Price Tags

Our own Resolving Ambiguity report sifts through thorny definitional challenges and tackles DOD projected nuclear weapons programs costs with an estimated $31 billion price tag. This grounded number is gaining momentum on the hill and will hopefully clarify the conversation surrounding larger nuclear program costs.

 

Covering ground for both DOD and NNSA, the projected $31 billion will include MFP, RDT&E, and NNSA spending on nuclear weapons activities and maintenance of offensive nuclear operations. This number is all-encompassing and includes a bevy of necessary support costs, ranging from command and control to family housing for nuclear personnel.

 

Efforts to modernize nuclear delivery systems, particularly the bomber and submarine programs, will cost between $48 and $58 billion over the next ten years, depending on cost-growth. Extrapolated over ten years, we project between $350 and $390 billion in spending dedicated to strategic offensive nuclear forces.

Benchmarking the Navy’s Pacific Shift

Several weeks ago Defense Secretary Panetta added some very specific measures to the description of the military’s rebalance toward Asia, a vital but also potentially vague element of the new strategy.

By 2020 the Navy will reposture its forces from today’s roughly 50/50 percent split between the Pacific and the Atlantic to about a 60/40 split between those oceans.  That will include six aircraft carriers in this region, a majority of our cruisers, destroyers, Littoral Combat Ships, and submarines.

That’s an admirably empirical goal.  Testing it shows that it’s also likely to be one of the Pentagon’s more easily achieved ones.  The chart below bins major ship classes by whether their home port, as reported by the Navy’s fact files, is on the Pacific or Atlantic.

Six of the US’ eleven aircraft carriers already have a home port station in the Pacific, as do a majority of the cruisers, destroyers, and submarines currently in the force.  The second half of Panetta’s statement is today’s reality more than a goal for the future.  (The LCS fleet, which Panetta also referenced, has only two of its twenty ships fielded to date, both of which are stationed in San Deigo.)

The first half of Panetta’s plan, a shift in naval forces from 50 percent to 60 percent in the Pacific, is a little further away.  Since the ships he named are already balanced the way he described, Panetta seems to be wrapping more of the Navy into this claim, presumably adding in amphibious ships and frigates.  Altogether there are 236 ships in these fleets.  53.8 percent (127) of them have a Pacific homeport, more than the 50/50 split Panetta referenced but less than the 60/40 goal.  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.  Of course, not all ships are created equal and moving frigates is not the same thing as moving destroyers (let alone an aircraft carrier).

Of course there’s a limit to how much just counting ships tells us about qualitative changes in posture.  But the Pentagon itself chose the 60/40 split as a benchmark for the rebalance.  At the moment, success doesn’t look too hard to claim.

Now You Can Take Our Defense Spending Survey

In early May the Stimson Center, together with the Program for Public Consultation and the Center for Public Integrity, highlighted several findings from our defense spending survey.  Three-quarters of respondents were willing to cut national defense, we discovered, and the average change was an 18% reduction.  That and many other detailed findings attracted a great deal of media coverage, as did a follow up analysis of how attitudes differ by different types of congressional districts.

We’re excited that our findings are continuing to inform the conversation and that there are some inklings of actual impact.  Take Wednesday’s comments from Rep. Roscoe Bartlett (R-MD), chair of the House Armed Services Subcommittee on Tactical Air and Land Forces, about the need to “stop dramatizing” sequester.  As reported by Politico:

“The average American out there, by big percentages, wants to cut defense by twice the sequester amount,” he said, citing recent polls.

There’s no need to just read about our poll, though.  Now you can take it online.  Responses aren’t being registered, but going through it provides a firsthand understanding of the information participants saw and the way they approached their budget decisions.

The Will + Wallet team is excited to hear your thoughts on the questionnaire, and we encourage you to jump into the conversation using the Comments feature below.

Another Optimistic Shipbuilding Plan

The Navy in its 2013 shipbuilding plan proposed buying  268 ships during the next 30 years, at an average annual cost of $16.8B or $505B over the whole 30 years. However, CBO estimates that this plan will cost more than estimated and that the average annual costs will vary by decade:

 

Total shipbuilding costs—which include new construction, refueling of nuclear-powered aircraft carriers, and some other items—would average about $19 billion per year using the Navy’s figures. Total shipbuilding costs would average about $22 billion per year. CBO’s estimates are 11 percent higher than the Navy’s for the first 10 years of the plan, 13 percent higher for the following decade, and 33 percent higher for the final 10 years of the plan. [See graph below].

 

In an unusual Navy blog post, Assistant Secretary of the Navy (Research Development & Acquisition) Sean Stackley and Deputy Chief of Naval Operations  John T. Blake defend the stability of its budget proposal staying that:

 

The Navy’s 30-year plan is built upon the confidence in our estimates during the next five years and the affordability focus placed on our new shipbuilding programs. The Navy acknowledges in the 30-year plan that the accuracy of its estimates decrease in the mid to far term planning periods.

 

Although some experts, defending these expenditures, believe that “there is no big news in the stories of the cost growth in the Navy’s shipbuilding programs,” the Navy once again has a plan that relies on receiving more funding than they’re expecting to receive—the same situation that saw the Navy only barely achieve its original shipbuilding goals in the last decade despite dramatic budget growth, as Russell Rumbaugh’s procurement report from last fall laid out.  

Adams on NewsHour

As the elections get closer, the debate on sequestration keeps providing more to talk about. Our own Gordon Adams offered context on a number of important issues last week, including the Labor Department’s sequester-related memo , the House Armed Services’ Committee hearing and the political firestorm over looming budget cuts. As a common ground in these issues, during his interview on PBS Newshour Gordon argues:

This is a highly staged and scripted drama where every player is playing his or her part, everybody is jumping up and down, rending garments, tearing hair, gnashing teeth and making it look like horrible things like Armageddon are going to happen. The reality is, I don't expect it to happen, but, even if it did, it's a slow-roll process when it does. But it's a great thing to fight about in an election year.

Grounding the Nuclear Cost Debate

Several months ago we released a report, Resolving Ambiguity, estimating the cost of the US’ nuclear arsenal.  The goal was to help ground a very charged debate, in part with this finding:

Official estimates relying on a narrow definition of the nuclear enterprise, or even of strategic nuclear offensive forces, understate the actual costs the United States spends on nuclear weapons without settling once and for all what is the single right cost of the nuclear enterprise.

To date, this goal is being achieved.  Take the opening remarks of Senator Diane Feinstein, chair of the Senate’s Energy and Water appropriations panel, at its July 25th hearing:

Let me just put forward a few points on the current plan for nuclear weapons modernization. It calls for $215 billion on nuclear weapons and delivery systems in the next 10 years. According to a recent Stimson Center report, the United States already spends about $31 billion -- this is a secure number -- $31 billion a year to maintain nuclear weapons capabilities.

Leading the debate toward this sort of a common factual grounding is different, of course, than actually resolving it.  Nuclear programs were debated as hotly as ever over this summer’s appropriations season.  And now issues like the nuclear certification of the new long-range strike bomber stand to be totally rehashed – last week the congressional leadership effectively hit the reset button by agreeing in principle to a 6-month resolution continuing 2012’s budget decisions. 

As this appropriations debate resumes next spring, look for Resolving Ambiguity to continue providing the common budgetary ground.

Congress Disposes on Afghan Aid

Last month at the Tokyo conference, donors pledged $16 billion in aid to Afghanistan over the next four years. For our part, Secretary Clinton stated that:

 The United States will request from our Congress assistance for Afghanistan at or near the levels of the past decade through the year 2017.

Those words are very carefully chosen to acknowledge the axiom that “the President proposes, but Congress disposes.” And it’s a good thing.  The chart reviews just a small selection of assistance programs benefiting Afghanistan, each of which recently has been trimmed from the President’s request by defense appropriations bills that cleared the full House in mid-July and Senate committee yesterday.

These appropriations decisions are likely to be supplanted by a 6-month continuing resolution agreed to in principle by House Speaker Boehner and Senate Majority Leader Reid on Tuesday.  That decision would keep this funding on the same near-term trajectory, yet Clinton still is correct to distinguish administration policy from congressional appropriations commitments.  While Congress may be some time away from passing full FY2013 appropriations, it’s already shown a willingness to exercise its own discretion on Afghan aid.

Food Fight

Today’s HASC hearing on sequester became the predictable political theater its organizers intended: a partisan food fight over what would happen and who was responsible.  There is no news here; even the Pentagon’s details are illustrative at best.

Every move in this over-acted drama is scripted with the election in mind.  But nobody is making policy here.  For all the whining the big defense companies have done, they can easily survive cuts of the type Deputy Secretary Carter described.

In the absence of an appropriated budget usable as a planning target, there is no specificity to what would actually happen, making the WARN Act requirement about specific “plant closings” and “mass layoffs” inapplicable.  Any notices sent out before the election would be a pure political act, not one driven by business judgment.

Let there be no mistake: sequester is not good planning or good budgeting.  It is survivable, however, if the policy-makers are so determined to avoid agreement that they let it happen. The largest damage would not be to the defense industry.  And it would certainly not diminish our national security: US global military supremacy would be unchanged.  

The most significant impact would likely be on the US civil service, unprotected by waiver and instantly vulnerable to the reduction in payroll resources.   Perhaps that is what the advocates of smaller government would prefer, leaving the American public to decide whether it likes the reduction in services that could result.

To Plan or Not to Plan

The House Armed Services’ Committee is half an hour away from its highly-billed hearing on sequestration with Acting OMB Director Jeffrey Zients and Deputy Defense Secretary Ashton Carter.  Chairman Buck McKeon (R-CA) isn’t confident  that this exchange will yield new information, though, and The Will and the Wallet also has cautioned of the static noise likely to persist through November’s election.

A memo issued by Zients yesterday afternoon may appear to rise above the noise with an offer of new information, but closer inspection raises a few question marks.  Zients uses variants of the verb “plan” on several occasions, for instance, yet it’s nowhere to be found in the memo’s two do-outs specific to sequester:

OMB will consult with you [the agencies] on such topics as the application to your agency's accounts and programs of the exemptions from sequestration contained in section 255 of BBEDCA [Balanced Budget and Emergency Deficit Control Act of 1985] and the applicable sequestration rules specified in section 256 of BBEDCA.

...

Sequestrable amounts can only be calculated once FY 2013 funding levels are known; therefore, shortly before any sequestration order is issued, OMB will collect information from agencies on sequestrable amounts and, where applicable, unobligated balances, and calculate the percentage reductions necessary to implement the sequestration. In the meantime, agencies should continue normal spending and operations since more than 5 months remain for Congress to act.

So is anything really new? Yes.  OMB also released a second memo yesterday formally announcing that military personnel accounts will be exempt from sequester.  That decision had not yet been made but was so widely assumed that many thought it was already official.

Beyond that update, we’ll have to wait and see what the hearing produces.  Tempered expectations probably are in order, though, given the primacy of politics in this debate.  In the meantime, for those really needing a sequester information fix, your Will + Wallet team took the time yesterday to dig out the exemptions list from Sections 255 and 256 of the BBEDCA (see pdf page 46).

Sticking to the Script

Yesterday the Senate’s defense appropriations subcommittee approved an FY13 bill, hitting the major marks from a script that the full committee assigned in April.  Specifically, the panel matched the current, tighter Budget Control Act cap rather than aiming for a looser ceiling, which was the guidepost for the administration’s request, or ignoring BCA caps altogether as the House of Representatives did in its bill.  Yet things still are far from simple.

Our own Russell Rumbaugh unpacked the full committee’s script right when it was released to reveal a number of complicated shifts within it.  Cuts from the base, non-war defense request were offset by increases in defense’s overseas contingency operations title, which is exempt from BCA caps.  That could create too naked of a cap-dodging appearance, though, so the State Department OCO request would be correspondingly reduced to keep total OCO costs consistent with the request.  (And still the International Affairs budget function would mirror its 2012 value, if base and OCO are included.)

That script directed the defense panel toward a base mark of just over $511 billion, of which all but roughly $300 million is part of the cap.  Per the panel’s summary, it came in at a value of $511.2 billion, fitting within the cap after subtracting out that $300 million, while also sticking with the scripted OCO budget of $93.3 billion.

That's a remarkable achievement, especially after the White House and House of Representatives surpassed the cap.  But taking from International Affairs to pay for National Defense comes with its own problems, and that's a risk the Senate continues to seem willing to take.

Labor Dept Speaks Up

This post is also featured on TIME's Battleland.

Over the last few months, the aerospace industry has become a thespian, staging a drama of fear about the impact of a sequester on defense. Lockheed CEO Robert Stevens warned his employees that as many at 10,000 Lockheed jobs could be affected and thumped the tub about the one million defense jobs that a sequester would threaten (according to an Aerospace Industries Association-commissioned study). Republican Senators Ayotte, Graham, and McCain are putting the production on the road, touring carefully selected audiences with the same message.

Stevens was very specific.  He sent a letter to his employees with the warning that their jobs might be at risk.  And he said the company would be forced to let employees know that they were “late in the third quarter” this year.

Sounds suspiciously like political theater. And it is. The Department of Labor is bringing the curtain down. It has now issued “guidance” to state agencies about the requirements of the WARN Act and it is patently clear that no defense contractor is under any obligation to inform anyone about the potential implication of a sequester.

The heart of the Labor Department’s guidance is clear. The law and implementing regulations (developed at the end of the Reagan administration) require such notices at least 60 days before ordering a plant closing or mass layoff.  And the WARN notifications need to go to “affected employees.”

That means the company needs to know a) that sequester will happen; b) that DOD will execute the sequester in a specific way; and c) that DOD decisions will affect specific contracts, work locations, and employees, who need to be notified.

None of this is known today, and very little of it is likely to take immediate effect if a sequester were to happen. As the Labor Department memo notes:  “It is unlikely that employers will have enough information to predict which contracts will be affected and, therefore which plants could close and which groups of employees could experience employment losses” without knowing what the level of FY 2013 funding is or how agencies would actually implement a sequester.

So we’re talking politics here. As the Vice-President might have said, Robert Stevens got a little bit out over his skis.  Time for the industry to get serious, instead of looking for a way to “save defense” by frightening workers about the unknown. The AIA study was silly because it took none of this time phasing into account and it counted a bunch of jobs that are unlikely to be affected.

The underlying budget problem is what needs to be addressed. Sens. Ayotte, McCain, and Graham need to call off their “tour of fear,” (carefully controlled to make sure only defense workers are in the audience and then callously announcing that “MacDill is toast” if a sequester happens, when they have no such specific information). The defense budget is going down; it is time to focus on managing the build-down instead of running a horror show in the middle of an election campaign.

Reopening the Yemen Spigot

Half a year has passed since Yemen’s tumultuous political transition and, after withholding $112 million in aid for counterterrorism equipment and training, the Pentagon now is set to transfer it. The risks and benefits haven’t changed, though, since the Defense Department first established a relationship with the country’s counterterrorism force.

 Yemen, like many other countries, has organized this force within the Ministry of the Interior (MOI), a civilian agency usually outside the scope of US military assistance.  Congress authorized the Pentagon (see §1205) to step beyond that boundary in 2011 and provide $75 million in assistance to the counterterrorism unit, and it then extended the program in 2012 as part of the Global Security Contingency Fund (see §1207). This appears to be a workaround for perceived shortcomings of the State Department, where this authority traditionally would reside, but it comes with longer-term risks to civil-military institutions, as BFAD pointed out at the time.

 Indeed, as our own Gordon Adams wrote in the larger context of our A New Way Forward report:

 There is, moreover, a growing need for a clear understanding of the place of security assistance programs in overall US global engagement, and a need to organize the many overlapping authorities and programs, and to clarify the institutional relationship between the two principal departments involved in security assistance.

Gordon’s insights ring especially true in this case. The Pentagon’s relationship with Yemen’s MOI aims to provide immediate benefits, but still out there are important institutional issues about how best to manage our security assistance programs.

The Inertia of the Nuclear Budget

After ten years of higher defense spending the defense budget is likely to decline over the next ten years. Despite the huge increases over the last ten years, spending on strategic forces has held constant, as you can see from the chart below from our recent report on the costs of nuclear weapons.

The stability of MFP-1, Strategic Forces isn’t especially surprising. Nuclear forces have played a small role in the Iraq and Afghanistan wars, even though bombers have been employed in both conflicts. No new nuclear delivery systems have been procured over the last ten years, so modernization costs haven’t increased spending on strategic forces, either. The bottom line is that there has been little relationship between pressures on the defense budget and changes in spending on strategic forces.

Will this continue over the next decade? The defense budget is certainly facing considerable financial pressures that could prompt cuts in nuclear spending. On the other hand, cuts might require changes in nuclear requirements, and the recent New START battle suggests any effort to reduce the size of the nuclear arsenal could be politically controversial. By the end of the next decade, expensive new ballistic missile submarine procurement will add to the cost of MFP-1. A new bomber will tack on additional spending in the 2020s, so it looks like the long term trajectory of MFP-1 might be up, not down.

Cutting through the Sequestration Smoke

Our own Gordon Adams has argued that the defense industry’s claims about job losses that would result from sequestration are wildly exaggerated. Although defense industry executives have been some of the most vocal doomsayers, apparently other executives within the industry agree with Gordon’s perspective. As a recent article in Defense News points out:

But the magnitude of the cuts — millions of jobs, according to the AIA, and the industry’s destruction — is overblown, according to several senior industry executives. Even some of the declarations about the complete lack of guidance on how sequestration would be implemented are excessive, one senior executive said. “It’s not that complicated,” the executive said. “There’s a little drama being played out. There’s a little fire for effect being played out.”

Considering that sequestration's purpose is to be so unappealing that it forces Congress to reach agreement on deficit reduction, it is unsurprising that defense industry executives have joined Pentagon officials and members of Congress in describing the effects of sequestration in the worst possible light. Yet as the quoted executive notes, what we’re seeing is a drama—a shadow play, if you will—rather than a serious, substantive policy debate.

Requesting Reports

Cost overruns and schedule slips for the Enterprise Resource Planning [ERP] System, an essential tool for keeping accounting records, have been one of the most paradoxical of the Pentagon’s fiscal frustrations.  Last Fall Secretary Panetta publicly committed to accelerating the process of making military finances auditable, yet the very systems needed to do so are themselves suffering from the budget setbacks they’re meant to resolve.  And now the Defense Department’s own Inspector General has jumped on the pile with this finding:

The impact of [ERP system] schedule delays increases the risk that DoD will not achieve an auditable Statement of Budgetary Resources by FY 2014 [as Secretary Panetta promised] or accomplish its goal of full financial statement audit readiness by FY 2017.

Fixing this situation is foremost a responsibility of the Pentagon’s.  But the Inspector General did this work in response to a congressional request, and it’s worth noting that Congress isn’t faultless in the circumstance either.  The Armed Services Committees gave themselves a chance during deliberations on the 2012 authorization act to write Secretary Panetta’s commitment into statute but, for reasons still unknown, they opted not to.

Beyond the intrigue of the Pentagon’s Inspector General adding weight to the issue, little seems to have changed.  Progress on audit-readiness remains halting, in part because of the ERP’s troubles, and the risk remains real that these goals won’t be met.  If that happens, Congress can look back on its decision to request reports like this one instead of acting in its authorization bill as one explanation why.

Assessing the Value of Military Healthcare

The military healthcare program has become increasingly expensive as its fees have remained nearly flat despite rapidly growing costs. Now the recently released 11th Quadrennial Review of Military Compensation (QRMC) and a new report from the Center for Strategic and Budgetary Assessments (CSBA) are providing some interesting perspectives on how much benefit these programs provide.

The QRMC calculated the “expected value of health cost avoidance,” or the cost that active military personnel (who receive free healthcare) could expect to contribute to their health care if they were employed in the civilian sector. Since experienced and college-educated workers are more likely to have employer-provided health insurance, the military benefit is more valuable for enlisted personnel and becomes less valuable over time.

Meanwhile, CSBA surveyed current and retired service members to determine their perceived value from TRICARE Prime coverage for retirees under 65.  Even though the QRMC formula projects that more experienced individuals have less reason to avoid the civilian heath care market, CSBA respondents feel more value from the currently-structured TRICARE Prime as they gain years of service.

This apparent paradox may be less surprising than it sounds, though.  Members become more insistent on avoiding additional fees as they approach and then gain entitlement, while those with fewer years of service were less interested in protecting a benefit they might never receive. As CSBA’s report notes:

The data from the study show that 89 percent of personnel with 6 to 15 years of service would prefer a modest $350 increase in annual pay even if it means the monthly TRICARE fee they would pay in retirement would increase to $80 single/$160 family—an increase of $1400 in annual fees for the family plan.

These reports ultimately serve as an important reminder that military attitudes on health care are not monolithic; service members may value it in different ways.

Less is More

When the Pentagon released a new strategy this January, it grabbed attention with the finding that “it is possible that our deterrence goals can be achieved with a smaller nuclear force.”  The associated debate on the Hill has been strident, including last week’s exchange on the House floor between Representative Norm Dicks (D-WA) and Representative Michael Turner (R-OH):

Mr. DICKS: And we can have a credible deterrent with a much smaller force… You don't need thousands of these weapons. A couple hundred, frankly, could take out Iran and almost any country you can imagine. So, again, we can't afford to do everything.

Mr. TURNER: The reality is that our nuclear deterrent is used every day… But there's a difference between nonproliferation and disarmament of the United States. Only the United States is reducing our nuclear weapons.

Our own Russell Rumbaugh’s recent Resolving Ambiguity report calculates that the US will ultimately spend roughly $352 to $392 billion on nuclear weapons arsenal over the next ten years, a number that underpins much of this debate. Meanwhile, the defense spending survey that we recently released shows that a representative sample of Americans considers the issue pretty clearly.  They cut the nuclear apparatus by 27%, the biggest percentage chop other than war costs in the poll.

This debate, already heated, is likely to get only warmer – especially as the Air Force and the Navy simultaneously wrestle with expensive Triad procurements.

Going Along

The House made a big move on defense appropriations last week, but there are interesting stories in the details too. Our own Russell Rumbaugh in reviewing the President’s budget request highlighted that—despite a $4B overall cut—the administration had increased O&M funding by $12B, $10B from moving things that had been in war funding into base funding.  A bold move that bucks the trend of the past few years.  A little surprisingly, the House appropriations committee mostly went along with the moves in the Army’s budget.  The only exception was the committee moved $260M from the base to the war budget for “forward deployed land forces base camps,” according to the committee’s report.

Which isn’t to say the committee didn’t move funding around in these accounts.  The two biggest increases were in lines for Base Operations Support (+$523M) and Facilities spending (+$254M), both of which the committee justified by denying the Army’s claims it could achieve efficiencies in those accounts, something we’ve been skeptical of as well.  The base to war move paid for some of those increases, and the committee took the rest from funds for combat forces,* for which it said the Army was exaggerating the growth needed in those lines.

The administration had requested $1.6B more for the Army’s combat forces* in the base budget than it had received in FY12 despite the declining topline, again, a significant sign of moving funds from war to base.  House approps cut $500M of that growth, but didn’t put it back in the war budget.  Though House approps didn’t totally support the administration’s efforts to move funding to the base, House approps didn’t completely dismiss it either, despite the temptations the BCA provides by making war funding free money.

*represented by the Army’s activity group line Land Forces.  

Bringing Down the House

Keeping up its pace on appropriations bills, the House passed the defense appropriations bill last night, and with it blew right through the BCA caps.  Defense approps took a hit on an amendment, bringing it down to just above FY12 funding for defense.  But because the House had already cut MILCON funding compared to last year, that means it is giving DoD less money than it did in FY12. 

Furthermore, the House had also already passed Energy and Water, Homeland Security, and Commerce, Justice and Science bills, each of which includes some National Defense (f050) funding.*   Added together, the House is already more than $6B above the BCA cap for 050 in FY13. 

If these figures were passed into law (which the Senate isn’t likely to agree to), the House (and President) would need the BCA revised not just to avoid the sequester stemming from the supercommittee failure, but because they face sequester for breaching the BCA caps. 

* As of July 20^th, the House hasn’t yet passed Financial Services and Transportation and HUD bills, which together will likely include about $200M in 050 funding.  All of the figures should be considered rough estimates as they are not official scores yet.

House Shaves Defense

Whoa.  We've been claiming prescience in seeing the defense builddown for quite a while.  And had noted that despite all the rhetoric, the House--the big spenders on defense this year--was only keeping the topline flat.  But the House has gone even further than we expected.  

Tonight, the House passed the Mulvaney-Frank amendment, which cut $1.1B from defense appropriations.  That's not a big swing in a $530B budget.  But it's still a move down, and from the side that was supposed to be the big spenders, suggesting that declining defense spending is less partisan than conventional wisdom would suggest.