Defense Budget and Financial Management

FY2017 DoD budget request totals $582.7 billion

Wednesday, February 10th, 2016

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The FY2017 Department of Defense (DoD) base budget request is $523.9 billion for discretionary budget authority, $2.2 billion more than the amount enacted for FY2016 ($521.7 billion).

The budget request also includes $58.8 billion for Overseas Contingency Operations (OCO), essentially the same amount enacted for FY2016. ($58.6 billion).

DoD’s five-year budget plan FYDP) for FY2017 to FY2021 is $2.8 trillion, $18.5 billion less than planned in the FY2016 FYDP. The FY2017 budget is $23.4 billion less than planned last year, but budgets for FY2018 through FY2021 are $4.9 billion higher. The cut to FY2017 was made primarily through a combination of fuel and inflation savings (-$5 billion) and program changes (over -$11 billion).

DoD’s press statement stressed that the budget “complies with the Bipartisan Budget Agreement of 2015, giving the department both funding stability and protection from the damage of sequestration in FY2016 and FY2017.” The FY2017 budget request “reflects the priorities necessary for our force today and in the future to best serve and protect our nation in a rapidly changing security environment,” according to the statement.

DoD’s budget overview identifies six key themes of the FY2017 DoD budget Seek a balanced force; Manage enduring readiness challenges; Accelerate the pace of defense reform; Pursue investments in military capabilities; Take care of people; and Support Overseas Contingency Operations.

The Army’s FY2017 base budget request totals $123.0 billion (23.5% of the total DoD base budget) down $0.3 billion from the FY2016 enacted level. The Navy’s budget (including the Marine Corps) totals $155.4 billion (29.7%), $3.9 billion lower than FY2016.  The Air Force base budget request is $151.1 billion (28.8%), up $5.4 billion. The budget request for Defense-wide accounts (including the Defense Health Program) is $94.5 billion (18.0%), $1.1 billion higher than the previous year.

Total active forces end strength will decline by 9,000 across the FYDP, from 1,281,900 in FY2017 to 1,272,100 by 2021. The Army will lower its active end strength level from 460,000 in 2017 to 450,000 by 2021. The active Marine Corps force will remain constant at 182,000 as will the active Air Force at 317,000. The Navy active force will increase slightly from 322,900 in FY2017 to 323,100 in FY2021. Total Guard and reserve end strength will decline only marginally decline from 801,200 in FY2017 to 801,100 in FY2021.

The FY2017 budget would raise military pay by 1.6 percent. The president's budget also proposes a 1.6 percent pay raise for civilians. The 2016 pay raise was 1.3 percent.

The budget makes no changes to TRICARE for active duty personnel. The administration proposes an annual enrollment fee for TRICARE-for-Life coverage for Medicare-eligible retirees (not-medically retired) and their families. Some copays would increase, but there would be no copays for treatment in Military Treatment Facilities (MTFs).

The FY2017 budget provides significant funding for major modernization programs. The budget funds 63 F-35 aircraft for Air Force, Marine Corps, and Navy, 15 KC-46 Tanker Replacement aircraft for the Air Force, and 52 AH-64 Apache and 36 Blackhawk helicopters for the Army. The Navy will buy seven ships, including two Virginia Class submarines, two DDG-51 Aegis destroyers, two Littoral Combat Ships (LCS), and one Amphibious Assault ship. The budget also funds the procurement of five EELV Launch Vehicles. The Air Force rephases its schedule for retiring the A-10 aircraft, retaining the A-10 aircraft force through 2022.

However, in order to meet budgetary targets, DoD cut planned weapons buying in FY2017. The Army is buying nine fewer Apache and 24 fewer Blackhawk helicopters than previously planned. Five fewer F-35 aircraft, three C-130J aircraft, four less LCAC Service Life Extension Programs, and 77 Joint Light Tactical Vehicles for the Marine Corps will be bought in FY2017.

Investment in cyber warfare and security will be $7 billion in FY2017 and $35 billion over five years. This funding will support DoD's main cyber missions: defend DoD networks, systems, and information; defend against cyber attacks that have a “significant consequence;” and provide cyber support to operational plans. The budget also continues funding support for Science and Technology (S&T)–$12.5 billion in FY2017 and $65 billion across the FYDP–to “develop capabilities that advance the technical superiority of the U.S. Military to counter new and emerging threats.”

The FY2017 budget also includes department-wide savings and reform proposals. The administration renews its request for approval to initiate a new round of Base Realignment and Closure (BRAC), this time in FY2019. Congress has repeatedly rejected another BRAC round due to concerns that DoD has not demonstrated significant net savings. Other reform proposals include a 25 percent cut in headquarters costs (from the 2014 level) by 2020, continuing efforts department-wide to become audit ready by 2018, improving business practices in the commissary system, and continuing defense acquisition reform through the implementation of Better Buying Power initiatives.

Details (including Military Service briefings) on the FY2017 DoD budget request is available on the DoD Comptroller website.  

FY2017 federal budget will be released February 9

Friday, February 5th, 2016

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President Obama will release the FY2017 federal budget to the public and Congress on Tuesday February 9, 2017. This is one week later than the usual date for submission of the budget, which is the first Monday in February.

After the FY2017 budget is released senior administration officials will brief the press and begin testifying before congressional oversight committees.

This year, contrary to what has become usual practice, the House and Senate Budget Committees will not receive testimony from the Director of the Office of Management and Budget (OMB) on an overview of the president's budget request, Senate Budget Committee Chairman Sen. Mike Enzi (R-WY) and House Budget Committee Chairman Tom Price (R-GA) issued a joint press release announcing that the committees will not hold hearings on an OMB review of the president's FY2017 budget.

Sen. Enzi said rather than hear from the administration on the FY2017 budget,the committees “should focus on how to reform America’s broken budget process and restore the trust of hardworking taxpayers.”  

The House and Senate Armed Services Committees have not yet announced when they will receive testimony from the Secretary of Defense and Chairman of the Joint Chiefs of Staff on the FY2017 Department of Defense (DoD) budget.

Next week, Highlights will include a brief overview of the FY2017 DoD budget request and identify links to official statements and available budget material.

Carter outlines the FY2017 DoD budget request

Tuesday, February 2nd, 2016

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The FY2017 Department of Defense (DoD) budget will total $582.7 billion DoD Secretary Ash Carter revealed in a speech to the Economic Club in Washington, DC today.

This amount is consistent with the budget agreement signed in December. Carter said the funds provided in this agreement allow DoD “to focus on the shape, making choices and trade-offs to adjust to a new, strategic era, and to seize opportunities for the future.”

Carter indicated that the budget request will begin to show that DoD is taking a longer view of countering security threats. “Even as we fight today's fights, we must also be prepared for the the fights that might come 10, 20 or 30 years down the road,” he said.

The secretary identified the challenges that underpin the key decisions that he and the senior civilian and military leaders made in developing this budget plan: Russian aggression in Europe; China's rise in the Asia Pacific region; security concerns caused by North Korea and Iran; and continuing fight against ISIL (Islamic State of Iraq and the Levant) and other forms of terrorism. Carter said addressing these challenges requires “some new thinking on our part, new posture in some regions and also new and enhanced capabilities.”

Carter said the FY2017 budget will include $7.5 billion more than than last year for new investments to fight the war against ISIL, 50 percent more than last year. Citing other related investments Carter said the budget would include over 35,00 GPS-guided smart bombs and laser-guided Rockets He also said the Air Force would defer the final retirement of the A-10 aircraft (being used extensively in action against ISIL) until 2022. Congress has been highly critical of the proposal to retire the A-10, stopping it's retirement in the past.

The budget will support additional U.S. Forces in Europe and training with U.S. Allies under the European Reassurance Initiative by increasing funding to $3.4 billion in FY2017.

Research and development funding in FY2017 will total $71.4 billion, according to Carter, to fund an enhanced effort to advance and field new capabilities.

Investments in strategic capabilities highlighted by Carter include technologies being developed in the Strategic Capabilities Office (SCO). These efforts will “reimagine exiting DoD, intelligence community and commercial systems by giving them new roles and game-changing capabilities.” SCO funded capabilities will include: advanced navigation (e.g., microcameras and sensors); swarming autonomous vehicles (e.g. microdrones); self-driving networked boats; gun-based missile defense; and an arsenal plane (to be a launch pad for conventional payloads).

FY2017 funding for submarine capabilities will total $8.1 billion and total over $40 billion over five years. Investment in cyber warfare and security will be $7 billion in FY2017 and $35 billion over five years, to “improve DoD's network defenses…build more training ranges… and develop cyber tools and infrastructure to provide offensive options,” Cater said. He also stressed that the FY2017 budget will contain more funding than the $5 billion in last year's budget to enhance the “ability to identify, attribute and negate all threatening action in space.”

On making tradeoffs to fund additional submarines and planes Carter said DoD tried to protect modernization and readiness posture. One tradeoff Carter mentioned was buying only as many Littoral Combat Ships (LCS) needed, Carter said.

Carter also said the budget continues acquisition reform, reduces overhead to allow DoD to reallocate $8 billion over the next 5 years to higher priorities, and pursues organizational reforms.

Full details of the FY2017 federal budget will be released by the president on Tuesday, February 9.

Senate passes combined FY2016 spending and tax credit bills and sends to president

Friday, December 18th, 2015

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Today, the Senate approved the FY2016 Omnibus Appropriations and the “Protecting Americans from Tax Hikes Act of 2015,” clearing them for the president's signature. The White House issued a Statement of Administration Policy (SAP) supporting both bill indicating the president would sign the final bill. The House passed each bill separately, but the Senate combined the bills into on before voting.

The Senate approved the combined bill 65-33. Twenty-seven Senate Republicans joined 38 Democrats voting for the combined bill, while 26 Republicans, six Democrats, and one Independent voted against final passage.

Earlier today, the House approved the FY2016 Omnibus spending bill by a wide margin 316-113 as 150 Republicans and 166 Democrats voted for the bill. Yesterday, the House passed the tax bill 318-109, as 241 Republicans and 77 Democrats voted yes.

The $1.1 trillion FY2016 Omnibus Appropriations bill, including al 12 appropriations bills, provides $548 billion for defense (DoD and defense-related spending base budgets (including Department of Defense (DoD) and the Department of Energy Energy (DoE) nuclear weapons program) and $518 billion for nondefense budgets.

House Appropriations Committee chair Harold Rogers (R-KY) said “the bill will strengthen national security and military readiness, protect against current and emerging global threats, and provide for our troops and military families.”

Funding in the bill for DoD base appropriations, less Military Construction, totals almost $514.1 billion and $58.6 billion for Overseas Contingency Operations (OCO). These amounts conform to the Bipartisan Budget Act of 2015.

The bill funds a 1.3 percent military pay raise authorized in the FY2016 Defense Authorization bill. DoD civilians will receive a 1 percent across-the-board pay increase and a .3 percent locality pay raise on January 1, 2016 as Congress did not change the president's recommendations.

Operations and Maintenance (O&M) funding in the bill totals $167.5 billion. The bill provides $609 million more than the president requested to mitigate shortfalls in readiness, training, and depot maintenance.

Procurement funding in the bill totals $111 billion. Funding is included for: 68 F-35 Joint Strike Fighters, 102 Blackhawk helicopters, 3 Littoral Combat ships, 2 attack submarines, 2 DDG-51 guided missile destroyers, 5 F-18E Super Hornets, and 12 KC-46 tankers.

Military Construction funding in the bill totals $8.2 billion for military construction projects. Family Housing funding for construction and operations of military housing totals $1.4 billion and addresses the need for more Air Force housing. The bill also includes $623 million for construction and improvement to military medical facilities and $334 million for work to be performed at DoD Education activities worldwide. Funding for Guard and Reserve facilities in the U.S. Totals $551 million.

The combined bill extends or makes permanent more about 50 expiring tax credits. Notably, the bill makes permanent the child tax credit and the earned income tax credit for low and moderate income families and permanently extends the research and development tax credit. The bill ends the ban on oil exports, extends tax breaks for renewable energy, and includes reforms to the Internal Revenue Service. The bill also includes a two-year delay on implementation of the tax on expensive health care insurance, the so-called Cadillac tax.  

Initial Analysis of the Bipartisan Budget Act of 2015

Friday, December 11th, 2015

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Analysis of the Bipartisan Budget Act of 2015

 

By Honorable Mike McCord

Under Secretary of Defense
(Comptroller and Chief Financial Officer)

Department of Defense


December 10, 2015

   

The budget deal negotiated by the President and the Congressional leadership is on balance a positive deal for the Department of Defense. The Department did somewhat better than splitting the difference between the President’s budget position on the high end, and the sequester caps in current law on the low end, even without taking into account the additional flexibility regarding Overseas Contingency Operations (OCO) funding in this deal.

Looking only at the base budget, the difference between the President’s position for DoD on the high end and the sequester-level Budget Control Act (BCA) caps on the low end was about $36 billion per year in FY2016 and FY2017. In FY2016, the Department got about $24 billion of that difference and lost $12 billion. In FY2017, the Department got about $13 billion of the difference but lost about $22 billion. Taking the two years together, the Department got $37 billion more than the worst-case BCA levels and $34 billion less than the best-case President’s budget levels.

Compared to FY2015, the Department’s FY2016 base budget would grow by about $26 billion or over 5% in nominal terms (about 3.6% in real terms), the biggest increase during this Administration.

The bill was also designed to give the Department some additional headroom by providing more OCO funding for FY2016 and FY2017 than the negotiators thought the Department needed – in theory up to $8 billion a year above current levels. However, I estimate the unfunded additional cost of the President’s decision to keep extra troops in Afghanistan at over $3 billion annually, which will eat up much of that OCO headroom.

In addition, the President may approve additional activities in the fight against terrorist organizations that will add to OCO costs, and of course the enemy always has a vote. So the Department cannot count on being able to completely control its OCO costs. However, at this time the Department does anticipate being able to recover some of the base budget topline lost in this deal by using $4 to $5 billion per year of OCO flexibility.

Including that OCO flexibility, the Department could end up with as much as 80% of the difference between the sequester caps and the original position in FY2016, and 50% in FY2017.

Put another way, the OCO flexibility provides around 1% a year of additional resources ($5 billion). The Department should end up with about 98% of its original base budget position in 2016 and 96% in 2017 without this OCO flexibility, and up to 99% in 2016 and 97% in 2017 with it.
 

Structure and content of the deal

In terms of scope and duration, this deal is what we expected, but no more. It’s a two year deal that will carry us through the 2016 election and change of Administrations and is silent regarding any years beyond that. After FY17, the sequester-level BCA caps drop back down to their current status, and the next Administration and Congress will have to decide whether to live with them, repeal them, or further amend them.

Still, by solving both the debt ceiling and budget/sequester issues in one package, this deal does represent a return to bipartisan governance rather than continued lurching from crisis to crisis.

This agreement is silent on what programs would be cut to meet these targets. That is left to the Appropriations Committees (for FY2016) and to the Department (for preparing a FY2017 budget that complies with the deal). Although the Department provided our input to the Appropriations Committees, Congress has ultimate control over what programs are cut to meet the new FY2016 targets.

This deal, by itself, doesn’t give us a dime. The Department still needs Congress to follow this up with appropriations bills in December and again next year to avoid potential shutdowns.

Among the notable aspects or impacts of this deal:

  • It re-baselines the DoD budget upward about $30 billion per year above the funding levels of the past three years, so there is reason to believe DoD will be permanently better off by that amount, because future negotiations will begin from a higher starting point. This is just as important a win for the long term as the immediate help we got in 2016 and 2017.
  • It marks the first time contingency or war funding targets have been written into a budget deal in advance.
  • Therefore the Department now has base and OCO funding trading off against each other, in terms of setting budget priorities, to a greater degree than ever before in 2016 and 2017.
  • I expect, as a result, that this deal will almost certainly leave DoD at least as dependent on OCO at the end of this Administration as we were before, it not more so.
     

Two notable things the budget agreement does not do, both of which represent wins for the Department:

  • The bill does not extend the discretionary caps further into the 2020s beyond their current expiration date at the end of FY2021. One of my biggest concerns was that near-term help with our topline would come at the price of extending these statutory caps pressing down on the Defense topline into the peak years of modernizing the nuclear triad after 2020, and fortunately that did not happen.
  • Unlike some recent budget deals, this agreement did not freeze federal civilian pay or reduce federal civilian retirement benefits to offset the cost of this deal.
     

Impact on finalizing the FY2017 budget

While the Department won’t have as much to spend in FY2016 or FY2017 as we had hoped, these cuts were to some degree expected and we can manage them. They came early enough in November to give us time to make informed tradeoffs on how to accommodate that lower funding level and still make substantial progress on Defense priorities and readiness and modernization goals. I am confident we will submit a budget for FY2017 that supports Secretary Carter and the nation’s key national security objectives. I am grateful for all the hard work by the DoD financial management community to make that happen.

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