US Department of Defense FY 2014 Budget: After a Year of Drama, Budget Chairs Prescribe Sequester Painkiller

To add insult to the injury, the Overseas Contingency Operations (OCO) budget and Green Book were released weeks after the President Budget, giving the impression of an administration scrambling to apply the Budget Control Act, a law that had been on the books for more than a year.

A number of systems, especially among UAVs and ground vehicles, saw a decline in the quantity of scheduled buys, but the list of programs that were explicitly terminated or restructured is rather slim, reflecting the Administration’s choice to use its previous budget request as its baseline rather than plan within sequestration constraints. By June, the Administration had changed its tune with the recognition that the sequester may be here to stay. The House then passed its authorization and appropriations bills in time.

At the very end of July signs of life finally emerged from the Senate. But as the new fiscal year started, Tea Party Republicans effectively hijacked the budget process with an effort to defund or at least delay Obamacare. Divided Republicans in charge of just one chamber of Congress proceeded to badly play a weak hand, delivering a tactical victory to the Administration which got the clean Continuing Resolution it wanted by mid-October. It took another month before the Senate got the procedure started to consider its authorization bill. An effort to finish the FY14 defense legislation effort in the Senate before Thanksgiving was hijacked by ancillary but contentious issues. However by mid-December a (near) consensus had finally emerged to not just wrap up the year, but also lay a foundation for a less bumpy FY15.

House-centric bills Sail through Committees in the spring, and a consensus emerges as winter approaches

Ryan on his bill

Dec. 12-17/13: The House passes a continuing resolution for FY2014 (H.J. RES. 59) with broad bipartisan support, as the 332-94 roll call shows. Paul Ryan and Patty Murray, the budget committee chairs in both chambers, had been working on a deal that can pass not just in one half of parliament, unlike many other bills stuck to preaching to their partisan choirs. This is a return to the regular budget conference process, which many observers celebrate as a breakthrough, even if the bill is limited in its ambition.

Still, Murray and Ryan’s approach goes beyond the FY14 CR, with an amendment dubbed the Bipartisan Budget Act of 2013 [PDF] that revises sequestration ceilings over the FY15-21 period, and plays a well-known trick by postponing some of the sequester cuts into FY22-23, as the CBO cost estimate notes. This raises FY15 discretionary defense spending from $512B to $521B. Grand bargains that address fundamental fiscal imbalances will most probably have to wait for the same party to lead the executive branch and the two chambers. But many will take this in the meantime, even if the Tea Party caucus is fuming about “Republicans in Name Only” betraying the cause of constrained government spending.

In the Senate, Minority Leader Mitch McConnell does not support the bill, but on December 17 the upper chamber voted 67-33 – including 12 Republicans (roll call) – to end debate on it, so a simple majority vote scheduled on Wednesday Dec. 18 now looks perfunctory. This should normalize defense budget discussions, though tense debates over the debt ceiling may still resurface soon.

For a sample of reactions, see Brookings: Don’t Be So Quick To Dismiss The Paul Ryan-Patty Murray Budget Deal | Gordon Adams: The Little Budget Deal is a Big Deal | Defense News: Tea Party Criticism of Budget Plan Puts GOP in Tough Position | National Review: Ryan Saves GOP from Itself | Stan Collender: The 5 Big Budget Deal Losers.

We Interrupt Our Regular Programming: Obamacare-Driven Shutdown Gives Birth to Regular Continuing Resolution

Oct. 16/13: Clean CR. Having failed to come up with a bill of their own the previous day, House Republicans were left with little choice but to capitulate to the very sort of Senate bill they were adamant to avoid. The Continuing Appropriations Act (HR 2775) first sailed through the Senate (81-18 roll call) then passed in the House with a 285-144 roll call (all Democrats in, 87 yeas and 144 nays on the Republican side). President Obama then promptly signed it, putting an end to the crisis – for now.

This continuing resolution, effective from Oct. 1st, prolongs spending at sequestration levels set in the second part of FY13. It will lapse on January 15, 2014, while the debt ceiling is raised until mid February. Recent talks of including flexibility within sequestration constraints for DoD in this bill didn’t pan out. This makes it somewhat of a Pyrrhic victory for the defense sector which faces not just diminishing budgets but more worryingly broken appropriations on autopilot.

For all this drama, Republicans got a token means-testing enforcement clause to the Budget Control Act which was in the original law anyway. There is no way around it: this is a humiliating defeat for Republicans and House Speaker John Boehner. Tea Party lawmakers may have made their point on principle, but in the end they got nothing. Considering Obamacare’s disastrous IT rollout, this is what snatching defeat from the jaws of victory looks like.

With all that said, Democrats still want to roll back sequestration, which many Republicans have taken to embrace as a way to limit government spending growth. A combination of confrontation exhaustion and battering in the polls may bring both parties to a more conciliatory approach, if the Democrats can refrain from taking too many victory laps and in turn overplay their hand.

House bills, continued

June 6/13: HASC passes Authorizations. HR 1960 is approved by the Armed Services committee, after the usual late debate over amendments. The bill will be on the House floor next week where it is likely to pass quickly, if the 59-2 committee roll call is any indication (only two Democrats from California objected). More controversial amendments attempting to ban any base closures for 2 years or to make JSF purchases conditional upon meeting certain criteria were easily defeated.

Here is the bill summary [PDF]. It stays close to FY13 levels and the FY14 PB with $526.6B for the DoD baseline. That war spending barely bulges at $85.8B may seem more questionable, but the bill makes a point of “winning the war in Afghanistan” and the defense panel wants details from the Administration on the drawdown. The extra OCO funding is justified by the committee for readiness purposes. Like the appropriators, the authorizers do not try to fully address a solution for sequestration.

June 4-12/13: HAC-D approves Appropriations. On June 4 the House Appropriations Defense subcommittee released its FY14 draft bill [PDF]. At $512.2B, the baseline comes below the president budget but still above sequestration levels. OCO remains stable at $85.8B. The subcommittee submitted its markup without amendment to the full committee, as there’s nothing too controversial in it. The markup was then approved by the full committee a week later with just 3 amendments, a $512.5B baseline, and $85.8B OCO. The $28B appropriated above sequestration levels are to be funded by cuts elsewhere in the federal budget, to the objection of Democrats.

May 22 – June 5/13: House markup. The House Armed Services Committee proceeds with its hearings for the Fiscal Year 2014 National Defense Authorization Act (NDAA – H.R. 1960). With respect to procurement, language [PDF] from the seapower subcommittee would:

• Lift CVN 78‘s cost cap to $12.9B.
  
• Authorize the multi-year buys requested by the Navy for E-2D aircraft and C-130Js.
  
• Allow the Air Force to strip down retired KC-135Es for parts.
  
• Prohibit cancellation of C-130H AMP.
  
• Micromanage how the Navy should handle UCLASS development milestones.

See Markup schedule | HASC document round-up.

March 21/13: The House passes its FY14 Budget Resolution [PDF] with a 221-207 roll call (10 Republicans and all Democrats voted against it). Its baseline budget for defense is set at $560.2B which rolls back sequestration.

Senate bill: Stalled for Months with Markup Emerging Just Before Recess

Nov 14/13. The Senate finally moves to proceed with its authorization bill (S 1197), with a cloture motion. Senate Majority leader Harry Reid wants to finalize the bill by Thanksgiving, but plenty of issues may stand in the way, from NSA oversight to sexual assault in the military, with Iran sanctions most recently joining that list.

July 30/13. The Defense Appropriations subcommittee released a summary of its FY14 markup, under the leadership of majority whip Dick Durbin [D-IL]. Shortly before its release, the markup was expected to reflect positions from Senate authorizers, according to Politico. The appropriators want a $516.4 billion baseline and $77.8 billion in OCO, for a total of $594.4 billion. The Virginia Payload Module is terminated, and JSF development funds are somewhat curtailed. Meanwhile, somehow the Pentagon needs to spend more money on research against breast and prostate cancer. Subcommittee video.

The bill [PDF] is then approved by the full Appropriations committee on August 1st, however that will not yet send it to the Senate’s floor, as Congress is about to enter recess until September 9 [PDF]. The Pentagon’s JROC was already scaling back on a program to add conventional ballistic missiles to their SSN-774 Virginia Class fast attack submarines, but the Senate may have just killed it entirely. If they do, the idea of the Virginia Class as a potential SSBN-X emergency alternative will also take a hit.

In the meantime the Senate authorization bill has gone nowhere. Senate majority leader Harry Reid continues to >clamor for a return to “regular order” and reverse the sequester, though last year he was happy to just roll with the BCA rather than work on a budget.

Patty’s not happy
click for video

April-July 2013: Senators disagree to disagree. Bickering between and within the House and Senate continues, with no conferee appointments made as of May 21, let alone a reconciled budget bill written. Some, but not all, Republicans seem to continue to want to use another forthcoming lifting of the debt ceiling as leverage before even starting a budget conference, or at least they want that issue to be left out of the conference.

Some Republican senators proceeded to call each other by funny bird names, and by mid-June this nonsense was still continuing unabated, a situation that Senate Democrats have been trying to leverage, seemingly with little traction so far. On June 18 SASC Chairman Carl Levin [D-MI] admitted as much, saying he hoped the NDAA would reach the Senate floor by July, but September was a more realistic expectation. As July unfolded such a delay became increasingly certain.

March 23/13: The Senate passes a Concurrent Resolution on the Budget for Fiscal Year 2014 by the narrowest of margins (50-49). Four Democratic senators voted against the budget which bases defense spending on the assumption that sequestration will stay in place. This would translate as a $497B baseline in FY14, with further cuts in following years. Like the House resolution passed two days earlier, the narrowly partisan basis shows a desire for posturing ahead of tense negotiations rather than an intent to present legislation that would actually have any chance of going through conference and reaching a meeting of minds between the two chambers.

Statement by Chairman of the Budget Committee Patty Murray [D-WA] | Budget resolution [PDF].

President Budget Request: Sequestration denial; BRAC After Mid-terms; Cyber & Shipbuilding in Better Shape than UAVs and Land Vehicles

Deflating Overseas Contingency Operations… Slowly

May 2013: DoD fills in the gaps. Between the end of April and mid-May, the DoD comptroller’s office released the detailed RDTE justification books by program (still sans OCO), then the Green Book [PDF], and finally amended documents to reflect war spending.

The adjusted OCO request comes at $79.4B (vs a $88.5B placeholder), which is still a pretty high number given the remaining number of troops in Afghanistan. The underlying assumption is that the US will have 34,000 troops left there by February 2014. The drop in spending is not proportional to the decrease in personnel involved in the war because of drawdown costs and some other expenses such as payments to Pakistan. The Navy and defense-wide funding are bearing almost all the difference from FY13, while the Army’s allocation barely moves down and the Air Force loses 4%. As expected OCO procurement is significantly slashed with a 43% cut to $5.6B.

Initial FY14 PB

April 10/13: FY14 PB. The OMB rolls out its budget plans for the coming fiscal year. The Pentagon’s budget authority baseline comes at $526.6B – up to $52B above the full sequester, depending on whom you ask – complemented by a placeholder for $88.5B in OCO (i.e. war) spending. An actual OCO number, which should end up being lower, though “not dramatically so”, will be submitted later through an amendment – in about a month according to DoD Comptroller Bob Dale – once “final policy decisions about the pace of [the Afghanistan] drawdown” are made. The Administration also wants to cap OCO spending to $450B over the 2013 to 2021 period.

A new round of base closure (BRAC) is now tabled to 2015/2016, i.e. the next Congress. There’s $2.4B over 5 years to pay for it.

Out of the baseline, $99.3B are allocated to procurement and $67.5B go to RDTE. The Navy and Air Force stay at levels very close to those enacted for FY12, whereas the Army sees its another year with a (modest) budget decline. Cyberspace operations is one of the highlights with an increase of $800M to 4.7B.

DoD ’14 budget by department

The budget by title remains very stable from the last couple of years, but the absence of the OCO budget and sequester from these calculations make the exercise almost futile. That that had started to wane somewhat, the OCO budget was still a significant source of extra procurement money in past years, especially for the Army, so its absence blurs the picture of how much they will really get. It seems the services are still figuring out how to process how sequestration affects the rest of FY13, making the FY13 “enacted” numbers throughout this budget request apparently less than final, as they look very close to the pre-sequester FY13 PB.

DoD ’14 budget by title

Terminations and Restructures

These are the highlights as conveyed by the Pentagon. It is likely more programs are affected my volume declines without being officially restructured. We will find out as we have more time to review the budget material in detail.

• Precision Tracking Space System (PTSS): terminated
  
• Expeditionary Combat Support System (ECSS): terminated
  
• Standard Missile-3 Block IIB (SM-3 IIB): restructured “to focus on common kill vehicle technology”
  
• Ground Combat Vehicle (GCV): restructured with the lengthening of the Technology Development (TD) and Engineering, Manufacturing, and Development (EMD) phases by 18 12 months

Continued Programs: Big Guys Untouched

Aircraft lose $2.1B to $45.5B, with UAVs Falling Out of Favor

• JSF is preserved about as is with $8.4B for 29 planes
  
• 21 EA-18G growlers for $2B – looks like one of the winners in this budget. The loser? No more F/A-18E/F Super Hornets, but it’s still a net gain of 8 planes for Boeing.
  
• C-130J would see a new MYP for 79 aircraft over 5 years.
  
• V-22 stays the course under its MYP, with 21 units and $1.9B.
  
• Chinooks and UH-60s also proceed into the 2nd year of their 5-year MYPs.
  
• Army proceeds with 42 AH-64E upgrades – but cuts the new-build AB3B program entirely.
  
• The UH-72A Lakota Light Utility Helicopter would see about 31 machines cut, with production ending in FY 2014 instead of 2015. No follow-on item buys, either, so the loss is about $345 million total.
  
• RDTE funds continue KC-46A development ($1.6B) and pay for 2 test CRH helos ($396M).
  
• UAVs see cuts with MQ-9 cut again by half, down to just 12/year ($507M); 15 MQ-1s for $663M; 2 RQ-4s for $894M.

With just $8.4B for Ground Programs, There’s No Rush for New Ground Vehicles

The OCO budget might not be set yet, but the drop in new ground vehicles, like with UAVs, already reflects the drawdown from Afghanistan:

• GCV stays longer in EMD, with $592M
  
• JLTV will enter its 2nd year in EMD, with $135M
  
• $226M for 837 FMTVs, wrapping up this acquisition
  
• $279M for Abrams upgrades in order to maintain a modicum of business for GD’s plant, plus fielding (these are not new tanks)
  
• PIM M109 artillery is starting to phase out RDTE funding in favor of procurement (18 units)

$23.3B for Shipbuilding, with 8 New Ships

• 4 LCS frigates with another year of increase for this program, at $2.4B
  
• 2 Virginia-class SSNs with $5.4B (including advanced FY15 procurement)
  
• 1 DDG-51 destroyer (DDG 119) + with again advanced procurement for 2 others in FY15
  
• 1 Afloat Forward Staging Base (AFSB) for $524M
  
• Funds ramp up for CVN 79 as it gets into its 2nd year of construction – this will need legislative adjustments to carrier cost caps.

Congressional Reaction to PB: Yawn

In response House Speaker John Bohner [R-OH] made a statement that was short of enthusiastic, but the tone from both parties is less directly antagonistic than it was up to when sequestration actually came into effect. HASC Chairman Buck McKeon [R-CA] issued a rather passive aggressive statement that states what he doesn’t like, but not what should be done instead.

Given the strictly partisan nature of the budget resolutions adopted by the House and Senate, there is nothing much in them of practical value to produce a bill that can actually pass. That gives the initiative back to the White House to some extent, though their DoD budget proposal just ignores sequestration and thus dodges most hard choices. The dust needs to settle on the execution of the FY13 appropriations, and release of the OCO numbers is also necessary to understand to what extent this budget is really so close to FY12 and FY13 requests.

Post-PB Awakening from the Administration

June 2013: anti denial. Faced with nearly universal rejection of its attempts to deny that sequestration actually exists, the Office of Management and Budget finally issues guidance instructing the departments and agencies to plan for the fact that by FY15 the Budget Control Act may still be in full effect. The Pentagon is likewise going to revise its FY14 wishlist to make it compatible with the sequester, just in case. This is a welcome change from the last-minute scrambling displayed from the wrapping up of the FY13 budget up to the initial FY14 PB (see above).

Additional Readings & Sources

• DID – Primer on how federal and DoD budgets are made

• DID – FY2015 Budget, QDR

• DID – Extensive Coverage of FY13 Budget, NDAA

• DID – Guest Article by Lou Crenshaw, Vice Admiral U.S. Navy (ret.) on the FY2012 budget

• DID document repository – all the budget briefing, procurement, and RDTE files released by the Pentagon’s Comptroller and the services are in our Google Drive.

• DoD budget rollout transcripts – Hagel & Dempsey | Hale & Ramsay | Army | Navy | Air Force

• OMB – Main budget spreadsheet [MS Excel | main budget document [PDF].

• CSBA – Looking Beyond the Fog Bank: Fiscal Challenges Facing Defense [PDF]

• CNAS – Placebo: The 2014 defense budget and DoD’s credibility challenge

• CSIS – What’s Happening with the Pentagon Budget?

• CSIS – The FY 2014 Defense Budget: Another Lost Year?

• Heritage – House and Senate Budgets: A First Step Toward Restoring Congressional Budgeting