Defense Spending Cuts Set to Begin in Fiscal Year 2013

By Sandra I. Erwin
Following an upcoming “strategic review” of Defense Department missions, the Pentagon will have to set priorities and recommend what functions or activities should be eliminated in order to save money. Officials expect budget cutbacks to begin in fiscal year 2013.
To save $400 billion over the next 12 years — the target laid down by President Obama last week — the Pentagon may terminate some weapon procurement programs. But slashing hardware alone will hardly make a dent, since only $100 billion out of a $700 billion annual budget is spent on new weapons.
“It’s easy to cut programs … but that’s not where the money is,” said Ashton Carter, undersecretary of defense for acquisition, technology and logistics.
More than $300 billion of the Pentagon’s budget goes to personnel and healthcare programs. Of the remaining $400 billion, $100 billion is for new weapon procurement, $75 billion on research and development, and the rest is spent on logistics, maintenance and transportation and contract support services.  
Of the $100 billion in procurement spending, 70 percent is consumed by the “sustainment” of current weapons systems, rather than acquiring new items, Carter said April 20 in a speech at the Heritage Foundation, in Washington, D.C.
In order to achieve the president’s goal, he said, “We need to take a comprehensive look at our spending.”
Last year, Defense Secretary Gates launched an “efficiencies” campaign that aimed to cut $100 billion from wasteful programs, but he assured the military services that the savings could be reinvested in higher-priority areas. The services will get to keep the savings from the efficiencies achieved in fiscal years 2010 and 2011, Carter said. From now on, however, the savings will have to come off the defense top line, he said. “Savings over the next 12 years are intended to be deficit reduction savings.”
The strategic review may look at ways to cut costs through efficiencies, but the bulk of future savings will have to come from eliminating missions or functions. “Everything will be on the table,” Carter said.
Pentagon officials are awaiting specific guidance on the forthcoming review. It is still too early to predict whether major weapon programs will be cut, said Frank Kendall, principal deputy undersecretary of defense for acquisition, technology and logistics.
Based on the president’s speech last week, “I anticipate we'll be looking at future defense investments in general,” Kendall told reporters April 20.
“I don't know [specifically] what we'll do about the president's direction,” he said. “But I can't imagine the review won't affect the 2013 budget.”
Identifying areas in the budget that could be cut is a “very complicated equation,” he said. “We can buy less. … But what do we give up? What risks are we willing to accept?”
The Pentagon already has gone through a major efficiencies drill, he noted. “In the future it's going to be about what missions we'll be able to do.”
As far as procurement programs are concerned, there will be tighter oversight and strict “affordability caps,” Kendall said.
But Kendall acknowledged that, given the Pentagon’s poor track record with cost overruns, imposing discipline is easier said than done. “At the end of the day …. it's always about enforcement.” Controlling costs means senior leaders have to be able to say no, and hold people accountable, he said. “In this business, it takes enormous tenacity and force of will,” Kendall said.
The system provides the wrong incentives, he said. One of the fundamental flaws in defense procurement is that everyone involved understates costs and schedules,Kendall told lawmakers at a hearing last month. “There are strong pressures on our institutions and the people in them to be optimistic.”

Topics: Defense Department, DOD Budget

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