When the Pentagon gets the axe

Aug 04, 2011

Chat with Todd Harrison about possible cuts to the defense budget, including where the cuts might happen and who would be affected the most.

Ask questions, get answers.

Related: Pentagon sounds alarm over budget cuts

Good morning.  It's been a busy week in DC with the passage of the Budget Control Act of 2011.  I would be happy to take your questions on what this legislation means for the future of defense spending.

One of your recent reports detailed nearly $50 billion in research and development funds that were allocated to defense programs that did not produce a single operational unit. What confidence can American taxpayers have that if the Defense Department is again entrusted with hundreds of billions of dollars that this money will not be spent in such a questionable way?

Yes, we were able to identify a dozen major programs that were cancelled over the last decade while still in development.  Their funding totaled over $46 billion.  The systems many of these cancelled programs were developing are still needed.  If we don't want to repeat the mistakes of the past decade we have to fundamentally reform the acquisition process.  In my view, that means changing how requirements are approved for systems.  Right now requirements get added and approved without any regard for their budget impact.  That has to change. 

At least one general has labeled defense cuts as large as $800 billion over ten years as "high-risk." Do you agree with this characterization?

It would certainly be high risk if we try to keep doing all of the things we do today.  But if we rethink our defense strategy, prioritize what we expect the Department to be able to do, and ruthlessly cut capabilities that are no longer needed, then I think cuts of that magnitude can be made responsibly.

It's almost certain we're entering an era where the availability of resources (money) will drive our defense strategy, which is 180 degrees difference from how it's supposed to work. Do you see wholesale changes in how our Armed Forces fight? For instance, the Army's enormous LOGCAP effort, which contracts-out all those logistical tasks traditionally performed by Soldiers...literally "peeling potatoes"....

I would disagree that strategy is supposed to drive the budget.  I think it should be an iterative process where strategy informs budget choices and the budget constrains strategic options.  A strategy the nation cannot afford is not a good strategy.  And a budget not connected to strategy is just wasted money.

I do think we are entering an era where the Department will have to fundamentally rethink how it works.  Everything should be on the table, including force structure, compensation and benefits, weapon systems, end strength, and training.  We haven't had to make these kinds of difficult trades in over a decade.

What is your view on the future of the F-35 program? Should the Pentagon cut the F-35B? How about the helmet? And if the U.S. plans on reducing its buy, should it nonetheless conceal its plans from its international partners, so they don't reduce their planned buys as well?

The F-35 Joint Strike Fighter program is almost certain to come under increased scrutiny due to the budget cuts proposed.  It seems likely that the US will cut back on the total quantity of aircraft procured.  It's not yet clear if the F-35B (the vertical take off and landing version for the Marine Corps) will survive the budget axe.  I think a balanced approach that both trims the program and invests more in a next generation unmanned fighter with a longer range, such as the UCLAS the Navy is developing, would be ideal.

How should the Pentagon solve its perennial problem of foisting "exquisite requirements" on new weapons systems and programs? Why can't it ever settle for the 80% solution?

Part of the problem, in my view, is the way requirements are approved.  The Joint Requirements Oversight Council has the responsibility for approving requirements for major programs.  But this group does not have to fund the programs, so budget considerations are not a top concern.  The JROC rarely sees a requirement it doesn't approve.  That has to change if we ever want to get away from the type of "exquisite" systems Sec. Gates spoke about.  Requirements and budgets should be considered together if we want to reduce costs.

What is the Pentagon's definition of a "firm-fixed price" contract? And why do defense contractors perennially under-bid contracts, and then under-deliver or have major cost over-runs?

When the Pentagon calls something a firm-fixed price contract, it is neither firm nor fixed.  The recently awarded contract for the tanker (KC-46A) is a good example.  Under the terms of this firm-fixed price contract, if the contractor goes over the agreed-to cost, the government pays for 60% of the overrun and the contractor pays 40% up to a limit of $1 billion.

If the Department demanded better terms, such as the contractor assuming all of the cost for overruns, the bid price of the contractors would certainly be higher.  They would have to build this risk into their price.  But the current system creates uncertainty in the actual cost of systems, and that is something DoD does not need right now.  Not to mention, it creates a lot of bad press and bad feelings in Congress.

Some of CSBA's writings have implied that raising the healthcare premium on working-age retirees is a prudent step. How can someone in good conscience propose balancing the budget on the backs of America's soldiers?

Military healthcare costs have increased by 85% (even when adjusted for inflation) over the past decade.  This growth is due primarily to military retirees, not active duty troops.  Service members pay nothing for their healthcare while on active duty, and no one has proposed changing that.  The only proposals I have seen are to raise the premium working-age military retirees pay.  When someone retires from the military after 20 years of service (as young as 38) they can get healthcare for themselves and their family for $38 per month through the military.  That premium was set in 1995 and has not increased one cent since then.  The Bush Administration proposed increasing this premium by $50/month, but it failed in Congress.  The Obama Administration has proposed increasing it by a modest $5/month--we'll see what happens.

We spend $52.5 billion per year on military healthcare, and it is projected to grow at about 5% per year for the foreseeable future.  That is separate from the $53 billion we spend on veterans healthcare (for those injured in the line of duty), which is funded out of the Department of Veterans Affairs.

Does the DoD have any responsibility for ensuring a sustainable defense industrial base in the United States? What would your cuts do to the existing defense industrial base (primes, sub-primes and small businesses)? How well do you understand the capital market's reaction to these potential cuts (pulling investment capital away from the defense sector and raising the cost of capital for large and small defense contractors)?

The defense industrial base is an important strategic asset for the US.  DoD should do more to monitor and protect vital sectors of the industrial base, such as the ability to build nuclear-powered subs and stealthy aircraft.  There is no commercial market for these systems, so if DoD isn't supporting industry these capabilities could go away.  But in a constrained budget environment, DoD cannot protect all sectors of the industrial base.  It must prioritize which sectors are the most critical and direct its limited resources accoridngly.

The Air Force has proposed an optionally manned bomber that will cost upwards of forty billion dollars over the next couple of decades if the plan is realized. I have read that making the bomber optionally manned adds hundreds of millions of dollars to the cost. Is this a smart acquisition decision?

I don't have the cost estimates for how much making the bomber optionally manned will add, but suffice it to say that the more requirements you add to a system--particularlly opposing requirements like being able to operate with or without a human in the cockpit--the more cost you add to the development program.  I think given the current budget environment, the Air Force will likely be forced to revisit its bomber requirements and scale back a bit.

Should the U.S. Army expect to be the main "bill payer" in any prospective defense cuts?

Right now we have ground forces sized to support two major ground operations at the same time, like Iraq and Afghanistan.  It seems unlikely that the nation will want to get into another major ground war in the near future--much less two at the same time--so I think the Army will be under pressure to reduce its force structure.  I have seen proposals to reduce the number of Brigade Combat Teams in the active duty Army from 45 to 30 or 35.  But it is too soon to tell if that is the direction the Department is headed.

Thank you for all of the great questions.  I'm sorry I was not able to get to them all.  I will be publishing a more detailed analysis of the Budget Control Act of 2011 and the implications for defense spending on our web site soon, www.csbaonline.org.

In This Chat
Todd Harrison
Todd Harrison is the Senior Fellow for Defense Budget Studies at the Center for Strategic and Budgetary Assessments.

Mr. Harrison joined CSBA in 2009 from Booz Allen Hamilton, where he supported clients across the Department of Defense, assessing challenges to modernization initiatives and evaluating the performance of acquisition programs. He previously worked in the aerospace industry developing advanced space systems and technologies and served as a Captain in the US Air Force Reserves. Mr. Harrison combines his budgetary, programmatic and engineering experience with a strong background in systems analysis to lead the budget program for CSBA.

Since joining CSBA, Mr. Harrison has authored a number of publications, including Estimating Funding for Afghanistan, Analysis of the FY 2010 Defense Budget Request, and Impact of the Wars in Iraq and Afghanistan on the US Military’s Plans, Programs, and Budgets. He is a graduate of the Massachusetts Institute of Technology with both a Bachelor of Science and Master of Science in Aeronautics and Astronautics.
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