Desperately seeking Gates’ $400 billion savings

Carl Conetta. Project on Defense Alternatives Note, 30 April 2011.

Why is our defense spending so high and apparently out of control? Plenty of ink has been spilled addressing this question, including my own short, The Pentagon’s Runaway Budget.

Andy Bacevich may get closer to the key political dynamics in Why Military Spending Remains Untouchable.

There is no better example of the dysfunctional political dynamic governing the Pentagon budget than President Obama’s affirmation (April 13, 2011) of the claim that Secretary of Defense Gates has “already saved” the nation $400 billion in defense expenditure. And there is no better illustration of the poverty of our discourse on this subject than the fact that the claim goes largely unchallenged.

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. They do not show up as reductions in DoD budget plans from one year to the next, as shown below. At best, they represent DoD marginally adjusting its programs and aspirations to marginally deal with spiraling cost growth.

Rough analogy: Having said it would deliver a “fully-loaded” Cadillac for a specified price X, and having discovered that this estimated price is entirely unrealistic, a car dealer trims back some of the features and delivers something less for the full promised price. Most consumers would call this a gyp, not a savings.

The alternative would be for DoD to further boost subsequent budget requests to fully reflect cost growth, and let Congress and the Executive reconsider what they wanted to buy. I suppose one could say that DoD has “saved” these authorities from the headache of making this decision. Fully confronting a realistic pricing of current programs might lead to a thorough-going rethink of our defense posture and modernization efforts. But that’s too much to consider.

Now, let’s try to find those $400 billion in “savings”….

THE $400 BILLION

1. Much of the $400 billion that Secretary Gates is claimed to have saved derives from his April 2009 announcement of program cuts. Gates claims that the systems and programs he cut in 2009 would have eventually cost more than $300 billion. However, at least some of this was immediately reprogrammed, meaning: DoD used the savings to buy other things.

April 2009 Gates Defense Budget Recommendation Statement

2. In August 2010 and January 2011, Secretary Gates outlined additional “cuts” and “savings” totaling $178 billion. Of this, $100 billion was immediately reprogrammed to purchase other things or cover other costs. The remaining $78 billion was supposed to be released from the Pentagon orbit to help pay down the deficit. In the August 2010 statement, we find Gates’ claiming that his earlier 2009 effort has already saved more than $300 billion.

August 2010 Gates Statement on Department Efficiencies Initiative

Jan 2011 Gates Statement on Department Budget and Efficiencies

PDA summary chart re: the $178 billion

3. How much (if any) of the earlier “more than $300 billion” in savings was similarly given over for deficit reduction? Looking at actual budget plans, what do we see? The first $300 billion was announced in April 2009 and it might reasonably have shown up as difference between the last Bush budget plan (FY09) and the first Obama budget plan (FY10).

Comparison between these two budget plans is easy for the years 2010-2013:
– Bush FY09 planned total spending for 2010-2013 = 2.155 trillion
– Obama FY10 planned total spending for 2010-2013 = 2.183 trillion

An increase is not a reduction, therefore: no savings apparent in the near years.

4. Obama’s next budget plan (FY11) foresaw a significant increase over his first. So, no savings apparent there either.

5. Only in the next plan – the FY12 plan – do we see a reduction in planned spending between FY12 and FY11 plans. In the nine years that overlap between the FY11 and FY12 plans, we see a reduction of about $233 billion.

But the FY12 plan follows Gates’ second announcement of cuts and savings (summarized in #2 above). So, at least, $78 billion derives from that and not the earlier cuts. Indeed, when we compare the FY12 plan with the FY11 plan for the years 2012-2016, there is a reduction in planned spending of $76 billion. Still no apparent impact from the April 2009 “cuts,” however.

6. Well, as noted above, the total difference between the FY11 and FY12 plan for the years 2012-2020 is $233 billion. 233 minus 78 = 155. This additional planning rollback of $155 billion shows up for the years after 2016. So maybe we’ve found at least $155 billion of the earlier supposed cut? Maybe it just took 2 years to register? Maybe.

“Maybe” because the Obama FY12 budget rolls back planned spending almost exactly to the levels foreseen in the Obama FY10 budget …being the budget that was larger than the final Bush budget and being the budget that showed no impact from Gates’ April 2009 offer. To put it another way: Obama’s FY12 budget simply rolls back the future spending plan he produced in FY11 to the level he had proposed in FY10. The FY12 plan simply disappears the increase proposed in FY11.

7. The other possible (likely) reading of all this is that: (i) None of the original $300 billion “saved” ever left the Pentagon,
(ii) The $78 billion that Gates offered up to deficit reduction is the only “savings” really specified so far to actually show up as a reduction in planned spending, and (iii) The other $155 billion that the FY12 plan subtracts from the FY11 plan involves as yet unspecified cuts and efficiencies.

Likely Change in FYDP Very Modest

Project on Defense Alternatives Budget Brief, 28 April 2011.

The Obama Administration to date has made three successive Pentagon budget requests: FY10, FY11, and FY12. Each has looked ten years into the future.

On 13 April, the President offered a new proposal and framework — a revision to achieve greater deficit reduction. It looks forward 12 years. How do all these compare?

In order to compare the President’s successive plans, we must stretch the earlier ones out to the new horizon set in his April 13 speech, which is 2023. Reviewing the budget requests shows that in each case the projections for the “out years” — the tail-end years — have been generated by the application of a simple inflator. We can adopt these inflators to stretch all the requests out to 2023. Of course, the result must be regarded as only an estimate of the administration’s intent.

The difference between the FY11 and FY12 plans for the 10-year period 2012-2021 is around $240 billion. Stretch it out two more years and the difference grows to about $400 billion. This shows that the differences among the plans (when measured in “then year” dollars) really begin to accumulate as we go further and further into the future.

Keeping in mind that Congress must consider and pass the budget year by year, any series of budget projections going out twelve years, spanning three Presidential terms and differing economic conditions, must be judged distinctly uncertain.

Below are the total budget figures (in “then year” dollars) for the President’s successive plans. Each plan is also weighed as a percentage of the earliest one (i.e. FY10):

FY10 plan for 2012-2023: 7543 billion = 100%

FY11 plan for 2012-2023: 7947 billion = 105%

FY12 plan for 2012-2023: 7512 billion = 99%

New (April 13) proposal for 2012-23: 7112 billion = 94%

The most consequential years for national policy are the next five: 2012-2016, which constitute the FYDP. The President’s successive requests for these years are more firm and we needn’t do any estimating to derive them. All the Administration budget requests have been explicit about these years. And reviewing the successive requests for 2012-2016 shows that the difference among them is not as substantial:

FY10 plan for 2012-2016: 2878 billion = 100%

FY11 plan for 2012-2016: 2995 billion = 104%

FY12 plan for 2012-2016: 2919 billion = 101%

We don’t yet know what the President’s April 13 proposal will imply for the 2012-2016 period. It’s a fair bet, though, that he will want to reinstate his earlier request to DoD that $150 billion be “saved” in the near future and not just the $78 billion pledged earlier this year by Secretary Gates. That would produce the following:

New plan for 2012-2016: 2845 billion = 99%

If this proves true, the rollback in planned spending for the five years that matter most will be modest, verging on insignificant.

Pentagon review must aim for more than modest cuts in defense spending

Project on Defense Alternatives, Briefing Memo #49, 25 April 2011.
http://www.comw.org/pda/fulltext/1104bm49.pdf

There is good reason to welcome a strategic review, as promised by President Obama on 13 April. For nearly 14 years, US defense policy has been guided by the “QDR consensus” – a set of axioms and imperatives that won adherence among defense planners in the course of four Quadrennial Defense Reviews, beginning in 1997. In retrospect, this consensus has produced a syndrome of profligate and desultory military activism. It has fed the dysfunctions of our military procurement system and helped drive the Pentagon’s base budget to unsustainable heights. Certainly, it is time for a fresh start. But will the promised review deliver?

Will the review be more open and critical than the QDRs it aims to rectify? How deep will it dig? Will it even aim to “rectify?” Or will it serve a more narrow purpose: a revised bargain among the Commander-in-Chief, his defense secretary, and the chiefs of the armed services to exchange modest new constraints on budget growth for a strong rationale, a bulwark, against any further cuts.

What the President seeks is only $400 billion in savings over 12 years – about 6.5% of planned base budget expenditures. Last year, the President’s Fiscal Commission and other independent task forces identified more than twice as much in potential defense savings over a period of just ten years. And it is unclear whether the President intends to extract the $400 billion from the Pentagon’s budget alone or from the larger “security basket,” which includes International Affairs, Homeland Security, and Veterans Affairs.

Also, it is not encouraging that the President applauded Defense Security Gates for having “already saved” $400 billion in previous years, when most of those “savings” never left the Pentagon’s coffers, nor dented the government’s deficits. What the nation needs now are “savings” in the colloquial sense of an actual decrease in defense spending.

A serious strategic review should enable considerably more than a 6.5% retraction in planned future expenditures. It should do more than limit future growth. And maybe it will. But we should recognize at the start that what the President has proposed is not itself substantial enough to actually necessitate a strategic review. Yes, we need one – but not because the President hopes to modestly dampen Pentagon growth.

To be meaningful, such a review must look well beyond $400 billion in savings, and even beyond what the Fiscal Commission and other task forces have proposed. Of course, Secretary Gates and Admiral Mullen disagree. They have already publicly derided any substantial new constraints on their spending as putting the nation and its armed services at risk. The strategic review should be more than a conciliatory concession to their concerns, which are tendentious.

We can gain needed perspective by comparing recent budget submissions and proposals in historical context. This table prepared by PDA converts recent plans and proposals into average annual Pentagon base budgets, expressed in 2010 dollars. It shows that the President’s requests and proposals, including his recent one, would produce average annual budgets that occupy a narrow band of spending. They are all close cousins.

Even the more ambitious proposal by the Sustainable Defense Task Force does not go far afield.

All of the President’s requests and proposals produce average annual budgets that, in real terms, exceed previous spending, exceed Reagan-era levels of spending, and substantially exceed average spending during the entire Cold War period. (And, notably, the budget average for the Cold War years includes war spending, while the more recent averages do not.)

We should gladly accept the opportunity for a review of defense planning and work to make it worthwhile. But we need not and should not accept the idea that modest revisions in budget planning give good reason to hit the “strategy panic” button.

“Red Team” Report in 2009 Raised Concerns about Fiscal Constraints

Sebastian Sprenger writing in Inside Defense on 21 April 2011 reports that the QDR Red Team headed by Gen. James Mattis (USMC) and Andrew Marshall, director of the Office of Net Assessment, raised concerns in 2009 about the fiscal restraint effects of the deep recession on military plans to be represented in the QDR.

The Red Team report was not made public. When the QDR was published in early 2010 it did not include a presentation of the effects of fiscal constraints.

Last week, a little more than a year later, President Obama asked Secretary Gates to find $400 billion in additional security budget cuts over a twelve year period and called for a new review of military roles and missions.

The effect of this development will be an update of the 2010 QDR which will likely now heed the concerns of the 2009 Red Team concerning fiscal constraints.

News Analysis: Obama’s Proposed $400 billion Security Spending Cut

On Wednesday April 13th 2001, President Obama announced an initiative to roll back planned security spending by $400 billion over the next 12 years. The nature of these “savings” is not yet clear. Nor is it clear how much will be subtracted from the Pentagon’s spending plans.

Nonetheless, Secretary Gates and the Chiefs are not pleased and have begun to make noise about risks to security. Apparently, they were not briefed on the proposal until Tuesday.

Part of the initiative is to begin a “fundamental review of America’s missions, capabilities, and our role in a changing world.” What and how much is subtracted from the Pentagon will depend on this review. Notably, the United States just completed a Quadrennial Defense Review last year. What the President proposes is some sort of “second look.” The President, Secretary Gates, and the service chiefs will be the prime movers of this process. How deep their “second look” will go is unclear. And it seems battle lines are already being drawn.

At a press conference on Wednesday, Pentagon spokesperson Geoff Morrell said the review would likely affect the 2013 budget. It will not be ready by June, when congressional debate of the 2012 budget commences.

How open will the review process be? We don’t yet know. But the experience of recent defense reviews is not encouraging. Still we should welcome this first step and strive to open up the process. The need for a rethinking our defense strategy and posture was emphasized in the 2010 report of the Sustainable Defense Task Force:

[I]n order to ensure significant savings, we must change how we produce military power and the ways in which we put it to use. Significant savings may depend on our willingness to:

Rethink our national security commitments and goals to ensure they focus clearly on what concerns us the most;

Reset our national security strategy so that it reflects a cost-effective balance among the security instruments at our disposal and uses those instruments in cost-effective ways; and

Reform our system of producing defense assets so it.

News links on President Obama’s proposed rollback in planned security spending, his call for a strategic review, and the Pentagon’s reaction:

DOD: Finding More Savings In Defense Budget Means Nixing Missions. Christopher J. Castelli. Inside Defense, 13 April 2011.

Obama Calls for Sweeping Review of U.S. Military Strategy. Sandra Erwin. National Defense, 13 April 2011.

Pentagon warns on big defense cuts. Missy Ryan and Jim Wolf. Reuters, 13 April 2011.

Defence chief warns against planned cuts. Daniel Dombey and James Politi. Financial Times, 14 April 2011.

Events frequently overtake long-term Pentagon planning. Megan Scully. Government Executive, 14 April 2011.

Obama: “saving $400 billion” “again”?

Editor’s Commentary

13 April 2011 (revised and updated 16 April 2011)

In President Obama’s April 13th “deficit speech” he says:

Just as we must find more savings in domestic programs, we must do the same in defense. Over the last two years, Secretary Gates has courageously taken on wasteful spending, saving $400 billion in current and future spending. I believe we can do that again.

What might “do that again” mean?

Actually contribute $400 billion from projected Pentagon budgets to deficit reduction?

That would require the Pentagon to take in and spend $400 billion less. But it is very difficult to identify much actual contribution to deficit reduction in the first $400 billion in Pentagon savings President Obama refers to and believes can be repeated.

Let’s take a quick look at the components of that first $400 billion working backward through time.

This past January Secretary Gates announced $78 billion in cuts over five years. In February when the President’s FY12 budget appeared all but $70 billion of this as regards deficit reduction evaporated. $68 billion was consumed by the special Overseas Contingency Operations (war) budgeting as the FY11 projected placeholder of $50 billion was replaced by the FY12 real OCO budget of $118 billion. Another $2 billion in the savings appears to have simply vanished in the five year budget projections, perhaps due to those pesky “rounding errors” that plague Pentagon budgets.

In 2010 Secretary Gates announced $100 billion in “efficiency” savings. He was quite forthright at the time, saying that he was keeping all the savings within the Pentagon to pay for other requirements. So we can’t legitimately count those toward deficit reduction, and presumably the President did not count those toward the $400 billion that has been saved.

So that leaves about $322 billion in Pentagon savings the White House needs to account for.

In testimony before the Senate Armed Services Committee on 17 February 2011 Secretary Gates said:

…over the last two defense budgets submitted by President Obama, we have curtailed or canceled troubled or excess programs that would have cost more than $330 billion if seen through to completion.

Connecting this to President Obama’s speech Defense News reports (13 April 2011) that:

Of the $400 billion already saved, $330 billion is supposed to come from Gates’ cuts to weapons programs – for example the cancellation of the Army’s Future Combat Systems program and the Air Force’s Next-Generation Bomber, both of which Gates terminated in the 2010 budget. However, those two programs have been replaced: The Army is developing the Ground Combat Vehicle, and the Air Force has launched a scaled-back bomber program.

“Supposed” and “However” are the key words in the preceding paragraph. To be real savings that contribute in any meaningful way to deficit reduction the the program cancellations would have to lead to a declining Pentagon budget topline… and not be replaced by some other expenditure.

Gordon Adams of the Stimson Center assesses the $330 billion savings claim in a 5 November 2010 post this way:

Gates has not cut $330 billion from defense. When he announced hardware cuts, he said the out-year savings were estimated at $330 billion, but he didn’t cut a nickel from the projected defense budgets; he wants, as he has clearly said, to use those savings for other investments, not give them back to the taxpayer. And the figure is way too big, anyway, because he terminated the F-22 and the C-17 cargo plane when neither one of them was in the long-term budget (he has been trying to let both programs arrive at a normal death, as planned, and Congress keeps getting in the way.) It is even more too big because his savings figure did not net out the alternative investments he proposed for the same missions, like replacing the terminated Future Combat Systems (FCS) vehicle with a new Army vehicle R&D program. So a big kerfuffle over a non-number, but no big cut in defense here.

To date the Pentagon or OMB have not produced any accounting of these supposed savings from Secretary Gates’ program cancellations which indicate where they come out of the topline. Meanwhile it would be wise to substantially discount their value when thinking about overall Federal spending.

What we know for sure is that Pentagon budgets continue to rise despite the “savings.” The Pentagon and the Administration might argue that the Pentagon budget would have grown faster if Secretary Gates had not made those “courageous” program cuts. Possibly. But that “would have been” is simply not the same as actually contributing to deficit reduction which requires real cuts in the topline of the Pentagon budget.

In terms of cutting the topline of the Pentagon budget, when we remove the long-awaited reductions in war costs, we can count just $8 billion that Secretary Gates has given up to deficit reduction in the five year defense plan (FYDP) through FY16.

Looking out ten years there are more savings in the President’s projections. My colleague Carl Conetta finds $164 billion less Pentagon spending in the overlapping four “out years” (FY17-20) when comparing the President’s FY11 and Fy12 budget submissions.

We might speculate that this is where we realize some of Secretary Gates’ $330 billion in savings, but it would be only speculation…

So far no one in the Administration has demonstrated in sufficient detail how the Pentagon will contribute much of anything toward reducing the Federal deficit, rounding errors notwithstanding.