Defense Financial Highlights

Senate Appropriations Committee approves FY2016 DoD spending bill

Friday, June 12th, 2015

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Yesterday, the Senate Appropriations Committee (SAC) approved the FY2016 Department of Defense (DoD) Appropriations bill by a vote of 27-3. The SAC bill would provide $489.1 billion for the DoD base budget (excluding military construction).

The bill also provides $86.8 billion for Overseas Contingency Operations (OCO) in FY2016. The president requested $50.9 billion for OCO. The SAC bill amount includes a transfer of $36.5 billion from the DoD base budget for operations and maintenance. The committee press release says the transfer is made “to meet the overall defense funding levels requested by the President while avoiding sequestration by breaching the Budget Control Act caps.”

The White House and many Democrats have argued that including the additional base budget funding in OCO to get around defense funding caps (set in the Budget Control Act) is bad budgeting for defense 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.

Committee chairman Sen. Thad Cochran (R-MS) said the bill “provides the resources that the President and our military leaders say they need to defend our country and its national security interests.”

The House Appropriations Committee (HAC) bill, approved last week, provides $490 billion for the base DoD budget and $88 billion for OCO.

The SAC bill would fund a 1.3 percent military pay raise as proposed by the president and recommended by the Senate Armed Services Committee (SASC). The HAC bill funds a 2.3 percent military pay raise as authorized in the House-passed FY2016 Defense Authorization bill. The SAC also approves the administration request to allow for slower Basic Housing Allowance (BAH) growth.

The bill also funds a 1.3 percent civilian pay raise requested by the president.

The SAC bill would fund the Defense Health Program (DHP) at $32.5 billion ($400 million below the request), essentially the same level as the House-passed bill.

The bill includes funds to buy 10 ships: two Virginia class submarines; two DDG-51s; three Littoral Combat ships (LCS); an LPD 28 amphibious transport dock; one Joint High Speed Vessel; and one T-AO Fleet Replenishment Oiler. The bill also approves incremental funding for one Arleigh Burke-class destroyer as authorized in the SASC bill.

The SAC bill also provides funding for six additional F-35 aircraft for the Marine Corps and four more F-35s for the Air Force, 12 more FA-18 E/F Super Hornets, and 8 additional MQ-9 UAV Reaper aircraft.

The Committee voted to limit the transfer of National Guard Apache helicopters to 36 in FY2016 until 60 days after a report is submitted by the Commission on the Future of the Army. Final disposition of this issue will be settled in the enacted FY2016 Defense Authorization bill.

Research and development funding additions in the SAC bill include: $143.6 million to develop a new U.S.-made engine for the Atlas V launch vehicle (as an alternative to the Russian-made RD-180 engine); $350 million for development of the Unmanned Carrier Launched Airborne Surveillance and Strike (UCLASS) air vehicle; $200 million to complete cyber vulnerability assessments; and $228.5 million for basic non-medical research by the Military Services.

To reallocate funding to higher priorities identified by the Military Services as unfunded requirements and authorized in the SASC FY2016 Defense Authorization bill, the SAC made reductions to 486 programs. These cuts are based on schedule changes, cost growth, and poor budget justification.

The timing of Senate floor action on the bill is uncertain. Some Senate Democrats, led by Defense Appropriations Subcommittee Ranking Democrat Sen. Dick Durbin (D-IL) have threatened to oppose Senate floor action on the FY2016 DoD appropriations bill until an agreement is reached to change the sequestration caps. Democrats could use a procedural move to keep the bill from coming to the floor. Although there is some reluctance among the Democrat rank and file to take such action on a defense appropriations bill, Democrats are considering action to keep the FY2016 Defense Authorization bill (now being considered on the Senate floor) from a final vote.

House Committee approves FY2016 DoD Appropriations bill

Thursday, June 4th, 2015

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This week, the full House Appropriations Committee (HAC) approved the FY2016 Department of Defense (DoD) Appropriations bill. The HAC bill would provide $490 billion for the DoD base budget (excluding military construction).

The bill also provides $88 billion for Overseas Contingency Operations (OCO) in FY2016. The president requested $50.9 billion for OCO.

Committee chairman Rep. Hal Rogers (R-KY) said the bill “makes responsible use of every tax dollar to give our armed forces the resources needed to stay safe, prepared, and in peak fighting form.”

The additional funding for OCO in the House bill is for requirements from the base bill. The Committee press release stated that the OCO funding is for “preparation and operation of our forces in the field, including funding for personnel requirements, operational needs, the purchase of new aircraft to replace combat losses, combat vehicle safety modifications, additional intelligence, Surveillance and Reconnaissance (ISR) assets, and maintenance of facilities and equipment.”

The White House and many Democrats have argued that including the additional base budget funding in OCO to get around defense funding caps (set in the Budget Control Act) 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.

OMB Director Shaun Donovan sent a letter to Rogers expressing the administration’s concerns about the committee’s use of OCO to fund defense base budget requirements. The bill’s “deliberate relabeling of non-war costs as OCO clearly violates OCO funding purposes,” Donovan wrote. While stating these and other White House concerns about the bill, Donovan’s letter did not directly threaten a veto. Rather, he said the administration wants to work with Congress to reverse sequestration.

The HAC bill would fund a 2.3 percent military pay raise that is authorized in the House-passed FY2016 Defense Authorization bill. The president’s budget requests a 1.3 percent pay raise for military personnel. The bill rejects the administration’s proposal to reduce the Basic Allowance for Housing (BAH) and adds $400 million to pay for restoring that cut. The bill also would deny an administration proposal to increase commissary prices to pay for operating costs and restored funding for proposed cuts.

The bill would fund the Defense Health Program (DHP) at $31.4 billion, $800 million below the request

Funding in the HAC bill for Operations and Maintenance (O&M) programs would total $162.3 billion for the base budget and $56.5 billion for OCO, about $2.6 billion above the total O&M request. OCO O&M funding includes $14 billion for base requirements and another $2.5 billion for readiness needs.

The bill would provide $116.7 billion in total for procurement programs. Base budget procurement in the bill would be $98.6 billion ($8 billion below the request), with another $18.1 billion in OCO ($11 billion above the request). Included in the bill’s total procurement account are funds to buy 9 ships, 65 F-35 aircraft and 12 KC-46 tanker aircraft, 7 EA-18G Growlers, 5 FA-18 E/F Super Hornets, and 64 AH-64 and 102 UH-60 helicopters.

The committee report appears to agree that the administration has a case to retire the A-10 Warthog aircraft stating that “divestment of the A–10 is the least unattractive option in the long run if the Air Force is to meet all of its national security responsibilities.” However, the committee also stated that “ongoing conflicts and contingency operations, a security environment that senior military leaders have described as highly uncertain, and continuing overseas deployments of A–10 squadrons raise questions of overall combat air forces capacity and whether it is prudent to proceed immediately with A–10 divestment.” So, the committee included $453 million in the FY2016 OCO account to maintain the current A-10 force.

Total Research and development (R&D) in the bill would be $67.9 billion, $66.2 billion in the base budget ($3.6 billion less than the request) and $1.7 billion in OCO ($1.5 billion above the request). Major programs receiving R&D funding include: the new Air Force bomber; next generation JSTARS, Navy’s Future Unmanned Carrier-based Strike System; the Ohio-class submarine replacement; and STRYKER lethality

No date has been set for House floor action on the FY2016 DoD appropriations bill.

DoD CIO issues standards for managing IT services

Thursday, May 28th, 2015

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The Department of Defense (DoD) will operate under an expanded standard information technology (IT) service management concept according to guidance issued by DoD Chief Information Officer (CIO) Terry Halvorsen.

The guidance, Defense Enterprise Services Management Framework (DESMF) Edition II, “provides a set of standards for managing IT services and establishes clear service management requirements for the acquisition and contracting of IT services across the Department for the quality delivery of IT services to the DoD customer,” Halvorsen said in a memo.

The guidance flows on from Defense Information Systems Agency (DISA) ESMF Edition I (May 2013). It will be the basis for DoD CIO oversight of all DoD IT services and capabilities, Halvorsen stressed.

The stated goal off the guidance is “to provide a framework to successfully align delivery of IT services with the mission of the department.”

DESMF Edition II is “Service Oriented” and focuses on managing IT services throughout the service lifecycle, according to the guidance. “It aligns and integrates processes for service management and defines processes at a high level, describing the what, not the how.” The guidance applies to all IT services and capabilities that DoD provides and the processes that support those services.

The purpose of the DESMF is to: 1) define best practices that drive implementation; 2) define the overall structure including Domains and processes throughout the service lifecycle; 3) describe the scope, benefits, roles, and responsibilities of the processes involved; 4) define a controls framework; 5) define interfaces between Domains and processes; and 6) recommend milestones for process implementation.

Halvorsen emphasized that “the efficient and effective management of information technology services is a critical component of the Chief Information Officer Enterprise Strategy and Roadmap and well as the success of the Joint Information Environment (JIE).” The long-term goal is to adjust DESMF “based on input and lessons learned from DoD Component ITSM implementation experiences,” he said.

Senate committee approves FY2016 Defense Authorization bill

Friday, May 22nd, 2015

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Last week the Senate Armed Services Committee (SASC) approved the FY2016 Defense Authorization bill by a vote of 22-4. Four Democrats, including Ranking Member Sen. Jack Reed (D-RI), voted against the bill. The House passed its version of the bill this week.

The bill authorizes force levels, programs, and policies (including military pay raises) for DoD budgets and the programs and policies for the Department of Energy (DoE) nuclear weapons program.  Appropriations bills provide actual funding.

The SASC bill authorizes a total of $612 billion, including about $485 billion for the Department of Defense (DoD) base budget and $89 billion for Overseas Contingency Operations (OCO). A provision in the bill would allow DoD to transfer $38 billion from OCO to the base budget if defense and nondefense funding caps are revised in legislation.

Sen. Reed, and other Senate Democrats are concerned that including the additional base budget funding in OCO to get around defense funding caps (set in the Budget Control Act) could lead to cuts to nondefense programs. They are pushing for a deal to revise these caps. The White House has threatened a presidential veto of any bill that increases defense funding at the expense of nondefense programs.

Secretary of Defense Ash Carter also criticized this mechanism telling a Senate Committee that this approach is “a road to nowhere” that risks the incremental funding approach for OCO.

Sen. John McCain (R-AZ) SASC chairman, called the bill a “reform bill.” “It tackles acquisition reform, military retirement reform, personnel reform, headquarters and management reform,” he said. He stressed the reforms in the bill will yield savings that can be reinvested in military capabilities.

The SASC bill proposes a “multi-year effort” to improve DoD acquisition system’s structure and process. The SASC proposal is framed in five objectives: 1) establish effective accountability by streamlining decision making and giving a larger role to the service chiefs under performance agreements; 2) develop alternative acquisition pathways including “rapid prototyping and rapid fielding within five years; 3) improve access to non-traditional and commercial contractors by making it easier for such firms to do business with DoD; 4) deregulate and streamline processes by reducing unneeded requirements, reports, and certification; and 5) improve the acquisition workforce by reauthorizing the “Defense Acquisition Workforce Development Fund,” establishing direct hire authorities, and creating enhanced dual-track career paths.

The bill (similar to the House-passed bill) includes a recommendation from the Military Compensation and Retirement Modernization Commission calling for a “blended” military retirement system. Under the bill, new service members would be automatically enrolled in the Thrift Savings Plan (TSP) with a matching contribution from DoD that could go to 5 percent, starting in FY2018. Current servicemembers could choose to join the plan.

The bill also proposes a management reform plan that would “focus limited resources on operations rather than administration.” The proposal would cut funding for “headquarters and administrative functions” DoD-wide by 7.5 percent each year for four years, saving $1.7 billion in FY2016 and reaching annual savings of $6.8 billion by the fourth year. The bill directs the Secretary of Defense to conduct a “comprehensive review of the management, headquarters, and organization of the Department of Defense” and directs the DoD Inspector General to “perform financial statement audits by contracting with independent external auditors.”

The SASC bill approves the president’s request for a 1.3 percent military pay raise, lower than the 2.3 percent military raise included in the House-passed bill.

Like the House, the SASC bill rejects administration proposals to set enrollment fees for TRICARE for Life beneficiaries or consolidate the TRICARE program, retire the A-10 attack jet fleet, and to initiate another Base Realignment and Closure (BRAC) round.

Unlike the House-passed bill, the SASC bill approves the president’s request to reduce the Basic Allowance for Housing (BAH) and to use commissary surcharge funds to purchase operating supplies.

Agreeing with the House, the bill also funds 12 more F/A-18E/F Hornet aircraft for the Navy (+$1.2 billion) and 6 more F-35B aircraft for the Marine Corps (+$1 billion), which were identified by the Services as unfunded priorities.

The full Senate is expected to take up the bill in June after returning from the Memorial Day recess.

House passes FY2016 Defense Authorization bill over White House veto threat

Tuesday, May 19th, 2015

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The House passed its version of the FY2016 Defense Authorization bill, 269-151 last week. The vote was primarily along party lines as 228 Republicans were joined by 41 Democrats in voting for the bill. Only 8 Republicans voted against the bill.

The House bill authorizes $515 billion for the Department of Defense (DoD) and the Department of Energy (DoE) nuclear weapons program.  The authorized amount for the base DoD budget is about $496 billion.

The bill also authorizes $89 billion for FY2016 Overseas Contingency Operations (OCO) funding. The president requested $50.9 billion for OCO. The additional $38.3 billion in the House bill is for O&M requirements from the base bill.

Including base funding in the OCO account (considered emergency and not counted against the budget caps) allows the House to authorize $585 billion ($496 billion in base funds and $89 billion in OCO) for DoD in FY2016. This is essentially the same as the president’s request for total DoD funding ($534 billion in base funding and $51 billion in OCO).

Most Democrats strongly disapprove of this approach because they say it could lead to large cuts in nondefense spending. They call for a solution to sequestration that would increase nondefense as well as defense funding.

Defense Secretary Ash Carter also decried the use of this method of increasing defense finding. In his testimony before the Senate Appropriations Committee Carter said “while this approach clearly recognizes that the budget total we’ve requested is needed, the avenue it takes is just as clearly a road to nowhere.” Carter further said the House proposal “risks undermining support for a mechanism – OCO – meant to fund incremental costs of overseas conflicts in Afghanistan, Iraq, and elsewhere.”

The White House reacted strongly to the House bill issuing a Statement of Administration Policy (SAP) that threatened a presidential veto. The SAP expressed strong concerns that “shifting base budget resources into OCO…fails to provide a stable, multi-year budget on which defense planning is based.”

The House FY2016 Defense Authorization bill would provide military personnel with a 2.3 percent pay raise by allowing the current pay raise calculation procedures to go into effect, unless the president recommends an alternative. The president has requested a 1.3 percent military pay raise for FY2016.

The bill also rejects administration proposals to increase commissary prices to pay for operating costs, raise TRICARE fees, and lower the Basic Allowance for Housing (BAH). The bill denies the administration’s plan to retire the A-10 attack jet fleet and rejects a proposal to initiate another Base Realignment and Closure (BRAC) round.

The House bill includes a recommendation from the Military Compensation and Retirement Modernization Commission that called for a “blended” military retirement system. Under the bill, new service members would be automatically enrolled in the Thrift Savings Plan (TSP) with a matching contribution from DoD starting in FY2018. The servicemember’s contribution (3 percent initially) would be matched by a 1 percent contribution by DoD (that could go up to 5 percent).

The bill also puts forward the first components of a plan to reform defense acquisition. The bill calls for streamlining the acquisition process, reducing the number of legal certifications, giving acquisition program managers greater flexibility to address programmatic risk, providing a “Defense Acquisition Workforce Development Fund,” and authorizing expedited authorities for hiring and training the acquisition workforce.

The bill also adds funds 12 more F/A 18-F Hornet aircraft for the Navy (+$1.2 billion) and 6 more F-35B aircraft for the Marine Corps (+$1 billion), which were identified by the services as unfunded priorities.

The full House considered more than 135 floor amendments approving all but a few. The House approved a floor amendment that would require the secretary of defense to certify that Army Active end strength levels below 490,000 will support the security strategy. Of broader interest to policymakers, the House rejected a Committee provision allowing children of illegal immigrants to serve in the armed forces in the future.

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