Voice

Dealing a new hand: DOD works the table

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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National Security

High Stakes and the Sequester Squeeze

When defense budgets get tight, politics can get a little complicated.

It's all about national security, isn't it? Or is it? Rick's back room is alive and well in Washington, D.C. And it is shocking, just shocking, to learn that as the defense drawdown continues, not a single player at the defense table has stopped placing bets, stopped trying to fix the outcome of the game, or tried another role of the dice to end-run the impact of the sequester.

The past few days have seen a lot of these political games. The Washington Post is only the latest media source to rediscover the ancient verity: cherchez l'argent. (That's "follow the money" for those who do not consume snails and garlic butter with gusto.) The Post headline said it all: "Defense cuts pose an economic quandary for liberals."

Anyone who has heard President Dwight Eisenhower's 1961 farewell address knows that there is a political nexus that links the Defense Department to its contractors. But Ike conveniently left out the middle player who makes the game possible: Congress. Go ahead, add them back in, making an "iron triangle," as I coined it more than 30 years ago, standing around the table in the back room.

But perhaps it's some shock that congressional liberals might find themselves in a little bind between supporting stimulus for economic recovery and jobs, and seeking budget discipline for DOD -- or at least greater discipline than it has had for the last 12 years. And that contradiction can become stressful when the jobs are in a member's home state or district.

See, for example, Sen. Carl Levin (D-MI), who supports keeping an unneeded M-1 tank production line open, with subcontracting jobs in Michigan, while he supports lowering the defense budget $100 billion below the level proposed by the administration.

Indeed, the smell of pork is thick in congressional backrooms. While the Post leaned on the Democrats, Sen. Rob Portman (R-OH) has also been lobbying hard for the M-1, as has Republican Rep. Jim Jordan, and their fellow Ohio senator, the Democrat Sherrod Brown. Seems the main production plant is in Lima, OH, making the stakes very local, indeed.

Next door in Pennsylvania, Democrat Robert Casey and Republican Pat Toomey are equally convinced that stopping work on the Bradley Fighting Vehicle would be a bad idea for American national security. Never mind that the Army sensibly upgraded and modernized all the M-1s and Bradleys they need (and bought over 15,000 MRAP vehicles and all the Stryker light vehicles they wanted, to boot) spending all those additional dollars for the wars in Afghanistan and Iraq to do so, as my colleague Russ Rumbaugh demonstrated more than 18 months ago. Never mind that cuts are bringing the Army down by 100,000 people over the next couple of years, making the equipment inventory more than satisfactory. And never mind that the tanks and personnel carriers it has are more than adequate today against any known or likely military threat.

Let's be clear: Congress is worried about jobs, campaign contributions, and reelection -- even when they cloak the argument in national security verbiage. The defense budget is one of the biggest political games in town. When every contract has subcontractors peanut buttered across the country, the politics can be very persuasive, even when the national security argument is not.

To be fair, it is not just the elected members of Congress who play the game and sometimes feel the conflict between their policy goals and local interests. Playing the politics of defense goes well beyond the Congress into the other corners of the triangle.

Take the endless rumble about sequestration, for example. Supporters of the military's tuition assistance program pushed Congress to pass legislation safeguarding that program from the sequester, which in turn created precedent for a country riled by flight delays blamed on furloughed air traffic controllers. So, why wouldn't other well-endowed interests try the same?

Here's how the game of "Washington Monument" works: pick the most visible, symbolic target, make sure it is in the sights of the sequester gun, pull the trigger, and then see if the Congress draws back in horror. This is a game the military corner of the iron triangle plays very well.

Rest assured, the lesson was not lost on DOD, which, as I pointed out last week, has the greatest sequestration flexibility in the federal government.

The Washington Monument game at DOD began early, with the threat of furloughs for civil servants and the high visibility announcement that a second carrier would not be deployed to the Gulf. It continues: In a striking blow to our national security, for example, the Navy's Blue Angels and the Air Force's Thunderbirds have been grounded. Local air shows will no longer be able to attract the thousands of visitors who came to see the extraordinary flight routines these acrobatic wings produce. Grounding these elite flyboys is a national story, however; their contribution to national security is, at best, minimal.

We haven't heard as much recently from the third corner of the triangle -- the defense contractors. Well, that's not entirely true; they are out front for the M-1 tank and the Bradley, for example. And last year, the Aerospace Industries Association put high stakes on the table to exempt defense from sequestration or, failing that, eliminate the sequester altogether.

Industry has been relatively spared from cuts up to now. But it is not business as usual, not when the U.S. defense market is shrinking -- down 20 percent over the past three years, while the overall defense budget has declined only 10 percent (pre sequestration). Contractors have been responding for two years already, by consolidating businesses, hiving off unwanted capacity, and laying off workers. But the sequester rules did not take money away from existing contracts, somewhat delaying the impact.

That impact will come, however. The Pentagon, of course, is already making it clear that the business base is shrinking. As Brett Lambert, the Pentagon's industry guru says, "there's going to be a lot of bad news that's given out to companies."

And you'd better bet that the industry is already working overtime to close the loop with the other two corners of the triangle.

We are a defense drawdown. Nobody should be shocked that less cash means more political tokens on the gaming tables, amplifying the noise coming from the back room. It always has, and only some of those punters will walk away with winnings when the wheel stops spinning. Game on.

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