Defense Financial Highlights

President Obama nominates Ashton Carter to be Defense Secretary

Friday, December 5th, 2014

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President Obama has nominated Ashton Carter to be the next Secretary of Defense. Carter would succeed Secretary Chuck Hagel who announced his resignation last month. Hagel will remain in the job until Carter is confirmed.

In announcing the nomination, the president said Carter “brings a unique blend of strategic perspective and technical know-how” to the job. The president noted that Carter has served under 11 Secretaries of Defense, in both Republican and Democrat administrations.

If confirmed, as expected, Carter will face significant challenges. American troops are ending the combat mission in Afghanistan, but will transition to advising and training Afghan forces. Efforts to degrade and destroy forces of the Islamic State of Iraq and the Levant (ISIL) will continue into the future. U.S. participation in the fight against the spread of Ebola involves DoD capabilities. And, DoD is undergoing significant efforts to reform acquisition, develop and improve new capabilities, while maintaining readiness and dealing with continued budgetary constraints. The president said that Carter “is going to be critical to all these efforts.”

Carter has a broad knowledge and significant experience in Department of Defense matters. He served as Deputy Secretary of Defense from December 2011 to December 2013. Prior to becoming Deputy Secretary, he was Under Secretary of Defense for Acquisition, Technology, and Logistics, a post he held from 2009 to 2011.

Before becoming USD (AT&L) in 2009, Carter was chair of Harvard’s Kennedy School of Government’s international and Global Affairs department.  From 2006 until 2008, Carter was a member of Secretary of State Condoleezza Rice’s International Security Advisory Board.  Previously, Carter served in the Clinton administration as Assistant Secretary of Defense for international Security Policy from 1993 until 1996. 

During his career, Carter also has been a member of the Defense Science Board (1991-93 and 1997-01) and the Defense Policy Board (1997-01), and co-chaired the Catastrophic Terrorism Study Group.  He was also a Senior Partner at Global Technology Partners and served on the Board of Trustees at MITRE Corporation.

House passes conferenced FY2015 Defense Authorization bill

Friday, December 5th, 2014

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The House passed (300-119) the FY2015 Defense Authorization bill yesterday with bipartisan support.

The “Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015,” named after the Senate and House Armed Services Committee chairmen, was agreed to in conference this week. The House had passed its version of the bill in May. The Senate Armed Services Committee approved its version in May, but the full Senate had not acted on the bill.

The agreed-to legislation authorizes $495.9 billion in base discretionary budget authority for the Department of Defense (DoD) and $17.5 billion for the Department of Energy (DoE) nuclear weapons program.  The bill authorizes an additional $63.7 billion for Overseas Contingency Operations (OCO).

The bill authorizes the president’s request for a 1 percent military pay raise and accepts the president’s proposal to freeze pay for General and Flag officers in FY2015. However, the bill rejects proposed changes to TRICARE, but does authorizes a $3 increase in pharmacy co-pays for prescriptions filled in non-military treatment facilities by non-Active Duty TRICARE beneficiaries. The bill also provides an additional $100 million in subsidy funding for the commissary system, restoring the administration proposed reduction

The conferees reduced the administration-proposed 5 percent cut to Basic Allowance for Housing (BAH) to 1 percent. The bill also rejects another Base Realignment and Closure (BRAC) round in 2017 that was urged by the administration.

The bill also rejects other savings proposals made by the administration. The House-Senate bill denies the administration proposal to defer a decision on refueling the USS George Washington until the FY2016 budget. Almost $800 million is provided in FY2015 for support and advance planning for refueling the aircraft carrier.

The bill also prohibits the Air Force from retiring or preparing to retire the A-10 aircraft fleet in FY2015 and stops the Air Force from retiring any Airborne Warning and Control System (AWACS) in FY2015.

The legislation authorizes $1.25 billion for National Guard and Reserve equipment (not requested by the administration) and blocks the Army’s plan to move AH-64 Apache helicopters from the National Guard to active components in FY2015.

In a major organizational move, the conference agreement creates an Under Secretary of Defense for Business Management and Information that combines the positions of Deputy Chief Management Officer (DCMO) and Chief Information Officer (CIO). Currently, the Deputy Secretary of Defense, supported by the DCMO and staff, assumes the CMO roles and responsibilities.

The Senate will consider the bill next week.

CBO deficit reduction options include cuts to defense spending and federal pay raises and retirement plans

Tuesday, December 2nd, 2014

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The Congressional Budget Office (CBO) has identified a series of options policymakers can take to address the continuing high level of federal budget deficits and the growing federal debt. CBO issues such deficit reductions options annually.

In “Options for Reducing the Deficit: 2015 to 2024” CBO describes 79 options to reduce the deficit including spending cuts to mandatory and discretionary programs and revenue increases.  Included in the report are 10 options affecting the Defense of Defense (DoD) budget that range from caps on pay raises and pensions and cost controls on military health care to specific program cuts and cancelations.

Regarding military compensation, a CBO option would cap increases in military basic pay at .5 percent below the increase in the Employment Cost Index (ECI), saving $24 billion from 2016 to 2024. Current law requires military pay increases to be set at the projected full increase in the ECI, unless adjusted by the president or the Congress. 

CBO also proposes a cap on federal civilian pay raises.  Current law sets annual civilian pay raises at .5 percent below the increase in the ECI, unless adjusted by the president or the Congress.  The CBO option would reduce the pay raise called for under law by .5 percent, saving $54 billion for the entire government. 

Another CBO option would replace 80,000 military personnel performing so-called “commercial jobs with 53,000 civilian employees. This option, according to CBO, would allow DoD to cut military end-strength by 80,000 and could save $21 billion from 2016 to 2024.

CBO options would also affect military and civilian retired pay. One option would eliminate concurrent receipt of retirement pay and disability compensation for disabled veterans. Currently, military retirees who have disabilities as a result of combat and those retirees who have a VA disability rating of 50 percent or more receive full retirement pay and disability compensation (concurrent retirement and disability pay), without a dollar-for-dollar adjustment to retirement pay for their disability pay. The CBO proposal would end this concurrent receipt saving $112 billion from 2016-2024.

CBO also proposes consideration of cuts to military and federal civilian pensions. Currently military annual retired pay is based on the average of the servicemember’s basic pay over the 36 months of their career with the highest pay. Civilian retired pay is based on the average individual’s pay over the three consecutive years with their highest earnings. The CBO option proposes that military retired pay be based on a 60-month average and civilian retired pay on a five-year average. This option would apply to personnel who retired in 2016 and after and would save $2.5 billion in military retired pay and $3.1 billion in civilian retired pay from 2016-2024.

CBO options affecting military health care programs include both cost controls and benefit limitations. One option would increase enrollment fees, copayments, and deductibles for working age military retirees using TRICARE, saving $20 billion from 2016-2024. Under the second option, working age military retirees and their families would not be eligible for TRICARE Prime, but would allow them to enroll in TRICARE Standard (fee for service plan) or Extra (preferred provider network) at a premium that is 28 percent of the average cost. This option would save $76 billion over the 2016-2024 period.

Four CBO options affect specific DoD programs: F-35 Joint Strike Fighter; Ford Class aircraft carriers; ballistic missile submarines; and the New Long-Range Bomber.

One CBO option would cancel the F-35 Joint Strike Fighter and buy the most advanced versions of the F-16 for the Air Force and the F/A-18 for the Navy and Marine Corps, saving $41 billion from 2016-2024. Another option would end the Ford Class aircraft carrier construction program with the completion of the U.S.S. John F. Kennedy, authorized in 2013, saving $20 billion.

CBO also proposes an option cutting the number of submarines in the SSBN force to eight in 2021 by retiring one Ohio-class submarine a year during 2016-2021, saving $21 billion from 2016-2024. The beginning of the Ohio class replacement program would be delayed until 2021. And, a CBO option to defer development of the New Long-Range Bomber until 2015 or later would save $34 billion over the period.

Hagel resigns as Secretary of Defense

Monday, November 24th, 2014

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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

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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.

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