Four Budget Practices That Are Destroying America’s Defenses by Loren Thompson

DeM Banter:  Crisis of leadership…vision…AND strategy…wonder what we will remember of this era 20 years from now….assuming we get better, and we don’t remember these days as the GOOD ‘ol day…

View Original:  Four Budget Practices That Are Destroying America’s Defenses

(Forbes) 15 Oct 13 …

blackairplanes_ss_1The United States has spent trillions of dollars since 9-11 sustaining and improving its military forces. As a result, the joint force today has unrivaled global reach and global power. However, that capability will gradually ebb away during the remainder of this decade if current budget practices in Washington persist – even though America will continue to spend more on defense than the dozen next-biggest military powers combined.


Many members of Congress do not understand this. They know measures such as budget sequestration will force the Pentagon to tighten its belt, but they fail to grasp the cascading effects of distortions that have now become routine in the budgeting process. With that in mind, I would like to radically simplify the arcane budget debate currently unfolding on Capitol Hill to explain how Congress is unwittingly destroying the greatest military force in history. When you strip away the details, four factors will cause most of the damage.


Sequestration. The sequestration provisions of the 2011 Budget Control Act are designed to generate $500 billion in defense savings over nine years by imposing caps on allowable spending each year. In fiscal 2014 – the budget year that began October 1 – the law requires that the funds available to the Pentagon be cut by about 10% from what the president requested. That doesn’t sound like much, but because military personnel, veterans benefits and overseas contingencies are off the table, most of the savings are coming from training and technology investments. Sequestration caused a big decline in military readiness last year, and will increasingly cut into the purchase of next-generation weapons. Over a nine-year period, it could allow countries like China to close the gap with America in warfighting capabilities.


Inflexibility. The spending caps imposed by sequestration are made worse when Pentagon managers lack the flexibility to decide where cuts should be made. Policymakers have repeatedly warned that if they lack the authority to close unneeded bases, reduce overhead costs and modify military compensation practices, then much of the spending that remains after sequestration is implemented will be wasted while vital activities like training will suffer devastating reductions. And if the law requires that savings be generated at the same rate across all non-exempt accounts, then there will be little leeway for prioritizing among activities. It is this lack of flexibility more than the size of the mandated savings that has led Secretary of Defense Chuck Hagel to brand the sequestration process as “mindless and irresponsible.”


Delays. The practice of passing continuing resolutions at the beginning of the fiscal year to keep the government running in the absence of formal appropriations further ties the hands of Pentagon managers. Continuing resolutions typically sustain federal functions at the level of funding provided in the previous year. That is certainly better than a shutdown, but persisting at last year’s levels precludes new program starts or the signing of multiyear procurement contracts unless a provision is included in the continuing resolution permitting the “anomaly.” For instance, the Navy is currently seeking an exception from the strictures of any continuing resolution so it can commence a fourth multiyear buy of Virginia-class submarines. Such multiyear buys save money compared with appropriating funds year-by-year, but Congress usually declines to permit anomalies in continuing resolutions, so programs are delayed and savings are diminished.


Default. Flirting with default on the government’s debt obligations is generally considered to be a dangerous thing, but almost nobody in Washington has focused on what it might mean for the nation’s defenses. On October 17 the Treasury will exhaust the extraordinary measures that have enabled it to avoid default since the debt limit was reached in May, and within a few days it will use up whatever cash it has on hand to meet obligations. Even if it finds some mechanism for continuing to pay holders of U.S. debt, the uncertainties attending possible default will inevitably raise the interest rate lenders demand because treasuries will look like a riskier investment. If interest rates rise even 1%, that will increase the carrying cost of the national debt by $3 billion per week. As more money goes to debt service, less money will likely be available for defense.


The government would probably move to reassure bondholders by paying them first in the absence of new borrowing authority, but that raises other problems for national defense. Forced to rely solely on incoming tax receipts and federal fees, Washington would have to curtail about a third of all ongoing expenditures, and that might include the billion dollars it pays every day to military contractors. Executives at defense companies haven’t given this possibility much thought even though the date when default occurs could be only a week away, but past experience suggests that in a competition between contractors and Medicare recipients for limited federal funds, the contractors would lose. So default could become yet another blow to the nation’s faltering defense posture.


The cumulative fallout for national defense from all of the government’s misguided budget practices could be profound. Amazingly enough, though, few members of Congress seem to have noticed. Senate Democrats simply accepted sequester-dictated spending levels as their starting point in budget negotiations, and as Byron Callan of Capital Alpha Partners noted in an October 13 note, “the DoD budget has not been explicitly addressed” in the discussions that followed. It seems the political system is too absorbed in its own internal rhythms to worry about future threats to national security. Unfortunately, when our leaders become this distracted, it makes threats more likely to materialize.

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