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Senate committee approves FY2015 DoD appropriations bill

Wednesday, July 23rd, 2014

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The Senate Appropriations Committee (SAC) approved its version of the FY2015 DoD Appropriations bill last week.

The SAC bill provides $490 billion for DoD appropriations in the base budget (excluding military construction, which is provided in a separate bill), $1 billion below the request. The bill also includes $58.3 billion for Overseas Contingency Operations (OCO), $200 million below the president’s request.

Sen. Barbara Milkulski (D-MD) called the bill “a good bill for our men and women in uniform.” “It emphasizes readiness, cares for our wounded warriors, takes steps to improve health on our military bases and provides resources needed to keep our nation secure”, she said.

The House bill, passed last month, provides $491 billion for the base DoD budget and $79.4 billion for OCO.

The SAC bill would provide funding for 1 percent military pay raise as proposed by the president. The House-passed bill funds a 1.8 percent military pay raise as authorized under the House-passed FY2015 Defense Authorization bill. The SAC also approves the administration request to freeze pay for general and flag officers and allow for slower Basic Housing Allowance (BAH) growth.

The bill also funds a 1 percent civilian pay raise requested by the president.

The SAC bill would fund the Defense Health Program (DHP) at $31.6 billion ($400 million below the request), essentially the same level as the House-passed bill. The bill would add $200 million to the Defense Commissary Agency funding request to maintain operations and block the president’s proposed cut to the commissary subsidy. The bill also cuts $20 million from Office of the Secretary of Defense (OSD) funding to reflect a five percent personnel reduction.

Operations and Maintenance (O&M) funding in the SAC bill would total $165.8 billion, only slightly below the administration’s request, but $1 billion more than the House-passed bill. The SAC includes funding increases for facility sustainment (+$1 billion) and depot maintenance ($+360 million).

The SAC bill includes about $850 million to refuel the USS George Washington, denying the administration’s plan to defer a decision on refueling until the FY2016 budget. The House also provided funding for refueling. The SAC also funds continued operations of A-10 aircraft, blocking (like the House) the administration proposal to retire the A-10 fleet.

Procurement funding in the bill totals $91.4 billion, $1.7 billion higher than the request and about $200 million over the House-passed bill. Included in the SAC procurement funding are: two attack submarines and three Littoral Combat Ships; 34 F-35 (Joint Strike Fighter) and 7 KC-46A tankers, 12 EA-18G Growlers, and 79 H-60 Blackhawk and 37 MH-60S/R helicopters.

The SAC bill includes $62.6 billion for research and development, almost $1 billion less than the request and about $200 less than the House. Among the programs receiving R&D funding are: the Armored Multi-Purpose Vehicle (AMPV); the long-range strike bomber; and the KC-tanker. The SAC also added almost $800 million for medical research with a special focus on Peer-Reviewed Medical Research and Peer-Reviewed Cancer Research.

To reallocate funding to higher priorities identified by the Committee, the SAC made 517 separate program cuts totaling $11.7 billion. The funding reductions include: $6.6 billion for excess prior-year unobligated balances and forward financing; $2.7 billion due to schedule delays, cost growth, program concurrency and poor contractor performance; $1.3 billion to eliminate unnecessary program growth; and $1.1 billion for program redundancy, insufficient documentation, and program terminations. The SAC bill also cuts $500 million (3 percent) form the IT budget request to encourage prioritization of non-cybersecurity investments.

Given the Senate’s stalemate over the amendment process for floor action on appropriations bills, it is unclear when the defense bill will be considered on the Senate floor. To date the full Senate has not considered any FY2015 appropriations bill, while the House has passed seven (including the DOD bill). It is also unclear whether the defense bill will be a stand-alone bill or will be included in a continuing resolution (CR). With the August recess less than two weeks away and the mid-term congressional elections looming, it is becoming more likely that a CR may be considered sooner rather than later and final congressional action on most appropriations bills will be deferred until after the election.

OMB Mid-Session Review shows short-term improvement in budget deficit

Monday, July 14th, 2014

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The FY2014 federal budget deficit will be $66 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 and the administration’s economic projections, OMB now expects the FY2014 deficit to be $583 billion compared to $649 billion projection made when the FY2014 budget was released in March.  

Measured as a share of total Gross Domestic Product (GDP), the deficit will decline from 3.7 percent in FY2014 (down from the previous estimate of 3.4 percent) to 2.2 percent by 2018. OMB projects the deficit share of GDP to rise to 2.6 percent through FY2022 before falling again to 2.1 percent by FY2024.

The lower deficit estimate in FY2014 is due almost entirely to lower estimated mandatory (-$53 billion) and discretionary (-$27 billion) spending. Total discretionary outlays are expected decline due to slower spending patterns for defense and nondefense programs and reduced expenditures for Overseas Contingency Operations (-$6 billion).

However, this improvement will be short-lived according to OMB estimates. While the FY2014-16 deficits are lower than OMB previously projected, deficits for FY2017-24 are estimated to be $600 billion higher than OMB’s March projections. This adjustment is due primarily to lower revenue (-$745 billion), resulting mostly from a lower economic growth forecast, offset slightly by higher projected outlays (+$31 billion) and lower interest payments (+$123 billion). Discretionary outlays are expected to stay essentially flat between 2017 based on administration long-term spending plans.

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 6.3 percent in 2014 and is projected to decline to 5.4 percent in 2017 and stay 5.4 percent through 2024. OMB expects the annual change in consumer prices (CPI-U) to be 1.8 percent in 2014, increase to 2.2 percent by 2017 and level off at 2.3 percent for the period 2018 to 2024.

Shaun Donovan confirmed a new OMB director

Friday, July 11th, 2014

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The Senate has confirmed (72-22) Shaun Donovan to be Director of the Office of Management and Budget (OMB), the government’s chief budget officer.

Donovan has been Secretary of Housing and Urban Development (HUD) since 2009 and replaces Sylvia Mathews who recently became the Secretary of Health and Human Services (HHS).

When President Obama announced Donovan’s nomination in May for the OMB post he said Donovan “has earned a reputation as a great manager, a fiscally responsible leader, and somebody who knows how the decisions we make here in Washington affect people’s lives all across the country.” 

While serving as HUD secretary, Donovan chaired the Hurricane Sandy Rebuilding Task Force, which was charged with developing a regional plan to guide future disaster recovery. Along with Homeland Security Secretary Janet Napolitano, Donovan headed the Long-Term Disaster Working Group that developed the National Disaster Recovery Framework.

Prior to becoming HUD secretary, Donovan served as commissioner of the New York City Department of Housing Preservation and Development (HPD). Before that he worked in the private sector on financing affordable housing and was a visiting scholar on the preservation of federally-assisted housing at New York University. Donovan also was a consultant to the Millennial Housing Commission established by Congress to expand housing opportunities.

During the Clinton administration, Donovan served as a Deputy Assistant Secretary for Multifamily Housing at HUD. He has also worked at the Community Preservation Corporation (CPC) in New York City and earlier as an architect.

Donovan becomes the government’s 40th budget head. In 1921, the Bureau of the Budget was established in the Treasury department under the Budget and Accounting Act. In 1939, it moved to the Executive Office of the President and in 1970 became the Office of Management and Budget.

President requests $58.6 billion for FY2015 Overseas Contingency Operations

Monday, June 30th, 2014

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The budget request for DoD Overseas Contingency Operations (OCO) for FY2015 is $58.6 billion, the White House announced late last week. The enacted level of OCO funding in FY2014 was 85.3 billion.

The amended budget request submitted by the president is $20.8 billion less than the $79.4 billion funding placeholder included in the budget request sent to Congress in March.

The OCO request will fund $54.3 billion for DoD costs for Operations Enduring Freedom (OEF) in Afghanistan, $0.3 billion for transition activities in Iraq, $4 billion for the Counterterrorism Partnership Fund (CTPF), and almost $1 billion for the European Reassurance Initiative (ERI).

Based on the president’s recently-announced redeployment decision, U.S troop levels in Afghanistan will decline to 9,800 by the end of December 2014, with further decrease to 5,000 by December 2015. Average troop levels in Afghanistan will decline from 37,234 in FY2014 to 11,661 in FY2015.

However, the DoD costs for war-related support will not decline proportionately, according to DoD justification material. DoD’s forward presence around the Middle East in support of OEF will not decline significantly in FY2015. Costs for transporting troops and equipment back to the United States and to retrograde equipment and reset the force will continue, as will costs to close bases, conduct associated environmental remediation, and to dispose of unexploded ordnance. Continued costs are also necessary to meet the demands for high-end Intelligence, Surveillance, and Reconnaissance (ISR) and to support the Afghan National Security Forces, according to DoD.

The OCO request includes $11 billion for operations and force protection in Afghanistan. These costs support special pays and the pay and allowances for mobilized Reserve Component personnel, deployed civilian personnel costs, ground combat and aviation operating costs, C4I, and supplies and sustainment costs.

The funding request also will provide $18.1 billion for in-theater support outside of Afghanistan. Forces providing this support include afloat and expeditionary forces, engineers and fire support, and other capabilities that support troops operating in Afghanistan. In addition to OPTEMPO costs and transportation, this funding includes maintenance and contractor logistics and Defense Logistics Agency (DLA) services, fuel losses, and fuel transportation.

Investment and equipment reset costs of $9.2 billion in the request will fund the replenishment of ammunition and missiles expended in combat ($0.6 billion), replacement of equipment that was lost in combat ($0.3 billion) and worn out equipment for which repair was not considered economical ($1.4 billion). This reset request also includes $6.6 billion to repair tactical vehicles, radios, and support equipment at the depot or field level. Another $0.3 billion will fund the reset of force protection equipment, including communication and electronic, physical security, and aircraft survivability equipment.

Non-DoD and other classified costs totaling $6.5 billion, funding for the Afghanistan Security Forces Fund ($4.1 billion) for training and operations, coalition support ($1.7 billion) to reimburse key coalition partners and provide support for specialized training and equipment, and $4 billion for the Counter Terrorism Partnership Fund (CTPF) account for most of the remaining $4 billion.

House passes FY2015 DoD Appropriations bill

Monday, June 23rd, 2014

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Last week the House passed the FY2015 DoD Appropriations bill 340-73. The bill (H.R. 4870) provides $491 billion for the base DoD budget (except Military Construction, which is funded in a separate bill), $200 million above the request.

The House bill also includes $79.4 billion for Overseas Contingency Operations (OCO) in FY2015. This amount is the same as the placeholder request included in the president’s budget.

House Appropriations Committee (HAC) chairman Rep. Hal Rogers (R-KY) said the House bill “helps to meet the most pressing needs to address current and arising threats to the security of our nation, while finding ways to trim excess and reduce lower priority programs without negatively affecting our troops or the success of our military missions.”

The House bill funds a 1.8 percent military pay raise that is authorized in the House-passed FY2015 Defense Authorization bill, almost twice the 1 percent raise proposed in the president’s budget request.

The bill rejects the president’s proposals to reduce the cost of military personnel benefits. The House denies the proposed cut in the Basic Allowance for Housing (BAH), the $1 billion reduction to the annual commissary subsidy, and proposals to modernize and consolidate TRICARE programs for retirees under age 65, including some TRICARE co-pay increases. The House approved a floor amendment to prohibit funding to initiate another Base Realignment and Closure (BRAC) round.

The House bill also denies the administration proposal to defer a decision on refueling the USS George Washington until the FY2016 budget. The bill provides almost $800 million in FY2015 to refuel the aircraft carrier.

The House approved a floor amendment offered by Rep. Candice Miller (R-MI) that prohibits funding to retire the A-10 aircraft fleet that was proposed in the administration’s budget request. This action overturns the decision by the House Appropriations Committee, which had rejected pressure to keep the program alive. However, because the floor amendment does not add funding necessary to keep the program operational, the Air Force would have to absorb the cost by reducing other programs. Another House floor amendment blocks retirement of the KC-10 tanker.

The White House issued a Statement of Administration Policy (SAP) that strongly criticized the House bill’s positions on the administration’s savings and reforms proposals. “Without congressional support for meaningful compensation reforms and other costs savings measures, force structure changes and flexibility to manage weapons systems and infrastructure, there is an increased risk to the Department’s ability to implement the President’s defense strategy,” according to the SAP. However, the statement stopped short of threatening a presidential veto of the House bill.

The House now awaits Senate action on the FY2015 DoD spending bill. 

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