Pentagon’s 2012 Budget Makes Highly Optimistic Assumptions About ‘Efficiency’ Savings

By Sandra I. Erwin

Defense Secretary Robert Gates asked the military for $100 billion worth of “efficiencies” so the money could be reinvested in new weapons. But according to the 2012 defense budget proposal unveiled Feb. 14, most of those savings will not materialize for at least five years, if they do at all.
To avert big cuts to the defense budget, Gates began two years ago a sweeping efficiency drive aimed at reducing bureaucratic bloat and wasteful spending. In January, he announced that the services and his office had identified $154 billion in potential savings, including $14 billion from a federal government wide pay-freeze and revised inflation assumptions. From the $154 billion, $78 billion would be taken off the 2012-2016 budget top line, as a contribution to help reduce the federal deficit. The remaining $90 billion are to be reinvested within the defense budget in weapon modernizations, such as additional F/A-18E/F Super Hornets, Navy warships, Air Force unmanned aircraft and space launch vehicles, and upgrades for Army and Marine Corps combat vehicles. Part of the savings also would be shifted to research-and-development accounts in order to accelerate the Air Force’s long-range bomber and next-generation electronic jammer, and for Navy carrier-based unmanned combat aircraft.
“Almost all the efficiency savings are being put into modernization,” Gates said at a Pentagon news conference.
But whether the military services ever get to acquire $90 billion worth of new equipment depends on many unknowns. As they disclosed details of the $553 billion (plus $118 billion for war expenses) defense budget request for 2012, Pentagon officials acknowledged that most of the savings are highly conditional. If the efficiencies do reach fruition, most of the real money doesn’t show up until 2016. Some of the savings are tied to hypothetical events, such as reductions in fuel use or lower fuel prices, that the Defense Department doesn't necessarily control.
A number of recent program cuts and closures, including the shutdown of Joint Forces Command and other smaller organizations, will deliver savings in the 2012 budget, but beyond that, “plans aren’t as detailed,” said Pentagon Comptroller Robert Hale.
Speaking to reporters Feb. 14, Hale said it is far from guaranteed that all the savings will be realized, but the expectation is that the services will continue to push for efficiencies because it is to their benefit to do so, Hale said.
“I'm fairly confident that we can meet the challenge,” he said. After 2012, “We need to watch that carefully.” The plan to save and reinvest was designed to be “self enforcing,” said Hale. “We have an implementation team.” The new weaponry that the services would buy with the $90 billion worth of efficiencies will be “taken back if we don’t see the savings,” he said. With a flat budget projected for the coming years, if the services don't come up with those reinvestment funds, they cannot expect to receive new money for procurement, he said.
He conceded that holding the services accountable will be “more of a struggle as we get beyond fiscal year 2012.”
Since Gates announced the efficiencies plan, there has been widespread skepticism about the Pentagon’s ability to turn promises of savings into actual money. Defense attempted similar efforts before, unsuccessfully. This time, Gates has said, the department is taking it more seriously because the alternative is draconian cuts to the top line.
Officials from the Army, Navy and Air Force, who briefed reporters on their individual service budgets, used catchphrases such as “acquisition excellence,” “supply chain streamlining” and “smart buying” to explain how they would go about achieving their efficiency targets.
The Army, which is aiming for $29 billion in savings by 2016, only expects to attain $2.7 billion of the total in the 2012 budget. This would be done via a combination of “reorganization and better business practices” ($1 billion), cancellation of unneeded procurement programs ($1.3 billion), and reductions in “lower priority programs,” ($400 million), said Army Maj. Gen. Phillip McGhee, the service’s budget director.
The Navy’s target is $35 billion. But only $4.3 billion are being saved in 2012. Most of the five-year savings, $17.3 billion, will come from “buying smarter,” said Rear Adm. Joseph P. Mulloy, Navy budget director. He said the Navy saved $2.9 billion just from renegotiating the pricing of its new Littoral Combat Ship. It also plans to score more efficiencies from multi-year contracts for the F/A-18E/F Super Hornet fighter and the DDG-51 destroyer. About $15.4 billion will come from “streamlining organizations and operations,” he said. The rest, $2.3 billion, will be generated from energy savings – cutting back on fuel consumption and electricity usage.
Mulloy said the Navy’s efficiency plan includes 1,679 items. “I feel pretty comfortable” that the strategy will work, he said. “We're going to track them.”
The Air Force’s goal is to save $33.3 billion — $3.4 billion in 2012.
Most will come from reductions in overhead and support functions, said Maj. Gen. Alfred Flowers, Air Force budget director. Other efficiencies will be created via cutbacks in fuel consumption, consolidation of information-technology programs and facilities, streamlining of logistics, and reforming procurement practices, Flowers said. Some savings also could be generated by transferring depot-maintenance work that has been performed by contractors into government depots.
Budget analystTodd Harrison, from the Center for Strategic and Budgetary Assessments, in Washington, D.C., recently warned against using efficiency savings before they are realized. He noted that the Pentagon has a record of failure trying to achieve savings through efficiency measures.

Topics: Defense Department, DOD Budget

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