Defense Financial Highlights

Hagel resigns as Secretary of Defense

Monday, November 24th, 2014


Today, President Obama announced that Secretary of Defense Chick Hagel will resign. He will leave his post as soon as a replacement is confirmed.

Hagel has been Secretary of Defense less than two years since being sworn in on February 27, 2013. He is the first former enlisted person and first Vietnam veteran to become Secretary of Defense

In making the announcement at the White House, the president called Hagel “an exemplary secretary, providing a steady hand as we modernized our strategy and budget to meet long-term threats.”

Responding to the president’s remarks, Hagel said “I believe that we have set not only the Department of Defense, but the nation on a stronger course toward security, stability, and prosperity.”

In a message to DoD military and civilian personnel, Hagel said he made his decision after much discussion with the president. He said he and the president “agreed that now was the right time for new leadership here at the pentagon.”

Hagel enumerated the accomplishments the department has made during his tenure: prepared for a successful transition in Afghanistan; taken “the fight to ISIL” and blunted their momentum; assisted people worldwide suffering from natural disaster and disease; sustained the all-volunteer force; and “bolstered new alliances and strengthened emerging partnerships.” He said he will work hard to support the men and women of the DoD “right up until my last day in office.”

A successor to Hagel has not yet been named. Many commentators speculate that Senator Jack Reed (D-RI), former Under Secretary for Policy Michele Flournoy, and former Deputy Secretary of Defense Ashton Carter are high on the list of potential replacements.

House committee leaders selected for 114th Congress

Friday, November 21st, 2014


House Republicans and Democrats have selected Committee chairmen and Ranking Members for the 114th Congress, which will convene in January 2015. Boehner and Pelosi announced the committee leadership selections this week. The Committees of most interest to defense include:

Appropriations: Rep. Harold Rogers (R-KY) remains as chair of the House Appropriations Committee (HAC) and Rep. Nita Lowey (D-NY) stays on as the Ranking Democrat. Rogers has been pushing for an Omnibus Appropriations bill to finalize action on FY2015 Appropriations in the lame-duck session.

Armed Services: Rep. Mac Thornberry (R-TX) replaces Rep. “Buck” McKeon (R-CA), who will retire at the end of this session, as chair of the House Armed Services Committee (HASC). Rep. Adam Smith (R-WA) remains as Ranking Minority member. Thornberry is currently the HASC vice-chairman and has served on the House Intelligence Committee.

Committee on Oversight and Government Reform: Rep. Jason Chaffetz (R-UT) replaces Rep. Darrel Issa (R-CA) who was an unrelenting investigator of what he considered government wrongdoing. Rep. Elijah Cummings (D-MD) remains as Ranking Democrat on the Committee. Chaffetz has been highly critical of recent problems at the U.S. Secret Service and is expected to take a hard look at federal workforce issues.

Homeland Security: Rep. Michael McCaul (R-TX) and Rep. Bennie Thompson (D-MS) stay on as chair and Ranking Democrat.

Veterans Affairs: Rep. Jeff Miller (R-FL) remains as chairman and Rep. Corrine Brown (D-FL) becomes the new Ranking Democrat on the committee. Brown replaces Rep. Mike Michaud (D-ME) who is retiring.

Foreign Affairs: Rep. Ed Royce (R-CA) and Rep. Elliot Engel (D-NY) will remain as chair and Ranking of the House Committee Foreign Affairs

Budget Committee: Rep. Tom Price (R-GA) becomes the new chair of the House Budget Committee replacing Rep. Paul Ryan (R-WI) who will become chair of the House Ways and Means Committee. Rep. Chris Van Hollen (D-MD) stays on as Ranking Democrat.

With the Republican takeover of the Senate next year many current committee Ranking Republicans will become committee chairs. Sen. Thad Cochran (R-MS) is expected to chair the Senate Appropriations Committee (SAC) and Sen. John McCain (R-AZ) is expected to head the Senate Armed Services Committee (SASC). Formal announcements for Senate Committee leadership positions have not yet been made.

Hagel outlines new innovation initiative

Tuesday, November 18th, 2014


Secretary of Defense Chuck Hagel announced a new department-wide initiative designed to “identify and invest in innovative ways to sustain and advance America’s military dominance for the 21st century.”

Speaking at the 2014 Reagan National Defense Forum, Hagel said in order to “overwhelm challenges to our military superiority” within the current constrained resource environment the U.S “must change the way we innovate, operate, and do business.” The innovation Initiative is based on the lessons learned from previous offset strategies and will “sustain our competitive advantage over the coming decades,” he said.

Hagel has tapped Deputy Secretary of Defense Robert Work to direct the development of the initiative and to head an Advanced Capability and Deterrent Panel implement and integrate the effort throughout DoD. Work will provide quarterly progress reports to Hagel.

In a memo to Department of Defense and Military Service leaders, Hagel called the initiative a “third offset strategy that puts the competitive advantage “firmly in the hands of American power projection over the coming decades.”

The memo describes three main components of the initiative. A long-range research and development planning program will develop and field “breakthrough technologies and systems” to sustain and advance capabilities. This program will look particularly at robotics, autonomous systems, miniaturization, and 3-D printing.

Secondly, a reinvigorated wargaming effort will develop “alternative ways of achieving our strategic objectives.” Thirdly, a new operational concepts will utilize resources for more strategic effect and to address emerging threats more innovatively.

The new initiative will also look at DoD business practices “to find more ways to be more efficient and effective through external benchmarking and focused internal reviews.”

In describing the challenges DoD faces as a modern enterprise, Hagel told the Reagan Defense Forum that the department must upgrade its business and IT systems and processes. And, he reinforced the goal to be “fully, completely, audit-ready by no later than 2017.” Hagel said DoD is on track to meet this goal, which “is essential for DoD’s effectiveness, efficiency, and accountability into the future.”

FY2015 appropriations, Defense Authorization, and other legislation await action in “lame duck” congressional session

Friday, November 14th, 2014


Congress has returned this week to complete legislative action in the shadow of last week’s election.  When the 114th Congress convenes in January, Republicans will control both houses. Republicans will gain control of the Senate with an increase of least 8 seats.  Republicans will increase their House majority by at least 12 seats, with five district elections yet to be decided.

But, for the remainder of the 113th Congress, Republicans control the House and Democrats control the Senate. So, with about four weeks until the current Continuing Resolution (CR) expires and less than six weeks until the end of the year, the question is: What will the “lame duck” congress accomplish among a compelling list of unfinished business?

FY2015 appropriations bills:  Most agree that the most pressing priority is completing action on FY2015 appropriations to keep the government running.  The House has passed seven appropriations bills (including DoD and Military Construction/VA) and approved another four through the full House Appropriations Committee. The full Senate has not considered a single appropriations bill, but the Senate Appropriations Committee (SAC) has approved eight bills (including DoD and Military Construction/VA). Congress will not complete all FY2015 appropriations bills before the CR runs out and leaders of both parties have pledged to avoid a government shutdown. So, Congress could either pass one Omnibus appropriations bill including all 12 bills or a few “mini-bus” bills (for example, DoD, MilCon/VA, and Homeland Security) and wrap the remaining bills in one final FY2015.appropriations bill. Time constraints make one Omnibus bill the most likely result.

FY2015 DoD Appropriations:  The House passed the FY2015 DoD appropriations bill in June and the full Senate Appropriations Committee (SAC) approved its version in July. The House bill provides $491 billion, $200 million above the request, for the base DoD budget (excluding Military Construction, which the House passed in the VA/MilCon bill). The House bill also includes $79.4 billion for Overseas Contingency Operations (OCO), the same amount the president requested as a placeholder. The SAC bill provides $490 billion for DoD base budget appropriations, $1 billion below the request, and $58.3 billion for Overseas Contingency Operations (OCO). While the White House has expressed displeasure with the House’s denial of the administration’s cost savings and reform proposals, it did not threaten a presidential veto of the bill.

FY2015 Defense Authorization: The House passed the FY2015 Defense Authorization bill in May and the Senate Armed Services Committee (SASC) has approved its version of the bill. But no action has been taken in the full Senate. There are a number of significant issues that have to be resolved before final agreement, particularly, the size of the military pay raise (House authorizes a 1, 8 percent raise, while the SASC approves the president’s 1 percent request), refueling the USS George Washington, and sanctions against Iran. In addition, both bills authorize some military special pays, multiyear buys, and military construction contracts which would expire unless Congress passes and the president signs a FY2015 Defense Authorization bill.

U.S. military operations against ISIL: The president is expected to send Congress a resolution to authorize the use of military force (AUMF) against the Islamic State of Iraq and the Levant (ISIL). Congressional action could come in the form of an amendment to the FY2015 Defense Authorization bill. However, because this will prove to be a heated debate, Congress could begin to debate a new AUMF now, but not vote until January. The president and defense Secretary Chuck Hagel are also pressing Congress to approve the recently-submitted budget amendment to provide funding and the authority to train and equip rebels fighting ISIL. Congress will likely consider this request when finalizing the FY2015 DoD Appropriations bill.

Other legislation: Over 50 so-called tax extenders will expire at the end of the year. They include research and development tax credits (highly popular with business), state and local sales tax deductions, tax credits for energy efficient homes, and bonus depreciation tax credits.  Earlier, the House passed bills permanently extending some credits (including the R&D tax credit), while the Senate Finance Committee approved extending almost all tax provisions for two years. Although there is strong sentiment among some members to kill many of the provisions, given the time crunch and the popularity of the provisions Congress will probably extend most of them.

The president has said he will take executive action on immigration before the end of the year. Congressional opponents argue that the president must involve Congress. Some want to include a provision in an omnibus appropriations bill that would prohibit the president from spending funds to implement such executive action. The president has hinted he might veto such a bill, which could revive the possibility of a government shutdown. House and Senate Republican leaders are strongly opposed to the president’s impending executive action, but dismiss the idea of forcing a government shutdown over this issue.

President requests $3.4 billion for DoD operations against ISIL

Tuesday, November 11th, 2014


A FY2015 budget amendment submitted to the Congress yesterday would provide the Department of Defense (DoD) $3.4 billion to conduct operations against the Islamic State of Iraq and the Levant (ISIL).

This request comes after the president announced that he is increasing the number of U.S. forces advising and training Iraqi and Kurdish troops by 1,500 to about 3,000.

Operations against ISIL are currently being funded from existing OCO funding, according to DoD. However, DoD has cautioned that additional funding would be required as the pace of operations increased. Secretary of Defense has repeatedly warned that operations against ISIL are long-term.

The $3.4 billion requested for Operation INHERENT RESOLVE will fund: the operations and maintenance (O&M) costs of air, ground and naval forces engaged in the operation; sustain and support forces deployed to “provide training, advice, and assistance to partner security forces engaged in the fight against ISIL;” and replenish and replace munitions expended during airstrikes against ISIL forces. According to DoD justification documents, $2.0 billion will be for In-Theater Support, $0.3 billion for equipment reset, and $1.2 billion for classified programs.

Over two-thirds of the $3.4 billion will be for O&M appropriations ($2.3 billion). Military Personnel costs account for $141 million, Procurement funding will be $827 million, and RDT&E programs will require $145 million.

Air Force requirements are $1.581 billion (46 percent of total funding). The Army receives $957 million (28 percent) for its operations, the Navy gets $260 million (8 percent), and Defense-wide activities are allocated $632 million (18 percent).

In addition to the $3.4 billion, the president requested $1.6 billion to set up the Iraq Train and Equip Fund (ITEF) ”to develop and support Iraqi national security forces, including Kurdish forces, as they confront ISIL in Iraq.”

These amounts (totaling $5 billion) are to be funded in DoD Overseas Contingency Operations (OCO) accounts and are in addition to the $58.6 billion DoD Overseas Contingency Operations (OCO) request the president sent requested in June. The total DoD OCO request for FY2015 is now $63.6 billion.

A DoD spokesperson said Congress will have to act on the president’s funding request before the additional 1,500 troops can be deployed. Congress will begin a lame duck session this week with hopes of completing action on FY2015 appropriations bills, including DoD OCO funding, before adjourning.

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