Magazine article National Defense

Congressional Debate Heavy on Industrial Base Concerns

Magazine article National Defense

Congressional Debate Heavy on Industrial Base Concerns

Article excerpt

The authorization and appropriations process for the defense budget touches on some significant policy issues that could have great impact on the defense industrial base.

Allowability of Restructuring Costs In order to facilitate defense sector consolidations, a policy of making certain restructuring costs allowable has become an integral part of the Department of Defense post-Cold War strategy.

Countering this initiative are lawmakers who contend that the allowability of restructuring costs is a form of corporate welfare and promotes industry layoffs using taxpayer money The projected savings to the Department of Defense, and taxpayers, do not in their opinion, warrant allowing restructuring costs.

These claims are refuted by the General Accounting Office.

According to a GAO study, the defense consolidation restructuring policy does not allow the payment of lucrative corporate bonuses nor has it led to widespread layoffs. Rather, the study finds that the Pentagon has paid $179 million in restructuring costs and realized savings of $346.7 million, or $1.93 for every dollar spent. In addition, since 1993, about 20,000 workers were expected to leave their jobs; 15,000 have left to date.

On July 15 of this year, the Senate voted down an amendment to the Fiscal Year 1998 defense authorization bill that would prohibit continued allowability of defense restructuring cost.

In the final Fiscal Year 1997 Defense Appropriations Acts, Congress enacted a Provision that required at least a 2 to1 ratio of savings to casts for restructuring cost to be allowable. Such savings must be auditable and certified by a senior defense official. In addition, not all costs associated with defense restructuring are allowable; Costs such as retraining of displaced employees, early retirement and severance packages and relocation fees for retrained employees are examples of allowable costs. Merger costs such as igolden parachutesi are specifically unallowable.

Both the Senate Armed Services Committee and House National Security Committee included language in their respective versions of the Fiscal Year 1998 Defense Authorization bill (HR 1119, S 936) to ensure that the restructuring policy saves taxpayer money and strengthens the defense industrial base. The House bill codifies in Title 10 of the United States Code, the 1996 cost savings ratio on allowability of restructuring costs for defense consolidations. The Senate bill imposes additional reporting requirements. The final outcome is expected to incorporate the House version.

Executive Compensation

In each of the last three fiscal years, Congress has imposed a statutory cap on the amount of executive compensation that could be charged to government contracts. The Fiscal Year 1997 Defense Authorization Act also contained a provision which defined the elements of compensation to be included and defined the level of executives on whom the limits would apply

The Office of Federal Procurement Policy submitted a legislative proposal to the Congress in February 1997. Rather than a flat cap, the proposal would base allowable compensation on commercial or other independent surveys ts. Merger costs such as "golden" par that rate. All small businesses and other entities with less than 100 employees would be exempt.

The Senate Armed Services Committee has included language similar to the OFPP proposal in their version of the defense bill-with one noteworthy difference.

While the language adopts the recommendations on what constitutes compensation and which senior executives are covered by the policy, it changes the amount of compensation that would be allowable. …

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