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“Modest reforms to pay and compensation will improve readiness and modernization. It will help keep our all-volunteer force sustainable and strong. Keeping faith also means investing sufficient resources so that we can uphold our sacred obligations to defend the nation and to send our sons and daughters to war with only the best training, leadership and equipment. We can’t shrink from our obligations to one another. The stakes are too high.”

Gen. Martin E. Dempsey

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Wednesday
Feb162011

Defense efficiency savings: the good, the bad, and the ugly

Defense Secretary Robert Gates is claiming $78 billion for debt reduction between FY2012-2016 from a handful of efficiency savings.  Some of these decisions are well-grounded, and the savings real.  Other savings, though, are a mirage.  In an attempt to sort it all out, here’s the good, the bad, & the ugly.

The Good

Exactly a year ago, Secretary Gates lamented congressional inaction on his proposals to modernize TRICARE cost sharing, but conceded that he would not try again in FY2011.  This year he will, and he should. 

Defense health program costs grew from $19 billion in FY2001 to $50.7 in FY2011 (167%), and are slated to push up to $52.5 in FY2012 (4% growth over the year; 176% over FY2011).  A large part of this growth is due to the fact that TRICARE enrollment fees haven’t changed since 1995.  Gates’ plan would raise fees for single service-members by $30 annually, from $230 to $260, and by $60 annually for families, from $460 to $520, as well as index them to Medicare starting in 2013.  (See slide 32.)  These rates would still pale in comparison to those in the private sector, but would allow the Department to save $8 billion over 5 years.

Another $6 billion comes from Gates’ decision to draw down Army and Marine Corps end strength as the wars in Iraq and Afghanistan end.  President Bush justified 92,000 additional troops in his 2007 State of the Union explicitly to support counterinsurgency operations.  The need for these troops will end with the wars they are fighting.  Regrettably, Gates is planning to release less than half of the 2007 build up – 27,000 soldiers and 15,000 - 20,000 Marines – but this decision is definitely a step in the right direction. (See page 5-5 here.)

Another good step is Gates’ hiring freeze for defense civilians.  His own office hosts a mini-State Department – the Office of the Under Secretary of Defense for Policy – which would be a great place to start looking for billets to consolidate.  Throughout the department, the Secretary finds $13 billion in five-year savings from this decision.

The Bad

The $12 billion that Gates claims in freezing civilian pay is far less persuasive.  Not that it’s a bad idea – both the Simpson-Bowles (pg. 26) and Rivlin-Domenici (pg. 94) commissions made just this recommendation.  The problem is that this is a presidential decision made administration-wide, not a new cut on the Pentagon’s own initiative.  Here Gates is taking credit for money already saved – a shell game similar to calling the $100 billion reprioritized within the department “savings.”

Gates’ decision to shutter JFCOM, by contrast, started out well before heading south.  This decision likely was the most controversial to come out of his August press conference, generating white-hot resistance from the Virginia congressional delegation that hosts JFCOM.  Gates backtracked as a result, commenting last month that “roughly 50 percent of the capabilities under JFCOM will be kept and assigned to other organizations.” The rationale for closing the command hasn’t changed, of course, and the $2 billion in savings that the Secretary got arguably could have been nearly doubled.

The Ugly

All of the savings above, some good and some less so, is at least real.  Several of Secretary Gates’ efficiency initiatives aren’t even able to climb over that embarrassingly low bar.  First is $4 billion claimed by changing inflation estimates.  The Pentagon is notorious for claiming that defense industrial inflation outpaces the rest of the economy.  This permits inflation estimates higher than the rest of government and, as a result, pushes the budget up a bit higher.  Now those outsized estimates are inconvenient because real programs would have to be cut in order to keep them.  So instead the Pentagon has magically wiped billions off the books by projecting lower inflation.  No one should get rewarded for ‘fessing up to fuzzy math.

In the same category is $11 billion – 15% of the total – to come from “many smaller efforts across the enterprise.”  ‘Trust me’ is not a budget plan.  And it’s especially hard to do in light of the Pentagon’s long-standing inability to produce audit-quality financial books.  (See page 7-16.)  Until those efforts are named or the department gets a clean audit, this money can’t be treated as real.

Conclusion

The Pentagon stands out among departments of government for the size of the savings it has identified.  But the backstory is complex – some of this money is real, and some is not.  Congress should give credit where it’s due, but also hold Secretary Gates strictly to account every dime of the $78 billion he claims.

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