Defense Financial Highlights

President will nominate Eric Fanning to Secretary of the Army

Monday, September 21st, 2015


President Obama announced that he will nominate Eric Fanning to be Secretary of the Army. If confirmed by the Senate, Fanning would succeed John McHugh who has served as Army secretary since September 2009. McHugh has announced he will step down from the post in November.

Secretary of Defense Ash Carter praised the selection calling Fanning “one of our country's most knowledgeable, dedicated, and experienced public servants.” Carter said he has confidence that Fanning “will strengthen our Army, build on its best traditions, and prepare our ground forces to confront a new generation of challenges."

Fanning is currently serving as Acting Under Secretary of the Army since June 30, 2015. Prior to that he served as The Special Assistant to the Secretary and Deputy Secretary of Defense.

Mr. Fanning has also held senior leadership jobs in the Department of the Air Force and the Department of the Navy. From April 2013 to February 2015 he served as the Under Secretary of the Air Force during which time he was Acting Secretary of the Air Force for six months. Fanning was the Deputy Under Secretary of the Navy/Deputy Chief Management Officer for four years beginning in 2009.

Prior to serving in the Department of Defense, Fanning held a number of jobs related to national security. In 2009 he was Deputy Director of the Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism. Prior to that, he was managing director of CMG, a strategic communications company, and Senior Vice President For Strategic Development at Business Executives for National Security (BENS). Fanning was also a Senior Associate for Robinson, Lere & Montgomery (a strategic communications firm) and worked for CBS News in New York. Fanning also served on Capitol Hill as a research assistant with the House Armed Services Committee.

Association leaders press Congress to avoid an extended CR

Thursday, September 17th, 2015


Congress should craft a long-term budget deal now rather than continue budget gridlock by approving a long-term Continuing Resolution (CR), according to five major defense associations.

Leaders of the Aerospace Industries Association (AIA), National Defense Industrial Association (NDIA), Air Force Association (AFA), Navy League, and National Guard Association sent a letter this week urging congress to “work together to avoid an extended continuing resolution or a government shutdown in Fiscal Year 2016.”

The letter warns that an extended CR would hurt national security and the whole economy. CRs “create needless and avoidable inefficiency that wastes taxpayer money,” the letter states. Further, the leaders stress that continuing resolutions make meeting operational needs of the military services more difficult.

The associations urges Congress to avoid putting national security in a “CR trap” that results when continued use of CRs produces longer-term CRs. The associations want Congress to “come together again [as they did after the shutdown in 2013] in a bipartisan fashion and strike a multi-year deal that will create stability and efficiency in our spending.”

Former Department of Defense (DoD) Comptroller Bob Hale (currently a Fellow at Booze Allen Hamilton) has also underscored concerns about long-term CRs recently calling them a “nightmare” for the military. Hale said a year-long CR (continuing defense funding in FY2016 at the FY2015 levels) would produce serious problems for the military services. He argued for a return to long-term stability in defense budgets by fixing sequestration.

Congress has more on its plate than the Iran nuclear deal and a FY2016 CR

Friday, September 11th, 2015


Congress is currently debating a bill to disapprove the Iran nuclear deal and working to put together a Continuing Resolution (CR) to keep the government running after September 30. Both of these issues are staring at a deadline that requires immediate action. Congress has until September 17 to act to either approve or disapprove the Iran nuclear deal. And, of course, funding for the federal government runs out at midnight September 30 unless Congress either passes and president signs all FY2016 appropriations bills or enacts a CR to extend funding into FY2016.

Even if Congress does overcome strong Republican resistance to funding Planned Parenthood and passes a CR before September 30 that extends government funding for a few months, it still has to complete action on all 12 FY2016 appropriations bills, either individually or grouped in mini-omnibus bills, or in one omnibus bill takes. This will take time and hard bargaining, not only among Republicans and Democrats, but with the While House. Complicating this bargaining will be a number of highly-charged political obstacles.

First efforts by Republicans to defund Planned Parenthood movement are not going away. Led by Sen. Ted Cruz (R-TX), a number of Republicans will try to force a defunding provision in any final deal on appropriations. But, if the president receives a bill that excludes funding for Planned Parenthood he will surely veto it.

Second, Senate Democrats have been urging Republicans to negotiate a new budget deal that changes sequestration (automatic across-the-board cuts). Seeing no progress toward budget discussions, Democrats have blocked action to proceed on any appropriations bill in the Senate until budget talks begin.

Complicating any action to change sequestration is a strong desire among most Republicans and some Democrats to increase defense spending. The House-passed FY2016 Defense Appropriations bill adds about $38 billion to defense base budget requirements by including that amount in funding for Overseas Contingency Operations (OCO). This mechanism would get around defense funding caps set in the Budget Control Act.

The White House and Democrats argue that including the additional base budget funding in OCO is bad defense budgeting, does nothing to address sequestration, and could lead to cuts to nondefense programs. The White House has threatened a presidential veto of any bill that increases defense funding at the expense of nondefense programs.

Congress must also complete action on the FY2016 Defense Authorization bill. The House and Senate have passed their versions of the bill and appear close to completing the conference resolving the differences between the two bills. The major issues to be resolved are TRICARE co-pays, changes to the military retirement system, and provisions regarding prisoners in Guantanamo Bay. Both the House Armed Services Committee chairman Rep. Mac Thornberry (R-TX) and Senate Armed Services Committee chairman Sen. John McCain (R-AZ) have expressed confidence that they can finish the conference soon.

Other unfinished legislative items include the Highway and Transit and Federal Aviation Administration (FAA)reauthorization bills. Before leaving for recess, the House and Senate agreed on a three-month extension (until October 29) of the highway bill after the House refused to take up the Senate-passed 6-year reauthorization that included controversial measures to reauthorize the Export-Import Bank. The FAA authorization will expire on September 30. Congress is expected to extend authorization for six to nine months to allow time to work our differences between the House and Senate.

Before the end of the year Congress will also have to deal with increasing the debt. Action on the debt ceiling had been expected in October, but, according to the Congressional Budget Office (CBO), improvement in the FY2015 deficit picture means that Congress will have until late November or early December to act (when Treasury will run out of so-called “extraordinary cash management measures”).

And, in what has become an annual ritual, Congress will have to address some 50 expiring tax credits (so-called tax extenders) that will expire on December 31. These tax credits include individual tax deductions, business incentives (e.g. research and development credits), and energy tax credits. For a number of years Congress has routinely extended these tax credits for only a year. This year Congress will probably extend the credits through FY2016.

Congress returns from recess to address the Iran nuclear deal and a potential government shutdown

Saturday, September 5th, 2015


Congress returns next week (September 8) from a five-week recess facing a vote on the Iran nuclear deal and another threat of a government shutdown.

The most pressing, time-sensitive issue is legislation to approve or disapprove the Iran nuclear deal that was agreed to by the United States, Great Britain, France, Germany, Russia, China, and Iran in July. Both the House and Senate are expected to take up the deal when Congress returns next week, with the House voting by September 11.

The deal has been strongly opposed by congressional Republicans (who control both the House and Senate). Congress has until September 17th to act on the deal. If both the House and Senate pass a bill disapproving the deal as most observers expect, the president is sure to veto it.

In the House 144 votes are needed to override a veto, probably more than the Democrats could muster, although Democrat leaders are expressing some confidence that they might be able to garner the votes. In the Senate a veto is sure to be sustained as 38 Senate Democrats have declared their support of the deal, more than the 34 required. However, if 41 Senate Democrats support the deal, they will be able to stop the bill from coming to a vote in the Senate, which would negate the need for a presidential veto to move forward with the provisions of the deal.

And then, of course, there is the matter of funding the government for FY2016. When Congress returns there will be only about three weeks (including about 10 legislative days) before the beginning of FY2016. As Congress has completed none of the 12 appropriations bills (the House passed all 12 bills, but the Senate has passed none), Members and Senators will face a crucial decision: pass a Continuing Resolution (CR) to allow agencies to continue operating or force a government shutdown.

House and Senate Republican leaders have expressed no desire to shut down the government. To avoid that at least in the short-term, they will have to agree on a CR of some length. However, the rise of sentiment to defund Planned Parenthood among many Republicans casts at least some doubt on Speaker John Boehner’s (R-OH) ability to move a CR in the House without much controversy. If Boehner cannot come up with enough Republican votes to pass a CR he will have to work with Democrats to make up the difference to avoid a shutdown.

Even so, if the House and Senate were to pass a CR that defunds Planned Parenthood, the president would surely veto it. This would push the government to the brink of shutdown, an outcome only a few seem to be willing to accept, yet is still possible.

President recommends 1.3% pay raise in 2016 for federal civilian and military personnel

Monday, August 31st, 2015


President Obama last week notified Congress he has determined that federal civilian employees should receive a 1.3 percent pay raise in 2016. This is the same civilian pay raise the president included in the FY2016 federal budget request.

The 1.3 percent pay raise is a combination of a 1.0 percent across-the-board raise announced in last week’s letter and an increase in locality pay raise the president said he will request later this year. “The alternative plan for locality payments will be limited so that the total combined cost of the 1.0 percent across-the-board pay increase and the varying locality pay increase will be 1.3 percent of basic payroll,” the president said in his letter.

This marks a departure from recent civilian pay raise proposals, which have been solely across-the-board increases to base pay. Locality pay has not changed since 2010.

Each year the president is required under Title 5 U.S.C., sections 5303(b) and 5304a, to present an alternative pay plan for across-the-board pay and locality pay adjustments. Unless Congress acts the president’s alternative proposal automatically goes into effect.

In a separate letter to Congress, the president determined that members of the uniformed services should also receive a 1.3 percent pay raise in 2016. The president had proposed a 1.3 percent military pay raise in his FY2016 budget request.

The president’s proposals for federal civilian and military personnel pay raises would go into effect on January 1, 2016, unless Congress acts to change the raises.

To date, Congress has not acted on the FY2016 civilian pay raise proposal increasing the probability that the president’s alternative 1.3 percent total pay raise will go into effect on January 1, 2016.

For military pay raises, the House has approved a 2.3 percent increase for military personnel in its version of the FY2016 Defense Authorization bill, while the Senate approved a 1.3 percent military raise in its defense authorization bill.

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