Budget Deal Moves Goalposts to 2016

The Bipartisan Budget Act of 2013 gives the Defense Department a big break from the sequester. The concern now for the defense sector is whether the Pentagon will seize the budget deal as an opportunity to shape a new debate on defense priorities.

“The question now is how does the Defense Department get ready for 2016?” asked Charles F. Wald, retired Air Force general and head of the Deloitte defense practice.

The two-year agreement reached by budget committee leaders Rep. Paul Ryan and Sen. Patty Murray would ease the impact of automatic spending cuts by roughly 50 percent. It reduces sequester cuts by $63 billion over the next two years — to be split 50/50 between defense and nondefense agencies.

The Pentagon would have its spending caps raised by $22 billion in 2014 to $520 billion — up from $498 billion — and by $9 billion in 2015 to $521 billion — up from $512 billion.

Of significance, the agreement marks a return to some semblance of stability. And it would spare the Pentagon immediate pain from having to slice $20 billion from its 2014 budget in January.

Wald said this is obviously encouraging news for the Defense Department and its contractors not only because it cushions the pain but also because having a full-year budget will give the Pentagon authority to start new programs.  

But Wald warned that this deal should not be misread as a license for the Pentagon to keep spending as it did when it was fighting two wars. “Some people still are going to wish we had the full defense budget reinstated,” Wald said in a Dec. 11 interview. The budget deal is “really a good thing for the Defense Department. What worries me is the Defense Department thinking this is the new normal.”

Fiscal austerity for the Defense Department is here to stay, he said. “They are not going to have the budgets they used to have.”

in the bitter, partisan bickering over government spending during the past two years, the elephant in the room has been the question of what size and shape the military should be to meet national security needs, Wald said. “What nobody talks about is that we are probably in a world in which we could afford to have a little less of a budget.”

There are major issues that neither branch of government has tackled, said Wald. “What threats is the nation facing? Why couldn’t we afford a reduced budget and determine what areas we can take risk in? That is going to have to be part of the larger debate.”

Nobody has yet articulated the strategic requirements of the U.S. military, said Wald. The Pentagon is directed to do so every four years in the quadrennial defense review. But the QDR, he said, has consistently failed to set priorities and simply “becomes a beauty contest between the services.”

Defense leaders should take advantage of the Ryan-Murray deal to begin, in a “smart way,” to move toward what is inevitably going to be reduced budgets, said Wald. So far only the Air Force has made serious attempts to prepare for that future by proposing to shed aircraft fleets and facilities. “Welsh is trying to do something very difficult. … He is making the tough choices,” said Wald, speaking of Air Force Chief of Staff Gen. Mark Welsh.

The military services by nature will fight to protect their equities and resources, but even when they do make tough decisions, said Wald, they run into the buzz saw of local politics.

During the next two years, he said, “It would behoove everyone to take a deep breath and figure out what we need, identify areas where we can take risk.” Even at lower levels of spending, said Wald, “We will find we probably have what we need.”

Defense Secretary Chuck Hagel is in a favorable position to help the Pentagon resize for a leaner future, said Wald. “Hagel has a lot of political leeway.” The Washington establishment has “low expectations” of him, which gives Hagel latitude to do things, Wald added. “I don’t think he is personally nervous about his legacy or reputation.” Hagel should put together a group of credible advisers and come up with a plan on “how the military should look like in the future,” Wald said.

In dozens of congressional hearings and conferences since the Budget Control Act was passed in 2011, military leaders warned about the dire consequences of sequester cuts. But the sky-is-falling rhetoric barely mentioned what “security problem we’re trying to solve,” Wald said. The chiefs sounded alarms about sequester preventing the military from being ready, but they did not explain what they needed to be ready for, Wald said.

One adverse consequence of the budget deal might be that these questions continue to be ignored, said Wald. This strategic uncertainty would not help defense industry executives who are trying to plan investments for the future, he added. “If I were a CEO, the [Ryan-Murray] budget deal wouldn’t change hardly anything.”

Relief at the margins does not change the reality of a rising national debt and the fact that there is no existential danger to justify a $700 billion a year military, said Wald. “A two-year delay helps business, but only delays the unavoidable.”

The military still has not figured out how to live when it is not fighting two major wars and flush with money, said Wald. The past 12 years of war happened “when the world was changing and we were focusing on old-world applications of military power,” he said. “The world was changing and we were not preparing for it. That is where we are.”

Military leaders, meanwhile, said it is too soon to celebrate any budget victories. Welsh, the chief the Air Force, said he is cautiously optimistic about the current budget deal. “We'll see what happens with the budget decisions on Capitol Hill,” he said Dec. 11 at an American Enterprise Institute breakfast meeting.

“The service chiefs are sick of talking about sequestration,” said Welsh. The short-term reprieve, he added, “will not eliminate the impact of sequestration. It will mitigate it for the first couple of years and maybe allow us to do a better job of staying ready as we transition to the new reality.”

The political climate — in which Welsh is having to argue for cuts to lawmakers who want to reduce spending but won’t allow the Air Force to retire aircraft or shut down facilities — is “strange” and “surreal,” Welsh said. “It will take a lot of work by the Defense Department, the White House and Congress to try to move forward and try to figure out how to meet the reality of the future,” said Welsh. “You can't defend everything and pay a $1.3 trillion bill. It won't work.”

For the Air Force, the cost of sequestration is $12 billion a year, which will require drastic reductions of force structure, he said. “Anyone who says we can get the savings from cutting bloated overhead and conferences doesn't see the reality,” said Welsh. “You can have a ready force today or a modernized force tomorrow. You can't have both.”
The military chiefs are “glad to see a budget deal,” he said. “Anything is better than where we are now.”

Critics of current defense spending contend that this budget agreement only helps delay the inevitable. “The Department of Defense still has the need to make smart choices to reduce spending while maintaining military power, only now with a significant buffer to get the job done,” said Paul Eaton, retired Army major general and senior adviser at the National Security Network. “The longer-term defense drawdown would continue as the Budget Control Act caps after fiscal year 2015 remain untouched,” Eaton said in a statement.

If the Ryan-Murray proposal is passed, he said, “Congress and the Pentagon need to make the most of that cushion to manage the drawdown and provide sensible defense planning.” The Budget Control Act hurt the military because of its draconian, across the board implementation of the cuts, Eaton said. “The recent budget deal, if passed, will restore some funding and flexibility, and provide additional time to allow adapting the military during a draw down in a complex world."

Topics: Defense Department, DOD Budget, DOD Leadership, Government Policy