Defense Financial Highlights

Hagel warns a return to sequestration cuts would increase security risks

Tuesday, March 18th, 2014

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The U.S. military will be forced to make decisions that increase security risks if sequestration cuts were required again in FY2016 and beyond, according to Secretary of Defense Chuck Hagel.

Testifying last week on the FY2015 budget request before the House Appropriations Defense Subcommittee (HAC-D), Hagel repeated warnings he has made since the FY2015 budget was submitted two weeks ago. “As I’ve made clear, the scale and timeline of continued sequestration-level cuts would require greater reductions in the military’s size, reach, and margin of technological superiority,” he said.

The Bipartisan Budget Act of 2013, passed by Congress in December, set the total federal funding level for discretionary spending for FY2014 and FY2015. The Act provided about $65 billion in sequester relief over these two years, evenly divided between defense and nondefense programs. As a result no additional sequestration cuts will be necessary in FY2014 and none will be made in FY2015.

However, unless congress takes action in FY2016 to either replace sequestration cuts with a new budget deal or at least mitigate the effects of those cuts, DoD and other federal agencies will be required to implement deep cuts.

Hagel told the HAC-D that such cuts would force the Army to reduce its active force to 420,000 by 2019 rather than to 440,000 to 450,000 specified in the FY2015-19 budget plan. The Army Guard and Reserve forces would be 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. Hagel emphasized that these additional troop strength cuts were the minimum that could be required under sequestration.

In addition to more troop strength cuts, Hagel listed a number of modernization programs in the FY2015-19 budget plan that would be affected if Congress re-imposed sequestration cuts. The Navy would have to retire the U.S.S. George Washington and its carrier air wing, lay up six more ships, and defer buying one submarine. The Navy would also be forced to buy two less F-35Cs and three fewer DDG-51 destroyers in the FY2015-19 period, he said.

The Air Force would be forced to retire 80 aircraft, including the KC-10 tanker fleet and the Global Hawk Block 40 fleet, Hagel said. The Air Force would also buy 15 fewer F-35As through FY2019.

Hagel stressed that the potential cuts from sequestration would also affect readiness and research and development (R&D) funding. The Air Force could sustain 10 less Predator and Raptor combat air patrols and would have to make severe cuts to flying hours. Total DoD operations and maintenance (O&M) would grow only two percent under sequestration, rather than the three percent included in the budget plan. Total R&D funding would decline by 1.3 percent, rather than increasing by 1.6 percent as proposed in the plan. Further recovery in funding construction and repairs at military facilities would be limited, Hagel said.

Secretary Hagel emphasized that the proposed FY2015-19 budget plan would enable DoD to manage the increased risks caused by reduced funding levels. However, he warned, “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.” 

Coast Guard FY2015 budget request totals $9.8 billion

Thursday, March 13th, 2014

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The FY2015 Coast Guard budget (included in the Department of Homeland Security budget) totals $9.8 billion. This is $.6 billion less than enacted in FY2014 (excluding Overseas Contingency Operations supplemental funding).

The Coast Guard’s FY 2015 Budget reflects a deliberate balance between preserving today’s most critical font-line operations and investing in tomorrow’s Coast Guard,” according to the Coast Guard budget overview.

The request includes $8.1 billion in discretionary funding (to be appropriated by Congress) and $1.7 billion in mandatory funding (including retired pay).

Operating expenses account for $6.75 billion of the FY 2015 discretionary budget, essentially unchanged from the FY2014 enacted level. These amounts fund Coast Guard operational activities worldwide, including personnel costs.

The FY2015 acquisition, construction, and Improvements discretionary request of $1.1 billion ($0.3 billion lower than FY2014) finances the acquisition of new assets and construction of new facilities and improvements to existing facilities.

The FY2015 Coast Guard budget supports its three priorities: invest in long-term operational capacity; strengthen resource and operational stewardship; and preserve critical front-line operations.

The principal investments funded in the acquisition budget comprise: $803 million for new vessels, including the eighth National Security Cutter (NSC) (completing recapitalization of the High Endurance Cutter fleet) and two Fast Response Cutters (FRC) (replacing the aging fleet of 110-foot patrol boats); $68 million for aircraft, including H-65 helicopter enhancements and modernization and sustainment of HH-65 helicopters (converting to MH-65 Short-Range Recovery (SRR) helicopters); and $57 million for other projects, including C4ISR systems and the Coast Guard Information Management System.

To strengthen resource and operational stewardship, the FY2015 budget proposes reductions and savings that allow the Coast Guard to focus resources on the highest priorities. The budget plans to decommission two High endurance Cutters and eight Island Class Patrol Boats that are being replaced by NSCs and FRCs, and retire three HC-130Hs (for transfer to the Forest Service). The budget request would implement $63 million in efficiencies and $44 million in operational adjustments, and redirect $10.5 million in reserve training.

The FY2015 Coast Guard budget preserves critical front-line operations by funding: parity with the Department of Defense (DoD) in military pay (1 percent pay increase) and allowances, civilian pay (1 percent pay increase) and operations and maintenance funding of new assets (e.g., NSC-5, HC-144A, FRCs, and shore-side support for the Charleston, SC and San Juan PR home ports).

You can find details of the budget request in the FY2015 Coast Guard budget justification material

President requests $26 bilion for DoD in proposed Opportunity, Growth, and Security Initiative

Friday, March 7th, 2014

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The Department of Defense (DoD) would get an additional $26 billion in FY2015 under a funding initiative proposed by President Obama in the federal budget request submitted to Congress this week.

The president’s Opportunity, Growth, and Security Initiative requests $56 billion in FY2015 for additional investment in defense and nondefense programs to “spur economic progress and strengthen our national security.”

The additional $28 billion in domestic would go to education, research and innovation, infrastructure and jobs, opportunity and mobility, public health and safety, and to promote a more efficient and effective government, according to budget documentation. Another $28 billion would go to defense programs to improve DoD readiness and support modernization and to provide “effective sustainment of the nuclear weapons stockpile.”

This increased funding would be offset from spending and tax reforms proposed by the president.

DoD Comptroller Bob Hale explained to reporters when the budget was released how DoD would allocate its share ($26.4 billion) of funding from the initiative. He said about 40 percent would be used for “direct readiness enhancements,” about 40 percent for “modernization improvements,” and about 10 percent for “installations support increases, sustainment, and military construction.”

Secretary Hagel strongly endorsed the president’s initiative in testimony before the Senate Armed Services Committee this week. He said DoD’s share of the initiative’s funding is necessary to close near-term gaps in readiness and modernization that have arisen due to required funding cuts.

He emphasized that this proposal was not meant to satisfy a “wish list of unfunded priorities or unfunded requirements,” perhaps referring to the request by the House Armed Services Committee for such a list from the military services. He said the additional $26 billion is expressly for “bringing unit readiness, equipment, and facilities closer to standard after the disruptions and large shortfalls of the last few years.”

Hagel listed specific examples of how the additional funding would be allocated.

The Army would use the funds to address training needs and buy Blackhawk helicopters.

The Navy would fund aviation depot maintenance and logistics and increased investment in the P-8 Poseidon, E-2D Hawkeye, and Joint Strike Fighter programs. The Marine Corps share would fund unit level training and provide needed investment in the H-1 and KC-130 aircraft programs.

The Air Force would also fund readiness and training support and provide investment funding for the F-35, C-130J, and MQ-9 Reaper aircraft programs.

And, Hagel said all services would allocate funding from the initiative to fund needed base sustainment and military construction projects.

FY2015 DoD base budget totals $496 billion

Wednesday, March 5th, 2014

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The FY2015 DoD base budget request totals $495.6 billion for discretionary budget authority, essentially the same amount enacted in FY2014. The budget request is in line with the bipartisan budget act.

The budget request also includes a $79.4 billion funding placeholder for Overseas Contingency Operations (OCO), about $6 lower than the FY2014 enacted amount.  A detailed request will be submitted after final decisions are made on the U.S. presence in Afghanistan.

DoD’s five-year budget plan for FY2015 to FY2019 is $113 billion lower than included in last year’s budget plan.

In a press statement, Defense Secretary Chuck Hagel said the budget “recognizes the reality of the magnitude of our fiscal challenges, the dangerous world we live in, and the American military’s unique and indispensable role in this country and today’s volatile world.” But, the statement also acknowledged that the plan comes with “some increased levels of risk.”

DoD’s budget overview states the FY2015 budget seeks to accomplish six goals: balance the force; prepare for prolonged readiness challenges; continue to focus on institutional reform; pursue compensation changes; pursue investments in emerging military capabilities; and reduce infrastructure.

The Army’s FY2015 budget request totals $120.3 billion (24.3% of the total DoD budget) down $1.4 billion from the FY2014 enacted level. The Navy’s budget (including the Marine Corps) totals $147.7 billion (29.8%) $361 million above FY2014.  The Air Force base budget request is $137.8 billion (27.8%), up $3.1 billion. The budget request for Defense-wide accounts is $89.8 billion (18.1%), $2.5 billion below the previous year.

The budget plan moves DoD off a war footing for the first time since the 9/11 attacks in 2001. The Army will accelerate its troop drawdown plan to lower active end strength level to 490,000 from a post 9/11 high of 570,000. Under the new plan, the Army active troop levels will drop to between 440,000 and 450,000 by 2019, the lowest Army strength level since 1940.

Army National Guard and Reserve strength levels would also decline. Army National Guard strength would drop to 335,000 from 355,000 and Army Reserves strength would be 195,000 compared to 205,000 now.

The FY2015 budget would raise military pay by 1 percent, but freeze general and flag officer pay for one year. The budget also funds a 1 percent pay raise for civilians.

The budget plan proposes a number of program terminations. The Army would end the Ground Combat Vehicle program and use funding to develop a next generation platform. The Air Force would retire the entire A-10 fleet, saving $3.5 billion over five years. The A-10 would be replaced by F-35’s. The Air Force would also retire the 50 year old U-2 spy plane and replace it with the unmanned Global Hawk.

The Navy would maintain 11 carrier strike groups under the budget plan. The final decision on the George Washington aircraft carrier would be deferred until the FY2016 budget. Secretary Hagel has warned that if sequestration was re-implemented in 2016, the Navy would have to retire the ship.

The FY2015 budget request continues to pursue reductions that enable DoD to reduce costs and redirect funding to more important priorities. Comptroller Bob Hale told reporters that the plan contains efficiency savings of $94 billion over five years. He said the savings proposals include: “making judicious cuts in our contract funding, [and] eliminating lower priority contracts.” The budget request also restructures the civilian workforce, makes some health care changes, slows the growth in military compensation, and asks Congress to approve another Base Closure and Realignment (BRAC) round.

The Basic Allowance for Housing would be reduced over five years to provide 95 percent of housing expenses from the current 100 percent.

The budget plan would also cut $1 billion ($1.4 billion to $400 million) from the annual commissary subsidy over the next three years. Overseas commissaries would continue to receive subsidies as would some in remote areas in the U.S. DoD does not propose to close any commissaries.

The budget proposes to modernize and consolidate TRICARE programs for retirees under age 65, saving hundreds of dollars, according to DoD. Some TRICARE co-pay increases are proposed, but includes no changes for retirees. Final decisions are awaiting completion of the Military Compensation and Retirement Modernization Commission report.

DoD asks Congress to approve another BRAC round in 2017. Hale said DoD has “at least 25 percent uneeded infrastructure.” “If we can’t get Congress to allow us to close it, then we’re simply going to waste the taxpayer’s money, he added.” Congress has denied recent requests for BRAC rounds and remains skeptical about their need and effectiveness.

Additional detail (including Military Service briefings) on the FY2014 DoD budget request is available on the DoD Comptroller website.

FY2015 budget to be released Tuesday March 4; congressional hearings to follow

Friday, February 28th, 2014

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President Obama will release the FY2015 federal budget to the public and the Congress on Tuesday March 4, 2013.

This is about one month after the budget after the budget is normally released, which is the first Monday in February. OMB told Congress that the budget release date was delayed because the administration needed more time to complete budget preparation after final action on the FY2014 budget was completed in January.

After the FY2015 budget is released on Tuesday, senior administration officials will brief the press and begin testifying before congressional oversight committees.

OMB Director Sylvia Burwell is scheduled to testify before the Senate Budget Committee Wednesday morning (March 5) and the House Budget Committee on Wednesday afternoon.

Secretary Chuck Hagel and General Martin Dempsey, Chairman of the Joint Chiefs, will testify before the Senate Armed Services Committee on the FY2015 Department of Defense (DoD) budget request Wednesday morning, March 5.  They will appear before the House Armed Services Committee (SASC) on Thursday morning (March 6). The Military Service Secretaries and the Military Chiefs will testify before various defense oversight committees on the FY2015 budget over the next few weeks.

Next week, Highlights will include a brief overview of the FY2015 DoD budget request and identify links to official statements and available budget material.

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