Continuing Resolution Relieves Pressure But Maintains Suspense Until Mid Terms

The Obama administration, including DoD, rolled out their FY2015 budget request on March 4, alongside the release of the new quadrennial defense review (QDR). Even with this year’s partial rollback of sequestration, cuts were still on the agenda, but by the end of May the House of Representatives made clear it was not interested. Senate authorizers and House appropriators didn’t seem much more inclined not to fiddle with the executive’s budget allocations, with the exception of a huge blank check for war funding.

Bills passed into law

FY15 House Bills

June 2014: OCO. An actual budget submission for Overseas Contingency Operations (OCO) should (finally) come soon. Its absence was initially protested by lawmakers, but not too much. Who doesn’t like a slush fund that is not subject to sequestration constraints? In recent weeks the Administration said some OCO funds could be redirected to Eastern Europe then Iraq, though they later seemed to change their mind on the need for OCO funds in Iraq. Indeed, at almost $80B the sum at hand is incommensurate with what’s left of operations in Afghanistan, and the lack of an actual OCO budget makes it easy for the Administration to wave a bit of money at each week’s new crisis.

June 10/14: HAC-D. The House Appropriations Committee approved $491B in discretionary defense funding, or $200M more than the president asked, as well as the $79.4B asked for OCO without an actual budget submission. It seems fair to ask whether legislators are fulfilling their duty by approving what is still just a placeholder, especially when the amount at stake would rank at the world’s 4th biggest defense budget.

Procurement, like the budget as a whole, comes very slightly above the president budget. However, like in the authorization bill passed last month, there are many differences with what the executive branch wants, but these discrepancies are found within the budget rather than at the top line level.

The appropriators want more money for Patriot missiles, EA–18Gs Growlers (in line with the Navy’s wish but not its official budget), UH-60 helicopters, and MQ-9 UAVs, among programs where they go beyond the presidential request. On the other hand WIN-T, JTRS radios, and E-2D aircraft would receive less funding, among other programs. Unlike their authorization counterparts, House appropriators are siding with the Administration’s request to retire A-10s.

The bill should come to the House floor before this summer’s recess. It is too early to tell to what extent the stunning loss of Majority Leader Eric Cantor, to an unknown and unfunded tea party challenger in Virginia’s 7th congressional district primary, may affect the legislative agenda for the rest of the year. HAC-D Markup [PDF] | Committee report [PDF].

May 8/14: HASC NDAA. The House Armed Services Committee unanimously approves (61-0 roll call) its markup for HR 4435 which is named after Chairman Howard ‘Buck’ McKeon as he is about to retire.

Like last year, differences between the Committee and the Administration are found not in topline numbers ($521.3B base + $79.4B OCO) but at the line item level. The HASC funds one less LCS than the Navy is asking, reduces KC-46 LRIP deliveries by 1 aircraft, and lowers spending on WIN-T, among the most significant cuts.

On the other hand this markup pushes back against the retirement of A-10s and KC-10s. CVN 73 sees its RCOH funded and LPD 28 is also in the extra resources, which at almost $800M each are the biggest program discrepancies from the PB, followed by $450M for 5 EA-18Gs, and almost $350M for israeli missile defense.

The full House will take the bill before the end of the month accordi9.4Bng to McKeon, and with such support from the committee, it looks all but certain to fly through. At what pace the Senate will work on its own authorization bill is less clear.

Sources: highlights [PDF] from the chairman, HR 4435 [PDF], and amendments. See also the CBO’s costing of the bill [PDF].

FY15 Senate Bills

July 17/14: SAC NDAA. The Senate Appropriations Committee passes its 2015 defense budget. It would provide a total of $549.3 billion in base ($489.6 B) and overseas contingency operation ($59.7 B) funding, compared to $572 billion last year and $550.7 billion in the President’s FY 2015 budget request. Major shifts include:

• $1.9 billion for “readiness shortfalls” actually ends up giving only $360 million for depot maintenance.
  
• Restoring $200 million to maintain operations at commissaries, pending the commission on compensation report due in 2015.
  
• $25 million to fund the Competitive Rocket Innovation – Modern Engine Arrangement, in the wake of uncertain access to the Russian RD-180s that power the Atlas V.
  
• $125 million for an additional competitive EELV space launch.
  
• $338 million to maintain the A-10C close support fighter fleet in service.
  
• $1.3 billion to purchase 12 EA-18G Growler tactical jamming fighters, including $100 million “to support the current production line.”
  
• $848.7 million fully funds the FY 2015 requirement for USS George Washington [CVN 73] RCOH, but SAC “expects the Navy to include all remaining funds require… in the Future Years Defense Program.” The final cost of a RCOH modernization is around $3.2 billion.
  
• $200 million for 1 more JHSV ship (#11).
  
• $82 million to continue xGM-109 Tomahawk Block IV missile production, instead of terminating the line.
  
• About $260 million divided between the Bradley, Abrams, and Stryker armored vehicle programs.
  
• $1 billion for the “European Reassurance Initiative” of deployments and training, including not less than $30 million in support of Baltic nations, and not less than $75 million in support of Ukraine, “both of which are substantial increases to current plans.”
  
• Supporting the Israeli Government request for $621.6 million for Israeli missile defense programs, including $351 million for Iron Dome.

Of miscellaneous interest:

• Directs the Government Accountability Office (GAO) to conduct a new review of how DoD issues award fees to contractors on programs that are behind schedule or over budget. Two-edged sword there, you want incentives to work with you to fix that, but not routine payouts for poor performance.
  
• Directing the Pentagon to report on the feasibility and cost of the assuming responsibility for conducting its own security clearance investigations for personnel. That has been a huge bottleneck for a long time, but would moving the function inside help?
  
• Reassessment of the 2011 decision to cancel the F136 engine for the F-35 family of fighters – something GAO tried to tell them several times.
  
• $500 million (3%) cut from the information technology (IT) budget request.
  
• $443 million in reductions “due to overestimation of civilian workforce targets.”
  
• A pay freeze for general and flag officers and slowed the growth of the basic allowance for housing (BAH), saving $8.8 billion in personnel costs over the next 5 years.
  
• Preventing inverted corporations (re-incorporated overseas) from receiving any funds in the bill and including a new, tighter defense contracting definition of what qualifies.

In order to help pay for some of the program additions, they proposed 517 specific cuts to programs worth $11.7 billion. $6.6 billion (57%) removes unspent funds and forward financing from prior years, thus reinforcing the practice of spending everything, every year. $2.7 billion (23%) of the cuts reflect dissatisfaction with the delays, cost growth, etc. in specific programs, and another $1.3 billion (11%) eliminates “unnecessary growth” in programs. A final $1.1 billion (9%) percent involves duplication of programs, deficient budget documentation or terminated programs. Military health costs? Don’t seem to be on the radar. Sources: US Senate Appropriations Committee, “Committee Approves FY 2015 Department of Defense Appropriations Bill” | SAC, “FY15 Defense Full Committee Markup Bill Summary”.

May 23/14: SASC NDAA. The Senate Committee on Armed Services completed its markup for the FY15 NDAA bill (S2410) and approved it 25-1. Like their House counterparts they tinker with many of the Administration’s attempted cuts (A-10s, C-130 AMP and so forth), as per the committee highlights [PDF]. Cost cutting looks unlikely to receive much Congressional support during an election year, especially as forecasters say Democrats are far from guaranteed to keep their Senate majority while Republicans are safe in the House (update: though which Republicans those will be seems a more open question after Eric Cantor’s unexpected primary loss on June 10).

Advocacy groups for governmental accountability and transparency point out that, like in past years, the Senate Armed Services Committee continues to conduct its business mostly behind closed doors. National security concerns cannot be the reason when the House discusses these same issues openly.

March PB Request: A $495.6B Baseline in a FYPD That Attempts to Deny Sequestration

The Ryan-Murray agreement from December 2013 dampened the effect of sequestration into FY15, and the Administration is submitting a budget at the $496B baseline level of the Bipartisan Budget Act. DoD is now shifting its pressure on Congress to FY16, when the sequester will still be supposed to be fully in effect by law. The Pentagon is giving up on last year’s long-term budget, but the new FY15-19 FYDP still projects a total of $115B in spending above sequester levels over the period, with yearly amounts in the $535M-$559M range. This would break a 3-year streak at a $496B base discretionary level. Though the new FY16-19 projection is below what it was in FY14, it is still closer to last year’s president budget than to sequester numbers.

Procurement Decrease, BRAC Postponed

At $153.9B, weapons procurement is $1.3B below the enacted FY14 level once rescissions are taken into account. Before recissions procurement is down by $9.7B, or almost 6% from FY14 enacted. Mission support, and to a lower extent aircraft, account for the bulk of that drop.

Base realignments and closures will be put back on the agenda in 2017. Just putting another BRAC round on the agenda has been rejected by Congress for the last two years, and it is plain realism to acknowledge lawmakers will not be more amenable to the idea just months before mid-term elections. Now they will have to wait for a new president.

The classified Military Intelligence Program (MIP) base request is set to $13.3B (vs. a $14.6B FY14PB), and that’s all the public will know about it.

Air Force Sticks to Biggest Programs, Targets Legacy Platforms

• The USAF’s priorities remain its participation in the JSF program – which appears mostly unscathed – the KC-46 tanker, and a new strategic bomber.

• The T-X trainer replacement is set to start with a contract award in FY17.

• The Combat Rescue Helicopter is listed as delayed in the documents released by the Pentagon on March 4, with development funding beginning only in FY16. Yet the Air Force scrambled on the very same day to announce that, after all, they had found the money to proceed with a June 2014 award thanks to FY14 leftovers.

• A-10s remain on the chopping block, despite sustained opposition in Congress. F-35s are expected to provide close air support by the start of the next decade.

• U-2 bombers are to be replaced by Global Hawk UAVs. Global Hawk Block 40 aircraft, which were supposed to be cut by the FY14 budget, are back on probation, pending FY16 sequester relief. Likewise, the KC-10 tanker fleet may be shelved unless FY16 funding comes above sequestration levels. And there would be fewer Reapers and Predators.

• $1B is to be allocated to new jet engine technology.

Navy Considers Changing Course on LCS

• The Littoral Combat Ship is frozen to a 32-ship buy, as recently recommended by acting Deputy Christine Fox, until the Navy delivers a study weighing continuing with the existing designs, modifying the existing LCS, or pursuing an entirely new frigate design. This does not mean that LCS is ultimately “cut”, rather this will likely recompete and reorient the program beyond its current Flight 0. This year 3 LCS are purchased, rather than 4.

• A total of 11 carrier groups will be maintained if Congress delivers FY 2016 funding above sequester ceilings. Otherwise the Pentagon may revive a plan to retire USS George Washington (CVN 73) that was shelved earlier this month.

• 36 F-35Cs are featured in the FY15-19 plan, down from 69 in the previous FYDP. This is strictly for affordability reasons rather than performance, according to the Navy’s brief.

• Only 8 P-8A Poseidon aircraft in the base budget, with 8 more in a side wishlist (more below).

• AIM-120Ds procurement is backloaded to FY16-19.

• MQ-4C Triton start postponed to FY16 as the program is late.

Army On Force Structure Diet

• Army force structure is the primary target of cuts, with an end strength at or possibly below 450,000 soldiers in active duty, 335,000 in the National Guard, and 195,000 in the Reserve. Sequester through FY19 would bring the active end strength down to 420,000 troops. Though comparisons to pre-WWII levels recently seen in the media are overblown – the Air Force didn’t have a separate department back then – this is not a size the Army’s commanders are looking forward to.

• JLTV is looking at Low Rate Initial Production with 176 vehicles. Paladin Integrated Management has LRIP funds too.

• AMPV EMD is funded.

• As telegraphed in recent months, the Army is terminating GCV.

• Army Guard Apache attack helicopters will be transferred to active-duty units, which will transfer Blackhawk helicopters to the Guard for emergency response.

A Budget with Significant Missing Pieces

Missing War Budget Finally Submitted in Late June

Like last year, the Administration is again failing to release a full budget since its submission lacks the OCO component. At $79B, the FY15 OCO placeholder is equal to last year’s placeholder, a pretty high number as the war in Afghanistan is winding down and thousands of MRAPs are scrapped rather than shipped out of the CENTCOM AOR.

Further out, the Administration continues to propose a $450B cap on OCO spending over 2013-2021. On one hand that is very high in the absence of war in the years to come, but on the other hand the adversary has a vote. This is less weird than it seems when you take into account the absence of BCA caps on OCO spending, making them a tempting escape hatch to make these caps, or the baseline budget really, somewhat meaningless.

On June 26 President Obama finally sent his OCO submission [PDF] to Speaker Boehner. With a total of $58.6B for DOD, it is about $20B below the original placeholder, but still a very significant figure close to the UK or France’s total defense budget. HASC Chairman Buck McKeon was not happy to first hear about this request in the media. Other congressmen had yet little to say as they hadn’t had time to sink their teeth into the request.

The impact on procurement accounts is documented [PDF] by the Pentagon’s comptroller, showing among others funding for Hellfire and Javelin missiles, JDAM bombs, FMTV trucks, and some UAVs. Otherwise, as promised by the President when he visited Poland, there is $1B assigned to easing concerns in Eastern Europe, though only $75M is for the State/OIP’s Foreign Military Financing account, meaning the bulk of that allocation goes to the US DoD itself.

OGSI: Don’t Call it an Unfunded List

Leaks that the unfunded lists terminated by Secretary Gates were to return were scorned in the media, so they have been rebranded as an “Opportunity, Growth and Security Initiative” worth $26B that is supposed to be funded by equivalent spending and tax reform. That is part of a broader $58B package across the whole federal government. The Administration has yet to provide a precise explanation of the mechanics of that funding. In the absence of that explanation, this looks like an unfunded priorities list.

The OGS is listing, among other items dangled in front of Congress’ nose:

• Air Force: 10 C-130Js for $1.1B, 12 MQ-9s, 2 F-35s.

• Navy: 8 P-8As for $1.1B, 1 E-2D.

• Army: 28 AH-64Es, 28 UH-60s, 2 CH-47s.

Where Are the Justification Books?

Finally, also repeating last year’s precedent, despite a budget request made after the legal deadline, the Administration could not be bothered to publicly release procurement and RDTE justification books alongside with the overview. These detailed documents were later made available over several days in mid-March.

Not a Way to Roll Out a Budget

In summary: on March 4 the Administration made a late budget submission, without OCO, without justification books, with an unfunded wishlist, and the Air Force scrambling to announce a last-minute change of heart on a multi-billion program. This is another sloppy budget rollout, which while not as out-of-touch as last year’s, shows a lack of seriousness and little respect for the notion of public accountability.

QDR 2014

The Pentagon’s 2014 QDR [PDF], though it is meant to be a strategy-driven document, has a whole chapter dedicated to the Department’s efforts to convince Congress to permanently undo sequestration. Otherwise, it emphasizes the sort of non-land based force components that are currently fashionable: cyber, missile defense, nuclear deterrence, space, air/sea, precision strike, ISR, and counter-terrorism. In other words, the politically-palatable components that don’t involve infantry and armor “boots on the ground.”

Additional Readings & Sources

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

• DID – Centralized, extensive budget and NDAA coverage: FY 2014 | FY 2013.

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

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

• Congressional Research Service: The 2014 Quadrennial Defense Review (QDR) and Defense Strategy: Issues for Congress [PDF]

• CSBA: Analysis of the FY2015 Defense Budget | The FY2015 Defense Budget: Balancing Strategy and Resources [PDFs]

• CSBA’s Todd Harrison: A tale of two budgets

• CSIS – Going Hollow: The Hagel Preview of the FY2015 Defense Budget

• CRFB – The President’s FY2015 Budget

• Stan Collender – Congress Will Do Nothing On The Budget Rest Of This Year