Sequester Facts Of Life

Defense News
September 16, 2013

Stop Pretending Enforced Cuts Won’t Be Harmful

By Christine Fox, former director of the US Defense Department’s Cost Assessment Program Evaluation office and now a senior adviser to the Johns Hopkins University Applied Physics Laboratory. She is an unpaid consultant to the deputy secretary of defense.

There is no shortage of opinions these days on how to cut the defense budget: Shrink the “back office,” curb military “entitlements,” reform acquisitions (again), and much more.

As director of the Pentagon’s Cost and Assessment Program Evaluation (CAPE) office, I spent 3.5 years in a near-continuous quest to locate more defense savings. Our goal was to find ways to absorb further cuts — now amounting to nearly a trillion dollars over the next decade if all the provisions of the 2011 Budget Control Act, including sequester, remain unchanged — and to do so guided by the president’s strategic guidance and in ways least damaging to America’s national security.

The culmination of this effort was the Strategic Choices and Management Review (SCMR) completed this summer. Each of the three defense secretaries I worked for was emphatic that strategy, not “math,” should determine budget choices. Yet faced with the reality that sequester could be here to stay, and tasked with squeezing another $50 billion per year out of the defense top-line starting yesterday, there was no avoiding the tyranny of addition and subtraction.

Defense Secretary Chuck Hagel recently unveiled some of the SCMR findings and resulting decisions and fiscal guidance, which included cutting the size of Pentagon headquarters, identifying options for curbing compensation costs, and confronting stark tradeoffs between modernization, force structure or readiness.

From my perspective, the SCMR process reinforced some hard truths about the defense budget — managerial and fiscal facts of life that demonstrate why cutting defense spending another 10 percent annually and immediately is so difficult.

First, the kinds of reforms typically advocated by outside experts to offset sequester’s military impacts — reducing overhead and slimming the bureaucracy — take several years to reach fruition and produce significantly less in bankable savings than is commonly believed. The number of Defense Department civilians grew substantially — by more than 100,000 — during the 2000s in response to increased demands (and budgets) after the 9/11 attacks. But remember that the vast majority of defense civil servants — more than 85 percent — aren’t to be found in the Pentagon or the Washington, D.C., area. They work at military bases and depots around the country doing things that are hardly “back-office.” That includes essential logistical support, such as maintaining ships and repairing war-damaged equipment.

There is a way to substantially reduce DoD’s fixed infrastructure and overhead costs — by reducing the number of depots and military facilities around the country. But that requires the Congress to launch a base realignment and closing (BRAC) process, which it has shown negligible interest in doing. And even if a BRAC started tomorrow, the savings would begin four to five years from now at the earliest and would actually cost money up front.

Zeroing in on the vaunted Pentagon bureaucracy — the Office of the Secretary of Defense, service headquarters, Joint Staff, defense agencies and field activities — shows that some reductions are necessary and some savings are possible. Yet many of the support organizations are themselves the result of prior efficiency efforts, most notably the Defense Logistics Agency, which consolidated functions previously operated (and replicated) by the four military services.

Furthermore, one SCMR analysis showed that DoD’s headquarters structures comprise just over 2 percent of its personnel and 1 percent of its budget. When all is said and done, an enterprise of the US military’s size, complexity and global reach requires a substantial administrative and support operation. Much of the bureaucracy is there for a reason: It performs tasks that need to be done — though these tasks can be done more efficiently, with less duplication, fewer contractors, and with fewer executives, generals and admirals plus associated staff support.

That is why Hagel announced that he would cut civilian and contractor personnel from all headquarters by 20 percent, which will be disruptive and affect some missions but is, on balance, the right thing to do. Yet the total savings — roughly $40 billion estimated over the next decade — amount to only a tenth of the reductions required by the sequester.

Going where the “real money” is invariably leads to compensation, about half of all defense spending, broadly defined as all pay and benefits, military and civilian, current and retirees, direct and in-kind (such as DoD schools and the commissaries). The 2000s saw substantial military pay and benefit increases leading to a compensation package that cannot be sustained under today’s budget circumstances — at least without making truly damaging (and dangerous) cuts elsewhere. Unlike “overhead,” significant savings are possible in the compensation category that could mitigate the sequester’s damage — between $50 billion and $100 billion over the next decade if riskier and more controversial options are included.

But, unlike a private corporation looking to downsize its overhead and personnel costs, the Defense Department cannot make pay or benefits changes — like modest raises to some health insurance fees for working-age retirees — without legislative approval. And, as with BRAC, the Congress has consistently rejected any proposal — including those unanimously endorsed by the uniformed leadership — that could be portrayed as cutting military compensation. So between one-third and one-half of the Pentagon’s budget is effectively off limits. That is why cutting the defense top-line by a tenth, in reality, means a much higher percentage reduction to the military’s size, readiness and technological capability.

Here we are talking about the proverbial “teeth” of defense spending: force structure (primarily measured in Army brigades, Air Force wings, Navy ships, Marine battalions), modernization investments (procurement, research and development) and readiness (training, maintenance and related operations).

One major source of savings would come from reducing the size of the active Army. SCMR concluded that the Army’s projected end strength could be reduced by about 50,000-70,000 at minimal strategic risk if there is no requirement for large, protracted stability operations along the lines of Iraq and Afghanistan.

Yet again, unlike in the private sector, the Defense Department doesn’t have the option of shedding large numbers of people quickly by handing out pink slips — nor would we countenance doing so. Involuntary separations to shrink the Army, the equivalent of civilian reductions in force, cost money at first and would do little to close the severe budget gap the department faces next year. And are we really going to do this to members of the military service that bore the brunt of the wars after 9/11?

The SCMR also looked at savings from reductions in ships and aircraft, cuts that most impact the military’s ability to meet the president’s Defense Strategic Guidance, in particular its focus on the Asia-Pacific and the Middle East. For example, cutting two aircraft carrier strike groups — including all associated aircraft, ships and personnel — would save nothing in fiscal 2014 and $21 billion over the next decade. Yet the cost of buying back those two carrier strike groups in the future would be $45 billion in today’s dollars — so high that future presidents and Congresses would likely balk at the prospect.

We found that pursuing even the boldest reforms and strategically riskiest options — ones that assume away certain military contingencies and accept a much smaller force — still leaves the department $20 billion to $30 billion above budget caps in sequester’s early years. In the near term, there is no choice but to slash funding for readiness and procurement. With military units unable to maintain a high level of combat proficiency, we are effectively gambling that a major operation against a capable adversary will not occur over the next three to four years. Canceling or delaying military modernization programs even further will mean that it will cost more to buy back these capabilities in the future, assuming that the private-sector industrial capacity still exists.

The cumulative effect of all these sequester cuts is some combination of a military that is much smaller, much less technologically advanced and much less ready than we have been accustomed to over the last 30 years. After looking at these issues carefully, analytically with real data for several years now and, specifically, in SCMR, I know this much: Pretending that the ongoing political stalemate that perpetuates that the sequester is not harmful is the most harmful thing we can do. There needs to be a serious national dialogue on what a sensible, sustainable and strategically sound defense budget looks like. But let’s drop the illusion that by efficiency nip and managerial tuck the US military can absorb cuts of this size and of this immediacy without significant consequences for America’s interests and influence in the world.