Budget Control Act of 2011 Forces Real Cuts to Defense, and Difficult Choices
One recalls the budget adjustments proposed by former Defense Secretary Robert Gates as recently as May 2010, and the subsequent efficiency initiatives. These were relatively modest compared to what has followed. The president submitted a 2012 budget with fairly generous projections for defense out through 2021. This was voted down in Congress as his entire federal budget was rejected. In the same year, the president also proposed a reduction to defense of $400 billion over 12 years.
The Budget Control Act has two phases. The first sets a single cap for all discretionary spending. In fiscal years 2012 and 2013, it separates the cuts between security and non-security. Security is broadly defined as Defense, Homeland Security, Veterans Affairs, the National Nuclear Security Administration, the intelligence community management account and international affairs. The caps are $684 billion in 2012 ($5 billion less than 2011) and $686 billion in 2013 ($36 billion less than requested in the aforementioned and rejected 2012 budget request).
A proportional distribution of cuts would have the defense base budget at $525 billion (versus $530 billion enacted for 2011). It is also $28 billion less than the president originally requested for 2012. Fiscal year 2013 would have the defense base budget about the same for 2012, according to a study by the Center for Strategic and Budgetary Assessments.
The 2014 through 2021 plan does not separate security and non-security, but the Office of Management and Budget estimates reductions to the defense base would total around $330 billion over 10 years, the same yearly reduction calculated from the president’s proposed $400 billion in cuts over 12 years. A coincidence?
The Joint Committee on Deficit Reduction must act to propose spending cuts across the federal budget of at least $1.2 trillion. If the committee proposes less than that amount, or if Congress fails to enact the committee’s recommendations, the “trigger” takes effect. The trigger sets separate caps for security and non-security, and defines the security category as only the 050 account (most of which is defense). If Congress fails to enact, the Pentagon would lose $54 billion in 2013 — leaving a base budget of $472 billion. Trigger-forced cuts over 10 years (2012-2021) would subtract $968 billion from the president’s 2012 proposal. Recall that these cuts are similar to the Fiscal Commission’s recommendations in December 2010.
So the big question is: What are the actual cuts going to be? Will the committee propose something similar to either the president’s $400 billion over 12 years or the BCA’s $330 billion over 10 years? Or will the committee settle on a number closer to the trigger numbers — $54 billion per year? Splitting the difference results in a base budget around $482 billion, or $42 billion less than the 2011 enacted defense base budget.
The next question to consider is how the cuts might be distributed within the department: force structure (manpower and equipage), operations and training tempo (O&M), R&D, investment (acquisition of new equipment), or personnel (pay, retirement, health benefits).
The services are working on this now. The Military Officers Association of America has been keeping tabs on some of the proposals relating to the personnel account. For example, “Cap, Cut and Balance” (HR 2560) caps outlays below 20 percent of GDP by 2017; Corker-McCaskill (S 245) limits outlays to 25 percent of 2009-2011 GDP average with follow-on reductions of 5 percent to retiree pay, Tricare for Life, Survivor Benefit Program in 2013, which would grow to 19 percent by 2021. A proposed House Balanced Budget Amendment cuts outlays to 20 percent of GDP. Finally the Gang of Six proposed major adjustments to retiree pay, Tricare and pay raises — quite similar to the Deficit Commission recommendations.
The Quadrennial Defense Review also proposed major adjustments to retirement, moving toward a 401(k) type system. And the current Defense Business Board (DBB) retirement task force has proposed a similar plan with a high-cost option that would grandfather current serving members and a low-cost option that would transfer all currently serving members to the new system. Both options would eliminate the current defined benefit retirement system for military members. The DBB final report is due out in February 2012.
This is an uncomfortable place for defense to be. Defense planning, training and equipping take place over decades. Military personnel make career and retirement plans extending over 20 to 30 years. Yet all this is about to change big time, and the change will be defined in less than six months and implemented beginning in 2013. The magnitude and pace of change is breathtaking. That we are forced to this quick action, certain to have adverse consequences, is proof certain of the dire straits this country finds itself in.
The depth of the cuts will put people in competition with investment and operations. Some of the choices will be distasteful to all. Protecting the quality and fighting ability of the forces will be tough. Protecting families and keeping our commitments to them will be even tougher.
The service vice chiefs recently testified to Congress that readiness is adequate for now, but the services are unable to meet all missions requested by the combatant commanders. Cuts beyond $400 billion would grow risks significantly, requiring force structure cuts and a change in strategy.
Whatever economies are imposed by Congress, it must keep faith with serving men and women and the commitments that have been made to them.