The U.S. Defense Budget: Get Real, Pentagon

Defense News editorial, 16 May 2011                                                                                                                    

 

 

 

One of the natural laws of government is that many of the numbers cited as totems of progress are less than they appear.  Take the Pentagon's claim that it's already cut defense spending by some $400 billion over the coming years. Of that, according to a Defense News analysis, some $330 billion reportedly was from the termination of key, high-profile programs announced by Defense Secretary Robert Gates in April 2009. The rest is from an aggressive effort to slash overhead spending to the tune of $178 billion, $78 billion of which went to the Treasury and the rest staying in the services' budgets for "reinvestment."

President Obama lauded Gates for the cuts and called for another $400 billion to be slashed from broader national security spending through 2023. Gates did it once, Obama said, and - pending a roles and missions review - he can do it again.

That rang alarm bells in the Pentagon, where officials recognized that their "we saved $400 billion" bumper sticker was based largely on plans not to spend funds in out-year budgets.

And some of the programs that were canceled - such as a new Air Force bomber - were resurrected in other, similar programs.


In fairness to the outgoing defense secretary, the follow-on bomber program that came back may be less ambitious and cheaper than the one that was canceled. And analysts say the Transformational Communications Satellite System needed to be ended after it consumed $3 billion in research and development spending without showing much actual technology development. But in any true accounting, replacement programs and their costs must be netted against the claimed savings.

There is an old Washington saying that no money is less real than out-year money. This means that anything that is beyond the immediate spending bill is purely notional. The problem is, the Pentagon apparently hasn't come to grips with the reality that defense spending, at best, will remain flat as manpower, medical, materials, energy and maintenance costs continue to soar, forcing cuts in investment accounts.

The timing could hardly be worse as the nation needs to modernize its fighter jets, bombers, aerial tankers and warships and fund recapitalization programs for the Army, which has gained much new gear through robust supplemental spending.

cuts are coming, and DoD must make its own before having to make forced cuts. Requirement control is a popular method of limiting the costs of new weapons, but it's equally important to control the growing number of missions.
The first step should be to ensure the roles-and-missions review ordered by Obama slashes unnecessary and costly redundancies in capabilities. Unmanned aircraft programs, for example, have proliferated to the point that each service will build a fleet of aircraft, each with differing mission equipment, training and logistics streams.

Second, the Pentagon must avoid doing what it did - portraying soft numbers as hard ones that do little other than expose it to criticism.

Lastly, to make wise cuts, the Pentagon must improve its internal financial management processes to pinpoint what it's spending and how. Without hard data, it's hard to come up with hard savings.

Citation: Defense News editorial, 16 May 2011.   http://www.defensenews.com/story.php?i=6508896&c=FEA&s=COM (16 May 2011)

Pentagon's Phantom Savings: $330B Claim Erodes as Programs Reappear

by Marcus Weisgerber, Defense News, 16 May 2011
Pentagon leaders love to tout the $330 billion they saved by cutting or killing weapons programs over the past two years, but that's not the whole story.

Nearly 40 percent of that sum is going straight back into U.S. military programs that replicate the canceled ones, and it's unclear where another 10 percent came from at all, according to a Defense News analysis and to several analysts.

“Even if somehow it does add up to $330 billion in savings that were cut from these programs … it’s not net savings because there’s going to be replacements for a lot these things anyway,” said Todd Harrison, an analyst with the Center for Strategic and Budgetary Assessments, a Washington think tank. “These were hypothetical savings anyway, because there weren’t hard programs.”

Defense Secretary Robert Gates first used the $330 billion figure in February 2010, nearly a year after lowering the boom on dozens of programs the previous April.

“The FY10 budget proposal cut, curtailed or ended a number of programs that were either performing poorly or in excess of real-world needs,” Gates told reporters as Pentagon leaders rolled out the Department of Defense’s 2011 budget request. “These programs, had they been pursued to completion, would have cost the American taxpayer approximately $330 billion.”

In the days that followed, Gates repeated the figure numerous times during congressional testimony.
And the figure played the lion’s share, along with $78 billion squeezed out of overhead, in shaping President Barack Obama’s order last month to cut national security spending by “another $400 billion” over the next 12 years.
But asked to provide a program-by-program breakdown of the $330 billion, DoD officials declined, and provided only a simple list of names of weapons.

“The estimated cost savings demonstrated the cost over the life of the program had it continued to completion,” one defense official said. “This estimate was made in 2009 for the FY 2010 budget process. We do not have an estimate of what the breakdown would be today.”

So Defense News used budget justification documents, DoD officials’ public statements, annual acquisition reports and Government Accountability Office estimates to project program costs. For classified and far-term programs not on the books — but factored into DoD’s projections — think tank and analysts’ estimates were used.

Based on public data, the cancellation or scaling back of nine of the largest programs accounted for about $298.9 billion of those savings.

Yet many of the military services’ capability requirements remained in place. More than $130 billion is back on the books, or will be soon, for follow-on or replacement programs. Of the programs canceled in 2010, at least five have already been relaunched, or are in the planning stages to begin again.

Among them are the Air Force’s Combat Search-and-Rescue helicopter (CSAR-X) and Next-Generation Bomber, an Army vehicle segment of the Future Combat System (FCS) and Armed Reconnaissance Helicopter, and the Marine Corps’ VH-71 Presidential Helicopter.

Collectively, DoD had spent about $27.3 billion on those five programs at the time of cancellation, according to budget documents.

“Most of the $400 billion in earlier DoD ‘savings’ that President Obama has attributed to Secretary Gates are not ‘savings’ in the ordinary sense of the word,” said Carl Conetta, co-director of the Project on Defense Alternatives. “At best, they represent DoD marginally adjusting their programs and aspirations to marginally deal with spiraling cost growth.”

Gordon Adams, who oversaw defense budgets during the Clinton administration, said DoD’s calculations appeared “extremely loose at the edges.”

“The $330 [billion] to me was always a political number,” Adams said. “It was a hyperventilation on what was actually happening and in a way, it’s kind of too bad that they did that because it’s so susceptible to this kind of correction.”

Calculating Savings

If allowed to continue in 2010, these programs would have cost about $234 billion over their lives, with FCS — a $159 billion effort to network soldiers, vehicles and aircraft on the battlefield — accounting for more half of the tab. The Army had already spent more than $18 billion on FCS when it was canceled, according to budget documents, and it is negotiating a termination fee with defense giant Boeing.

The Chicago-based prime contractor also won the Air Force’s $15 billion CSAR-X contract, which was mired in industry protests when Gates killed the effort.

Gates also canceled the Air Force’s classified Next-Generation Bomber program in 2010, but announced in January that the service would start a scaled-back stealth aircraft program in 2012.

Since the original program was classified, its costs were not reported to the public. But a Center for Strategic and Budgetary Assessments analysis found it would have cost at least $40 billion.

Sources said the Air Force likely spent at least $4 billion on the bomber program and that Northrop Grumman and another major defense contractor had each received $2 billion contracts to build prototype aircraft.

The new bomber is to be based largely on existing technology, but analysts still expect the program to cost at least $40 billion, with each plane costing around $500 million.

“They’ve scaled it back to be a less risky approach,” Harrison said. “The price … it’ll probably be similar” to the old Next-Generation Bomber, since its price tag was likely understated.

Air Force officials say the service currently plans to buy 80 to 100 planes.

The Navy’s CG(X) cruiser and EPX signals intelligence plane never had firm requirements or fleet sizes publicly released, yet DoD listed them as having been included in the $330 billion savings estimate. The sea service was eyeing 19 CG(X) cruisers with cost estimates ranging from $3 billion to $7 billion per ship. Using the more conservative estimate, procurement would have cost at least $57 billion, with as much as $10 billion needed in research and development.

“Some of these things were just so early in the acquisition life cycle that they weren’t real programs yet,” Harrison said.
Instead of buying the cruiser, the Navy will buy at least an equal number of DDG 51 Flight III destroyers at about $2 billion per ship, meaning a $38 billion price tag.

Gates also canceled the Air Force’s Transformational Satellite Communications System (TSAT), which carried a $26 billion price tag. Instead, it opted to purchase two Advanced Extremely High Frequency (AEHF) satellites at about $2 billion each. About $3 billion was spent on TSAT before its demise.

“Of course, eventually we will have a follow-on satellite program that takes the place of TSAT,” Harrison said. “The question is: How long can we put that off and what are the capabilities of that program when it comes along?”
The DoD also cites not purchasing additional C-17 cargo planes and F-22A stealth fighters as cost savings.

“That’s a calculating foul because there were no out-year projections for either program,” Adams said. “You can’t count two programs toward your $330 [billion] when you didn’t have them in the” five-year future years defense plan.
Classified programs, as well as “various Army and missile defense programs,” also contributed to the savings, according to DoD.

And that’s just one more thing that clouds the $330 billion number, Harrison said.

“Classified programs that might have been killed … they wouldn’t have been named explicitly and … they may have already been restarted and we don’t know it,” he said.

citation:  Marcus Weisgerber,  "Pentagon's Phantom Savings: $330B Claim Erodes as Program Reappear," Defense News, 16 May 2011.  http://www.defensenews.com/story.php?i=6508886&c=FEA&s=CVS (15 May 2011)