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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


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 20th, 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.


The Myth Dies

Last year BFAD’s Gordon Adams and Matthew Leatherman took to the pages of the Washington Post to debunk the myth that Republicans like defense spending while Democrats do not. Matthew returned to the same point during an event Monday on the Hill:

There is an idea percolating in Washington right now that Democrats favor defense cuts and Republicans don’t. That hasn’t been substantiated by the evidence as far as I can tell… When you adjust for inflation, our national defense budget has been declining for the past two years. That’s this Congress. Even if the high end of the appropriations, which is the House side, were enacted, it would still be a nominal freeze. And again, adjusting for inflation, it’s a cut. It would be year three of cuts. We are already two years into this build down; a third year is coming irrespective of what position is enacted.

New data from our survey, conducted together with the Program for Public Consultation and the Center for Public Integrity, inspired this event and showed that both Republican and Democratic congressional districts support defense cuts.  To hear more about what defense budget average Americans would build, see C-SPAN’s video of the event.


Defense, Jobs, and the Making of Hypocrites

Updated from the 30 Oct 2011 post on Capital Gains and Games and the abridged the Will and the Wallet post

Defense budgets go up and down.  They have ever since the end of the Second World War. We are in a build down today, one that is likely to continue for the next decade, regardless of what happens to the shadow play about a defense sequester and the full court press coming from Sens. Ayotte, McCain, and Chairman McKeon, and especially the defense industry, which is once again threatening pink slips and job losses from defense cuts.

Start with the facts.  The current projection of a flat defense budget (there have been no projected cuts yet) is the most moderate and shallow build down we have ever experienced since the end of the Korean War.   The current flat budget projection is not a cut, but it is less than the previous projection (done in the FY 2012 budget) by about 8%. The last three defense build downs saw defense resources actually fall, on average, 30% in constant dollars over ten years.  Even with a sequester, the overall cut of an additional $500 billion, in round numbers, would be only 17%, and that’s from a budget that was projected to grow.

We’re a long way from "doomsday" and all the political hair tearing, garment rendering, and teeth gnashing.  But the “defenders of defense,” are back at it on the jobs front, arguing, again today, that such a build down will cause a terrifying loss of more than one million jobs in the economy, something we can ill afford in a soft labor market with high unemployment.

The jobs argument is on the table because the Aerospace Industries Association (AIA) has just updated its jobs study from last October.  The study and the argument ought to be dismissed out of hand for what they are: flawed and hypocritical.  This is a side show about the economy, not a straight-up argument about whether defense should be affected by deficit and debt reduction, and whether we can or need to continue spending the highest sums we have ever spent on defense, peacetime or wartime, since the end of World War II.

But let’s examine the argument on the purported merits. 

Click to read more ...


Tuning Out the Static

Confusion and rumor are swirling around the sequester scenario, as a glance at almost any newspaper these days will indicate. To take one example, last week The Economist published an article saying:

Military pay and benefits are exempt from the sequester, as are “overseas contingency operations” [OCO] (the war in Afghanistan), so the money will have to come out of a remaining defence pot of $375 billion.

In fact, neither military pay nor OCO has been exempted from sequestration. The Budget Control Act allows the President to choose whether to exempt military compensation, but no decision has yet been made.  (See reference mid-way through this article.)  Also, contrary to The Economist’s description, OMB already stated in letters dated May 25th and June 15th that OCO will not be exempt from sequester. According to the May letter:

Funds designated by Congress for OCO are subject to sequester, provided that those funds are not otherwise exempt… BBEDCA does not provide any special exemption for spending on OCO, meaning that those funds are generally subject to sequester.

Studious Will + Wallet readers will notice that the media’s quickening drumbeat on sequester doesn’t mean that new stories are being broken, or even that old stories are being clarified.  Indeed, when The Economist rightly reported that in “nothing much [regarding a substitute deal] is likely to happen until after the election in November,” it could have extended that conclusion to most other aspects of sequestration.


More than Just Strategy

Rebalancing toward Asia, a cornerstone of the administration’s strategy, implicates the military’s ability to strike over long distances, and that in turn draws attention to air and naval power projection.  It thus should come as no shock that Air Force Maj. Gen. Michael Holmes* believes that:

The B-1's [penetrating bomber] capabilities are particularly well-suited to the vast distances and unique challenges of the Pacific region, and we'll continue to invest in, and rely on, the B-1 in support of the focus on the Pacific directed in the president's new strategic guidance.

Looking back over recent history, though, makes this statement a bit more surprising.  Just last year, as part of its FY2012 budget request, the Air Force proposed retiring 6 B-1 bombers (see pg. 50).  That decision put it squarely at odds with Representatives like Randy Neugebauer (R-TX) and Kristi Noem (R-SD), whose districts includes the B-1 jets of Dyess and Ellsworth Air Force Bases.

The result was a compromise: the FY2012 National Defense Authorization Act (see §132) permitted the retirement of 6 B-1s, but only after the Air Force provides “a modernization plan for sustaining the remaining B-1 bomber aircraft through at least calendar year 2022.”  In other words, statute now commits the Air Force to no additional retirements in the near term.

As we observe the B-1 program over the next decade, it’s important to bear in mind that the Air Force may “continue to invest in, and rely on, the B-1” for more reasons than just strategy.

*Holmes is assistant deputy Air Force chief of staff for Operations, Plans and Requirements.


Keep Calm and Carry On

Defense industry firms are turning up the heat surrounding the sequestration debate, raising threats that federal law will require them to send off hundreds of thousands of lay-off notices just before the upcoming election. A recent article by Bloomberg puts these claims into a clearer context—a context that looks a lot like our own Gordon Adams has described

To employment-law attorney Margaret Keane, giving mass dismissal warnings in such uncertain conditions looks more like a lobbying tactic by corporations trying to ward off the cuts than an effort to follow the letter of the Worker Adjustment and Retraining Notification Act.

A point echoed in the article by Byron Callan noted:

“That’s more a scare tactic than something that aligns with the underlying reality of how sequestration works,” Callan said.

Borrowing from a historically popular saying of the UK, we must be mindful to keep calm and carry on without focusing too much on the smoke being blown around sequestration.


The $2.1 Billion Coincidence

The United States has a long and convoluted history of foreign aid with Pakistan, something the Government Accountability Office has researched extensively. According to a GAO report, funds provided to Pakistan towards the goals of increasing counter-terrorism operations in the FATA region, dismantling nuclear networks, and ensuring that Pakistani security forces are not “subverting the political or judicial processes of Pakistan” are not subject to certification that ensures cooperation and national security goals are met. In short, 88% of the funding may not be utilized entirely towards its stated goals. In our report, A New Way Forward: Rebalancing Security Assistance Programs and Authorities, Gordon Adams and Rebecca Williams note this general issue with all aid programs:

There is no oversight mechanism that collectively evaluates all US security assistance programs, and no metric that challenges or supports when or whether to provide assistance. That information is essential to major policy judgments, such as: Is it worth it? Is it enough? Is it sustainable? Does it support US policy goals?

If U.S. objectives as stated in the GAO report are not being met and there is a systemic lack of oversight, there must be some unstated policy goals being met for the U.S.-Pakistan relationship to continue. Earlier this month, Secretary Panetta asked for $2.1 billion for increased shipping costs in a reprogramming request. The billions would cover the increased costs due to Pakistan closing supply routes through the country last November. But after the recent U.S.-Pakistan reconciliation, one of the unstated goals may seem clearer.  The U.S. is now saving a great deal in shipping costs and Pakistan will begin to receive its aid payments withheld since November that coincidentally total to about $2.1 billion dollars this year. With an apology, we save billions, are able to resupply troops in Afghanistan and will transfer appropriated aid to continue our convoluted relationship with Pakistan.


More Method Than Amounts

Secretary Panetta has repeatedly emphasized the mechanism rather than the scale of sequester, as he did in a recent Pentagon briefing:

The sequester will cut another $500 billion across the board from our national security budget, and do it in a way that threatens to hollow out our national defense.

This remark suggests that the nature of sequestration, not necessarily the resulting overall funding levels, threatens to “hollow out” the armed forces. In Senate testimony last month, Panetta even seemed to suggest that if the mechanism of sequester were changed, there might be room to “do what is necessary":

[Sequestration] would result in a doubling of cuts -- another $500 billion that would have to be cut through this kind of formulaic, meat-axe approach that was designed into that process. And it would guarantee that we hollow out our force and inflict severe damage on our national defense… I know the members of this committee are committed to working together to stop sequester, and I want you to know that we are prepared to work with you to try to do what is necessary to avoid that crisis.

His remark about being “prepared to work” to avoid sequestration indicates that, if further cuts prove inevitable, he’d rather have them made in a strategic manner. And shortly after the testimony, the Senate Armed Services Chairman, Carl Levin, floated the possibility that more cuts done through a different mechanism than sequester might offer a solution, setting up a dynamic we’ve previously said is more likely than sequester.


Brief Analysis of the SFOPS Committee Bills

We'd worried the President's requested increase in International Affairs funding would be a tempting target for cuts by Congress.  It was. Although movement between base and war funding complicates analyzing how funds are allocated, looking at totals gives a sense of the different priorities of the administration, House, and Senate. Looking at the House and Senate Appropriations Committee reports for State and Foreign Operations, the committees both cut from the administration’s request but did so to different degrees and in different ways. The House made substantially deeper cuts than the Senate, shaving 11.6% ($6.3B) off of the President’s request, while the Senate cut by a smaller 4.7% ($2.6B). Beyond overall funding levels, the House and Senate agreed on some budget priorities while sharply disagreeing on others.

Notably, both Committees cut deeply into the State Department’s operating costs, each slashing about $2.5 billion, or about 22% of the President’s request, from State’s Diplomatic and Consular Programs account. In fact, this cut accounts for over a third of the House’s $6.3 billion overall net cut and falls only about $50 million short of the Senate’s net cut. In effect, both chambers cut deeply in ongoing expenses and, by comparison, generally spared programmatic funds.

The House and Senate nonetheless starkly disagreed in other areas. While the House was relatively generous to International Security Assistance, cutting it considerably less than average, the Senate cut nearly 20%, or five times its average reduction, from security assistance programs. On the other hand, the House and Senate reversed roles in the areas of Multilateral Economic Assistance. The House made a deep, nearly 25% cut to these funds, particularly in various contributions to international financial institutions, while the Senate created a 13% increase in Multilateral Economic Assistance by meeting or exceeding the President’s request on every single line item in that area.

For all of their disagreements, there were also some areas where the House and Senate agreed that the administration’s request was way off base. They both rejected the administration’s proposal to cut the Democracy Fund appropriation while making total or near-total cuts to debt restructuring programs run by the Department of Treasury, Conflict Stabilization Operations, and the Pakistan Counterinsurgency Capability Fund.

Considering that there hasn’t been a standalone foreign operations bill since FY 2006, further progress on SFOPs appropriations will probably take place in the context of a consolidated appropriations bill. Nonetheless, with the House and Senate committees disagreeing so sharply with the administration and each other in several areas, it will be interesting to see how these differences are reconciled moving forward.


The American Public and Defense Spending

Last week at the Council on Foreign Relations, BFAD’s own Matt Leatherman took part in a roundtable, What Does the Public Really Think About Defense Spending? When discussing our recent survey on the subject, Matt noted:

If we are on the right track strategy wise; respondents want it to be much stricter. They think policy makers have been too tentative policy wise. They cut the budget by about 18% on the item by item basis. That’s a figure of $103.5 billion …American’s views, as expressed here, are one of the reasons why national defense will remain on the table after the election for whatever deal is struck to replace sequester. The debate is not necessarily about sequester. The debate is about what happens to the defense budget trend and the biggest takeaway from this survey is that Americans have some opinion on what that trend ought to be.

Though there’s been a lot of shadow plays and sideshow about sequestration’s effects, the public doesn’t seem terribly perturbed by more defense cuts.  To hear this panel discussion in its entirety, listen to CFR’s podcast of the event.


Quality, Not Quantity

HASC Chairman Howard “Buck” McKeon has recently discussed the effect sequestration will have on the United States using facts—just facts without much context:

America would have its smallest ground force since before World War II, its smallest n Navy since before World War I and its smallest air force Air Force in the history of the service. Sequestration would limit America’s power and influence in the world and restrict our ability to defend vital interests.

Not only are we likely to have the smallest forces ever regardless what happens with sequester, it’s not clear these smaller forces are any less capable.  As the Navy’s own Vice Admiral Dirk Debinnk stated “that our fleet today is far more capable than any fleet than we've ever had in the past, irregardless of numbers.” Sometimes it is quality over quantity.


Not So Automatic

The defense industry, Pentagon officials, and members of Congress have been predicting all manner of nasty consequences if defense budget sequestration happens as planned next January. Our own Gordon Adams’ recent column for The Hill, however, puts these concerns in perspective:

What Congress makes it can unmake, and unmake it Congress will after the election, carving out a new short-term deal from the many issues on the table: the debt ceiling, tax cuts, a doctors’ payment fix, the alternate minimum tax, payroll taxes. Congress will boot sequester down the road, and continue to argue.

As we pointed out last year, four of the five previously planned sequesters have been eliminated or scaled back. This time, Congress might prove slow to act and do little more than put the issue off for another year. Nonetheless, don’t hold your breath waiting to see the dreaded “meat-ax” of sequestration come slicing down on the defense budget in January.


The Sequestration Sideshow

BFAD’s Gordon Adams has a few insights to share on the sideshow occurring with the sequester debate, addressing some of the claims made by defense industry advocates with greater granularity. With the possibility of over $50 billion in defense cuts going into effect this coming January, the defense industry has launched an all-out campaign against sequestration that would raise nearly any eyebrow. Our own Gordon Adams provides some context for some of the claims of that campaign:

  • A million jobs are not at stake. Two-thirds of those cited are ‘induced jobs,’ not defense jobs. This broader employment is affected by everything (and typically counted many times over, depending on what direct spending is being focused on)…[and] when the broader economy grows, so do those jobs. They are not tied to defense.”
  • “The main event is the defense build-down, not the sequester. The typical build-down — Korea, Vietnam, the Cold War — lowers defense budgets 30 percent in constant dollars over 10 years. If we took a trillion dollars out of the defense plan DOD projected last year, it would, at 17 percent, be the most shallow build-down we have experienced since World War II.”

As Gordon noted, when the sideshow is viewed more closely, it may not be worth all the attention it’s getting.