Magazine article National Defense

Budget Guessing Game: How Low Will It Go?

Magazine article National Defense

Budget Guessing Game: How Low Will It Go?

Article excerpt

Military spending peaked in 2010, and as funding began to take a downward turn, defense officials and industry executives thought they knew what was corning.

The cognoscenti reckoned that, once the dust settled after the 2011 debt-ceiling showdown and the 2012 presidential election, a new, reasoned budget would be put forth to guide the downsizing of the military and the defense establishment. Pentagon budgets historically plummet after every war, and this was the start of another down cycle, or so they thought.

But it soon became apparent that political dysfunction had replaced deliberate planning in Washington. John Hamre, CEO of the Center for Strategic and International Studies, called on the nation's policymakers to "define the bottom," and allow defense to resize accordingly.

The unpredictability has only grown worse since Congress passed the Budget Control Act. Defense budget analyst Todd Harrison, of the Center for Strategic and Budgetary Assessments, points at the BCA as the "largest contributor to the high level of uncertainty in the defense budget." The law set budget caps for defense, and these caps were automatically reduced upon the failure of the so-called Super Committee to produce an alternative for deficit reduction. The BCA employs sequestration as a mechanism to enforce spending cuts for the next 10 years. Cuts must be applied as a "uniform percentage" across all programs, but the actual amount of the reductions is not uniform because of various exemptions such as military personnel accounts.

The fight over sequester is headed for another round Jan. 15, when the Pentagon faces a $20 billion cut unless the BCA is changed. Under the temporary funding measure that ended the October government shutdown, spending for national defense is $518 billion. But the 2014 sequester cap is $498 billion.

Harrison says this level of budget chaos is unprecedented. The Obama administration produced a 2014 budget that is $52 billion higher than the BCA-mandated number. The House and Senate each passed budget resolutions that propose virtually identical levels of funding for defense in 2014. But they differ significantly in the remaining nine years of the projection period. The House budget resolution exceeds the defense budget caps by $437 billion during the remaining eight years of the BCA, while the Senate budget resolution and the administration's request exceed the defense budget caps by $285 billion and $377 billion, respectively, Over the same period.

Even a Defense Department that prides itself on its ability to plan for any contingency can't seem to cope with the fiscal turbulence. For a defense industry that lives by the government's fiscal projections, the situation defies belief.

Analysts have warned that the industry's lifeline, the procurement budget, will become a piggy bank for other Pentagon priorities as it scrambles to absorb the spending cuts.

Procurement of equipment and weapons topped out at about $130 billion in 2010 and has dropped to $105 billion in 2014, before sequester is applied. Under the Obama budget, procurement grows to $123.2 billion between fiscal years 2014 and 2018, a scenario that completely ignores fiscal reality.

Until the House-Senate budget conference settles on a 2014 top line for federal spending, this will all be a guessing game.

"I'm of the school of thought that says procurement doesn't get much softer" than the current level of about $100 billion, says Richard Aboulafia, a defense industry analyst at the Teal Group. …

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