Defense Financial Highlights

OMB Mid-Session Review projects improvement in new-term budget deficit

Thursday, July 23rd, 2015


The FY2015 federal budget deficit will be $128 billion lower than the previous administration estimate, according to the Office of Management and Budget (OMB).

In its annual Mid-Session Review of the Budget, OMB now expects the FY2015 deficit to be $455 billion compared to $583 billion projection made when the FY2016 budget was released in February.  The deficit for FY2016 is also expected to decline by $45 billion, from $474 billion projected in February to $429 billion.

Measured as percentage of Gross Domestic Product (GDP), the deficit is expected to decline from 2.8 percent in FY2014 to 2.6 percent in FY2015. The deficit share of GDP will further decline to 2.3 percent in FY2016 and hold at around 2.5 percent through FY2020. Between FY2021 and FY2025 OMB projects the deficit share of GDP to remain steady at 2.7 percent.

Increased receipts (+72 billion) account for more than half the improvement in the FY2015 deficit. Estimated higher individual (+$69 billion) and corporate (+$20 billion) income tax receipts are slightly offset by lower economic assumptions (-$22 billion) affecting receipts. Also contributing to the deficit improvement in FY2015 are lower than expected discretionary (-$23 billion) and mandatory (-$13 billion) spending. Defense outlays in FY2015 are projected to be $5 billion less due to lower than expected spending patterns in investment accounts.

While the FY2015-17 deficit estimates are down from OMB’s previous projections, deficits for FY2018-25 are now estimated to be $209 billion higher than OMB’s February projections. This adjustment is due primarily to lower revenue (-$556 billion) as revised economic forecasts show lower economic growth that will lead to lower individual and corporate income tax receipts. Partly offsetting the projected decline in receipts are lower than previously expected expenditures (-$374 billion) driven by lower interest payments (-$303 billion) due to revised economic assumptions. Discretionary spending is expected to show little increase (about $18 billion, almost all defense) over the eight-year period.

The OMB projections are based on the administration’s economic assumptions and its proposed spending and revenue proposals. The unemployment rate is expected to average 5.3 percent in 2015 (down from 6.2 percent in 2014) and is projected to decline to 4.6 percent by 2017. The unemployment rate will rise again to 4.9 percent by 2021 and stay at that level through 2025. OMB expects the annual change in consumer prices (CPI-U) to be only 0.2 percent in 2015, but increase to 1.9 percent in 2016 and level off at 2.3 percent by 2020.

House Committee approves FY2016 Coast Guard funding

Monday, July 20th, 2015


Last week, the House Appropriations Committee (HAC) approved FY2016 appropriations for the Coast Guard, which are included in the Department of Homeland Security appropriations bill.

This marks the 12th and final FY2016 appropriations bill approved by the House Appropriations Committee (HAC).

HAC chairman Harold Rogers (R-KY) said, “all committee work on funding measures [for FY2016] –the first time this has happened since 2009.” The full House has passed six bills, (Commerce/Justice/State, DoD, Energy and Water, Legislative, Military Construction/Veterans Affairs, and Transportation/HUD).

The HAC approved $8.5 billion in FY2016 discretionary appropriations (to be appropriated by Congress) for the Coast Guard, $361 million more than the budget request. The bill also identifies $1.6 billion in Coast Guard mandatory spending, including retired pay. The HAC bill does not include Coast Guard funding for Overseas Contingency Operations (OCO).

Operating expenses totaling $6.9 billion are funded in the bill, about $77 million higher than the request.  The bill fully funds a military pay raise, but does not contain funding for a civilian pay raise. Funding would be increased by $14 million for critical enlistment and extension bonuses and $55 million for critical depot maintenance programs.

The bill would increase the request for acquisition, construction, and improvements by $284 million to $1.3 billion. The bill fully funds the request for six Fast Response Cutters (to replace the aging 110-foot patrol boat fleet) and adds $70.5 million for design and construction of the Offshore Patrol Cutter (OSP), a high acquisition priority. An Additional $95 million is included to buy the 13th HC-130J, $82.7 million for Shore Facilities construction (aviation facilities +$31 million, ship lift facility +$20 million, and training center +$31.7 million), and $21 million for Coast Guard housing.

The HAC also proposes $20 million in rescissions from prior-year programs.

The Senate Appropriations Committee (SAC) approved its version of the FY2016 Homeland Security Appropriations bill last month. The SAC bill provides $8.7 billion for Coast Guard discretionary appropriations, $570 million above the request. The bill also includes OCO funding of $160 million for the Coast Guard.

Army reveals plan to reduce force structure and cut 40,000 troops

Monday, July 13th, 2015


Last week the Army announced its plan to further reduce force structure in 2016 and 2017 and cut troop strength by another 40,000 by 2018. The plan would also involve the reduction of 17,000 army civilian employees.

Force structure cuts “will best posture a smaller Army to meet global commitments,” according to a press release. These cuts will involve reductions in headquarters, cuts to brigade combat teams and enabler and generating forces, changes to operational force designs, and changes as a result of the Aviation Restructure Initiative.

Headquarters reductions will focus on headquarters commanded at the two-star and above level. The number of Army Brigade Combat Teams (BCTs), about 4,000 soldiers each, will drop to 30 in FY2017 down from a wartime high of 45. Two BCTs (Fort Benning, GA and Joint-Base Elmendorf-Richardson, Alaska) will convert into maneuver battalion task forces (about 1,050 soldiers each) by 2017.

Active Army troop strength will fall from 490,000 to 450,000 by the end of FY2018 (15,000 in FY2016, 15,000 in FY2017, and 10,000 in FY2018) under the plan. In FY2012, the Army’s active strength was 570,000. Previously, the Army had announced a cut of 80,000 from that level to be achieved in FY2017.

Although the Army’s plan will affect 30 installations, much of the Army’s troop strength cuts will be at six installations: Fort Benning, GA, -3,402; Fort Hood, TX, -3,350; Joint Base Elmendorf-Richardson, AK -2,631; Joint Base Lewis-McChord, WA -1,251; Schofield Barracks, HI -1,214; and Fort Bliss, TX -1,219

The previous 80,000 cut was to be achieved, for the most part, by eliminating temporary increases and reductions in Europe. To meet the additional 40,000 cut, the Army hopes to use attrition as much as possible, but will also use continuing officer and enlisted involuntary separations and early retirement boards.

The Army will also reduce civilian strength by 17,000 during FY2016 and FY2017. This reduction comes on top of 8,000 civilian cuts previously made. The Army hopes to achieve the 17,000 civilian reduction “through attrition and not filling currently unfilled positions.”

These decisions are being forced by ongoing budget constraints, according to Lt. Gen Joseph Anderson, Army Deputy Chief of Staff for operations and plans. “In the end, we had to make decisions based on a number of strategic factors, to include readiness impacts, mission command and cost,” he said.

However, if sequestration is not resolved before the automatic cuts go into effect in FY2016, the Army stresses that it could be forced to cut troop strength by another 30,000 (to 420,000) by the end of FY2019. This would produce a 26 percent reduction (-150,000) over seven years. If this should occur, the Army warns that the force “would be incapable of simultaneously meeting current deployment requirements and responding to the overseas contingency requirements of the combatant commands.”

National Military Strategy 2015 released by JCS

Thursday, July 9th, 2015


The Joint Chiefs of Staff (JCS) has released the 2015 National Military Strategy describing how the U.S. will use its Joint Force to meet current and future security challenges presented in an increasingly complex global security environment.

Describing the current security environment, Gen. Martin Dempsey, Chairman of the Joint Chiefs of Staff (JCS), said “we now face multiple, simultaneous security challenges from traditional state actors and transregional networks of sub-state groups—all taking advantage of rapid technological change.” Dempsey stressed that conflicts will come faster, last longer, and increasingly have implications for the U.S. at home.

In a press conference, Dempsey said while the United States still has the most powerful military force, other countries continue large investments in military capabilities and the gap is closing. The military strategy calls for “greater agility, innovation, and integration’ and reinforces the need for the U.S. to stay globally involved. Just as important, Dempsey said, the strategy “renews our professional commitment to develop leaders who will bring this strategy to life.”

In describing the strategic environment, the Strategy identifies Russia, Iran, North Korea, and China as countries that “pose serious security concerns” to the U.S. and its allies.

Security contributions by Russia in counternarcotics and counterterrorism are noted, but the Strategy charges that “Russia’s military actions are undermining regional security directly and through proxy forces.” It lists a number of agreements (e.g., UN Charter, Helsinki Accords, and Intermediate-Range Nuclear Forces Treaty) Russia has signed, but has violated by these actions.

Iran‘s pursuit of nuclear and missile delivery technologies and its support for terrorism “has undermined stability in many nations, including Israel, Lebanon, Iraq, Syria, and Yemen,” the report charges. North Korea’s pursuit of nuclear weapons and ballistic missile technology in the face of demands to cease such activity is a direct threat to the Republic of Korea and Japan, according to the report.

China could pose a threat to the United States because of its actions in the Asia-Pacific region, the report stresses. However, the report also encourages Chine to “become a partner for greater International security” by settling regional issues “without coercion.”

Under the U.S. military strategy, the military supports activities that advance the security of U.S citizens, allies, and partners, a strong economy, respect for universal values, and a “rules-based international order” that fosters peace, security, and opportunity. To ensure the survival of the nation and prevent a catastrophic attack on U.S. territory, the military seeks to: deter, deny, and defeat state adversaries; disrupt, deny, and defeat violent extremist organizations (VEO), and strengthen allies and partners.

The Strategy calls for a “Joint Force capable of swift and decisive force protection around the world.” This Joint Force’s globally integrated operations includes: Maintain a Secure Nuclear and Effective Deterrent by keeping strategic forces at a high state of readiness; Provide a Global, Stabilizing Presence around the world; Combat Terrorism with “sustained pressure using local forces augmented by specialized U.S. and coalition military strengths; Counter Weapons of Mass Destruction; Deny an Adversary’s Objectives with “highly-ready, forward-deployed forces, [and] well-trained and equipped surge forces at home;” Respond to Crises and Conduct Limited Contingency Operations; Conduct Stability and Counterinsurgency Operations “working with interagency, coalition, and host-nation forces;” Provide Support to Civil Authorities to work with civilian first-responders to deal with natural disasters and other domestics events; and Conduct Humanitarian Assistance and Disaster Response to deliver “life-sustaining aid to desperate people all around the world.”

The Strategy emphasizes innovation and efficiency to meet U.S. strategic objectives. This includes “promoting greater interoperability with joint, interagency, and international partners while encouraging action through decentralized execution.” The Strategy notes the existence of a resource-constrained environment t requires achieving savings through a more effective acquisition process (Better Buying Power 3.0) and reducing unneeded overhead and streamlining operations.

U.S. military operations against ISIL costing $9.2 million per day

Wednesday, July 1st, 2015


The cost of U.S. military operations in Iraq and Syria (Operation Inherent Resolve) against the Islamic State of Iraq and the Levant (ISIL) reached $2.91 billion in June 2015, the Department of Defense (DoD) reports.

This averages out to $9.2 million a day since August 8, 2014, up slightly from last month’s report.

DoD reports that $5.0 million of the daily average is for flying OPTEMPO, $2.1 million for munitions, $2.1 million for mission support, and $0.1 million for ship OPTEMPO. Air Force costs are averaging $6.1 million per day, while the Navy is spending $1.4 million daily and the Army $0.9 billion a day. Special Operations Command (SOCOM) costs are averaging $0.7 million daily.

According to DoD, 6,981 close air support, escort, and interdiction air sorties under OIR were conducted in 2014 and 9,183 such sorties have been carried out in 2015 as of May 31.

Through June 22, DoD reports that, U.S. and partner nations have damaged or destroyed 7,655 targets. This includes 2,045 buildings, 1,859 fighting positions, and over 400 tanks and vehicles.

Nations partnering with the U.S in conducting airstrikes against ISIL include Australia, Bahrain, Belgium, Canada, Denmark, France, Jordan, the Netherlands, Saudi Arabia, the United Arab Emirates and the United Kingdom.

DoD costs are being funded from the Overseas Contingency Operations (OCO) approved by Congress. The administration requested $3.4 billion for Operation Inherent Resolve (OIR) in FY2015. For FY2016, the OCO request includes $4 billion to support OIR plus another $1.3 billion to train Iraqi forces (including Kurdish forces) and moderate Syrian opposition.

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