Obama’s Last Defense Budget Under Fire From All Sides

By Sandra I. Erwin

The defense budget proposal for the final year of the Obama presidency has no surprises, as the top line was already set in October as part of a two-year deal between the White House and congressional leaders.

The $582.7 billion request gives the Pentagon 2.2 percent more money than last year. It includes $523.9 billion for base discretionary spending and $58.8 billion for overseas contingency operations, or OCO. Defense gets a $2.2 billion increase in the 2017 base budget compared to $521.7 billion in 2016. OCO last year was $58.6 billion.

But even before it was released Feb. 9, the Obama request already was coming under attack on multiple fronts. Republican leaders of defense committees have blasted the funding proposal as inadequate to combat growing threats and to shore up the armed forces, which they say are stretched-thin. Deficit hawks are raising alarms about the budget deal busting spending caps. And critics on the left are calling into question proposals to increase the defense budget without demanding more accountability for how the money is spent.  

The 2017 budget bookends an area of rapidly shifting security crises and bitter partisanship in Washington that put the Pentagon in the crossfire between defense and deficit hawks. After a five-year decline in defense spending of about 5 percent annually on average — the 2011 Budget Control Act cut about $500 billion over 10 years although spending caps were raised three times — this year’s budget marks a return to stability and modest growth, budget documents show. Defense spending peaked in fiscal year 2010 at almost $700 billion, which included almost $140 billion for OCO. 
Defense officials describe this year's budget as one that drives change as the military adjusts to a new strategic era. “Today's security environment is dramatically different than the one we've been engaged with for the last 25 years and it requires new ways of thinking and new ways of acting,” said Pentagon press secretary Peter Cook. 

A number of high-tech programs funded in the 2017 budget position the military to dominate potential rivals like Russia, China, Iran and North Korea with investments in undersea, cyber, space, electronic warfare and other advanced technologies, officials said. Of the branches of the military, the Air Force is the only one that gets a sizable funding increase of 5.5 percent. 
Most of the OCO budget — $41.7 billion — is for the Afghanistan war. There is also $7.5 billion for the conflict against the Islamic State, or ISIS, and $3.4 billion to shore up European defense efforts against Russian aggression. 
The administration is requesting $183.9 billion for new weapons and technology — $174 billion in the base budget and $9.9 billion in OCO. Of the total, $112.1 billion is for procurement and $71.8 billion for research, development, testing and evaluation. Compared to 2016, the Pentagon is spending less on procurement — $118.6 billion was appropriated last year — and slightly more on RDT&E, which got $70 billion last year.
“This budget marks a major inflection point for the Department of Defense,” said Defense Secretary Ashton Carter. “Even as we fight today’s fights, we must also be prepared for the fights that might come in 10, 20 or 30 years. 
But Washington insiders are playing down the significance of these statements. “I look upon this budget as a one-off,” said Steve Bell, director of economic policy at the Bipartisan Policy Center and a former staff director of the Senate Budget Committee. “I don’t think one year’s budget really does determine what the next five to 10 years are.”

Carter’s proposal can be viewed as a “peace offering” to Congress because it reverses decisions that have upset lawmakers in the past, such as retiring the A-10 aircraft and ending procurements of Navy Super Hornet jets, he said. The hope is that Congress will respond positively by adding $15 billion to $20 billion to the top line. 

But the idea that this budget marks some sort of transformational shift in priorities and strategy is at best an exaggeration, Bell said. “I would look upon this budget as a one or two-year response to the environment we face now.”

Lawmakers clearly see that there is not enough money to expand military presence in the Pacific and Eastern Europe, and the defense committees are frustrated by the mismatch, Bell noted. So the Pentagon’s budget is going to be attacked both by defense hawks for failing to fund the strategy and by fiscal conservatives for seeking to bust the budget caps. “I think the strategic kinds of questions in the budget are going to be lost in the political kinds of questions,” said Bell.

Defense committee chairs Sen. John McCain, R-Ariz, and Rep. Mac Thornberry, R-Texas, will call for additional money, but there is no guarantee the appropriators will play along, he said. “I expect a fight on the appropriations side. If they insist on breaking the budget act, there will be a big fight and the administration will have to give up some money in the non-defense arena,” he added. “That’s going to be a real scuffle.”

Thornberry and 33 other members of the House Armed Services Committee on Feb. 8 sent the required “views and estimates” letter to the House Budget Committee with an emphatic request for more defense dollars. 

“We believe that an adequate national defense requires significantly more funding,” said the letter. Compared to last year’s budget request that set 2017 base requirements at $574 billion, the proposal submitted by the Pentagon is $23 billion short. The October budget deal set a $551 billion top line for the so-called 050 account that includes the Pentagon and defense-related parts of Department of Energy and Department of Homeland Security. In last year’s budget request, the administration sought $573 billion for 050.

The concern is that a smaller 050 budget will “trickle down” into the Pentagon’s funding and squeeze the military, said Justin Johnson, senior defense analyst at the Heritage Foundation. The HASC is making the case that the Pentagon is underfunded by $23 billion in 2017, compared to a smaller gap of $15 billion cited by Pentagon officials. 

HASC and SASC leaders worry that the OCO funding for European initiatives and the ISIS war will eat into the Pentagon’s base budget, Johnson said. How the fiscally conservative House Budget Committee handles HASC concerns remains to be seen. 

“The budget committee has a lot of work ahead,” said Johnson. It could decide to break the firewall between defense and non-defense and allow the military to get more money without busting the overall discretionary funding caps. But the administration and congressional Democrats are likely to fight back on that, said Johnson. “I don’t see how Republicans have any other way to do it.” Even an OCO increase will get pushback from fiscal hawks.

“We understand the challenges of the current fiscal environment,” Thornberry said. “We should also recognize that the [budget deal] was passed before the Paris attacks by ISIS. Operational needs have only increased.”

Defense committees would like for the administration to make up any difference between the request it submitted last year for fiscal year 2017 and this new request by adding more money to the OCO accounts, which aren’t subject to the caps. The argument that this year’s negotiated OCO level of about $59 billion was intended as a floor, rather than a ceiling. 

The president’s budget request does not add funds to accommodate the $7.5 billion in additional funding to counter ISIS or the $3.4 billion to deter Russia, said Thornberry. "I am disappointed that this request does not adhere to the budget agreement made just last fall,” he said in a statement. “I hoped such an agreement would provide some budget stability and begin to rebuild our military. Unfortunately, this administration continues to play budgetary games with our country’s security."

Pro-defense lawmakers led by Thornberry will be arguing for additional money for the military as fiscal conservatives are poised to seek cuts to government spending in the wake of alarming Congressional Budget Office projections that federal deficits are starting to rise again. In 2016, the federal budget deficit will increase, in relation to the size of the economy, for the first time since 2009, according to the CBO’s estimates. If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years.

An argument for increasing OCO is that it's not counted towards the Budget Control Act caps, but the higher spending still drains funds from the U.S. Treasury and will fuel the deficit in the absence of offsetting revenues. 

Inside the Pentagon, meanwhile, Carter’s budget proposal has sparked some discontent. His thinking about how to increase military capability — by having a smaller but more capable force — does not sit well with the chiefs of the military services, Bell said. 
In the Navy, for instance, there is widespread opposition to Carter’s move to trim the number of littoral combat ships. The attitude among military chiefs is that “Ash Carter is only going to be here for one year,” Bell said. The environment could change when a new secretary comes in. “I think this is a budget that privately is being opposed by the chiefs. And the chiefs have a fair amount of influence.”

Parochial issues aside, Obama’s final defense plan punts to the next president broader fiscal dilemmas that have dogged the Pentagon for years such as containing rising personnel, overhead and weapons procurement costs in order to improve the military’s tooth-to-tail ratio. The department continues to struggle to strike a balance between maintaining a high-quality, all-volunteer force and “keeping faith” with today’s service members while stabilizing long-term costs. And the Defense Department is still saddled with aging equipment after a so-called “procurement holiday” that started with the post-Cold War drawdown.

Obama’s successor will inherit a five-year defense funding plan that, analysts estimate, is about $100 billion short of what the Pentagon predicts it will need to meet projected demands. 
Carter has pressed the narrative that this budget bolsters the military as it shifts focus to nation-state competition from a resurgent Russia and a rising China, regional threats from North Korea and Iran, and the continuing need to counter terrorism. But the budget also is an acknowledgement that the Pentagon has been slow to modernize and must therefore continue to fund programs that it had planned to retire in the near future, such the Air Force’s A-10 close-air support aircraft, the Navy F/A-18 fighter and Tomahawk cruise missile. 

In the case of the A-10, the Air Force is shifting funding from F-35 acquisitions, 4th generation fighter modernization and sustainment programs to keep the Warthog in service until 2022.
Despite Carter’s judgment of how the Pentagon should reshape for the future, the military remains conflicted about how to make the transition while it is still fighting a war in Afghanistan and increasing its presence in the Middle East and Africa. This has sparked an internal “capability versus capacity” debate and a defense-wide competition for resources among the military services and agencies. 

Obama officials have said the basic elements of the nation's defense strategy remain valid, and it is up to the Pentagon to become nimble enough to respond to unexpected crises. The global environment has been “as confounding as the American political scene,” noted a report by the Center for Strategic and International Studies. 

The administration is in a tight spot with this budget, said defense analyst Katherine Blakeley, of the Center for Strategic and Budgetary Assessments. The administration will have to “walk a narrow rhetorical tightrope in justifying this budget, rather than the higher spending envisioned in the 2016 request,” she said. Although the fiscal year 2017 budget will be right at the level of the BCA caps, the Pentagon’s 2018-2021 budget plan will exceed the caps by a cumulative $104.5 billion. 

The administration is adjusting “economic assumptions” — inflation associated with personnel, healthcare costs and a drop in the price of fuel — to offset part of the gap between its 2016 and 2017 requests. 

Further criticism of the Obama’s funding proposal comes from watchdog groups that have challenged the Pentagon to be more accountable for its spending. 

“As Congress reviews the budget for the Pentagon and related programs for fiscal year 2017, it should take action to prevent the rampant waste that has characterized the department’s operations in recent years,” said William D. Hartung, defense analyst at the Center for International Policy.

In a new report, CIP identifies $33 billion in Pentagon programs that it considers questionable and warrant deeper scrutiny. “Both budget hawks and defense hawks should be able to agree that whatever amount of money the Pentagon ultimately gets, it should be spent and managed effectively,” the report said. “The department is failing spectacularly at this task. … The Department of Defense has not undergone a full audit in almost two decades, despite being legally mandated to do so. Without audits and regular accountability, there is no way of knowing where all of the money being appropriated to the Pentagon actually goes.”

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

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