Bartlett (R-MD), is now available online for public use.  Click here, if you’d like to take the survey.
 
 
News and Commentary
 
A new memo by the Project on Defense Alternatives previews an upcoming report, entitled a Reasonable Defense, which will outline how to reduce Pentagon spending to 2006 levels in a gradual manner that the Pentagon and armed services could readily accommodate.  Over the first three years, Reasonable Defense savings would be considerably smaller than what the BCA sequester entails.  In 2017, however, when the post-recession economic recovery should be complete, the savings would exceed those dictated by the BCA, eventually plateauing at a level about equal to the 2006 budget; somewhat lower than the sequestration level.  The full details of the Reasonable Defense national security posture will be released in September 2012.  (8/14/12)
 
Government Executive: Truth & Consequences
The Project on Government Oversight’s Winslow Wheeler and the Aerospace Industries Association’s Marion Blakey offer competing analyses of the impact and potential consequences of sequestration.  While Blakey asserts that “defense funding would fall to the lowest level since World War II,” Wheeler counters that “spending for the Pentagon would be-historically-quite generous. The levels are more than $30 billion above average Cold War era spending, and they are about $100 billion above the previous lows following other big defense spending periods-the Korean and Vietnam wars and the Reagan era.”   Wheeler also notes that the President and Office of Management and Budget may have wide latitude in interpreting how sequestration would be implemented.  (8/15/12)
 
Several Republican members of Congress as well as many major news outlets have been intermittently reporting that the Pentagon faces $600 billion in spending reductions as a result of the Super Committee’s failure.  However, ProPublica points out sequestration would only entail a maximum of $492 billion in spending reductions, with the remainder of the savings accrued from interest payments on the debt.  Moreover, the publication points out that “As it turns out, the inflated $600 billion figure may not be correct even as the amount that the government would save. That's because those projected savings on interest payments from the defense cut could be a bit smaller than originally estimated.”  (8/15/12)
 
Miriam Pemberton debunks ten myths surrounding the defense budget and its impact on job creation.  Among the claims that Pemberton rebuts are: Military spending reductions would cost the United States one million jobs; that sequestration would cut the military-industrial base; and that sequestration cuts scheduled to take effect next year will require defense contractors to send out advanced layoff notices right before the election.  (8/14/12)
 
Grover Norquist, the president of Americans for Tax Reform, opposes using increased federal revenues (or income tax increases for that matter) to help protect the Pentagon’s budget in an era of fiscal austerity.  Moreover, Norquist predicts that budget hawks within the GOP caucus will ultimately prevail over defense hawks, like HASC Chairman Buck McKeon (R-CA), and allow defense spending reductions to occur instead of conceding ground on the contentious issue of tax increases.  With respect to newly selected GOP Vice-Presidential candidate, Representative Paul Ryan (R-WI), Norquist comments, “Other people need to lead the argument on how can conservatives lead a fight to have a serious national defense without wasting money.  I wouldn't ask Ryan to be the reformer of the defense establishment.”
(8/13/12)
 
Major defense contractors are up in arms over the prospect of automatic across-the-board reductions to military spending scheduled to take effect early next year.  The Center for American Progress’ Larry Korb and Alex Rothman examine trends in defense spending and contractor profit margins: Since 2002, the five major defense contractors’ profits have soared from a combined $2.4 billion to $13.4 billion, while overall U.S. defense spending has increased by 55 percent over the same time period.  Korb and Rothman conclude that, “after ten years of exponential growth in profits, defense contractors are much better positioned to weather prospective budget cuts than they claim to be.” (8/13/12)
 
The Will and the Wallet: Benchmarking the Navy’s Pacific Shift
The Department of Defense has committed to stationing sixty percent of its naval assets in the Pacific region following the administration’s new “Asia pivot” strategy.  However, the Stimson Center’s Matthew Leatherman points out that a majority of the United States’ cruisers, aircraft carriers, destroyers, and submarines are already positioned in the Pacific.  In order to achieve the new Asia pivot blend of assets, Leatherman asserts that “fifteen of the 109 Atlantic ships would have to swing into the Pacific to hit the 60 percent threshold, assuming that these fleets maintain their current size.” (8/13/12)
 
Despite the fact that both major political parties’ presidential candidates are committed to rooting out waste, fraud, and abuse at the Department of Defense, neither campaign has a credible or realistic approach to addressing serious cost growth and developmental problems in the F-35 Joint Strike Fighter program.  Several defense analysts assert that one of the primary problems with the JSF, and with the defense budget writ large, is that it is not auditable. (8/12/12)
 
Brooking’s Peter Singer is interviewed about his critique of the Aerospace Industries Association’s recent series of job impact analyses, which Singer argues are “an extreme prediction, to say the least.”  Singer believes that any specific analysis of defense spending reductions’ impact on the economy is inaccurate because so much about how sequestration would be implemented, and the potential winners and losers, is unknown.  (8/13/12)
 
Each year, the Pentagon purchases $400 billion in goods from suppliers, a quarter of which is estimated to be “transaction costs.”  A series of reports, including a new one by the National Contact Management Association, have found that the Defense Department could save significant amounts of money by reducing the cost for businesses and contractors to work with the government.   However, the Center for Strategic and Budgetary Assessments’ Andrew Krepinevich is skeptical that the Pentagon could reap significant savings by implementing efficiency initiatives, saying, “Efficiencies historically have yielded only a small fraction of the projected savings.”  Meanwhile, National Defense’s Nathaniel Sledge thinks that “Pentagon procurement reforms face a slim chance of success.”  (8/10/12)
 
 
Reports
 
Center for Strategic & International Studies: The U.S.-Japan Alliance: Anchoring Stability in Asia (8/15/12)
 
 
 
 
 
 
 
 
 
Congressional Research Service: Major Fiscal Issues Before Congress in FY2013 (8/10/12)
 
 
Congressional Budget Office: Sequestration Update Report (August, 2012)
 
Office of the Joint Chiefs of Staff: Joint Task Force Headquarters (7/30/12)
 
 
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