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.
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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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 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."
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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Putative secretary of defense Chuck Hagel had his baptism-by-fire yesterday at the Senate Armed Services Committee. It was all theater. One of its most striking features was the absence of almost any serious attention to the challenge he will actually face if he is confirmed: the management of a defense drawdown.
No senator focused on the Pentagon's long-term budget and management challenges. Not one. While a few asked about the looming sequester, the answers were anodyne. Only Sen. McCaskill asked about whether the department needed to have an auditable financial statement by 2017.
There was no discussion of the challenge of getting the costs of weapons procurement under control. Instead, senators from Connecticut, Colorado, Maine, New Hampshire, and Virginia all wanted to be reassured that the defense programs in their states were key to our national security, the top priority of the Pentagon, and protected from budget reductions.
There was no discussion of how to restrain compensation and benefits costs at the Pentagon. There was precious little interest in the programs that deal with the transition of veterans and returning soldiers. Aside from (rightly) honoring Hagel for his service in Vietnam, the people in the military were not a central focus.
And there was virtually no attention at all paid to the critical, long-term management challenge posed by the explosive growth of the Pentagon's "back office." The administrative part of the military bureaucracy has roughly doubled in cost per troop over the past 15 years.
When it came to sequester, the focus was on keeping it from happening, because of the pain it would allegedly cause. The senators have clearly been listening to the campaign being conducted by the service chiefs over the past two weeks, a campaign saying that sequester will cause U.S. military readiness to fall to security-threatening low levels. And, of course, Senator Hagel simply adopted the Panetta rhetoric that sequester would be a "disaster."
But we need to be cautious about this campaign. The service chiefs have been announcing specific, horrific things would happen as a result of a sequester -- docked ships, lowered brigade readiness rates, an end to equipment maintenance. Maybe. But maybe not. The chiefs are suggesting these consequences before they have actually submitted plans for the sequester to the deputy secretary of defense.
Those plans are due today, Feb. 1, but they have no official standing at all. Seems to me the deputy might have something to say about these steps, before the consequences can be announced.
So maybe, even here, we are watching political theater. And the service chiefs are running this show during a transition, while one secretary leaves and another is not yet confirmed. Convenient timing to shape the debate before Hagel arrives? I would be shocked -- shocked! -- to learn there is politics going on in this joint.
It is a pity that the Senate Armed Services Committee decided to avoid the long-term drawdown and the management challenges it actually poses. These are the problems Hagel will really face when he gets to the five-sided building: managing a drawdown safely and intelligently. These are the questions that should have been front and center, instead of the show we saw.
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It appears there are second acts, or is it a third? Jim Rutenberg in the New York Times on Sunday described the "dramatic return to the public stage" of the neocons, who hope to finish off Chuck Hagel's nomination with theatrically embellished claims about his stances on Iran and Israel.
There would be no such drama and no return to the stage but for the eagerness of media editors to stimulate the appearance of a conflict. These folks -- the William Kristols and Elliott Abramses of the policy right -- should be condemned to the dustbin of history for their fatally mistaken fantasies that left a deep, lasting, and negative legacy for U.S. security interests and goals around the world. Kristol is certainly no "mainstream internationalist," as he tries to repaint himself in the Times story; he is a policy extremist, one among many who caused this damage over the past decade.
They fantasized hegemony -- that the 21st century would be an "American century," with U.S. military power ensuring dominance, stability, and the ability to shape events around the globe. But the 21st century, as a recent National Intelligence Council report makes clear, is a global century, with changing coalitions and rising powers, not ours to dominate.
They hoped that sending American men and women in uniform into Iraq in sheer ignorance of the political and cultural conditions on the ground would instantly install democracy (it didn't), eliminate a sponsor of terror (it was not), and end a threatening program of weapons of mass destruction (there weren't any).
That a surge left in place a shaky and hardly democratic regime and a country in shreds is no victory; it is escaping a bad situation without tar and feathering on the way out. They screamed that we should have left troops there to prevent disintegration, ignoring the reality that the presence of U.S. troops could only delay a resolution of Iraq's historic and internal cultural conflicts, at the cost of a continuing loss of American life.
They hoped to eliminate the Taliban as a host to al Qaeda by invading Afghanistan. They accomplished about a third of that task (throwing out the Taliban, but not eliminating it) and then completely dropped the ball in their eagerness to take on Saddam Hussein.
The Taliban returned, the new government sank into the cesspool of corruption too common in that country, and the Obama administration is now coming to terms with the reality that more American soldiers cannot reshape Afghanistan (any more than the Russians or the British could), and it is time to come home.
And it took a focused, disciplined effort on the part of a non-neocon administration to find and eliminate Osama bin Laden, a mission at which the neocons had failed miserably.
Now the chickenhawks are gearing up to send U.S. soldiers into the field again, this time into Iran. For them there will be no staying the hand of an Israeli government determined to go to war; America's fighters must pay the price. They worry that Chuck Hagel might not share this new fantasy.
Have they no shame? Clearly not. Not a lick of embarrassment crosses their faces. It is as if the past does not exist; it's as if they could airbrush the last ten years off the map of history and the nation would forget. Sadly, too many members of Congress are prepared to bluster with them.
I have been clear that I would like some very tough budgetary and managerial questions to be put to the nominee for secretary of defense. Even if he is not deeply steeped in the internal workings of DOD, and he is not, it will be critical for him to focus on managing a defense drawdown in a responsible and balanced way, and not to become a pure mouthpiece for "more" or "holding the line." For a drawdown is surely underway.
But Hagel is vastly more qualified than some to be secretary and certainly more focused on the world as it is, not as the neocons fantasize it to be. Their fantasies have damaged America's reputation, its ability to lead, its national security interests, and left too many soldiers and their families dead or damaged beyond repair.
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For more than a year, certain members of the U.S. Congress -- Rep. Buck McKeon, and Sens. Lindsey Graham, John McCain, and Kelly Ayotte -- aided and abetted by the Aerospace Industries Association, have been beating the drum of fear about the impact of a sequester on our nation's defense. They have all been wrong for more than a year and, for the most part, they have been talking in an echo chamber. Only other "defenders of defense" are listening.
The rest of the country seems to understand that with defense spending at an historic high and the wars in Afghanistan and Iraq ending, it is inevitable that the defense budget will come down and will do so with little impact on the global dominance of the American military.
This has not stopped the "defenders." Senator Graham went over the top again on Fox News Sunday. According to The Hill, he claimed that Defense Secretary Leon Panetta told him on Saturday night that a sequester "will be shooting the Defense Department in the head and we'll have to send out 800,000 layoff notices the beginning of the year."
Panetta probably did not say this. But Graham chose to take appropriate prudence at the Pentagon and spin it into hyperbole as part of the last-minute effort to keep the defense budget away from the fiscal and spending cliff.
Graham is dead wrong. Military personnel are exempt from a sequester, so no uniforms will be affected by these budget cuts. Graham has already been wrong for a year in asserting that 1 million industry jobs will be lost -- contractors are working on contracts that have already been funded, which by law are untouched by the sequester.
I have been saying for some time that the rules of the sequester make it likely that some civilian Pentagon employees could be furloughed for a short time to save resources in DoD's Operations and Maintenance accounts. What Panetta probably said was that if the sequester happens, he will notify all the civilian personnel at the Pentagon that some of them could be subject to furlough, as the department figures out how to work with 10 percent fewer resources than originally requested.
That is a prudent move. If spending cuts happen on Wednesday and are not fixed by the Congress over the next couple of months, there are likely to be furloughs. Estimates differ, but furloughs could affect as many as 100,000 civilian employees, or one eighth of the Pentagon's civilian staff. Not a pretty way to manage, but, with the Pentagon employing more than a third of all the civil servants in the government, inevitable and, above all, manageable.
Graham's last-minute thump on the drum of fear is just another example of the hyperbole with which he and his group have tried to keep defense out of the effort to rein in spending and raise revenues. Maybe he imagines that fear is more effective than fact at this late stage in the negotiations.
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The dance performance at the edge of the cliff continues. Boehner offers to let taxes return to their pre-2001 level for the very, very rich. The president counter-offers, putting lower Social Security COLAs on the table, much to the consternation of AARP, who fill the in-boxes of people over 50 with protest (including mine).
Boehner, in theatrical frustration, moves to a Plan B that would have the House vote to raise the millionaire tax and spare the rest. Grover emerges from the dark shadow he lives in to pat Boehner on the back, saying a vote for the millionaire tax would not violate the no tax pledge the Republicans have signed, even though it does.
Meanwhile, in the defense world, nails are being bitten. Secretary Panetta warns of a cataclysm if the president and Boehner fail to agree. Buck McKeon steps to the mike in a redux of the performance he has been executing for 18 months (isn't he tired?), decrying the fact that the Boehner tax bill left the sequester on the table, and our national security open to the barbarians. In response, Boehner added a provision that would protect defense from at least part of the sequester. (Though sequester would take only 10 percent of the resources from one of the highest defense budgets America has seen since the end of World War II.)
A deal will come, but only when the dancers are exhausted with this increasingly embarrassing performance. And when it does, what will really happen to defense? If the White House offer is any indication, not much. Defense and domestic discretionary spending have been a "residual" in the budget negotiations for months, with entitlements and revenues the leading edge of the argument.
In its latest offer, the White House has reportedly said it would make another $200 billion in discretionary spending cuts, over ten years, split 50/50 between defense and domestic discretionary spending. That would be a laughable $100 billion less for defense over ten years from the current budget projection.
Yes, that is a cut, Virginia, as the current projection would give DOD growth at the rate of inflation. But as a budget proposition, it is a joke. Senate and House appropriators regularly, annually, find $5-10 billion tucked away in the defense budget that they can use to fund things the Pentagon did not ask for, but members want.
Where do they find it? In re-estimates of the payout rate on existing contracts, in lower than projected rates of inflation (the hidden secret of defense budgeting -- project high rates of inflation, then save and reprogram the money after you get it), in lower spending for operations and maintenance (just a general O&M cut by another name -- let the Pentagon find the savings), in finding operations savings in Afghanistan because the troops are coming home faster than expected (used that one once already; more to come).
Oh, there is a lot of slush of this kind in the DOD budget and the appropriators know how to find it all when the "members' requests" come in. So, go ahead, try to tell me that $10 billion a year less than the overall budget projection is tough to manage. It's not; it is a walk in the park.
Defense will be lucky to have this "cut." And, of course, the luck will not last. Every year for the next ten years there will be more nibbles at defense, because defense can "take it" in budgetary terms.
About ten years from now we will turn around and realize how deeply we have cut defense from the peak year (war and base budget) of fiscal year 2010. The way to count that is to take that peak year and draw a line, calculating what the defense budget would have been for the next ten years, had we simply increased that amount by inflation. Then draw another line -- the one that nibbles at DOD's budget every year for the next ten years. The space between those two lines will be more than a trillion dollars.
And if that drawdown is well managed, we will not even notice its impact. The forces will be smaller, but still globally dominant, doing everything we asked them to do. And we will have taken more than a trillion dollars from projected defense budgets, which is what so many "defenders of defense" are rending their garments over today. No sweat.
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Over a long Senate career, Joe Lieberman has, like all elected officials, been right on some things and wrong on others. Speaking to the National Journal on December 6, he was wrong. It is worth saying this because he perpetuates a myth: the myth that the defense budget has been cut. What he said was, "Our defense budget has already taken, pursuant to the Budget Control Act last year, cuts of almost a half-trillion dollars -- which, in my opinion, already pose unacceptable risk [to] our national security."
Well, it's just not so. This is what I call the myth of the $487 billion cut. If you take the ten-year defense budget projection in Secretary Panetta's FY 2012 budget submission and compare it to the ten-year projection when he sent up the FY 2013 budget, the ten-year totals are certainly $487 billion apart. But if you look at the projected slope for the defense budget over those ten years, it basically keeps up with inflation.
What we have here is "lower expectations of growth," not a budget cut. It's kind of like your pay increase. If you were told you would get a cost of living pay adjustment and a merit increase in your pay, that would not only be good news, it would be real growth in your pay. If you were told you would only get a COLA, that's too bad, but it's not a pay cut. When you are told you will not keep up with inflation, that's a cut. And, worst of all, if you are told you will get less than you got last year in real dollars, that's a serious cut.
We are not in serious cut land in defense. Or, to be totally truthful, we have been in real cut land in the base defense budget (without the war costs) for the last two years, when Congress and the administration agreed that the FY 2011 would not get the COLA and in FY 2012 that it would get less than last year. But, frankly, the war budgets, even though they are falling, more than make up for those two cuts in the base budget.
So we are slowly getting to the reality I anticipate. The last three times we have done a defense drawdown, the budget has declined, in real dollars, by about 30 percent over ten years. We are only in the first two of those years and the Pentagon still projects that the curve will reverse course and it will keep up with inflation in the future.
Not likely; the sequester negotiations will probably drive the FY 2013 budget down below inflation or even below last year. And the agreement, when (not if) it comes, will probably be the first step toward projecting future defense budgets that decline in real dollars over ten years.
And that bit about "risks to our national security." Lieberman presents no details in the interview, but the last time we cut the defense budget 30 percent over ten years (actually 36 percent over 13 years, before it reversed course) in the 1990s, the forces left behind by the end of the decade (700,000 troops went away) used Saddam Hussein as a speed bump in 2003.
Our security is not endangered by a flat defense budget. Properly managed, it is not even endangered by real cuts. It's happened before; it will happen again, and the nation will remain safe.
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We are near the end of the 17-month drama of sequester and the defense industry's special pleading, and its special planning, are in the highest gear. The theater has moved along nicely.
We have been through the Sequester Prologue -- the Budget Control Act of 2011.
Act 1 was the Super Committee, a terrifying, cliff-hanger drama with a predictable outcome: failure.
Act 2 was the primary campaigns for the Republican Party and, especially, the adjunct campaign conducted by the Aerospace Industries Association and their political travelling side show: the McCain-Graham-Ayotte tour of America's most loved defense locations. But the industry failed to scare Americans away from fiscal discipline for the Department of Defense. Predictable outcome, since defense was not an issue in the primaries: failure.
Act 3 was the general election campaign. The industry backed off its warning of layoff notices four days before the election when a savvy administration pointed out that they, of all industries, would be most protected from sequester because they have existing government contracts, already funded, that ensure business would continue. (And as a sweetener, the administration also said the legal costs for any contractor sued because no layoff notice was sent, would be allowable cost under the contract.) Predictable outcome: the political side show sponsors felt undercut when the industry pulled back from playing politics; the president carried all but one of the states in which the side show had opened a tent.
Epilogue: where we are today. Defense budgets are a residual item in a much bigger main event over revenues and entitlements. Likely outcome: the defense budget will go down below the level Panetta proposed last February, to make a deal on everything else happen.
The defense industry has not given up the fight, though. And they are also ready for what may come, because they anticipate the market for defense goods better than anyone. Still girded for battle, defense industry chief executives such as Wes Bush, CEO of Northrop Grumman, and David Hess, president of Pratt and Whitney (United Technologies), will make their case on December 3 at the National Press Club. Perhaps no threat of layoff notices, but doom and gloom likely to be the message.
At the same time, the defense industry has been preparing for a defense drawdown for two years -- a realistic move because the defense budget has already come down for two years. Layoffs at large contractors have already happened. Less promising businesses have been sold (including CEO Bush's spinning off its shipyards last year). And companies are searching for acquisition opportunities in niche businesses that may prosper in the defense downturn: equipment servicing, drones, information technology, and cyber research and development.
Best of all, the industry has been churning up large piles of cash to finance these activities. Brendan McGarry of Bloomberg reported this week that the five largest defense contractors (Boeing, Lockheed Martin, Northrop Grumman, Raytheon, and General Dynamics) have had operating margins that are at a record high, thanks to the generous defense budgets of the last ten years. More to the point, they used these margins to grow their cash holdings by 71% in the final quarter of the 2012 fiscal year, bringing their total cash holdings to more to nearly $21 billion. The average cash holding of the five was over $4 billion, nearly double what it was a year ago. These funds can be used for acquisitions, dividend payments, or held for a rainy day.
Smart thinking, corporate-wise. The rainy day is already on its way. The defense budget is headed down, even with a sequester-preventing deal, and, as Bloomberg's Kevin Brancato put it "Defense companies are likely to see cuts even if there's an agreement to avoid it." That doesn't stop the last-ditch epilogue battle we will see this month -- the show must go on!
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The Washington Post seems to have become the house organ for those who insist the defense budget must be saved at all costs, arguing today that the "fiscal cliff" (which I have described as a fiscal "slide") would be a disaster for defense.
It's a case made by a number of folks, most of them (like the defense industry and the neo-conservative think tanks) cozier with the Iron Triangle than the Post. And, given that we spend more on defense than most of the rest of the world put together and have a global military capacity second to none (no one else even tries to match us), the argument falls on its face.
What is disturbing about the Post editorial, however, is not only that it is wrong on the merits, it is simply wrong on the facts. It claims that sequester would force the Pentagon to "fire" more than 100,000 civilian workers. Presumably, they got that number from a back-of-the-envelope report by the Center for Strategic and Budgetary Assessments.
But even the CSBA study acknowledges that "furloughs" are part of the likely DOD response to a sequester. Lay-offs simply cost too much to carry out, and the furlough route, while tough, would be manageable in a department that has the largest back office (proportionally) of 29 countries whose "tooth-to-tail" ratio was studied by McKinsey in 2010. Only the Swiss, who have not gone to war in centuries, have a larger back office.
The Post says training for non-deployed forces would be cut back in a sequester, but training funds are in the most flexible accounts under a sequester, allowing DOD managers to protect training, if they like, and maybe cut less grass at Ft. Belvoir for a few months.
Oddly, the Post says shipbuilding funds would decline 4.5 percent under a sequester, though the Office of Management and Budget has said clearly that the sequester would take 9.2 percent of defense resources. In any case, the sequester leaves untouched current contracts and programs in shipbuilding and elsewhere, with no impact on current production.
Most bewildering of all, the Post argues that management savings could be had, especially in the area of health care programs "which consume nearly 30 percent of the budget." Health care programs are certainly an issue at DOD, as they are for the rest of us. But according to the Congressional Budget Office, health care programs consume 8 percent of the defense budget, not 30 percent. As Daniel Patrick Moynihan famously put it: "You are entitled to your own opinion, but you are not entitled to your own facts."
The debate over the defense budget, in the larger framework of the coming month's fiscal negotiations, is going to be interesting. But it is not doomsday for defense. And arguing from strange facts does not make it otherwise.
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Gordon Adams tracks the budget and the national security establishment for FP.