Fog Thickens Around Pentagon Budget

By Sandra I. Erwin
As the clock ticks toward yet another sequester deadline, the Defense Department is preparing for the possibility of a $45 billion cut to its budget top line, which likely would have to be spread across 2,500 Pentagon-managed programs.
Some good news for defense, alas: Before the New Year’s Day “fiscal cliff” deal, the sequester would have sliced $62 billion from the Pentagon’s $525 billion budget. The estimated reductions now are expected to be $45 billion — about 9 percent of the overall defense budget — because the Jan. 1 law changed the baseline. A smaller cut offers the Defense Department some reprieve, but the continuing uncertainty — the still unknown scope of the cuts, and what authorities the Pentagon will have to apportion them — is wreaking havoc on national security planners, said Pentagon Comptroller and Chief Financial Officer Robert Hale.
“A $45 billion [reduction] is less than what we faced before New Year. But we have fewer months to accommodate the changes,” Hale said Jan. 7 at a Brookings Institution forum in Washington, D.C.
The tax deal that prevented the nation from going over the fiscal cliff set a March 1 deadline for Congress to figure out whether or how to replace the mandatory sequester cuts of $1.2 trillion over 10 years, half of which would hit the Defense Department.
The short-term reprieve only exacerbates the complexity of drafting a defense budget plan for fiscal year 2014, considering that Congress has not yet approved a 2013 budget, and the Pentagon is operating under a temporary “continuing resolution” that expires March 27.
Defense budget writers currently are working on the 2014 budget based on similar guidelines and baselines that the president proposed a year ago. But Hale acknowledged that much remains up in the air pending the resolution of the next fiscal cliff standoff, including a possible postponement in the submission of the 2014 military budget request.
“It is almost inevitable that there’ll be some delay,” Hale said. It is up to the White House Office of Management and Budget to make that call, he said.
If Congress is unable to replace the sequester cuts with other deficit-reduction measures by March 1, the Pentagon is prepared to begin absorbing the $45 billion hit, equally across every line item, Hale said. He does not expect the Defense Department will be given discretion to apportion the cuts. “We’ll look at alternatives as we do often in the programming process,” Hale said. “We’ll attempt to be as ready as we can when we get top line guidance.”
For defense industry, across-the-board cuts would be less damaging than a $45 billion top line reduction that the Pentagon could apportion at will. Under the latter scenario, Hale said, the Pentagon would “try to be balanced” but the likely outcome would be drastic cuts to weapons programs, as personnel accounts are exempt from sequester.
During his talk at Brookings, Hale appeared resigned to theprospect of more near-term churn and disruption. But he warned Congress that the political gridlock is arguably doing more damage to the military than actual spending cuts.
“We desperately need more stability in both budget size and process,” said Hale. “Our national security challenges are complex, and budget instability makes it hard to plan. … Congress needs to adopt a stable budget plan.”
Hale said the 2014 budget will be his fifth as Pentagon comptroller. Stability has been completely absent during his tenure, he noted. He has overseen, by his own account, four government-shutdown drills, and has managed the defense budget over two separate six-month continuing resolution periods, in addition to the recent near brush with sequester. And the chaos is not yet over, he added. “The continued specter [of sequester] is still out there.”
During three decades of government service, Hale lamented, he has never seen more budgetary uncertainty. What the Pentagon faces today “gives a whole new meaning to the term March Madness,” he said. “The decisions made over the next months and years will be critical to national security.”
The Defense Department already has agreed to spend $487 billion less over the next decade than what it projected to spend two years ago. To help the Pentagon adjust to a flat budget after a decade of double-digit growth, the Obama administration provided new strategic guidance last year that called for an end to large-scale ground wars and a greater focus on cyber-warfare, special operations forces and high-tech weaponry to combat a peer competitor.
“The new Obama strategy is the right one for the times,” Hale said. Despite a wave of criticism that the strategy was unrealistic and under-resourced, most members of Congress “seem to have accepted it,” Hale said.
The only wild card that could put the strategy at risk is sequester, he said. “The current level of planned defense spending is consistent with the strategy.”
Defense Secretary Leon Panetta has asked the military services and agencies to “stretch their dollars” as much as possible, said Hale. He has voiced support for more base closures and cutbacks to military retiree benefits, all of which are political hot potatoes.
The Pentagon also has yet to tackle “fundamental problems” that contribute to wasteful spending, said Hale, such as over-budget acquisition programs and skyrocketing personnel costs. Each military member today costs $25,000 more per year than he or she did a decade ago. That rate of growth is unsustainable, analysts have said.
Hale declined to speculate on what new budget priorities might be on the agenda of former Sen. Chuck Hagel, R-Neb., who was nominated Jan. 7 by President Obama to succeed Panetta.  
If Hagel endorsed further budget cuts, Hale said, “We’ll work with him and with the American people.” Defense is about risk, he said. “If the country decides to take more risk, we can go with lower budgets. Tradeoffs are hard to do but we’ll find a way to do them.”
What seems certain is that the Defense Department, regardless of who runs it, is living through a time of exceeding confusion and finds itself in the unfamiliar role of political football.
“There’s been a change in the discourse,” said Peter W. Singer, senior fellow and director of the 21st Century Defense Initiative at Brookings.
Some level of consensus emerged over the past two years that the national debt is a threat to national security, he said. Given the latest fiscal-cliff debacle, it appears that “our dysfunctional political system” is creating even more perils for the Defense Department, Singer said.
Hale and other senior officials are “wrestling with unanswerable questions,” said Michael O’Hanlon, Brookings senior fellow and director of foreign policy research.
The nitty-gritty of budget negotiations continues to ignore larger questions about how much defense spending the United States needs and can afford, O’Hanlon said.
The views are polarized, for instance on whether the current level of about $550 billion in annual military spending is too much or too little. A $550 billion base budget is higher than the Cold War average of $475 billion, adjusted for inflation. When war spending is included, the nation’s $635 billion military budget is larger than those of the next largest 15 nations combined. But defense hawks point out that the current budget is $100 billion smaller than it was a couple years ago. The base budget has not adjusted for inflation in three years.
O’Hanlon believes the Pentagon needs to soon start whittling down a weapons wish list that is unaffordable and probably not needed to face future threats. It is hard to justify, for example, the need to upgrade all three legs of the nuclear triad — bombers, submarines and ground-based intercontinental ballistic missiles, he said. The Pentagon’s most expensive weapons program, the F-35 Joint Strike Fighter, is an important one, but might have to be downsized, said O’Hanlon. “We need it, but we don’t need 2,500,” he said. “The program is sized to replace force structure rather than for contingencies that are plausible.”
Richard K. Betts, a professor of war and peace studies at Columbia University, said the current budget standoff offers an opportunity to rethink basic assumptions in policy and strategy that have not been fundamentally altered since the Cold War.
Today’s main threat is terrorism, he said. “It is a difficult threat, but it doesn’t account for the expensive part of the defense budget.”
Conversely, the current military budget is “too small for the missions we defined after the Cold War, with a high degree of activism and intervention, done on the cheap,” he said. “We tend to underestimate significantly the costs of the wars we get into.”
A more modest worldview of military missions and requirements is needed, Betts said. “Sequestration might be a blessing in disguise if it forces the choices that the political system has been unable to make.”
As time goes on, he said, what will unfold for defense is a politically unwinnable struggle pitting health against discretionary spending, Betts said. “It will be a miracle if defense manages to win that fight.”

Topics: Business Trends, Doing Business with the Government, Defense Department, Defense Watch, DOD Budget, DOD Leadership, DOD Policy

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