Defense Budget and Financial Management

DoD report describes impact of potential sequestration cuts

Wednesday, April 16th, 2014


A return to sequestration cuts to defense budgets in FY2016 and beyond “would leave our military unbalanced and eventually too small to meet the needs of our strategy fully,” according to the DoD report “Estimated Impacts of Sequestration-Level Funding” released this week. The report describes the reductions that would be necessary if sequestration were re-implemented in FY2016.

The FY2015 DoD budget included in the FY2015-19 Future Years Defense Program (FYDP), released last month, conforms to the funding limit set in the Bipartisan Budget Act of 2013. However, for FY2016-19, the DoD budget plan sets total funding $115 billion higher than the levels set in the Budget Control Act of 2011, which reflects automatic sequestration cuts.

The DoD report details the force reductions and modernization and readiness cuts that DoD would have to make if Congress did not act to alleviate sequestration.

In the absence of congressional changes to required future sequestration cuts, the report shows that Army funding would be cut by $26 billion from FY2016 through FY2019, Navy and Marine Corps by $35 billion, Air Force by $36 billion, and Defensewide accounts by $18 billion. Looking at the impact by major appropriation, operations and maintenance (O&M) funding would be cut by $40 billion, procurement by $48 billion, and research and development by $18 billion.

Returning to sequester-level budgets would require additional cuts to the active and reserve force, according to the report. The Army would be forced to cut its active force to 420,000 by 2019 rather than to 440,000 or 450,000 as specified in the FY2015-19 budget plan. The Army Guard and Reserve forces would have to decline to 315,000 and 185,000, respectively, rather than the 335,000 and 195,000 levels currently planned. The Marine Corps would have to draw down to 175,000 rather than the 182,000 in the budget plan.

The report also lays out the effect on modernization under a return to sequestration. Among major programs affected: the Army would not be able to fund the Stryker fourth brigade set, would buy 61 fewer Blackhawk aircraft, and would cut Apache remanufacture investments by $1.2 billion; the Navy would forgo buying eight ships (including three DSDG-51 destroyers and one Virginia-class submarine); and the Air Force would retire its KC-10 tanker fleet, one F-35 squadron (15 aircraft), and the Global Hawk Block 40 fleet.

The report emphasizes that readiness funding would have to be cut by $16 billion, including $9 billion in depot/ship maintenance. In addition, facilities sustainment, restoration, and modernization (FSRM) funding would be $7 billion lower and installation services funding would be cut by about $5 billion. All other O&M funding would be down $12 billion.

This report reinforces the message being stressed at every opportunity by DoD military and civilian leaders. Defense Secretary Chuck Hagel has repeatedly warned Congress that a return to sequestration in FY2016 would mean increased risks to U.S. security. Last month he told the House Appropriations Defense Subcommittee that “under a return to sequestration spending levels, risks would grow significantly, particularly if our military is required to respond to multiple major contingencies at the same time.” 

House Appropriations Committee approves FY2015 Military Construction funding

Wednesday, April 9th, 2014


Today, the House Appropriations Committee (HAC) approved FY2015 funding for Military Construction (included in the total Department of Defense (DoD) budget request) and the Department of Veterans Affairs.

The MilCon/VA bill is the first appropriations bill to advance in the House. At the MilCon/VA Subcommittee markup last week, HAC chair Rep. Harold Rogers (R-KY) said his goal is to “have all of the bills through the [House] full committee by July 4th.” Rogers acknowledged that is a very ambitious schedule. Last year, the HAC had completed action on only seven of the 12 FY2015 appropriations bills by July 4th.

The Military Construction portion of the MilCon/VA bill provides $6.557 billion for military construction projects, family housing, Base Realignment and Closure (BRAC), the NATO Security Investment Program, and Chemical Demilitarization construction.  This amount is equal to the president’s FY2015 request, but $3.3 billion lower than the FY2014 enacted level.

The HAC bill reduces the DoD funding request for active component military construction projects by $165 million, but fully funds the request for reserve components military construction projects, and for the NATO Security Investment Program (NSIP), Family Housing, Chemical Demilitarization, and Base Realignment and Closure (BRAC). The HAC bill takes no action on DoD’s proposal for another BRAC round in 2017.

The bill also provides an additional $125 million for construction projects that were previously authorized in the FY2014 Defense Authorization Act. This funding would go to projects for Navy and Marine Corps and Air Force active components and for Army and Navy reserve components. The bill also adds another $245 billion for the Army National Guard and Reserves the Army identified if the funds were authorized in the FY2015 Defense Authorization bill.

To offset some of this additional funding and bring the total bill in line with the president’s request, the HAC bill rescinds $204.6 million from prior appropriations Acts. 

Proposed 10-year House budget plan would cut federal spending by $5.1 trillion, but increase defense budgets

Thursday, April 3rd, 2014


This week, House Budget Committee Chairman Paul Ryan (R-WI) proposed a House Budget Resolution that would cut $5.1 trillion billion in total federal spending over the next 10 years. Overall, Ryan says his proposal would produce a $5.3 trillion reduction in budget deficits through 2024.

The annual budget resolution, often referred to as a “congressional budget blueprint,” sets revenue and appropriations targets for the tax writing and appropriations committees, so they can begin work on the president’s budget request.  This is an internal congressional procedure, so a passed budget resolution is not sent to the president for approval.

Ryan said his plan, called the “Path to Prosperity,” will reduce the deficit and maintain low interest rates “which will spur greater investment and productivity.” Three-quarters of the $5.1 trillion in total spending savings would come from lower mandatory spending. Major changes to the Affordable Care Act would produce $2.1 billion in reduced spending, according to the Ryan plan. Changes to Medicaid and other mandatory programs would yield another $1.7 billion in spending cuts. Interest payments would also be $783 billion lower, according to the plan. Reduced discretionary spending (from funding provided in appropriations acts) would account for only $460 billion over 10 years (less than 9 percent of total spending savings) in the Ryan proposal.

The Ryan budget would not change the FY 2015 budget request for national defense (DoD plus other defense-related spending, such as the Department of Energy’s nuclear program) and nondefense discretionary budgets.  However, beginning in FY2016 the plan would set defense budgets above the level called for in the Budget Control Act (BCA) in each year through 2024, adding $483 billion. For the same period, Ryan’s plan would cut nondefense budgets by almost $800 billion.

The Ryan plan states that major mismatches exist in current U.S. defense policy: between threats and resources and between the administration’s stated policy and its budget plan. His budget resolution proposes “to resolve these contradictions by restoring defense budgets to the levels dictated by the national security interests of the nation.” While Ryan states the president’s proposed troop cuts go too far, he says any troop reductions should be accompanied by cuts in the civilian and contractor workforce. He expresses concern about rising costs of military personnel and supports the work being done by the Military Compensation and Retirement Modernization Commission to assess compensation plans and make recommendations to DoD.

Ryan also proposes to reduce the cost of the federal workforce. His plan would cut the federal workforce by 10 percent, primarily through attrition, by allowing the hiring of only one new employee for every three workers who leave federal service. The plan would also eliminate a program that allows federal agencies to repay student loans for federal employees, which is often used as a recruiting and retention tool.

The Ryan budget would require federal employees to contribute more to their retirement benefit, in line with recommendations from the National Commission on Fiscal Responsibility. Last year, the president proposed to increase federal employee pension contributions, but Congress took no action. This year the president did not include such a proposal in the FY2015 budget request.

The House Budget Committee has approved the Ryan plan and the full House is set to consider it next week..  However, the Democrat-controlled Senate will not act on a budget resolution this year. Senate Majority Leader Harry Reid (D-NV) and Senate Budget Committee chair Sen. Patty Murray (D-WA) have said there is no reason for the Senate to consider a House Budget Resolution or to produce a Senate budget resolution because the BCA set the FY2015 and FY2016 funding levels.

Air Force continues to reshape civilian workforce

Friday, March 28th, 2014


The Air Force announced another round of civilian workforce shaping initiatives this week to meet lower funding targets and to continue to bring the workforce in line with skill demands.

Lt. Gen. Sam Cox, Deputy Chief of Staff of the Air Force for manpower, personnel, and services said “we recognize the invaluable contributions of our civilian workforce, but must manage within (Defense) Department fiscal constraints to meet mission needs of the years to come.”

Cox emphasized that these reductions are part of the Air Force’s goal of maintaining a smaller and more streamlined force.

The Air Force will rely heavily on the Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Pay (VSIP) to meet its workforce goals. VERA offers early retirement and VSIP provides up to $25,000 to employees whose voluntarily separation would save someone from being involuntarily separated.

This action follows on an offer of VERA and VSIP programs in December, 2013. Col. Bryan Kelley, director for AF force management policy, said the procedures for this new round would use the same criteria used in the earlier round. Late this year, employees in targeted occupations and locations will receive surveys to determine interest, he said.

Kelly stressed that the Air Force will use all available voluntary workforce shaping programs in the hope of avoiding involuntary actions. However, he cautioned the Air Force might have to implement Reduction in Force (RIF) to meet its goals, if VERA and VSIP are not enough.

RIF authorities are used to identify employee placement rights to vacancies and possibly waive qualifications, creating additional placement options. The authorities provide flexibility for civilians to be placed at their current installations without losing grade or pay or to be registered in the Priority Placement Program (PPP).  Using RIF procedures would also give installations greater flexibilities to realign and rebalance their civilian workforce.

Addressing an issue of high interest to civilian employees after the events o this past year, Kelly emphasized that furloughs are not being considered to meet budget targets.  Any involuntary separations would be used as a last resort, he said.

DoD urges Congress to approve 2017 BRAC round

Tuesday, March 25th, 2014


A Base Realignment and Closure (BRAC) round in 2017 will help DoD ensure that DoD “does not drain resources from the warfighter” to fund unneeded infrastructure, Acting Deputy Under Secretary of Defense (Installations and Environment) John Conger told Congress.

Testifying before the House Appropriations Military Construction/Veterans Affairs Subcommittee (HAC-MilCon/VA), Conger laid out the case for another BRAC round: 1) DoD continues to have significant excess capacity, 2) proposed troop reductions will create additional unneeded capacity, 3) savings from previous BRACs has have been substantial, and 4) the BRAC process allows DoD to rationalize the alignment of infrastructure with force structure and transition excess property for reuse.

These comments echoed statements Defense Secretary Chuck Hagel’s has made in support of another BRAC round. Earlier this month, Hagel told Congress that DoD must divest “excess domestic facilities and BRAC is the most responsible path.” He added that DoD cannot continue to finance “overhead that we don’t need, because we’re taking that money from areas that we do need.” If DoD delays in reducing excess infrastructure now, funding in future budgets will have to be diverted from training and equipping troops to support unneeded facilities, Hagel warned.

In his testimony before the HAC subcommittee, Conger responded to criticism that the BRAC process does not achieve advertised savings. He presented data that support DoD’s contention that base closings do yield substantial savings.  The first four BRAC rounds (1988, 1991, 1993, 1995) “are producing a total of about $8 billion and BRAC 2005 is producing an additional $4 billion in annual recurring savings,” he emphasized. These total annual savings of $12 billion are the “result of the avoided costs for base operating support, personnel, and leasing costs that BRAC has made possible,” he said.

Congressional critics of BRAC contend that the 2005 BRAC costs were $325 billion higher than projected. Conger agreed that “we cannot afford another $35 billion BRAC round.” But, he argued much of BRAC 2005 focused on “taking advantage of transformational opportunities that were available only under BRAC.” And, both DoD and the Congress seized this opportunity while budgets were high. He cited as an example the consolidations of hospitals in the National Capital Area and in San Antonio. Rather than driving only for savings under these consolidations, DoD and the Congress decided to make the hospitals “world class” employing the latest health care standards.

Conger stressed that the BRAC process is “auditable and logical which enables independent review by the Commission [on Base Realignment and Closure] and affected communities.” This position is supported by the General Accountability Office (GAO), he said. In a report last year, GAO stated that BRAC 2005 “was generally logical, reasoned and well documented and we continue to believe the process remains fundamentally sound.”

DoD leaders recognize that any proposed BRAC round faces strong opposition and much skepticism in the Congress. Congress has rejected two previous BRAC proposals. In 2012, after it was clear that Congress would not support the request for another BRAC, then Secretary Leon Panetta notified Congress that DOD would not continue to press for the 2013 BRAC round. However, he warned “this does not mean that BRAC is dead.” DoD still needs to “take a hard look at what we do in terms of support infrastructure as we seek to reduce overhead costs,” he said. His words were prescient as DoD is again proposing another BRAC round.

This year, there doesn’t appear to be strident opposition to BRAC that Congress has demonstrated in the past. However, there is little strong support for a new round. Secretary Hagel has appealed to Congress to work with DoD to make wise decisions on force structure and DoD infrastructure. But, he also cautioned that “if Congress continues to block these [BRAC] requested while reducing the overall budget, we will have to consider every tool at our disposal to reduce infrastructure.”

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