There have been many warnings in recent years about a “perfect storm” threatening U.S. defense spending. These dire predictions so far have not been taken seriously as military budgets doubled during the past decade.
But the storm is coming, and now it’s time to brace for a big one.
A confluence of processes and events is creating the conditions for a severe fiscal crisis that will affect all aspects of the nation’s finances, and the impact on defense will be more acute as the U.S. military continues to fight costly wars.
The wars in Iraq and Afghanistan are now consuming in the neighborhood of $200 billion a year, which despite a defense budget just north of $700 billion, have dragged funds away from needed modernization. Recall that Congressional Budget Office projections from 2005 even then indicated that Defense Department funding was running $100 billion a year short of what it needed to fund the modernization programs planned at that time.
Then came the 2007 recession, now extending past 31 months, which is the most protracted since World War II. Along with the downturn are unsustainable federal budgets and projections of more than $1 trillion in annual deficits out through 2020. The national debt is approaching $20 trillion and interest on the debt will be around $900 billion per year in 2020 — larger than the “projected” defense budget that year. The unsustainable nature of this budget projection has now been recognized as a national problem that can no longer be ignored.
In response, President Obama this year appointed a National Commission on Fiscal Responsibility and Reform. The so-called Deficit Commission is due to report in December. In anticipation, Congress has deferred action on the 2011 budget, which is normally scheduled to become law Oct. 1.
Meanwhile, the $37 billion defense supplemental, that was requested by the Pentagon for prosecution of the ongoing wars, is stalled in Congress. Defense Secretary Robert Gates said in the absence of funding by the July 4 recess, the department would have to “do something stupid.” The recess came and went, with no bill. The House passed a $58 billion bill — $37 billion for defense and $21 billion for domestic spending. The Senate has so far not acted, but leadership there opposes domestic spending in the supplemental.
The Office of Management and Budget issued a “statement of administration policy” which promises a veto “if the final bill presented to the president includes cuts to education reforms.” Where this goes from here is anyone’s guess. The something “stupid” mentioned by Secretary Gates involves dipping into operations and maintenance funding from other sectors of defense, such as training, civilian pay, deferring scheduled maintenance, reprogramming and other areas. Even when requested funding becomes available, it never makes up for all the broken glass and broken programs, which creates further disruptions into the future.
Senate Finance Committee Chairman Max Baucus, D-Mont., said he sees three areas of focus: “the tax gap, the spending gap and the productivity gap.” Since it’s fairly certain that government doesn’t directly legislate productivity, it is a safe bet that specific tax and spending recommendations will come from the Deficit Commission in December.
Other worrisome converging vectors are: Secretary Gates’ warnings about the need to cut unnecessary spending at Defense; a report led by Rep. Barney Frank, D-Mass., “Debt, Deficits & Defense,” that calls for major budget cuts; and Undersecretary of Defense Ashton Carter’s recent initiative on affordability and productivity in defense spending.
Gates cautioned that the “gusher” of defense spending that opened on 9/11 is about to close. He advocates retaining the current force structure, but is looking for savings within O&M, overhead (infrastructure, multiple headquarters and staffing), while continuing to oppose “unnecessary” programs such as more C-17's and the alternate fighter engine for the F-35.
The Frank report was drastic in its proposals: going to a reduced strategic triad (nuclear bombers eliminated, boomer subs and land-based missiles greatly reduced); curtailing missile defense and space; reducing the Navy to 230 ships with two fewer carriers; eliminating two Air Force fighter wings and concomitant F-35 reductions; canceling the MV-22; slip the tanker buy; and unspecified compensation and healthcare reductions for military personnel and families.
Carter rolled out the acquisition companion piece with a focus on reducing funding on unneeded or low-priority overhead and conducting existing programs more efficiently. The aim is to transfer savings into these programs. Carter specifically mentioned that the Navy’s new nuclear submarine SSBN(X), the Army Ground Combat Vehicle and the Air Force long-range bomber/prompt global strike would be particularly scrutinized.
All of these developments could begin to cause turbulence around December. The major unstoppable weather vector is the dire financial condition of the United States. The other converging elements — tax and spending reform and defense spending and reorganization — are minor by comparison.
Carter has invited the defense industry to participate in the coming decision-making and execution process. We intend to do so. Our position should be to make all decisions with a clear articulation of risk up front, and advocate for the most balanced force structure as basic criteria for future budgetary choices.