Defense Advisers: Overhead Costs Sinking the Military

With no signs that Congress will turn off the sequester, the Pentagon can choose to continue to let budget cuts sap the strength of the U.S. military, or it could, instead, take a page from GE's Jack Welch and slash unneeded bloat, a new study suggests.

The sequester amounts to $50 billion a year, or about 10 percent of the Pentagon's budget. Since the reductions took effect in March, Army training has been pared down, aircraft have been idled and fewer ships have been deployed. Meanwhile, the Pentagon continues to spend about half its budget on administrative overhead that contributes little to nothing to military war-fighting missions, says a group of defense advisers. Their recommendations were published Sept. 24 by the Stimson Center, a non-partisan think tank.

Stimson's report offers 27 cost-cutting recommendations that add up to $50 billion in savings per year, or the equivalent to the sequester cuts. Most of the savings would come from "management reforms," overhead cuts and compensation policy changes.

"The reductions can be accommodated in a rational, strategy-based manner that minimizes their impact on the highest priority programs," says the study, titled, "Strategic Agility: Strong National Defense for Today’s Global and Fiscal Realities."

Another round of sequestration is only weeks away, and the Pentagon can no longer hope for a last-minute reprieve, says Barry Blechman, Stimson Center co-founder and chairman of the Defense Advisory Committee. As it did in 2013, the sequester in 2014 will "strike most programs equally with neither rhyme nor reason," he says.

Stimson's "Strategic Agility" is one of dozens of think-tank and commission reports that in recent years have offered advice on how to cut defense fat while preserving muscle and bone. None of these proposals have resulted in any serious action, Blechman recognized. But the Pentagon can no longer afford inaction, he says during a panel discussion on Capitol Hill.

"Fiscal realities are adding incentives" to attack overhead spending, says Blechman. "The military chiefs and [Defense Secretary] Chuck Hagel have been more outspoken about the need for reform."

The resistance is coming from Congress, not the Defense Department, he says. Closing bases, firing civilians and eliminating contractor jobs are politically unpopular measures, but the alternative is to keep gutting the military's combat capabilities, he says. "In my view, it is irresponsible for the Congress to make the Defense Department take cuts in its operational readiness, military capabilities and force structure rather than permit these long overdue reforms."

Philip Odeen, a member of both the Stimson advisory group and the Pentagon's Defense Business Board, says the financial weight of defense overhead is gradually sinking the military. Infrastructure and overhead amount to about $235 billion a year, or nearly half the entire defense budget, says Odeen. "None of that is related ot fighting forces. That's a substantial target to go after." Military and civilian department "headquarters" alone consume $40 billion of that bill. These are purely administrative functions with no responsibility for directing troops, he says.

By simply removing layers of management, the Pentagon could save $4 billion a year, says Odeen. Hagel has already launched a review to find ways to trim these organizations, but there is still no plan to "fundamentally restructure" headquarters staffs, Odeen says. "We have multiple layers" of management everywhere. He recalled the advice the Defense Business Board got from famed cost cutter Welch, former chairman and chief executive of General Electric: "Layers are evil."

DBB members recently studied how corporations weathered the 2008 recession as a proxy for the problems the Pentagon is facing with sequestration. The panel found that, consistently, companies in every sector coped with the recession by shedding overhead that was not directly tied to their mission, Odeen says. "Companies took big actions. They cut pay, they closed facilities. ... In almost every case, as we talked to these leaders, they agreed, years later, that their organizations are stronger and more effective having taken all these layers out," he adds. "Our view is that Pentagon ought to take a similar approach before we cut too deeply into force structure and procurement."

Topics: Defense Department, DOD Budget, Government Policy