As I have been writing for a year, the Pentagon has the greatest flexibility of any agency in the executive branch to deal with sequestration. Secretary of Defense Chuck Hagel proved it on Tuesday, August 7, announcing that civil service furloughs at the Pentagon, which started at 22 days, then fell to 11, were falling even further, to six days in this fiscal year.
This comes on top of putting Air Force air wings back in the air after grounding them because the sequester took the operating funds, and deploying the carrier Harry S. Truman into the Persian Gulf after all, having said the Navy would have to keep it in port -- again, because there was simply no money.
This kind of recovery from a $37 billion sequester suggests there has been some hyperbole over the past eight months. I wonder if former Secretary Panetta is watching.
I have never had any doubt that DOD could handle sequestration, not even for a second. The Pentagon is blessed when it comes to managing a decline in funding. It has a huge budget, over $600 billion a year. The accounts that are most affected by the sequester -- operations and maintenance -- have the greatest flexibility to move money around (they call it "fungibility").
They have the capacity to reprogram funds internally, below certain thresholds and within certain accounts, without notifying Congress, and authority on top of that to reprogram (having notified Congress). They got a full appropriations bill this year, with more funds ($11 billion more than they had for operations under a continuing resolution) and more flexibility in March -- other agencies were not so lucky. And they had the war in Afghanistan, from which we are withdrawing, leaving previously appropriated operations money on the table.
There is no question that everyone would prefer a drawdown at DOD that had even more flexibility than the Pentagon's lucky bag of magic can provide. Fitting force structure planning, weapons investment plans, and readiness together, driven by strategic requirements, is preferable to "automatic" cuts. (Clearly, though, these automatic cuts are not nearly so blunt or deadly as has been made out.) But the additional flexibility that the Pentagon would like won't come without a broader budget deal between the White House and the Congress -- don't hold your breath. In his briefing on the Strategic Choices and Management Review last week, Hagel complained that the cuts went so deep that "flexibility" wasn't even the issue.
Way back when, Secretary Panetta and the uniformed military were crying the loudest about the pain the sequester would induce, way before the air traffic controllers or the Head Start instructors. But seriously, you could not have it better than the Pentagon has. Full credit to Hagel for acting on the flexibility he has. He'll get even more credit if the hyperbole ends and the Pentagon steps up to the reality of a drawdown and plans accordingly. They've got room to maneuver.
U.S. Navy photo by Mass Communication Specialist 3rd Class Chase C. Lacombe/Released
If you follow my column on Foreign Policy, you know I have been hammering away at how Secretary Hagel and crew can dig deeper on overhead than they have signaled so far. At 42 percent of the budget, most of it infrastructure and not readiness, it is a prime target for budget discipline. Sometimes the department heads that way, sometimes the department's waste is just ridiculous.
The "sublime" piece here refers to the memorandum Deputy Secretary Ash Carter sent out to the services on July 31, following up on the 20 percent reduction in headquarters the secretary announced a couple of weeks ago. There is a small piece of ridiculous here, because, like too much of what the secretary is asking for, it is back-loaded, meaning most of it will happen after this crew has left the Pentagon. Which means it might not happen.
Set that aside for a moment. It is a good idea, and Carter has followed up with some more details. The memorandum makes it clear that the 20 percent reductions have to cover a pretty broad swath of DOD's jungle of headquarters -- from the secretary's office through the Joint Staff, and on into the defense agencies, the service secretaries and chiefs' offices, the major commands, and even down to lower senior management levels.
Haven't done the body count, but it is thousands of people. And the memo is a good start, though too slow. And there's a caveat: The 20 percent cut applies to budget resources, not to the number of people, though the memo encourages the services to "strive for" getting 20 percent out of the people.
And another caveat: The memo refers to "contract services" but is not clear whether the various offices should go after some of the 700,000 contractors who sit next to the desks of the civil servants. It would be good to be more clear on that -- the contractor personnel number almost as many as the civil servants at DOD.
But it's a good start. Now to the "ridiculous," as reported by the Associated Press on July 31. Seems that there is a lot of spare equipment and stuff lying around at the Pentagon that they bought but don't want. So rather than careful buying, to ensure we don't throw good stuff away, the various offices at DOD buy it, store it, or use it, and give it away -- especially, as it turns out, to rural police departments.
The local cops are all too eager to help themselves to things they often cannot even use -- like bayonets (to prod cattle?), fat fryers, meat slicers (to cut up the prodded cattle?), pool tables (for those down times at the station), playground equipment, and decontamination machines (in case there is a bio weapons attack from the cow sheds?). The Morven, GA, police department has picked up more than $4 million in such excess over the past decade.
Inventory control is a hardy perennial at DOD -- today's Radar O'Reillys want to have it on hand, just in case, even though we are in a "just in time" inventory world. Then they don't need it, and then they give it away.
Aside from the fun, supply management and inventory control are just another place for the secretary to look if he wants savings he can apply to the forces he thinks we need and the technology they really need to have.
Good start on the people; watch the back door as you bear down on the problem, Mr. Secretary.
PAUL J. RICHARDS/AFP/Getty Images
Let me take you back, back to last year, in the midst of a presidential campaign, when the Aerospace Industries Association was working itself, the industry, and some members of Congress into a lather about sequestration -- particularly about the devastating impact it would have on the economy, on the defense industry, and on the labor force that works in the defense sector.
Fast-forward to the quarterly reports from the major defense contractors. Oops! Seems Lockheed's profits rose 10 percent. Northrop Grumman was up 2 percent over the last year. General Dynamics was slightly up with an operating margin of 12 percent, Boeing earnings up 9 percent, blah, blah, blah. To quote Lockheed's chief financial officer, "We're seeing less impact ... than we had expected to see through the first half of the year."
Almost every contactor's defense revenues were down, but margins were good and earnings were up. What happened to the Doomsday machine that would hit the defense sector and boomerang into the American economy?
Can I say I told ya so? I could, but it is more fun to say why this is true. Defense contractors are the canaries in the coal mine -- they see a drawdown coming before anyone else is prepared to admit it. And, believe me, these guys started preparing for a drawdown way before the sequester was a gleam in John Boehner and Barack Obama's eyes.
For the last three years, the big guys have been doing everything a smart contractor should do to prepare for a declining budget: Sell off things that won't be profitable in the drawdown, buy things that will (IT and cyber businesses, especially), lay off workers (something that started way before the sequester), streamline production. They have been getting ready for a long time.
Then there are the peculiar features of sequestration, which were transparently clear last year during all the breast-beating and garment-rending. It really didn't hit the contractors. Military personnel were exempted, so they were untouched. But so were any Pentagon dollars already tied into contracts, which meant anything the industry was working on this year, anything already under contract, was funded with what are called "obligated" dollars. They weren't sequestered.
AIA and then-Lockheed CEO Bob Stevens assured us that there would be massive layoffs -- Stevens was preparing to send out notices to much of his workforce. He was either misinformed or disingenuous -- I'll let you decide. He did (or should have) known that existing contracts were not touched, and that the bulk of sequestration cuts would hit DOD's civilian workers (now furloughed a day a week until September 30) and the other kind of contractors -- those doing the dishes, cooking the food, and putting guards at the gate -- but not his business.
Now, some folks still see fear and loathing on the horizon -- the bad news wolf is not at the door, but coming down the path. That could be; the defense budget is going down and dollars for hardware always go down deepest in a drawdown. In fact, procurement dollars are already down around 20 percent, while the overall budget is down only 10 percent (pre-sequester -- which, as I said, didn't do much damage to procurement).
In fact, that's why contractor revenues are down -- we are in a drawdown, and revenues for defense contractors and subcontractors will definitely go down. And their workforce will shrink -- that's what happens in a drawdown, and it has been underway for three years now. Lockheed has cut its workforce 20 percent over the past five years; Northrop Grumman has laid off 5,000 over the same timeframe.
But those margins will stay healthy because that's how you manage a drawdown. The contractors and their shareholders will probably be OK. Oh, sure, as Loren Thomson of the Lexington Institute said the other day, 10-12 percent margins are not so good compared to fully private sector companies raking in over 20, 30, 40, even 50 percent (e.g., Dunkin Donuts).
And he is absolutely right. But what he didn't say, and the reason these big guys stay in the defense business, is that defense margins are very steady over time. Defense is a very stable business, with regular returns even when volume is down. It doesn't have very sharp swings in profitability, unlike the full-risk private companies. Sales go up and sales go down; the workforce grows and it shrinks. But the return is regular and risk stays low.
So let's not lose too much sleep over the future market or the profitability of the big guys in defense. Getting the Pentagon's defense plans in line, streamlining their back office, controlling costs -- those are the real priorities.
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Is it surprising or just obvious that our decisions to overthrow regimes and assume responsibility for their successors comes with a large and often wasted investment and a legacy of enmity? Imperial palaces that cost a mint but are underused and may be torn down? Local populations that are unhappy with our presence and policies?
The wastes of empire are once again made clear by two recent reports. The Special Inspector General for Afghanistan Reconstruction (SIGAR) reported on July 8 that the Army had spent $34 million to construct, in Kandahar, a 64,000 sq. ft. regional command headquarters for 1,200-1,500 military personnel that it no longer needed.
In fact, according to SIGAR, as early as May 2013 (two months after asking for the money), the Marines, whose division headquarters was to have used the building, determined it no longer needed it and asked for the project to be stopped. The Army went right on building it. Now they have to decide whether to tear it down or turn it over to the Afghans (with more renovation costs).
The State Department, however, makes the Army look like a fiscal piker. As the U.S. military occupied Iraq and planned for a lengthy presence, State designed and built the largest U.S. embassy anywhere in the world, at a minimal cost of $750 million dollars. The building includes a huge dining facility, a six-lane swimming pool, workout rooms and a basketball court, as well as living quarters. The major diplomatic facilities we have in Iraq, including the embassy, occupy 350 acres.
According to the State Department's Inspector General, as revealed by diplomacy blogger Diplopundit, the building was originally intended to house 11,500 people. In January 2014, there will be less than half that in the facility -- easier access to those swimming lanes.
And the residents will want to stay indoors, too, because the streets of Baghdad are still not safe. It costs nearly $50 million to keep the staff safe, according to the IG. Or they could just fly, using the embassy's airline, artfully known as "Embassy Air," which costs $128 million a year to operate. And if injured, we spend $85 million a year on hospitals and health facilities throughout Iraq to support them. But don't get in trouble with the locals; less than half the consular staff speaks Arabic, making communications difficult.
Overall, the IG says, the United States allocated more than $3 billion in FY 2012 to fund our diplomatic presence in Iraq and, among other things, administer another $1.3 billion in assistance.
Inevitably, the expansion of our military and diplomatic activities over the past decade, especially in these two countries, has drawn fire, literally. The insurgency and IED attacks against the military are well known. Those against our diplomats are less public.
According to the other significant report, from the Bureau of Diplomatic Security at State and aptly entitled "Significant Attacks Against U.S. Diplomatic Facilities and Personnel, 1998-2012" there have been 265 "significant attacks" against U.S. diplomatic facilities since 1998.
Maybe that's a lot; maybe that's a little. No, it's a lot, because the rate is growing. Grouped in five year periods, the rate has gone from about 9 a year over the first five years, to nearly 17 a year over the next five, to an average of 27 attacks a year between 2008 and 2012.
Moreover, so many of the attacks in the last four years have been against the U.S. Embassy in Baghdad that the Diplomatic Service counted them all as one attack in the data. So If you count the 41 Baghdad embassy attacks in 2009, the 50 in 2010, the 35 in 2011, and the 41 in 2012 (the year after our forces were all gone), the average number of attacks worldwide over the past five years is more than double -- 60, not 27. And over half of the 298 attacks over those five years were against that white elephant in Baghdad.
Ah, well, you say, the wages of trying to keep global peace and stability. Maybe we should keep doing these things until we get it right. Surprisingly, Iraq Special Inspector General Stuart Bowen, who has been a merciless critic of wasteful spending in Iraq, and Amb. John Herbst, the director of the Center for Complex Operations of the National Defense University, seem to want to encourage such behavior.
In testimony before the House Foreign Affairs Committee on July 9, they called for the United States to create an entirely new, separate agency to handle major reconstruction operations. Set aside whether we, or any occupying power, has the capacity to reconstruct and govern another country. Sounds like the definition of insanity -- doing the same thing over and over thinking the outcome will change.
Maybe we need to think about whether it is wise to continue down this expensive and wasteful road.
Sequestration and defense budget mavens, watch out! The Army started to shrink this week ... but not really. Army Chief of Staff Gen. Ray Odierno announced on June 25 that the number of Army brigade combat teams (BCTs) was going from 45 to 33, and the overall size of the Army would fall to 490,000 troops by 2017.
The announcement made the news, but it was not news. It was really a restructuring of the Army linked to a re-announcement. You see, the Army is not really shrinking. Not yet. It grew by about 100,000 troops with the wars in Iraq and Afghanistan. So now, with the wars ended and ending, it is going back to a level slightly above where it started and the Army is at least starting to think about what the new Army should look like.
Gen. Odierno was clear; this was not about sequestration. In fact, the Army started the "pre-shrinkage" process two years ago, even before the Budget Control Act of 2011 cut projected defense budgets to bring the Army back to its 2001 size.
The restructuring makes it clear that the changes are even less dramatic than one might think. The Army liked to have brigades made up of three battalions, but the flexibility and lightness required for the counterinsurgency operations in Iraq and Afghanistan led them to restructure BCTs into two-battalion units.
The new plan will take them back to three battalions. So while the overall number of brigades will decline by about 25 percent, the number of actual battalions is only going from 98 to 95, about a 3 percent cut. The Army is not shrinking, it is just regrouping and putting some of the heavier artillery and armored capability into a smaller number of BCTs, returning the Army to the form it once had.
This kind of "shrinkage" is politically savvy. The Army seems to be doing what it can to eliminate battalions in places where it already has BCTs it can fold them into. It won't fit perfectly and personnel at some of the 10 affected Army bases will actually shrink.
Others will not. As Rep. Doug Lamborn of Colorado (home of Ft. Carson) said, "the blow is considerably softened by the fact that all but 750 of those soldiers will remain at Fort Carson and be reassigned to other missions. Including other restructuring changes, the Army anticipates Fort Carson will actually increase in size by 1,800 active duty Army personnel." Nice planning, indeed.
The good news is that a piece of this restructuring will eliminate the "back office" part of the brigades -- the headquarters that were established to oversee each of the 10 BCTs being realigned (the other two are being disestablished, but they are in Germany). Overhead cuts are a good place to start thinking about cutting, as I have written before.
But the Army will have to shrink further, and they are not quite ready for that. In fact, they are behind the curve on where the Army is really going to go. That's the bad news part. The Army is still not very real about what is coming.
Gen. Odierno complained that he had to wait until 2015 to deal with further force cuts. He could have started deeper force cuts earlier, but the Pentagon was in denial last year and Secretary Panetta was making a full court press to avoid sequestration.
Now we know that the sequester is here to stay, for this year, and possibly, even likely, for next year. Deeper cuts are likely, and the fear factor is running strong. Breaking Defense warns that "while there's plenty of fat to cut in any large organization, the Army included, the sequester is going to bite right through the muscle to the bone."
I have often heard this and always wondered how anybody knows where "the bone" is. It's like "readiness": Where you think the problem is depends on how you define it and what you want the forces to do. There is no magic answer and no clear "bone" to which the forces shrink. But budgets and strategy, in their inevitable mix, will reshape the force over the next few years. It will be smaller than Gen. Odierno plans, but it will still be capable, at the bone or not.
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While the nation swirls in the Sufi-dance around surveillance, the congressional defense committees have had their heads down, marking up the DOD money bills for the coming fiscal year (FY 2014).
When it comes to the overall totals in the defense money bills, the House committees are following the theme of sequestration-avoidance, which has characterized the congressional approach to defense all this year. This means providing funds more or less around the levels requested by the administration.
But the committees, especially the appropriators (who provide the real money), are also winking and nodding toward the reality that the sequester will probably continue this year and may well come around again next January if there is no broader agreement on the federal budget this year. Using every flexible tool they can find, the committees are looking for ways to make DOD whole, as far as possible.
The House Armed Services Committee bill started the wink and the nod. Overall, it ignored the sequester that could come in January, providing $526.6 billion for the base defense budget, the level for which the administration asked. That is more than $50 billion above the level defense will get if there is no broader budget agreement this year and sequester kicks in.
The real money, though, comes from the appropriators. Their overall funding level was a tad more realistic -- $4 billion, or nearly 1 percent below the level requested by the administration (which would continue the slow decline in defense budgets that started in FY 2011). Still well above the sequestration level, though.
But both committees moved their fiscal eyelids and heads in ways that try mitigate that sequester. The heaviest hit from sequestration is on the Operations & Management accounts at DOD -- the accounts that cover military operations like flying, sailing, driving tanks, training, maintaining equipment in the depots, operating bases, and the like. This happens because pay and benefits are largely exempt from the sequester, and the impact on contracts is delayed -- dollars already tied to contracts are also exempt.
But those operating accounts are the life-blood of keeping things going in the military and the most flexible accounts the Pentagon has, which helps mitigate sequestration. So the House appropriators winked and nodded, taking advantage of that flexibility.
The congressional "wink" was to tweak the base budget, decreasing the funds for research and development, and increasing them for "Operations and Maintenance." This helps make up, next year, for some of the impacts of sequestration on operations this year; it refills the pots a bit.
Well, but, you say, what if the sequester hits in January? Isn't Congress just putting money in another pocket only to have it taken away? Well, yes, but the "nod" both the House Armed Services Committee and the House appropriators made is over in the war budget -- the Overseas Contingency Operations (OCO) budget.
Three-quarters of the war budget is spent on "Operations and Maintenance." And, truthfully, these O&M dollars are in exactly the same accounts as the base budget O&M, and totally fungible with non-war operating costs.
The administration's budget request of $79.5 billion for OCO is already unpredictedly high, in part, as I wrote a while back, to fill the O&M bucket sequestration has already cut, and may cut again. OCO provides a back-door fix, so the HASC and the House appropriators did the administration one better -- they added another $6 billion to the OCO budget request, raising the total to over $85 billion.
So those O&M dollars might be sequestered in January (if there is not a broader budget agreement), but, if the bills became law, the sequestration would be cut from a higher level, leaving more in the pot.
Of course the committees also made it harder on the administration, at the same time, by rejecting soundly the request for a new round of base closures (which would save money downstream), and waving aside most of the effort to get healthcare costs under control by increasing enrollment and other fees for the military's Tricare system. The third rail of defense budgeting is still alive and well.
This is not the last move in the budget game. Sen. Mikulski and the Senate appropriators are up next. It will be interesting to see what moves they make that both allow sequestration to continue (cutting the defense budget for everyone -- a BRAC for defense dollars), while mitigating the effect on operations.
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We are about to step through the defense budget looking glass. This week, Congress is picking up the public process of deciding, or appearing to decide, how much money the Department of Defense will have in the fiscal year starting October 1. And not only are they ignoring the sequester (like the administration did in its budget request), they are actually using every trick in the book to make it go away, as far as defense is concerned.
The Senate and House budget committees have already taken the first step, coming up with overall budget bills that differ from each other -- Chairman Rep. Paul Ryan protected DOD while savaging domestic programs; Chairwoman Sen. Patty Murray wrote a bill that pretty much looked like the president's budget request, cutting DOD a bit while preserving domestic programs.
Neither budget resolution dealt with the statutory reality: In the absence of a big budget deal (no sign of that; not even a peep), the funding level for defense in Fiscal Year 2014 will be about $52 billion below what the president asked for. And the two resolutions are so far apart and a budget agreement so unlikely that neither committee or its leaders seem anxious to write a joint resolution with the other chamber.
This air of unreality will continue this week, as the House Appropriations Committee starts its march toward appropriations bills for the government, first with the markup of the Military Construction and Veterans Affairs bill. There is no sign the House appropriators are going to deal with the impact of sequestration in their bills.
And stalwart defender of defense, Chairman Buck McKeon of the House Armed Services Committee has just released the language of its authorizing bill for defense next year. It ignores the sequester levels entirely.
In fact, the McKeon bill is the most interesting maneuver, because it seeks to add funds to DOD to avoid the impact of sequestration even before the FY 2014 sequester hits. He uses a device I already pointed to in talking about the administration's recent $ 80 billion request for funds for the war (Overseas Contingency Operations request): He adds money to the administration's request in precisely those areas that sequestration cuts.
A brief background: The sequester at DOD affects primarily the operational accounts (pay and benefits are basically off the table; contractors with funded contracts face no reduction in the funding for those contracts).
The operational accounts (civilian pay, training, depot maintenance, fuel purchases, base operations, flying planes, driving tanks, sailing ships) are hit the hardest, but also have the highest degree of flexibility under the sequester rules; DOD can pretty much move money at will around the various activities to protect the most important.
One critical loophole for avoiding a defense sequester is the war operations accounts, which are exactly the same as the non-war operations; there is no distinction in Pentagon bookkeeping. Congress likes to fund the war budget, so, for 10 years, administrations have been tempted to put things in the war budget that are not really war spending, but stuff they could not get into the "base," or non-war budget.
The administration already did that in its most recent budget submission, as a way to mitigate the sequester. Pentagon sources tell me, on the QT, that as much as 20 percent of that $80 billion request for the war is really money for operations being squeezed by declining defense budgets and the sequester. It's a "get well" escape hatch from sequester-land.
Buck McKeon seems to be trying to do more of the same. His bill not only funds the war budget fully, it adds more than $4 billion to those critical operational accounts, a 6.7 percent increase. And what is this extra lolly for? Precisely those things that sequester hits: depot maintenance , fuel purchases, "combat forces equipment" (unexplained), and "combat forces shortfall."
So the bills coming up, starting this week, will "see no sequester, hear no sequester, speak no sequester." But just in case, they will try to make up for it, as well.
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Last year the Aerospace Industries Association took aim at the budget sequester on behalf of its members and mounted a visible and expensive campaign to prevent it. They ran out a study done by Steven Fuller showing that sequestration would lead to a million jobs lost and trigger a recession in some regional economies, like Virginia.
AIA issued alarmist statements and press releases about the coming economic doom. Their chorus was joined by Senators campaigning hard against the sequester, like Sen. John McCain, Kelly Ayotte, and Lindsey Graham. It was quite a road show.
In the front of the cheering section last year was Lockheed Martin CEO Bob Stevens, who warned, at the time, that sequester would lead to 10,000 layoffs at his large defense contracting company. He announced the intention of issuing WARN Act notices, which would let employees know their jobs would soon be in jeopardy.
Stevens left at the end of 2012, having withdrawn the WARN threat, but the recent comments that the new CEO, Marilyn Hewson, made to Politico suggest that the apple of corporate leadership has not fallen far from the tree.
So far Lockheed and Hewson say 50 employees have been affected by sequestration, and their major programs -- the F-35 and the Littoral Combat ship, among others -- have not been much affected. Hewson argues there could be worse to come, but DOD has still not provided detailed guidance for the industry.
It seems that CEO Hewson lives in the same echo chamber Stevens created last year. According to the Politico story, it is still the same scary world out there, with the same budget uncertainties and threat to the future of her industry that her predecessor described.
The world, she tells Politico, is a frightening place: "Abroad, new threats are rising, even as old threats become more menacing. Iran, we know, edges closer to nuclear statehood, and North Korea has already achieved it. The list of threats goes on and on."
Wait, "on and on"? So far she has listed two "threats," both old and well-known, and neither of which is more threatening to our security because of anything the sequester might cause in the Defense Department. I am curious to see what the "on and on" is about.
Does she mean China, toward which we are supposedly already pivoting and whose capabilities are far below ours? Does she mean "cyber warriors," who may be a problem, but are irrelevant to 95 percent or more of our military capability? What's the list? And is it real?
Or is a defense industry CEO whipping up a fervor encouraged by the community that lives in that fear stovepipe, but doesn't have a grip on what is going on in the rest of the world?
And then, there is that budget world, equally, if not more threatening, according to Hewson. Her predecessor, she said, was just campaigning for clarity last year, not playing politics. Let that rest; it was an election year and there is no such campaign going on this year.
But calling for guidance today suggests that Hewson is out of touch with what has actually happened as sequester has been announced and implemented. Someone should brief the CEO. Last year OMB provided two sets of guidance, making it clear that the major impacts of sequester would be felt in the operational accounts at DOD. Not in the acquisition accounts, which is where the vast bulk of Lockheed's business lies.
The reason Lockheed has only laid off 50 people is because its programs are not experiencing the hurt. Federal employees are, as the secretary of defense made clear on May 12 -- nearly 700,000 of them will get 11 unpaid days between now and the end of September (and maybe next year, too, if there is no budget agreement).
But the "memo" to industry about the sequester has always been that contract dollars are not affected as quickly, because the dollars already committed to contracts were not sequestered under the law. Makes sense the near-term impact would be minimal, although the defense industry and Bob Stevens were screaming louder than anyone.
Maybe what she is really worried about is not the sequester, but what is happening to the defense budget in general. We are in an obvious drawdown, long-term, and drawdowns affect everyone, including industry, because procurement dollars go down even more deeply than the overall budget. (They are already down more than 20 percent since FY 2010, while the overall budget, pre-sequester, is down only 10 percent in constant dollars.)
Industry leaders should get with this program, and many (even Lockheed) have begun to do so. But instead of wasting valuable time complaining about guidance and arousing fear, it would be good for long-term business to focus on this reality and plan accordingly.
Stay tuned this week for the Defense Department to shuffle those budgetary cards and deal them in new ways. Every year, the DOD encounters new needs and changing old needs and submits an altered spending plan to the Congress -- it's called "reprogramming" or "transfers." And every year, it shifts additional funds around without having to notify the Congress.
In addition, thanks to the sequester, the Pentagon may well take full advantage of the special, supplemental war budget it has asked for every year to recover as much as it can from budget cuts.
The Pentagon starts from a high spending base. Even after the cuts of the last three years, defense spending is a good $150 billion above the average for the last 60 years.
The DOD has some unusually generous opportunities to shift funds around. This year, they have a $7.5 billion opportunity -- the amount of funding they can legally reprogram across the budget to meet emerging needs, so long as they seek the approval of the armed services committees and their defense appropriators in Congress.
And this week, the DOD may well come forward with a proposal as to how they intend to use the notification part of that flexibility. Their draft proposal for fund-shifting was leaked to Inside Defense last week, not clear by whom.
The Air Force might have had a reason to leak the draft, since they are paying a heavy bill for the Army's profligate spending on operations in Afghanistan. It seems the Army has underestimated the costs of moving things around in that country, as well as the costs of bringing it home (particularly given the Pakistani border shutdown, which throttled any deliveries via road for a few months). A whole run of Air Force programs may get a spring haircut to pay for these problems, including space-based infrared radar, modifications to the Reaper drone, and a number of other space and missile programs.
My conversations in the Pentagon suggest that neither the Navy (less impacted) nor the Air Force are all too happy about picking up the Army's tab. Mind you, it is war-cost estimates, in addition to the sequester dilemma, that's creating the need to shuffle money around.
Beyond the congressionally notified reprogramming, the DOD has substantial flexibility to move even more money around without telling Congress, so long as they stay within specific accounts and below certain monetary thresholds. Over the past 12 years, they have used this internal flexibility to shift around an average of $14.5 billion a year, according to the Pentagon's own budget execution tutorial. No reports, as yet, as to how much of that is taking place this year.
And right behind the reprogrammings, the Pentagon intends to send Congress a war supplemental -- known as the budget for Overseas Contingency Operations (OCO) -- and it's likely to be a whopper. Back last year, the Pentagon put a 2013 budget plug in for the war, which amounted to $44 billion. Then, this spring, when the DOD sent up its budget, they decided to hold back on sending the OCO budget.
So now we're waiting on yet another budgetary card to be dealt. And given the Army's bad checkbook and the squeeze that the sequester is putting on Pentagon spending this year, the temptation to use the OCO to fix things may just be too great. After all, the war budget is not subject to the DOD ceiling mandated by the Budget Control Act, which leaves room for a major reshuffle of the spending cards.
According to Comptroller Robert Hale, "the placeholder [for OCO] is $88.5 billion. I don't think we'll be above that. I don't know yet how much we will be below that."
Before the final reprogramming and the OCO budget get sent to the Congress, it behooves the Office of Management and Budget to take a good look at the details. The sequester, as I have said, is a lousy way to manage a budget, but the best opportunity the DOD has had in years to set the right priorities and bring some budgetary discipline to the Pentagon, something it has not had for more than a decade.
No dealing from under the deck should be permitted in this game.
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Senator Harry Reid is about to become a magician. Next Tuesday he plans to introduce a bill that would eliminate the FY 2013 sequester, paying for it using ghost-like savings from the declining budgets for the Afghan war. And it sounds like the White House might just go along.
It's another parlor trick in a budget process full of such tricks, conjuring up savings and then, in this case, adding to the deficit by spending them. Let me explain, because it is all about scoring, but not about real money.
The Congressional Budget Office projects budgets into the future. When it does so, it has to start from something. Since this is a very conservative (small "c") organization, it properly starts from what is called "current law," or what the last appropriation was for something.
In this case, it is the last appropriation for the war. The Overseas Contingency Operations account, which funds the wars, was very high in the past -- nearly $180 billion at one point. The last time it was appropriated, in March this year, it was around $87 billion. So that is the current law number.
Now, when CBO looks into the future, it starts by saying $87 billion is the cost of the war. Since that is current law, the baseline for the future is $87 billion every year, plus inflation. Anything below that amount can be imagined to be "savings."
That's the parlor trick Sen. Reid is using. He is assuming current law, inflated, for the future, and then assuming that reality will be lower. The difference between the two numbers is the "savings ghost."
When Paul Ryan and the administration both used this trick in their budget proposals last year, they scooped up the budget "savings" and applied it, they said, to deficit reduction for the next 10 years.
There's just one problem: These savings are a phantom, a figment of Sen. Reid's imagination. The war is already winding down and everybody, including CBO, knows those numbers are fictitious.
But, ya know, they are easy, just sitting out there in fiction land waiting to be used, instead of knuckling down to the budget discipline the Congress and the White House ought to be enforcing.
And in this case, Sen. Reid doesn't intend to apply these savings to deficit reduction, which is bad enough. He intends to spend them, "fixing" the sequester, and, on the way, adding to the deficit.
It will be hard to resist this temptation; it's too easy. It is also wrong, exactly the kind of conjurer's trick that brings Congress into ill repute. It should be resisted, as the ghost of King Hamlet warned: "O horrible, O horrible, most horrible! If thou has nature in thee, bear it not."
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Last night I saw upon the stair
A little man who wasn't there
He wasn't there again today
Oh, how I wish he'd go away
-- Hughes Means, 1899
The wishful thinking continues. The defense budget appeared today. It is another budgetary fiction, alongside past fictitious renderings from the five-sided building. And it will not survive the political process it is about to enter, as we head toward new fiscal cliffs and ideological disagreements over the federal budget.
The federal budget need not have waited the extra 65 days; it is something the administration could have sent up earlier because it ignored the event causing heartburn across the capital: the sequester, or the "little man who wasn't there."
For DOD, this means the request of $526.6 billion is $51 billion over the funds it now has available for this fiscal year.
Of course, the Pentagon and the administration are hoping the sequester dissolves in an outbreak of bipartisan good feeling that leads to a budget agreement sometime this summer. That good feeling has yet to show signs of life, with two budget resolutions in Congress that are miles apart and little incentive for either party to take them to a conference doomed to contention.
So we will have sequestration, probably through the fiscal year, setting a new baseline for DOD. That is not, in itself, a bad thing, but Secretary Hagel's budget ignores it. Instead, his budget assumes that the Army and Marines will stay on the path to the 490,000 and 182,000 troops already projected and the large "back office" can stay in place -- the 560,000 active duty forces who do not deploy, but are the "overhead drag" on defense efficiency.
There are other fictions in the defense request. Pay for these troops will grow one percent, which is lower than likely inflation. Perhaps, just perhaps, the fees retirees pay for healthcare will rise to something like one-tenth of what a non-military family of four pays for health insurance. A new round of base closures and consolidations has been requested. All things will not happen.
Why the fiction? Perhaps it is to punt the ball to Congress, where unreality seems to reign supreme. Let the Republicans increase defense at the cost of domestic spending, and run on that record in the 2014 elections. Make sure nobody can say the Democrats in the White House are soft on defense when those elections come.
But the curtain will have to be pulled from the fiction sometime this year; funding the government will not wait until next year. Once again, the appropriators may have to step in and the find the way to a spending deal nobody else wants to contemplate.
Defense budgets have been, and remain, a hostage to this larger budgetary discord. Rest assured that the man who isn't on the stair will keep reappearing until realism sets in and the few remaining grown-ups in Washington reassure us all that they can set a fiscal path that is clear and sustainable. Meanwhile, the fantasy in defense-land will continue. Real reform -- a smaller back office, pay and benefits policies that are affordable and sensible, hardware costs that are under control -- will have to wait.
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The federal budget is coming out next week. The defense part has been declared dead on arrival because it does not take sequestration into account, just works off of last year's request and projects about a 3 percent cut in the Pentagon's funding, year over year. It will go down farther.
But what is more interesting is the extent to which fear about defense is being replaced by realism about the sequester and declining defense budgets. Both may be more absorbable than the rhetoric has been suggesting.
The hyperbolic rhetoric about the sequester is starting to fade with the disappearing charm of Leon Panetta. There's a new boss in town, and the noises over the transom, at least, suggest that calm may be returning to Pentagon waters. Secretary Hagel is warning of "significant changes" and the need to confront them as budgets go down: "There's no way around it," he said last week. (Though I've got to worry if House Armed Services Committee Chairman Buck McKeon is happy with Hagel -- he's the guy who wanted the Senate to defeat the nomination a month ago.)
Realism is picking up steam in other places, as well. The Navy was going to keep ships in port, stop ship overhauls, and watch readiness tank before that full-year funding bill was passed. Now, with $4 billion more in operational funds than they had last year, it seems the Navy's worry-warts have been appeased and the planners can step in.
The chief of naval operations is on a more realistic message. Sequester is budget discipline: "It's causing us to make choices and prioritize anywhere from our operations to our maintenance to our investment accounts," Adm. Greenert told Navy Times.
Out there in the country, it seems "sequesteria" is starting to fade, as well. Taking a good look at defense dollars in California, Los Angeles Times reporter Jim Puzzanghera found that when you get away from the Aerospace Industries Association and George Mason Professor Stephen Fuller's "doomsday" megaphones, the local impacts of changes in defense spending are not that significant.
He quotes a regular student of the state economy, who points out that even beleaguered California has a $2 trillion economy, and it might face a $9 billion reduction in defense dollars.
I've been eyeing the California defense economy for more than 30 years, and the trend has been clear. Contractors started moving out of Los Angeles and planting stakes in places like Arizona and New Mexico more than 20 years ago. The bad news was they were leaving, and jobs went with them. The good news turns out to be that now when the defense industry starts to sniffle, LA does not catch a cold. Economic diversity has set in, and growth in other sectors has, over the years, filled the job hole.
Sometimes defense is just made to look bigger than it really is. Oh yes, the defense budget is large. At over $600 billion, how could it not be; it's the highest over the past few years it has ever been in constant dollars. That will help cushion the effect of the drawdown on the military -- there's lots of room for consolidation and choice.
But, all the models aside, it is not going to sink the economy. It just plain isn't as much of the economy as it used to be: nearly 10 percent of the Gross Domestic Product in the 1950s, to an average of 3.8 percent at the height of the Bush war effort over the past decade. Defense has stayed large -- very large -- but the economy has grown exponentially.
Fear makes a good story; realism and planning are a better reality. Maybe we're coming back to earth.
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It was a meat axe, Armageddon, a doomsday machine. It would sacrifice our military readiness, lead to America becoming a second-rate power. At least that was the Panetta version.
Nobody doubts that the sequester is a serious change in the vector of the defense budget, which would go down another 8 percent this year, as it rolls in over the Pentagon beach. And nobody doubts it poses management challenges to the Pentagon.
But after March 1, the Pentagon rhetoric cooled. The new secretary of defense took an adult view; sequester is a challenge to be managed, not the end of our national security.
He was helped by the passage of the new defense appropriation for FY 2013, which made it through Congress before the deadline of March 27. Almost every reporter who writes about the new spending bill is wrong -- it does not add any unusual flexibility to the Pentagon's normal spending practices, and, especially, it does not "shift funding" from the weapons and research account to the Pentagon's beleaguered operating accounts.
Instead, Congress largely passed the defense budget the administration asked for more than a year ago (yes, more than a year ago), which, quite rightly, asked for $12 billion more for the operations accounts (along with healthy funding for weapons and research) above the amount they had in FY 2012.
Congress actually reduced the president's budget request for military operations by $1.5 billion, leaving the Pentagon with $10.4 billion. But they didn't "shift" anything around to get there; they just provided most of what the president wanted in the first place. No gold star for Congress there.
But increasing the operations budget was exactly what the Pentagon wanted. And one payoff is that increasing this funding is starting to make sequester a bit more manageable.
The Emily Litella moments (remember, "Never mind"?) for the Pentagon are starting to appear. The Navy didn't send the carrier Harry S. Truman to the Gulf, but they did send a Littoral Combat Ship to Singapore.
Two of the services warned they would suspend funds for soldiers to take college classes while on active duty, but, after Congress and the soldiers jumped up and down on that and said no, the program was restored.
The Air Force announced it would have to suspend flying training for some air squadrons, but somehow found the operating cash to send bombers from the United States to South Korea in a show of force to the troublesome government of North Korea.
And this week, the biggie for the "never mind" observers -- those 22 days of civil service furloughs have suddenly become 14 days. A service or two actually wanted to suspend the furloughs altogether, but didn't out of solidarity with everyone else.
Maybe sequester is becoming what it was all along: a "BRAC" (base-closure process) for the defense budget. A kind of "hand of God" that came down from the sky and forced the Pentagon to make the choices it should have been making anyway.
I keep going back to what former Chairman of the Joint Chiefs Adm. Mike Mullen said when this defense drawdown began, more than two years ago: "The budget has basically doubled in the last decade. And my own experience here is that in doubling, we've lost our ability to prioritize, to make hard decisions, to do tough analysis, to make trades."
But even if the Pentagon survives sequestration, and it will, the long-term budget planners in the five-sided building have still not awakened to the reality it imposes. Reports are that the new FY 2014 budget request will ask for more than $526 billion, a tiny step down from FY 2013, but one that leaves out any consideration of the sequester.
Time to absorb the sequester message and plan accordingly.
U.S. Army photo by Staff Sgt. Teddy Wade/Released/DVIDS
The budget crunch on defense and foreign policy has me thinking: While Congress is off on its merry pursuit of Passover or Easter and the White House is preoccupied with bringing peace (again!) to the Middle East, this is a good time to think about how we really ought to engage the world.
Not the phony baloney about the "indispensable nation," attributed to Madeleine Albright and believed by too many in Washington. There are plenty of folks ready to dispense with us, especially after the travesties in Iraq and Afghanistan.
Not the "declining power," which is only the shadow side of aggressive, neoconservative interventionism. It's all about our power, you see. With it, we "shape" the international environment (or just write the rules ourselves when we are being really outrageous). Without it, global security is done for and anarchy will break out -- terrorists on all fronts, nuclear weapons on every corner.
How about some plain old common sense? The United States is just another country -- a big one, with big interests and big capabilities, but still just one in a world crowded with countries and problems that need to be solved. We cannot write all the rules; we can influence some of them. We cannot shape neighborhoods whose traumas and dilemmas are up close and personal to them (see Israel-Palestine, or China-Japan). Too often in the last 10 years we have tried to write the rules, only to create new adversaries or stir up old ones.
I am not making a plea for withdrawal, but for modesty -- modesty in ambition and expectations. It's a good moment for modesty. Everyone's resources are stretched; internal dilemmas (some with external instigators -- see Russian money and Cypriot banks for a nice synergy) are barking at every national and regional door.
Well, count me a wacko bird, who wants neither to intervene with the Marines or special operations forces, nor to withdraw, but rather to remain engaged.
I will add my own twist to the wacko-bird manifesto. As we define more modest engagements, we need to demilitarize our foreign policy machinery so that we don't define every issue as solvable with military force. The Pentagon and the uniformed military should not define the framework for our global engagement; they should proudly and competently support our statecraft.
We should be sending advisors to governments seeking to create effective, efficient, and accountable governance, not sending "security" trainers to beef up other countries' militaries and internal police forces before local civilian officials know how to handle them.
We should have a diplomatic and foreign assistance capability that can prevent and resolve conflict and advise on governance, not one that backs away from this kind of engagement and restricts itself to representing the United States and reporting on events. And we should use this capacity modestly, for the task is large and we cannot "shape" it either alone or in our image.
A changed perspective on how we engage the rest of the world is a big part of the answer to the endless thrashing about of the past 20 years. Liberal international interventionists have had their day, and paid the price. Conservative regime changers have shamed themselves adequately (though to read the reviews on Iraq 10 years later, there seems be a shortage of shame. Doug Feith? Really?)
Time for the wacko birds. Sign me up.
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Amid all the hyperbole about sequestration's impact on national security, it is interesting to note that, after next year, the defense budget will actually begin to grow again.
Makes no sense, you say? You thought sequestration cut defense? Indeed, it does. If you take the FY 2013 defense budget that was just passed by Congress and let the sequester happen, the Pentagon's funding will have been cut roughly 23 percent in constant dollars (including war costs) since it peaked in FY 2010.
But take a closer look.
Under the defense budget that Leon Panetta proposed to meet the "caps" that the Budget Control Act (BCA) originally imposed on discretionary spending, the Pentagon would get about $5.1 trillion over FY 2013-2021. But if the sequester holds, lowering those caps through FY 2021, DOD will get only about $4.6 trillion. In other words, sequestration will lower the military's projected funding by about $460 billion.
But, if you go year by year, the picture looks a little rosier. In FY 2014, the defense budget ticks down, again, about 2 percent below FY 2013 -- the first fiscal year subject to sequestration. That further reduction happens because in January legislators shoved some of the adjustment in the BCA caps off into FY 2014, instead of taking all of it in FY 2013.
Then, something interesting starts to happen. According to CBO scoring (the best in town, sorry OMB), the defense budget starts to go up again, about 2 percent growth per year. Take out the inflation, it creeps upward about half a percentage point every year from FY 2015 to FY 2021, in constant dollars.
This would be good news to the Pentagon. Of course, it would rather not have the sequester -- aside from a few Tea Party types, who does? -- but the automatic cuts sequestration brings are a one-time thing. Once we are in the FY 2014 budget-planning cycle, the Pentagon has less money but 100 percent planning flexibility. So it can actually make choices and move monies around without a meat cleaver over their heads. And, if the numbers hold, the defense budget will start to grow again.
The tricky bit for Pentagon officials is that they have to start cutting spending now. Unfortunately, the FY 2014 budget they are about to send Congress assumes that the sequester will be lifted. So when the budget comes, CBO officials (bless them) are going to say, hey, the new Pentagon budget for FY 2014 is something like $50 billion above its cap. And we will start the defense budget hysteria all over again.
Stay tuned for the fun.
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It is the budget war, and the Pentagon has not given up fighting -- to the point of creating an endless stream of propaganda-like appearances and news pieces, many of them circulated by the American Forces Press Service.
These cute 2-3 minute video pieces are usually introduced by a uniformed officer or senior enlisted person, as if they were straight news and information pieces. They have been clogging the Pentagon's Daily Digest Bulletin, and my in-box, for weeks.
They were highlighted last week by my colleague Mark Thompson, of the TIME Battleland blog with the title "None Dare Call it Propaganda." They tell the sad tale of the sequester's damaging impact on the DOD health system, the suspension of tuition assistance, the loss of readiness.
Sometimes they are right -- civilian furloughs would lead to lower income for the last seven months of the year and, as a result, lower contributions to a civilian's TSP account. Sometimes they are exaggerations -- Gen. Dempsey yet again telling us military readiness will fall off a cliff, when, managed properly, it will not.
And sometimes they are pure fiction. The fiction type appeared in Saturday's Daily Digest Bulletin with the alarming headline: "Sequestration Threatens to Force Service Members to Quit."!!! This postage stamp of a video (30 seconds) culls an excerpt from the visit to Ft. Lewis-McChord of Sgt. Major Bryan Battaglia, said to be a "top advisor" to Joint Chiefs Chairman Martin Dempsey.
Battaglia, on camera, says that one effect of sequester is that there will "probably" be an increase in the numbers of soldiers, sailors, and airmen "that will have to leave our force." The unnamed uniformed reporter in the piece then quotes unnamed "officials" as saying that while some force reductions are planned and others will happen by attrition, "many will simply be laid off."
It is hard to imagine a longer string of misinformation. Military personnel, their pay, and their benefits are exempt from the sequester; there ought to be no military layoffs at all as a result of the automatic cuts. Moreover, reductions in the ground force are already underway, independent of sequestration, returning the ground forces to roughly where they were before the addition of 100,000 troops to rotate through Iraq and Afghanistan.
That decline in the ground force is normal after a war, and not a result of the sequester. And it is likely to continue, as a consequence of a drawdown in the defense budget. Sequestration is not the cause; the drawdown is.
In all likelihood, the shrinking of the Army and Marines will happen by attrition, since we lose about 15 percent of Army enlistees every year. In the 1990s, the reduction of the overall military force by nearly 700,000 was accomplished largely by attrition. "Buy outs" come next, if the separation is involuntary. But pure layoffs almost never happen.
So I can only classify this report as propaganda: a message intended to inflame, but lacking analysis and seriously distorting the facts.
Make no mistake. We are in a defense drawdown. It's time to manage that process, instead of conducting silly propaganda exercises. And it's time for Secretary Hagel to bring some discipline to the American Forces Press Service, along with the rest of the Pentagon.
The Senate appropriators have been struggling all week to complete a companion bill to the one passed in the House last week, providing money for this fiscal year for DOD and several other federal agencies.
The disagreements and more than 100 potential amendments (easier to offer in the Senate than in the House) have delayed consideration into next week, but it looks likely that there will be an FY 2013 appropriations bill for the Defense Department before they adjourn for Easter.
Meanwhile, both the House and Senate Budget Committees have reported out longer-term budgetary plans -- the budget resolutions -- that look at FY 2014 and beyond.
There is a fundamental reality about what the Congress is doing, one on which Secretary Hagel must focus. The signals are clear: The Senate and the House are not going to use the appropriations bills or the budget resolutions to bail out DOD from the sequester and a long-term drawdown in the defense budget. Time to wake up and smell the coffee.
Flexibility to deal with sequestration was one such signal. The House appropriations bill did not give DOD any greater flexibility than it now has to reprogram or transfer monies between accounts. It did increase operations funding, like the administration had requested, which raises the baseline from which sequestration would happen. And it provided some legislative relief from provisions in last year's defense budget, which would have hamstrung DOD unless they got a new bill covering this year.
Sen. Barbara Mikulski made a more direct attack to provide transfer flexibility. But it failed, and the reason for the failure is significant: Unless every agency got that flexibility, it was clear that it was not going to pass. Defense was not going to get special treatment.
Signal two is in the budget resolutions. As I noted earlier this week, Chairman Ryan's bill folded on the hope that DOD might get more funding in the long-term than the Budget Control Act caps passed in August 2011. He tried that last year and it went nowhere -- it wasn't even useful to Mitt Romney, who argued in his campaign that DOD should get four percent of the Gross Domestic Product.
This year, he abandoned that trench for the next one: holding the line at the BCA level for the next 10 years. That's probably the high-water mark, because Sen. Patty Murray's proposal takes another $240 billion out of the BCA funding levels over the next ten years.
The administration is going to send up its budget, one day. Maybe in early April. And it is going to be a mythical beast that ignores the signals. It will hope for the BCA levels, which is just plain unrealistic.
Secretary Hagel is supposed to send out guidance for the Department's next Quadrennial Defense Review next week. If realism is going to set in at DOD, that guidance had better make the QDR a resource-driven effort and start looking at decisions and options at budget levels below the BCA caps. That would send the internal signal the services need to hear.
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Well, the first round in the FY 2014 budget wars has begun. The Republicans, led by Paul Ryan, have made their latest offer in the non-stop non-negotiation on taxes and spending. And when it comes to defense, the Ryan Express is true to form: full of empty boxcars and misleading data.
The goal of the proposed resolution is, as it was last year, to "protect defense." Now, to be fair, his defense number -- $560 billion -- is about $15 billion below his number in last year's resolution. Slight dose of realism there.
But basically the Ryan Express defense boxcar is empty of any contribution to deficit reduction. It seeks to reverse the sequester on defense spending, something it does not do on the domestic side, by holding the defense budget flat (last year's budget plus inflation) for the next 10 years -- as if sequester never happened and never would, either.
Not enough, says the Heritage Foundation; more than we need or the Defense Department will ever see, say I. That level of funding would give DOD more than $6 trillion over the next decade. Heck, they will be lucky to see $5.2 trillion, in my view -- or something like a 20 percent cut in constant dollars below that flat line.
And there is a really misleading number in the middle of Ryan's discussion of the sequester's impact on the defense budget. Ryan says: "Though defense is about 20 percent of the budget, it's absorbing 50 percent of the cuts." This assertion takes the Express right off the rails.
Defense is only 20 percent of the budget if he includes entitlement spending. But entitlement spending is virtually immune from sequestration. The sequester hits discretionary spending -- the funds the appropriators provide each year to the federal agencies. Defense is more than 50 percent of discretionary spending, which doesn't make the sequester formula look so unfair, after all.
But, then, Ryan wants it to look unfair, hoping the Washington data mavens will miss the subtle change.
This Express is not going to move very far, very fast. It returns us to pre-sequestration days and is on a collision course with what Sen. Patty Murray is crafting in the Senate Budget Committee as we speak. Stay tuned for the sounds of the train wreck.
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There were always two shells in the double-barreled shotgun aimed at the Defense Department. One was sequester. The other -- the one the Pentagon was really worried about -- was the continuing resolution that expires March 27.
Well, now, the Congress has just begun to unload one of the two barrels. Although sequester is still underway, the House has removed a big source of the Pentagon's "sequesteria" by passing a real appropriations bill for the Department of Defense and the Department of Veterans Affairs. (The rest of government will have to make do with the continuing resolution, which the bill prolongs through the end of the fiscal year.)
The bill, from the chairman of the House Appropriations Committee, Harold Rogers, did not attempt to fix the sequester -- as I predicted last week, that was too high a hurdle -- but it does make it easier for the Pentagon to survive. In writing a full appropriations bill, Rogers gave the Obama administration pretty much all the money it asked for in its request for crucial operational accounts. The bill increases the funds for operations and maintenance by more than $10 billion above the FY 2012 (and, thus, the continuing resolution) level.
That doesn't eliminate the sequester, but it raises the baseline from which sequester is measured for the accounts most directly affected. That gives some relief to the services, easing about 25 percent of the pain they see coming. And, who knows, if there is actually progress on the broader budget negotiations the president is lobbying for, the whole sequester thing itself might become meaningless.
That's the other big takeaway since we moved into sequester-land last Friday. Everybody is suddenly making nice. The president is phoning the Hill, even talking to Republicans. And Barbara Mikulski, the new chair of the Senate Appropriations Committee, wants to write a bill similar to the House legislation, perhaps providing real appropriations language for a few more agencies and departments, rather than just prolonging the continuing resolution for everyone but DOD and Veterans Affairs.
So the March 27 deadline that I argued was the real deal may go away quietly. Some kind of appropriations bill will pass before then, in all likelihood. And the Pentagon seems likely to get the flexibility and additional funds it needs to avoid some of the damage expected from sequester. That has not prevented the "doomsday drumbeat" from continuing at DOD, with sequester threatening everything from readiness to the Asian pivot, to nuclear strategy, to band concerts. But some politics die hard.
Gee, have we entered an era of peace and budgetary harmony? Not likely. Paul Ryan's budget resolution for FY 2014 is coming next week; a Senate version from Patty Murray will follow. They will differ. And the Obama administration will send up its budget someday -- rumor has it either March 25 or April 8. And "Debt Ceiling: The Second Sequel" will hit theaters this summer. Lots of targets if anybody wants to continue to fight.
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It has been said that the definition of insanity is continuing to do the same failing thing, hoping the outcome will be different the next time. A good part of the U.S. defense industry is clearly stuck in this pattern.
CQ/Roll Call ran a piece over the weekend that lays bare the time warp some contractors and their trade associations are stuck in.
The headline talks about how the industry is facing its "moment of truth." The content makes it clear that the industry, and its spokesperson, the Aerospace Industry Association, is far, far from facing the truth about the defense budget.
If this piece is any indication, the industry continues to live in a hermetically sealed box, telling itself its own dream-like stories, and expecting to be "saved" by actors on the Hill who are in the box with them.
The reality is that sequester is now underway, not because the industry lobbying campaign failed in some technical way, as some in the industry seem to think. Millions of dollars ($27 million in campaign contributions alone), numerous road shows (McCain, Graham, and Ayotte visit carefully pre-selected friendly audiences), thousands of interviews (will Buck McKeon ever sit down?), factory-floor lobbying, visits to the Hill -- they were all done to a fare-thee-well. These are tried and true lobbying techniques, which I described at length in my 1980 study, The Iron Triangle.
But the techniques only work if the message is in tune with the voters at large and the majority of the members of Congress. The industry's problem is not technical, it is the failure to recognize we are in a defense drawdown. The budgetary party is over.
Defense budgets rise and fall in response to changing international and political conditions. And those have changed dramatically: The end of the war in Iraq and the coming end of the war in Afghanistan lower significantly the level of public and congressional attention and concern about national security.
And some in the industry seem not to have noticed that we are in a major budget battle, and have been for two years. It is a much bigger battle than the one over the defense budget; that smaller fight is a side show. And as long as some Democrats do not want to change entitlements and Republicans do not want to put tax expenditures on the table, the drive-by budgetary victim of that battle is discretionary spending.
Last time I looked, defense was about 55 percent of discretionary spending, and the third largest cause of the U.S. debt more than doubling since 2001. Of course it is on the table; does the industry still think it is going to get a pass?
The days of ever upwards on defense are over. Sequester or not, defense budgets are going down and sequester just accelerates the pace. The industry should be prepared for the projected defense budgets over the next 10 years to fall at least 20 percent in constant dollars, or roughly a trillion dollars from the current forecast of more than $5 trillion.
When the industry still tries to argue that Leon Panetta "cut" defense $487 billion over 10 years, when all he did was flatten the projected growth in defense, leaving it to grow with inflation, they are not being realistic.
When they think Rep. Harold Rogers, the appropriations chair in the House, is going to save their bacon by giving DOD flexibility on sequester, when that will never survive the Senate, they are not being realistic.
When they think just a little more money to the Aerospace Industries Association to fund more misleading studies about the jobs impact of sequester will be adequate to turn the public around, they are not being realistic.
The realistic companies have been coping for two years: attrition and layoffs, buying in capacity they used to contract out, selling divisions that are less strong in a declining market -- they know what to do. The rest of the industry seems to be howling into the wind.
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As we step onto the stage for the next act of the budgetary drama, things seem to make less and less sense. The budgetary solution shimmers on the road ahead, then evaporates as members of Congress repeatedly present legislation that either cannot pass or will not meet the needs of the other chamber.
Only the world of theater can provide the metaphors that describe where we are.
For the last two years I have been describing the budgetary point and counterpoint, the moments of high drama and unresolved outcomes, as an Indonesian shadow play. The budgetary players are actors manipulating two dimensional puppets, backlit through a white sheet. To the audience, the puppets seem real, the actions seem productive, but in the end it is a show.
Today, we have graduated from the shadow play and have entered a more surreal, or even nihilistic drama.
Might we be in a Pirandellian world, where six players (Boehner, Pelosi, Reid, McConnell, the president, and his veep) desperately try to figure out what the script is, what their roles are, and search for a playwright who can get them off the stage.
Or are we in the Sartrean world of No Exit, where nobody can get out of the room and the players all look smaller and smaller in each others' eyes?
Perhaps it is a Beckettian universe, an apparent Endgame which does not end, but is a series of meaningless interactions that end where they started, but actually went nowhere.
Or even the more nihilistic world of Macbeth, where the characters have become poor players who strut and fret their hour upon the stage and then are heard no more. Players who have been weaving a horror story in the sky that is, in the end, a "tale told by an idiot, full of sound and fury. Signifying nothing."
As John Boehner refuses to talk, the president shouts into the Learian wind about the storm to come, and senatorial fingers point at each other, we are, perhaps watching the surrealistic world described by Ionesco in the Bald Soprano. We can only exclaim, as his players do: "How curious! How bizarre, and what a coincidence."
How interesting to watch; how little to behold; how invisible the outcome. Only dramatists could improve on this "reality."
Welcome to the Pentagon, Mr. Hagel. And, by the way, it's one more day before doomsday, before Armageddon, before the meat axe falls on the Pentagon.
Wait a minute. How could you possibly say this on your first day there: "It's the uncertainty of the planning, it's the uncertainty of the commitments, the uncertainty of what's ahead. We need to figure this out....We need to deal with this reality."
Didn't you get the memo Panetta left behind? Did you really retire the meat axe metaphor? On your first day???
How utterly refreshing! Send out a new memo. Remind the chiefs that the secretary is in charge; he is the decider. Remind them that they are to give you their best options. That they are to give you advice, not selection A on the menu, without disclosing selections B and C.
Before they rush up to the Hill once again to plead their case, remind them that they have to clear their testimony with you, with the civilian, with the secretary. That perhaps, just perhaps, a sequester, while a miserable way to run the Pentagon, may be something they need to learn to manage, not complain about.
When I read the remarks you made as secretary, my first reaction was, "how bland, there's nothing here." Then I thought about it. Yes, bland may be the best place to be -- bland, disciplined, and ready to do the job. Perhaps that's the best way to start.
Your job one is not Iran, not North Korea, not even Afghanistan. Your first job is management, and getting discipline back in the way we do our defense business. It hasn't really been there since the late 1990s. Budgets just grew like Topsy, and, with that, as Admiral Mullen said in January 2011, the building lost its ability to make the tough choices and set priorities.
Well, that's no longer an option. Budgets are already down 10 percent since FY 2010. The drawdown is here, sequester or not. So, here are your priorities:
Job one: See if you can convince the White House that flexibility is what you need, not more money. (And every federal agency should get it, not just the Pentagon.)
Job two: Work with Congress to settle the FY 2013 level of spending. If it is at the continuing resolution level, live with it.
Job three: Living with it means getting your arms quickly around the forthcoming Quadrennial Defense Review, the planning for which is just getting under way. Do the revolutionary thing: For the first time since 1993, make the review into a resource exercise. As Bernard Brodie put it years ago, "strategy wears a dollar sign."
Use that shrinking dollar sign to discipline the QDR. Strategy, yes, but within the resources we have available, not a blue-sky exercise that calls for everything the services can imagine they need. Discipline the analysis of risk in a world that poses no existential challenge to the United States. Measure carefully when and where the United States intends to engage its forces.
Use the QDR to force weapons systems choices and cost controls. Use it to shrink the back office -- the biggest in the world. Find your "bloat brush" and use it to scrub down unneeded offices, duplicative activities, excess staff. Bring the pay and benefits problems into the review and put some tough, but necessary, proposals before Congress. Make it clear to Congress that they have a choice: combat capability or an excessive infrastructure that needs another base-closing round.
The QDR is your best tool; it is there right now. The resource shrinkage is your friend; use it to put real choices on the table.
It's entirely OK with me if the rhetoric goes away, as long as the next step is quiet discipline that produces an even higher quality force that is cost-effective.
In all the festering about sequestering, one thing sticks out like a sore thumb: the Navy's decision not to deploy a second carrier to the Gulf -- a decision it is blaming on sequester.
All the other possible disruptions make sense: Civilians could see a part-time furlough, term employees might not get renewed, services contractors might be put off. But the decision to keep the USS Harry S. Truman in dock is odd.
Yes, the costs of running the Truman are part of the Navy's $59 billion operating budget, and it is operating budgets that are targeted in sequester. But that is the biggest part of the Navy budget and, by the way, the most flexible target for sequester. Defense officials have room to move funds at will in that account, even under sequester.
So why that carrier, why two days before it was due to deploy? The Navy could have kept other, less visible ships at home -- like the littoral combat ship Freedom, sailing now to much-threatened Singapore. It could have lowered readiness requirements for other parts of the fleet, or stood down a training cycle.
Rear Adm. John Kirby put it this way: "Could money have been found somewhere, anywhere, to pay for the Truman's deployment? Maybe. But without the ability to transfer money from other accounts, there aren't many places from which we could have taken it without a greater cost to readiness elsewhere."
That is nonsense. The Navy does have the flexibility Adm. Kirby says they lack -- the whole operations account is trade space under sequester. And what cost to readiness where? The Navy doesn't tell us what the cancellation of this deployment allows it to protect.
It seems likely that given overall operating tempo for carriers (one at sea, two in port), deploying two was going to stress the fleet, anyway. And the requirement for two carriers in the Gulf was, and should be, subject to review, sequester or not. So maybe the timing was just serendipitous. We were going to go to one carrier anyway, and with sequestyria the order of the day, what the heck, why not offer it up now?
The Navy could have made other choices, as Adm. Kirby acknowledges. But this one was going to get attention.
Mass Communication Specialist 2nd Class Ryan D. McLearnon/U.S. Navy via Getty Images
In the absence of the Congress -- now in recess -- the Army, Navy, and Air Force have continued to litter the universe with more confetti about sequester. For those of you familiar with Carl Builder's masterful study of military service culture, these recently released documents are a fascinating look at the different cultures of the three largest military services.
The Army document is classic Army. Fifty-five pages long, it marches a division, step-by-step, through the purported impact of sequester on every state in the Union. It is an overwhelming show of force, as recommended years ago by Colin Powell. And it says these terrible things will happen: "every base will be affected," and the Army "is taking action."
The Navy document is more succinct -- only 11 pages. And it is more honest. While it describes impacts, it also calls them "representative in nature" and "potential." It does not say these things are being implemented and it more carefully lays out the assumptions that lead to the impact. The tone is cautious and independent, like the Navy.
And the Air Force document is classic Air Force: one page, blunt, and in your face. A simple map of the United States, with data, state-by-state, of civilian furlough numbers, lost pay, and facility projects cancelled. No text, just the facts, ma'am. Like a quick air strike on a communications node -- accurate kill, as needed.
The trouble is, of course, that sequester has not happened. The secretary has not made choices; priorities have not been allocated. But the services have been let out to make the worst case they can. Only the Navy is straightforward in saying these are "potential" impacts, and that is true not only because sequester has not happened, but because the decisions and prioritizations have not been made.
Meanwhile, one wonders why these things are the outcome, and not others, in case of sequester. For example, Tom Vanden Brook in yesterday's USA Today highlights serious doubts about the Army's $250 million program to put otherwise inadequately employed social scientists out in the battlefield to assess the "human terrain." The program is not clearly value-added, commanders think, and internal Army documents apparently reveal incidents of sexual harassment, racism, and possible fraud.
The program is doubtless funded in the same operational accounts where cuts would purportedly hit the same civil servants the Army sequester briefing warns about. In the priority-setting process, it is a perfect candidate for elimination, and all the services have the flexibility, under sequester, to make such a choice. I would readily trade a civil servant's furlough for getting rid of social scientists used in this way.
The underlying problem is that the service briefings are not plans, they betray no underlying decision-making or prioritization. They are political documents, intended to instill fear and to bring politicians to the table.
And they are not working; for all the cacophony, almost everybody in Washington thinks we will blow through National Sequester Day (March 1), issue furlough notices (DOD's go out today, in advance of sequester), and lay out a menu of cut-backs.
Then the Congress will spend March focusing on the real issue: FY 2013 spending levels and what happens by March 27, when the current continuing resolution expires. Sequester madness will step aside, and the real budget battle will get under way.
If the services are lucky, they will get funding pretty much like the past fiscal year. And Congress may provide them with more flexibility to allocate those funds than the sequester would. Then the services would have to do the real management job, instead of the Washington Monument closings they are sending out now.
U.S. Air Force
Everyone is talking about the proposal Senate Democrats are putting forward to avert a budget sequester on March 1. No text has been released yet, but this fact sheet makes it clear that this allegedly bold proposal is simply a duck. It avoids the key issues in sequestration -- especially the need for discipline in the defense budget.
Apparently, the bill would change both revenue and spending plans to provide the $110 billion in budget savings the original sequester would impose this fiscal year were it to go into effect. Half of that amount would come from changes to the tax code -- notably from adopting the so-called Buffett Rule, which would tax income in excess of $1 million at a rate of at least 30 percent.
The other half of the savings -- $54 billion -- would come from equal cuts to defense and non-defense agencies. That should mean $27 billion in defense savings this year. That would be a significant reduction, though less than the $42.5 billion cut the sequester would compel.
But, there is a dirty little secret in the bill: Neither the $27 billion in defense savings nor the $27 billion in non-defense savings would happen this fiscal year. Instead, the bill sneaks those reductions into future budgets, just delaying the pain. The defense budget would not be cut at all in 2013.
If you don't believe me, read the language in the fact sheet (I italicized the key parts):
The American Family Economic Protection Act fully protects the Defense Department, like other Federal agencies, from sequestration until January 2, 2014. Throughout 2013, no sequester would be implemented, and the existing limits on security-related spending would continue to apply.
Twenty-five percent of the overall costs of suspending sequestration would be offset by very modest reductions in the overall level of defense spending in the future. These reductions would total $27.5 billion, or 0.5 percent of defense spending between Fiscal Years 2013 and 2021. The reductions would not begin until Fiscal Year 2015, when the war in Afghanistan is expected to end.
The cuts would be spread out in relatively modest increments over 7 years, through Fiscal Year 2021, and would allow defense spending to increase by at least two percent in each of those years, even after the reduction. The reduction would be about $3 billion in Fiscal Years 2015 and 2016, and then would rise slowly to a high of about $5 billion in Fiscal Year 2021.
This is a pure, unadulterated duck on disciplining defense this year -- a larger version of what Congress did last month, when it ostensibly cut defense $12 billion in FY 2013 as it deferred sequestration to March 1. In truth, it postponed $8 billion of that reduction into FY 2014. (And why would defense go up later on, according to the fact sheet? Because we have not yet cut defense. The Panetta projected budgets continue to grow; his "cuts" were from even higher projected growth.)
There is no running away from the reality that disciplining spending means actually, well, disciplining spending. And the Defense Department faces this kind of discipline this year. The Democratic proposal is going nowhere; it will not even pass the Senate. But it doesn't confront the budgetary reality; it looks, walks, and quacks like a duck.
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The big weapons have moved in. On February 13, the chairman of the Joint Chiefs of Staff went over the top of the trench, grabbed the biggest artillery piece he could find and charged the enemy, saying a sequester of the defense budget on March 1 would "upend our defense strategy," leave the U.S. open to "coercion," and force us to "break our commitments" to the troops, the defense industry, and our friends and allies.
What is this, a Saturday Night Live sketch? No, just another piece in the confetti-laden ticker tape parade the service chiefs and the chairman are leading around the friendly confines of the Armed Services Committees to beat back a sequester on defense.
He may convince the already-convinced members of the committee, but the almost comic rhetoric should not fool anyone else.
Let me say it again: Sequester would pose serious management challenges to the Department of Defense, no doubt about it. But the U.S. military is a dominant force, with few challengers. It is the only force capable of global sailing, flying, and deployment. The only one with global logistics, communications, intelligence, transportation, and infrastructure. It costs five times the that of the Chinese military, and accounts for 40 percent of the spending on all world militaries combined. It spends more money today than it ever has, in constant dollars.
They are an awesome bunch, and everyone around the world knows it. There is no way a sequester would leave this force or the country open to coercion.
Losing 10 percent of the planned resources in one year will change none of that. Properly managed, even sequester would be survivable, leaving a dominant military capability. Nobody has to revisit strategy -- the pivot to the Pacific would happen anyway, and, frankly, is more a matter of moving things around than adding new military kit to the region. We have left and are leaving the two big combat operations, substantially increasing planning flexibility -- every other deployment (Sahel, Horn of Africa, Philippines) involves a tiny fraction of the overall force.
And as for that "commitment" observation, pay and benefits for the troops are untouched by sequester, leaving the commitments intact. And the industry figured out two years ago that the defense budget was going down. They have been consolidating capacity, shrinking the workforce, bringing subcontracted business in house, selling assets for two years. Only this year are these long-term, sensible decisions being blamed on sequester; they were already happening and will continue to happen, with or without sequester.
And our friends and allies? In Europe they have already figured out that defense requirements need to be balanced off against broader fiscal and social needs, as we are only now doing today. And in Asia, a number of allies are starting to do exactly what we have been asking them to do for decades: Assume more responsibility for their own security. The United States will still be around, nonetheless.
But we must be in another act of the budget battle. The military has been pushed into the point of the spear as part of the pressure to get to a deal, so hyperbole commands the stage. Personally, I can't wait for the show to end.
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The president warned about sequester last night in his State of the Union. The service chiefs are marching around Capitol Hill crying doom and gloom. The defense industry is once again decrying the impact of sequester on employment and the economy (well, their part of the economy). As we approach March 1, the cacophony on sequester is growing. And, after more than a month of being asked by the White House to keep silent, the domestic agencies, which are actually seriously affected, have begun to speak out.
Last week, the White House released a "fact sheet" about the impact of sequester on jobs, families, and the economy, which, rightly, made absolutely no mention of the impact on defense. The domestic impacts would be severe: For a time the FBI would lose the equivalent of 1,000 agents; the Justice Department would lose lawyers; the Food and Drug Administration would lose staff who approve new drugs and ensure food safety; the International Trade Administration would lose export promoters; the IRS would lose tax responders during tax season; the Occupational Safety and Health Administration would pull inspectors for a time. You get the idea.
These consequences are the result of anticipated furloughs of federal employees. Asked if he could give a precise number of federal employees and contractors who would be affected, the controller of the Office of Management and Budget said he could not: "I just know it's high; it's in the hundreds of thousands of employees, but I don't have a specific estimate."
These are serious impacts and they hit domestic agencies particularly hard because non-defense agencies are personnel heavy. Non-defense agencies employ roughly 2 million civilians, and buy about 25 percent of what the entire federal government buys. The Department of Defense, on the other hand, employs only 800,000 civilians, and consumes the other three-fourths of total government buying. Yes, DOD has a lot of people, but the wages and benefits of the 1.5 million people in uniform are exempt from sequester. Nearly a third of the defense budget is tied up in contracts for research and production performed in the private sector. While sequester would reduce future funds for contracts, the automatic cuts will not affect dollars that are already obligated.
For DOD, this means sequester hits civilian personnel and services contractors, who often work on so-called Indefinite Delivery/Indefinite Quantity (IDIQ) contracts. (That means the agency buying the service has the capacity to ask the contractor to do work, but it is never clear when or for how much, making IDIQ contracts a likely target for sequester.) At the Pentagon, this will mean reduced funding for operations and maintenance.
That account includes the DOD "back office," which is both large and filled with duplicative efforts. Defense officials can do things like eliminating separate surgeons-general and administrative stovepipes for health programs before making dramatic flag-waving decisions like delaying the deployment of a second carrier to the Gulf. And the sequester rules make such a choice entirely possible; the building has known it for months.
For the domestic agencies, it is tougher sledding. While Social Security and Medicare are exempt from sequester -- so benefits will continue -- the staff providing programs and benefits will be spending an unpaid series of Fridays at home. The things Americans have become used to getting from their government -- services, for the most part -- are also likely to slow down.
Until last week, we only heard the complaints from DOD, the agency with the largest exemption and the greatest flexibility in managing sequester. As I suggested last week, the administration seemed to figure that the squealing from DOD will get Republican attention and end the sequester sideshow. Perhaps now they are broadening the focus to areas of more severe consequence, to help focus Congress on negotiating a budget solution.
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You can see it in the charts.
Ships won't sail, tanks won't be repaired, troops at the front won't have bullets. Summing it all up, America will become a second-rate power, the outgoing secretary of defense said at Georgetown last week.
On Tuesday, the service chiefs will scatter themselves all over the Hill to spread the gospel, telling the Senate and House Armed Services Committees how truly, truly awful it will be if they lose 10 percent of their budget this year.
It's overwhelming. Or, it was, until I started reading a paper delivered by Richard Kohn, professor emeritus from the University of North Carolina, former Air Force historian, and one of the most respected students of civil-military relations in the country.
Kohn makes a fundamental point: The military today is exceeding its mandate in publicly lobbying for its budgets and intruding into the debate over the U.S. role in global security. He argues that "this willingness -- indeed, in some cases eagerness -- to strive to shape public opinion and thereby affect decisions and policy outcomes is a dangerous development for the U.S. military and is extraordinarily corrosive of civilian control."
Kohn asks the tough question: "Is it proper for the four services, the regional commanders, or the Joint Chiefs every year to advocate to the public directly their needs for ships, airplanes, divisions, troops, and other resources, or their views on what percentage of the nation's economy should go to defense as opposed to other priorities?"
Put another way, in the policy universe, the military service chiefs are risking their credibility by such naked promotion of their budgets and service interests. Yes, and they've been doing so for about 15 years now, encouraged by a Congress fighting partisan warfare.
In fact, what stimulated me was a footnote in the article -- a footnote that sounded so strikingly familiar that today began to feel like déjà vu all over again, as Yogi would say. It was the headlines that grabbed me: "New Commandant Intends to Push for More Resources for Pentagon"; "Marine Commandant Calls for Defense Spending Increase"; "Outgoing 6th Fleet Commander Warns Fleet Size is Too Small"; "Admiral: Navy Pales to Past One"; "Senior Navy Officers: ‘We Need More Ships, Planes, Subs'"; "Budgets Need to Support Our Tasking"; "Help Keep This The Greatest Navy." They're all from 1999 or 2000.
Sound familiar? Listen to what the service chiefs say Tuesday and it will. There is never enough; the budget can never be cut; we are losing our edge; sequester will weaken our military power.
The secretary should have reined them in, not unleashed them. The test for the services is not how well they advocate, nor how thoroughly they exaggerate the consequences of choice-making, nor how public they become. The test for the next secretary is how truthful he will be and how firmly he sets the tone for the department and the service chiefs. And the test for Congress is whether it can set partisanship aside and stop pulling the service chiefs into the fray as battering rams to flail away at the other side.
One can always hope.
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Former Undersecretary of Defense Michèle Flournoy weighed in Tuesday on the debate over the defense budget. While her comments are useful, her recommendations would not really help the Pentagon deal with reductions that could be 20 percent below the spending levels it had projected for the next 10 years. The problem is that to cut defense, you need to actually cut defense -- including things Flournoy says should be untouchable.
First things first. Flournoy writes that we have a terrible post-war record on defense drawdowns. "Almost all have resulted in a ‘hollow force' -- too much force structure with too little investment in people, readiness and modernization," she writes. Secretary Gates said the same thing; so did Secretary Panetta. Fortunately, this is not right; fortunately, because it is possible to manage a drawdown successfully.
As someone who was there for the last one, in the 1990s (as was Flournoy, actually), I can vouch that the management of that drawdown, including readiness investments, did not lead to a hollow force. The drawdown of the 1990s was begun by Secretary of Defense Dick Cheney and Chairman of the Joint Chiefs of Staff General Colin Powell. It established a smaller force, invested in the readiness of that force, and, even with a "procurement holiday" (appropriate after Reagan had filled the services' hardware coffers in the 1980s), continued to equip it well. (The C-17 and F-22, for example, both moved along to production.)
The 1970s drawdown did have a readiness problem, exacerbated by the transition from a conscript to an all-volunteer force. It remained, however, a globally dominant force. And the Eisenhower draw-down did not sacrifice readiness; it chose to base U.S. defense strategy on strategic nuclear capabilities, with a smaller ground force. But it was ready, not hollow.
Regardless, Flournoy's prescriptions for managing the drawdown now under way will not get us to where the budget is going. She says past drawdowns failed "because the easiest way to reduce Defense Department spending quickly is to enact across-the-board cuts in military end-strength, operations and maintenance, and procurement -- solving the budget problem on the back of the force rather than on the department writ large." The problem is that these are precisely the categories of spending that must be drawn down. They constitute, after all, 96 percent of the defense budget. If you take those accounts off the table, it is not clear what is left -- they are "the department writ large." That's why they are cut in a typical drawdown -- and why they should be cut now.
Flournoy's suggestions for where to cut are good, but they won't get us very far toward managing the drawdown:
In the end, a smart drawdown requires that we address those parts of the budget that Flournoy takes off the table. We need a smaller force, procurement priorities, and serious constraints and priority-setting in the operations and maintenance account. Now that would be a realistic drawdown!
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You think the Pentagon would learn. But, no, there may even be a payoff in being ill-behaved on your spending: when you get into deep trouble you made for yourself, you just take yourself hostage and threaten to pull the trigger.
Two years ago, then-Chairman of the Joint Chiefs Adm. Mike Mullen warned that "the budget has basically doubled in the last decade. And my own experience here is that in doubling, we've lost our ability to prioritize, to make hard decisions, to do tough analysis, to make trades."
Seems like the Pentagon didn't get the memo and has been overspending its allowance. According to a Politico piece today from David Rogers, one of the best budget writers in town, DOD decided last September it would just keep spending on operations at the rate they had asked for in the FY 2013 budget request they sent to Congress a year ago.
Some kind of denial must have set in. The continuing resolution funded DOD through March 27 of this year at the FY 2012 rate, which means the 9 percent growth in operations spending the Pentagon wanted was not on the table, not yet.
Apparently, the Pentagon "bet on the come," assuming sequestration would not happen, and has merrily been funding operations (training, exercising, equipment maintenance, fuel purchases, services contracts, and, yes, operations in Afghanistan) as if the FY 2013 budget request were real.
Haven't they been watching? Even if we don't have a sequester, every analyst in town and on Wall Street has been saying the FY 2013 request is the best the Pentagon will do, and cuts are extremely likely, as part of a budget settlement.
Seems a bit irresponsible to spend when you know the money will not be there. Or is this a bizarre form of hostage-taking: if you don't do what I want, I will shoot myself...
Now, of course, we are being treated to round two of the "shoot myself" scenario, with dire, and highly vocal threats that we are headed for a readiness crisis of grand proportions. Readiness, which can be a refuge of scoundrels (especially when they don't define it), is funded largely in those same operations accounts. (See Panetta and Dempsey on the Sunday talk shows.) As I have already noted, this supposed crisis is way overstated, even though managing sequester levels of funding is a challenge.
Overspending your allowance is one way to get there, though. And the continuing resolution set a pretty clear level for the allowance. Overspend, and you run out of money earlier. And have to pull the trigger, especially if you are trying to prevent losing more money through a sequester.
Too cynical? Adm. Mullen was pretty realistic about the Pentagon's management problem. Either they did not hear him, or just willfully decided to ignore him and scream for help when they got into trouble.
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Gordon Adams tracks the budget and the national security establishment for FP.