Defense Financial Highlights

FY 2016 federal budget will be released on Tuesday, Feb 2

Thursday, January 29th, 2015

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President Obama will release the FY2016 federal budget to the public and the Congress on Tuesday Feb 2, 2013. This will be the first budget submitted by the Obama administration on the required date. Previous Obama budgets have been submitted one week to two months later due to late congressional action on the prior budget.

After the FY2016 budget is released on Tuesday, senior administration officials will brief the press and begin testifying before congressional oversight committees.

OMB Director Shaun Donovan is scheduled to testify on the FY2016 budget at the Senate Budget Committee (SBC) on February 3rd at 10:00am. He will appear before the House Budget Committee on February 4th at 10:30am.

Defense budget oversight committee hearings on the budget, normally held soon after the budget is released, will be delayed this year until after Ashton Carter is confirmed (as expected) as Secretary of Defense. Both the House (HASC) and Senate (SASC) Armed Services Committees leaders have said this delay will allow the committees more time to study the president’s proposals before the new secretary testifies.

SASC chairman Sen. John McCain (R-AZ) announced that the committee will hold a confirmation hearing on Carter’s nomination next week. While Carter will be grilled on the administration’s security policies, SASC approval and full Senate confirmation is expected to occur soon. In anticipation of a new secretary’s Senate confirmation, a farewell ceremony was held for outgoing secretary Chuck Hagel at Joint Base Myer-Henderson Hall, VA yesterday.

Next week, Defense Highlights will include a brief overview of the FY2016 DoD budget request and identify links to official statements and available budget material.

Defense Business Board identifies $125 billion in potential DoD savings

Wednesday, January 28th, 2015

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The Defense Business Board (DBB) has completed a study that demonstrates how the Department of Defense (DoD) can achieve savings of over $125 billion in the next five years through a series of productivity improvements. The study was directed by Deputy Secretary of Defense Bob Work.

The DBB report suggests that these savings could be used to help fulfill modernization plans or fund warfighter needs. Savings of $125 billion could fund operations for either 50 Army brigades, 10 Navy Carrier Strike Groups deployments, or 83 Air Force F-35 Fighter Wings, according to studies cited by the DBB.

In completing its work, the DBB interviewed more than 85 officials from private industry, DoD, and civilian experts in business process redesign and enterprise architecture. The panel also researched the best business practices with the private sector, academia, DOD, and other federal agencies.

The report leans heavily on the private sector assumption that productivity gains are driven by improvements in technology, processes, and innovation. The DBB points out that such productivity gains are considered “business as usual.”

The DBB identified recommendations for DoD productivity gains in four areas: 1) Contract Spend Optimization; 2) Labor Optimization; 3) IT Modernization; and 4) Business Process Re-engineering. Implementing these recommendations, according to the DBB, could achieve $75 to $150 in savings over the period 2016-20.

The bulk of the savings would come from contract optimization and labor optimization. The implementation of more vigorous vendor negotiations, gaining economies of scale, reducing contract fragmentation, increasing productivity in labor contracts and eliminating unneeded spending could achieve $46 to $89 billion over five years.

Optimizing the labor footprint by removing unnecessary or excess organization layers and increasing spans, reducing areas of complexity and redundancy, and optimizing the civilian-contractor mix could produce between $23 and $53 billion.

In addition, the DBB estimates that between $5 and $9 billion could be saved in Information Technology (IT) from application rationalization and consolidation, prioritizing requirements and eliminating programs with low return on investment (ROI), process redesign, and data center consolidation and cloud migration.

Successful implementation of best business practices starts with strong leadership and governance structure, the report asserts. This is best achieved by active and visible leadership at the highest level. Governance committees are led by senior leaders and functional leaders. The report stresses that priority accountability is the responsibility of all members and all efforts should be supported by the necessary budgetary resources and expertise.

The DBB asserts that “early mobilization” of these recommendations is the key to achieving these savings. “Every billion saved in 2016 is worth 5 billion [in] FY16-FY20 due to the compounding effect,” the briefing stresses.

Along with the importance of getting started on these recommendations now, the DBB cites several factors that are critical to the success its recommendations. Among these are: committed and visible leadership; a powerful vision statement; clear targets and metrics; implementing an early retirement program and incentives to retain critical talent; and organizational restructuring to create permanent efficiencies.

The final DBB report will include detailed discussion of the points made in the briefing parts.

House passes FY2015 Homeland Security bill, but amendment blocking immigration order draws veto threat

Friday, January 16th, 2015

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This week, the House passed the FY2015 Homeland Security Appropriations bill (236-191), the last FY2015 appropriations bill to be considered.

In December, Congress approved and the president signed an Omnibus Appropriations bill that contained 11 of the 12 FY2015 appropriations bills. However, the Homeland Security Appropriations bill, which was subject to intense debate after the president announced executive action on immigration, was funded under a Continuing Resolution (CR) through February 27, 20175

The House action opens the bidding final action on what should prove to be difficult negotiations between the House and the Senate and the White House. The House bill includes two amendments that block the president’s action on immigration. This immediately brought a veto threat from the White House.

A Statement of Administration Policy (SAP) expressed support for the House-passed underlying FY2015 Homeland Security Appropriations bill, but strongly opposed the addition of the two immigration-related amendments. If the final bill includes these amendments, the SAP stated, the president’s senior advisors would recommend that the president veto the bill.

However to get to the president, the House bill would have to pass the Senate, which appears unlikely. Democrats, while in the minority, could still hold up the bill through a filibuster, which would require 60 votes to proceed on an up-or-down vote. But, the House bill is also problematic for some Senate Republicans. Several of them, including Sen. Lindsay Graham, have indicated that while they oppose the president’s actions on immigration, they are uncomfortable with forcing a showdown on Homeland Security funding over the issue. \

So, while House passage starts the process towards final action on the FY2015 Homeland Security bill, it will probably take much of the remaining time between now on February 27th to reach an agreement.

This means that the agencies funded in the bill (totaling about $40 billion), Secret Service, Customs and Border Protection, Immigration, Transportation Security Agency (TSA), Federal Emergency Management Agency (FEMA), and the Coast Guard will continue to operate under a CR.

President’s State of the Union address set for January 20

Thursday, January 15th, 2015

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President Obama will deliver the annual State of the Union Address before a joint session of Congress on Tuesday night, January 20.  In December, House Speaker Rep. John Boehner (R-OH) had formally invited the president to address Congress.

By tradition, the president will report on the current condition of the nation and lays out a framework for the administration’s domestic and foreign policy plans and the FY2016 budget request. 

This annual address fulfills the constitutional requirement in Article II, Sec 3 of the Constitution that “The President shall from time to time give to the Congress Information on the State of the Union.”  President Obama’s speech this year will mark the 226th time presidents have reported to Congress, either in person or in written form, under this requirement. 

From 1790 until 1946 the speech was known as the ‘Annual Message.” During the period 1942-1946 it was referred to informally as the “state of the Union” address. In 1947 the speech began to be formally called the “State of the Union Address.”

President George Washington gave the first address on January 8, 1790.  Washington and his successor John Adams delivered their statements in person, but President Thomas Jefferson sent his message to Congress in writing.  This practice of sending Congress only a written submission continued until President Woodrow Wilson (in 1913) decided to go before Congress to deliver his message. 

Between 1913 and 1934 presidents held to no particular tradition, sometimes giving their statements in person and sometimes sending them to Congress only in writing.  However, since President Franklin D. Roosevelt’s first State of the Union Address in 1934, most presidents have appeared in person.  Notable exceptions have been written statements by President Eisenhower after his heart attack and by Presidents Truman, Eisenhower, and Carter in the final year of their the presidency. 

President Calvin Coolidge delivered the first State of the Union address to a national audience on radio in 1923 and President Harry Truman’s 1947 address was the first to be broadcast on television.  President George W. Bush’s message in 2002 was the first State of the Union address to be webcast live on the internet.

Since 1966, a representative of the opposition party has delivered a response to the president’s address.  The first opposition response was given by Sen. Everett Dirksen (R-IL) and Rep. Gerald Ford (R-MI). Last year, Rep. Cathy McMorris Rodgers (R-WA) gave the republican response in English and Rep. Ileana Ros-Lehtinen (R-FL) presented the response in Spanish. Sen. Joni Ernst (R-IA) will give the Republican response.

The CRS report “The President’s State of the Union Address: Tradition, Function, and Policy Implications” provides a comprehensive review of the State of the Union Address.

114th Congress convenes, eyes Homeland Security CR and FY2016 appropriations process

Friday, January 9th, 2015

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The 114th Congress convened this week with Republicans controlling both the House (246R to 188D, 1 vacancy) and the Senate (54R to 44D, with 2 Independents who caucus with the Democrats) as a result of the 2014 Mid-term elections.

The House re-elected Rep. John Boehner (R-OH) Speaker of the House despite the defection of 25 Republicans, twenty-four of whom voted for other candidates, while one voted present. In his brief acceptance speech, Boehner acknowledged these dissenters who disagreed with his perceived lack of commitment to overturning Obamacare and the president’s executive order on immigration. He urged his Republican colleagues to “disagree without being disagreeable.”

In the Senate, Sen. Mitch McConnell (R-KY) became Senate Majority Leader as Republicans took control for the first time since the 109th Congress (2005-2007) when their majority was 55R to 44D with one Independent.

The 114th Congress has some unfinished FY2015 appropriations business. In December, the 113th Congress passed the FY2015 Omnibus Appropriations bill that funded 11 appropriations bills for the full year. However, the Homeland Security Appropriations bill, which was subject to intense debate after the president announced executive action on immigration, was funded under a Continuing Resolution (CR) through February 27, 2017.

The House will open the bidding on the Homeland Security bill next week by moving to pass its version that will include a provision to block the president’s executive action. The House bill may not be acceptable to the Senate and is sure to draw a presidential veto. However, acting almost seven weeks before the CR expires should give Congress time to construct a bill that avoids a shutdown on the Department of Homeland Security.

Regarding FY2016 appropriations bills, both the House and Senate Appropriations Committee leaders have expressed their commitment to proceed under regular order. This would mean a process that includes committee hearings, markups, and passage in each chamber followed by a conference agreement for each of the 12 appropriations bills. If this happens, it would be a significant departure from recent years, in which the congressional appropriations review process has been marked by intermittent action that most often concluded with omnibus and mini-omnibus appropriations bills.

However, this enthusiasm for regular order for appropriations bills could be dashed by the specter of sequestration (automatic cuts), which is set to restart again in FY2016. The budget agreement completed in 2013 established budget targets for 2014 and 2015 that set aside sequestration. But, in 2016 sequestration returns and, once again, Republicans and Democrats will have to try to reach a new budget agreement that addresses sequestration.

While there is general agreement on the Hill that sequestration is a bad idea that should be fixed, there continues to be little agreement on how that should be done. Many want to protect defense from significant cuts and others are concerned about the effect of sequestration on nondefense budgets. Speaker Boehner will have problems within his own party in efforts to reach a deal with Democrats. The Tea Party faction of the Republican Caucus will will press hard for additional spending cuts, while pushing for defense increases. It will take more than good intentions to conclude an agreement that can be passed in Congress and be acceptable to the president.

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