Advisory Panel: Incoming Administration to Face Fiscal Tsunami

Before every change of administration, government agencies harbor grand expectations for new leadership and a fresh vision of the future, although transformational ideas on how to manage a headstrong bureaucracy may not be necessarily welcome.
The transition at the Defense Department is always a major focus due to the nature of its mission and demanding responsibilities. Months before the November presidential election, Pentagon advisory teams have been mobilized to help prepare the next administration for the management challenges that lie ahead.
A key warning for incoming leaders is that the best laid plans at the Pentagon can fall apart in the wake of unexpected global events. A new twist in this year’s transition preparations is the chaotic political climate in the United States and the likely disruption caused by fiscal cliffs and government shutdowns.
“This is an unprecedented environment,” said Defense Business Board Chairman Michael Bayer.
The Defense Business Board is one of several advisory teams that will be involved in transition planning. The Defense Science Board and the Defense Policy Board also will be offering nonpartisan advice to the incoming administration.
Deputy Defense Secretary Robert Work directed the business board in a June 2 memo to “develop, from a private sector perspective, a series of topic papers germane to the department’s current and incoming senior executives and leaders, focusing on effectively managing a large-scale enterprise through transition.”
The panel met July 21 and approved a motion to get started on this effort. During the 90-minute portion of the meeting that was open to the public, panel members said they expect the handoff to the next administration to go smoothly, but worry about the fiscal picture it will face.
A gap between the Pentagon’s projected funding needs and what Congress would allow under the Budget Control Act will continue to dog the Defense Department’s leadership, board members said. Budget drives policy in Washington, they noted, and the unstable funding pattern from the past five years could continue into the next administration.
The new leadership comes in already facing a huge budget hole, said Defense Business Board member Arnold Punaro, retired Marine Corps major general and CEO of The Punaro Group.
The budget plan President Obama submitted this year for 2017-2021 is $250 billion above the spending caps set by Congress. The next secretary must either hope for relief from Congress or prepare to find ways to restrain spending, said Punaro. Defense leaders will be in a bind as Congress sets spending limits but also restricts the Pentagon from making politically unpopular cost-cutting moves like closing bases or curtailing retiree and health benefits.
All four defense secretaries under Obama sought to contain cost growth in the military and civilian personnel accounts, but ran into a buzzsaw. Punaro said the transition team will need to understand the impact of rising personnel costs — including troops, civilians and contractors. “The fully burdened cost of supporting the all-volunteer force and retirees is over 50 percent of the budget, he said. “You have to come to grips with these costs.”
Making the Pentagon leaner and nimbler has been a perennial goal of every administration. The Defense Business Board expects efforts to continue but acknowledged that private-sector practices don’t go over well in a culture that is risk averse and resistant to change. Among the recommendations the board plans to offer to incoming leaders: Delayer and flatten organizational structures, empower subordinates and create less complex organization so decisions can be made faster.   
The panel also will encourage the transition team to press on with the innovation initiatives started by current Defense Secretary Ashton Carter and Deputy Secretary Work. Projects like the “third offset” strategy to modernize the military and opening technology incubators outside the Washington beltway should continue in the new administration, board members agreed.
Punaro said he is optimistic the future administration will push for change out of necessity in the tight budget environment. Business reforms are tough sells, especially when the nation is in the middle of fighting wars, he told National Defense, insisting he was not speaking on behalf of the Defense Business Board.
“You have to adjust to what’s going on in the world, much of which you have no control over,” said Punaro. The problem with changing how the Pentagon does business is that it can take decades to see results. Even a two-term presidential administration might not see the impact of its policies until it’s out of office. “It takes five to 15 years sometimes to make the changes that need to happen,” said Punaro. “The problem is they never seem to get started.”
The budget pressures will only get worse, said Punaro. “We need an additional $250 million just to get to the Obama FYDP [future years defense program] before we add one soldier to the Army or one sailor to the Navy.” Meanwhile, there is no sign from the Congress that deeply divided factions are willing to compromise to increase federal spending. Next year, the dynamics are not expected to change, he said. “You’ll still have a conservative caucus in the House, and they won’t even agree to the $30 billion [increase to discretionary spending] we agreed to last year.”
Spending on defense over time has gone up but the size of the U.S. military force is shrinking, he added. This will continue to squeeze programs to modernize the military and increase combat readiness. There has to be a serious effort to make the Pentagon more efficient by closing unneeded infrastructure and reexaming personnel priorities, said Punaro. “We have to tame the huge cost growth, and you can’t get these changes in one or two years.”
Everyone knows that government doesn’t like to change, said Punaro. “And DoD is very resistant to these kinds of reforms. You have to have leadership at the top that’s going to drive it. And you need a Congress that cooperates.” Congress in recent years has been “extremely uncooperative and unhelpful to the Department of Defense,” he stressed. “In fact they have thrown significant new impediments. They won’t allow base closures, or study how to make commissaries more efficient, they set depot maintenance rules to keep jobs in their districts. Congress is a big part of this problem as well.”

Topics: Defense Department, Defense Watch, DOD Budget, DOD Leadership