DoD in denial about budget future, experts say

Monday - 3/25/2013, 5:15am EDT

Jared Serbu, DoD reporter, Federal News Radio

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The Pentagon never believed sequestration would actually happen, but now that it's here, things are unlikely to change, according to several defense experts who believe DoD's leadership is still in denial about the fact it's going to have to deal with significant reductions in its budget future.

Not only did Congress not manage to figure out a way around sequestration before the March 1 deadline, with last week's passage of a 2013 government funding bill, lawmakers explicitly left the automatic $85 billion spending cuts in place for the rest of the year.

And numerous defense observers say it's a virtual certainty that even in the event that sequestration is at some point de-triggered, the Pentagon is in for further cuts one way or another, and so far has not taken the necessary steps to plan for the leaner times ahead.

Mackenzie Eaglen, resident fellow, American Enterprise Institute

"The department admits it didn't expect sequestration to happen, and now that it's here, there's still an element of denial that it's going to stay in place. But it's crystal clear from the continuing resolution that it will," said Mackenzie Eaglen, a resident fellow at the American Enterprise Institute who specializes in defense issues. "Whether it stays in place for nine more years is an open question, but it's certainly going to be in place for the foreseeable future. We're still waiting on the President's budget, but it is expected to ignore the sequester as well."

That choice is presumably based on the hope that Congress and the President will reach an overarching, long-term budget bargain that will replace sequestration and restore funding the Pentagon was hoping for a year ago.

Consensus of experts is that DoD funding is going down

But Gordon Adams of the Stimson Center, who spoke alongside Eaglen and other experts at an AEI budget forum, said there's a solid consensus among defense experts across the political spectrum that defense dollars are coming down, even beyond the $487 billion DoD has already sliced from its previously-planned spending.

"But there doesn't seem to be a consensus in the Pentagon, and I share Mackenzie's sense that there still is a creeping lack of realism over there. They have their fingers crossed that this will somehow all go away and be better," said Adams, who oversaw defense budgeting from within the Office of Management and Budget during the defense reductions of the 1990s. "And I was struck by the stories that have come out recently that say that the Pentagon is going to accept another $100 billion in 10-year cuts, but push them all past 2019. As a longtime planner, that doesn't make any sense at all except in la-la land. Anything that happens after 2019 isn't a real cut. It doesn't suggest to me a stunning degree of realism."

Gordon Adams, distinguished fellow, Stimson Center

Adams said realism would mean coming to terms with the fact that DoD is coming out of a protracted period of sustained combat operations, and near-term funding is going to decline substantially whether sequestration stays in place or not.

"The bottom-line reality here is we're in a drawdown. The budget's down 10 percent in real terms since 2010, so is procurement, and the Pentagon somehow doesn't quite get it," he said. "The reality to me is not just about sequester, the reality is we're in a drawdown. Sequester accelerates the drawdown, but it's a drawdown nonetheless, and that's the consensus everybody seems to have. So the question is how to go about it sensibly."

Sequestration, which slices away evenly at almost all of DoD's programs and projects, was constructed by design to cut the budget in a non-sensible way so that Congress would force itself to find an alternative.

Dod, White House did not believe sequestration would happen

But Todd Harrison, the senior fellow for defense budget studies at Center for Strategic and Budgetary Assessments, believes DoD and the White House made those nonsensical cuts even worse by staying in denial for the past year about the fact that they were a realistic possibility.

"None of us could have said a year ago that it was certain we'd be under sequestration, but it was perfectly foreseeable that that was a real possibility. There are things DoD could have been doing to prepare for that. Instead, they explicitly told everyone not to start preparing, not to start cutting back on spending, spend at the current rate as if sequestration is not going to happen," he said. "So what happened? Here we are, sequestration took effect five months into the fiscal year, and all these spent at a regular rate. So they have to take the cuts in the last seven months of the year. It makes the cut a lot steeper, and it gives you a lot less flexibility."

Todd Harrison, senior fellow for defense budget studies, Center for Strategic and Budgetary Assessments

But Harrison said it didn't have to be that way. Many other federal agencies have proven, he said, that it was possible to blunt the impact of sequestration by seeing the political handwriting on the wall and planning for leaner budgets. He offered up the Government Accountability Office as an agency that did just that.

"They did some early buyouts, early retirements, a hiring freeze, and they're actually at a point right now where they probably won't have to furlough anyone because they've already reduced their headcount. Could DoD have been doing some of that? Could they have started the hiring freeze sooner than they did? Of course they could have," he said. "They could have cut back on spending in some of these operation and maintenance accounts sooner and spread the pain out over a longer period of time so the furlough impact wasn't as large. There are a lot of things they could have done, but they didn't. And now we're seeing that they're doing the same thing for fiscal 2014. They are again assuming the reductions in the budget caps that have been in effect since the supercommittee failed are going to somehow go away in 2014."

Experts say it's imperative Pentagon bring costs under control

But experts say if history is any guide, that assumption is exceedingly unrealistic for DoD in the context of a post-war build down. So instead, the department should be doing things now to significantly cut its costs. For Eaglen, that means beginning to shrink the cost drivers that gradually crept throughout the military during the past decade of nearly unconstrained wartime spending.

"Are they not just further kicking the can on the need to reduce bureaucracy, overhead, infrastructure and acquisition costs? The 780,000-member civilian workforce has been untouched for any reduction of any significant size, while the active military is already dropping pretty significantly. On infrastructure, yes, there was a base closure proposal last year, but it wasn't a serious proposal because there was no money budgeted for it, and it costs money before you start to save money in the BRAC process."

Experts say it's also imperative for the Pentagon to bring its personnel cost growth for uniformed service members under control, but they hesitate to pin the blame for that entirely on DoD's shoulders, since Congress hasn't exactly been helpful.

DoD proposed measures last year to reduce that annual growth rate in military pay and benefits from around 4 percent per year to less than 1 percent. Lawmakers rejected almost all of those ideas in the 2013 National Defense Authorization Act.

Clark Murdock, the senior adviser for the defense and national security group at the Center for Strategic and International Studies, said lawmakers have been willing to change military benefits only in ways that make them more costly.

Clark Murdock, senior adviser, Center for Strategic and International Studies

"The personnel budget went up 40 percent in real dollars between 2001 and 2010. Active duty manpower went up only 3 percent. That's why you have so many civilians and contractors, and that's why you had so many reserve components called up to fill active duty roles. They couldn't afford active duty personnel," he said. "The buildup during the post-9/11 period was all in the civilian area because active duty manpower had essentially priced itself out of the market. Previous drawdowns have always gone back to about $400 billion in fiscal 2013 dollars. This one is going to go down to about $510 billion. It's more than $100 billion extra for a force that's one-third smaller than the one we had in 1978. This is internal cost growth."

Murdock said in other areas of Pentagon spending, from acquisition overruns to operation and maintenance spending, the only way to meaningfully reduce internal cost growth is to set limits on spending from above.

"And that can only be done with a strong secretary of defense who actually takes control of the budgeting process and controls the dollars," he said. "They're not the commandant of the Marine Corps' dollars, they're not the Air Force major commands' dollars, they're the secretary's dollars, and they're provided by the taxpayer," Murdock said. "The secretary has to take control of the dollars and the database. He's not going to say you have to cut each staff by this much, but he has to say, 'You get this much money for institutional stuff, you get this much for overhead, you get this much to organize, train and equip.' That's the only way this works: cost caps."

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