Running Hills

Why senators shouldn't head the Pentagon or Foggy Bottom.

President Obama appears about to name senators to head the two most important national security agencies in the executive branch: Chuck Hagel at the Pentagon and John Kerry at Foggy Bottom. Commentators are all over Hagel about his views on Israel and the Middle East, while Kerry is getting a free ride after the Susan Rice fracas.

All this chatter misses the more significant, substantive challenge: both would have to manage a drawdown, with all the attendant revisions of strategy, priority-setting, and management reform shrinking budgets demand. And both hail from the Senate, where management is, at the most, a secondary job requirement. Moreover, knowledgeable as both men are, neither has significant management experience outside the Senate. This may not bode well for the era of shrinkage that is coming to DOD and State.

The departing secretaries have done many good things, but neither has truly tackled the requirements of waning resources. DOD hates and fears a drawdown -- it means choices have to be made and priorities set. Defense Secretary Leon Panetta has started that process, somewhat reluctantly, in his relatively short tenure, but has not acknowledged the reality that real cuts are coming and that the budget will not hold at the growth with inflation level he currently projects. As for Hillary Clinton over in Foggy Bottom, she peered over the edge of State's (and USAID's) internal problems in the Quadrennial Diplomacy and Development Review (QDDR) but made few fundamental changes. There is little State or USAID planning for the decline in resources that is coming.

We are at an inflection point in both agencies, and the budgetary piper is calling the policy and management tune. The question is whether either Hagel or Kerry have internalized that reality and are prepared for the tough internal leadership both institutions will need over the next four years. There are hard decisions to be made about personnel, acquisitions, and future strategy -- decisions that will require taking on baronies and fiefdoms while minding the management store.

Almost any senator comes heavily challenged in the management domain. It is not uncommon to have a former member of the House or a former senator head up the Pentagon -- out of 25 secretaries of defense since the DOD was created, six have served in Congress: Melvin Laird, Donald Rumsfeld, Dick Cheney, Les Aspin, William Cohen, and Panetta. It is less common at State, given that only three of the 20 postwar secretaries have served in Congress: James Byrnes at the end of the war, Ed Muskie, very briefly, and the incumbent, Hillary Clinton.

Laird, at DOD, served during a build-down and, as the late Duke professor and White House budget official Richard Stubbing pointed out years ago, had a reputation for being beloved, even while picking pockets. But Laird was not a manager and, as a consequence, the drawdown of the 1970s was perhaps the least well managed we have experienced. Cheney, on the other hand, was a tough manager and decision-maker (skills honed more in the White House than in Congress). Not beloved, but decisive -- he cut the budget 25 percent, canceled weapons programs, took on the services, and, with the support of Joint Chiefs Chairman Colin Powell, shrank the ground forces by 500,000. He left a capable, agile military behind that was maintained by the Clinton administration; despite the critics, Bill Clinton's military proved good enough to handle multiple crises in Iraq and the Balkans and for George W. Bush to use Saddam Hussein as a speed bump in 2003.

The problem at State goes deeper. Management has never been Foggy Bottom's strong suit, and its shrinking reputation for effectiveness bears witness to that reality. The only secretaries who truly focused on how the department worked were Larry Eagleburger and Colin Powell; the rest have hunkered down on the seventh floor and let the building grind on with minimal attention. Clinton has been there long enough to try to make a dent in the reform of State Department management. QDDR notwithstanding, it was not much of a dent; most of the challenges remain for the next incumbent.

Management is the problem. Is a senatorial nominee up to it?

I have written much about the challenges at DOD. While adjustments in strategy are important, they are not the most important challenge. We live in a relatively secure, not a more dangerous world. The security challenges are complex, but nothing like the existential threat America faced during the Cold War.

The real challenge at the Pentagon is how to wrangle the services' unending budgetary appetite to the ground and tackle three fundamental problems. These problems have led for years to defense budgets that are unreasonably high but, at best, the problems have only an indirect impact on capability.

First, the Pentagon's out-of-control acquisition system. For 70 years, the United States has spent too much on programs that cost significantly more than the Pentagon expects, arrive behind schedule, and provide less capability than promised (leading to more spending). It doesn't matter when or where you look -- the C-5 airlifter, the B-1A bomber, the M1-A2 tank, the next-generation carrier -- they all share this trait. It will take a tough leader to control the services' unchanging desire to underbudget for hardware programs (that's how you squeeze them in), and hold at bay the contractor's equally unerring instinct to undercost the same programs. Not a senatorial instinct.

Second is the Pentagon's out-of-control back office. McKinsey did a study in 2010 that said the Pentagon had the biggest overhead compared to combat forces of 29 countries, including Russia, China, and most of our NATO allies. Only Switzerland was worse. That same year a Pentagon advisory group, the Defense Business Board said that 560,000 active duty forces never deploy. That's a big back office. Cutting it means saying no, and no again, and lowering funding levels to force efficiencies. Not a senatorial instinct.

Third is the compensation and benefits system at DOD. Compensation has been raised substantially and, for years, pay increases were indeed needed. But catch-up has been done; in a drawdown, pay needs to be used as a force management tool, not a peanut butter spread of wage increases. Healthcare costs, which have doubled in the past 10 years to $60 billion, are out of control, as the last two secretaries have repeatedly pointed out, and Congress keeps making it hard to enforce discipline on health benefits. The retirement system rewards nobody before 20 years of service, and everybody, regardless of age, once the 20 years are in. It's the third rail of Pentagon planning; are senators up to the challenge of taking it on?

All these challenges become even more important in a defense drawdown; retaining capability while managing these reforms is a huge challenge. The senatorial candidates' background in these areas is, at best, unclear. You could hand some of it off to a deputy, but they had better be a manager and they will need full backing from a secretary that understands the problem.

State's management issues are even more serious, because the building has given short shrift to management for decades.

First, the budget and planning system at State has only barely begun to be created. Foggy Bottom still cannot do long-term planning, meaning it still struggles with accurately forecasting the costs of its programs and projects. A budget office was created in 2005 and has struggled for seven years to gain control over a sprawling bureaucracy, devoid of budget and resource planners. Moreover, that budget office only has responsibility for programs, like Economic Support Funds, Foreign Military Financing, and counternarcotics operations, not for State's management or for personnel budgets; those belong to the undersecretary for management. In other words, the undersecretary (and the director general of the Foreign Service) oversee things like building security, training, and promotions, while the planning for programs is handled over at the budget office. The two are not connected in any official way, so putting programs and people needs together is almost impossible. The new secretary badly needs to back up and strengthen this budget and planning capability. Senators like Kerry, who have not been appropriators or passed full budget bills will be challenged, but the budget and planning system will not get better without secretary-level support.

Second, U.S. foreign-policy institutions are a diaspora of organizations. State only owns a bit; its relationship with USAID is strained, even though USAID reports its budget through State (and Clinton's QDDR strengthened USAID's semi-autonomous capability -- needed, but it poses a continuing coordination challenge). Treasury owns the international development banks programs; the Millennium Challenge Corporation splits the foreign aid portfolio; Peace Corps, EXIM Bank, OPIC, TDA -- this alphabet soup of independent agencies further fragments the portfolio and weakens America's civilian statecraft. Will a senator have the skills to work the kinks out of this system?

Third, in the 21st century, America's civilian statecraft needs a makeover. This is a human resources issue. For centuries, the task of a diplomat has been to represent, report, negotiate, and advise. Today, all those things are needed -- and U.S. diplomats are the best at this -- but also much, much more. They have to run programs (foreign assistance, counternarcotics, anti-terrorism), support stronger governance through the embassies (nation-building), help prevent and resolve conflicts, carry out public diplomacy, manage budgets, and persuade Congress to keep the taps open. The Foreign Service is only at the edge of this revolution in competence; the department lacks a comprehensive training program, especially as a career progresses, and officers who serve in non-traditional billets (political-military affairs, development, public diplomacy, management) find they are still sidelined for promotion. This is nitty-gritty personnel stuff, but critical to the long-term sustainability of America's diplomacy. It is not the normal grist for the senatorial mill.

These are only a few of the management challenges the next two secretaries will face. But as resources shrink in both departments, there will be a crying need for tough, smart, experienced leadership at the top. We can get a drawdown right, but we will need leaders who understand these needs, even more than we do leaders who understand policy issues. The task of running huge, complex bureaucracies like the State Department and the Pentagon is about much more than just showing up and making policy -- now more than ever. If they want these positions, Kerry and Hagel are going to have to prove that they are ready manage, roll up their sleeves, put on their green eyeshades, and get to work inside their respective buildings.

DVIDS/Staff Sgt. Bernardo Fuller

National Security

Flexible Spending Accounts

The OMB's secret plan on what gets cut in sequestration.

The fiscal cliff looms, at least to some. The defense industry has known for some time that defense budgets are going down; sequester just spurs the contingency actions already underway. But the government has been more reluctant to anticipate the future, near-term or long-term. An almost unreal aura of "hear no evil, see no evil, speak no evil" had overtaken the Obama administration ever since the Super Committee failed a year ago to produce a grand bargain on federal spending and revenues.

Whenever Pentagon officials were asked, they said that no planning was underway. Secretary Panetta repeatedly said that the defense budget the president sent to Congress in February, which provided for a flat budget in real dollars for the next decade, was the minimum DOD needed. Anything else might require revisiting the interim strategy the department issued last year. Sequester would be "doomsday," a "meat cleaver" that would undermine the strategy and our security. Panetta, Deputy Secretary Ash Carter, and Undersecretary Bob Hale repeatedly said they were doing no planning for the fiscal cliff. They, and other agencies, were waiting for the White House Office of Management and Budget to provide guidance.

But until this week, they did not get it. OMB had not defined what constituted "programs, projects, and activities" (PPA) -- the funding for which will be sequestered under the Budget Control Act. It sounds really technical, but it matters. The more granular the definition of what PPA are, the less flexibility DOD (or any other agency) would have to deal with the automatic cuts. For example, if OMB defined PPA as a budget account, like "Air Force Aircraft Procurement," that would give DOD a lot of flexibility to move funds around to protect specific aircraft, like the new tanker aircraft and the F-35 fighter, and maybe take the hit on trainers or modernization of the B-1 bomber. But if PPA were what the Pentagon calls a "program element," then each aircraft in that account would have its resources cut 9.4 percent, a lot less flexible option.

So DOD has been lobbying for OMB to define PPA at as high an aggregate level as possible. On December 5, DOD (and the rest of the government) apparently got the answer. No document has been released, as yet. But conversations I have had suggest that what OMB said to DOD will make some people happy and some not so happy. For weapons programs, it seems PPA are likely to be defined as program elements -- so there can be no felicitous tradeoffs between tankers and fighters, or ammunition and tanks, or aircraft and ships. Planning has to take the same cut across each program element.

It's not the end of the world. Within each program there are sub-categories like "spares" and contract terms that include contingency funding, giving program managers some flexibility. A 10 percent cut in funding does not end a program. And, in any case, we're talking about funding the next set of contracts -- sequester does not apply to funds already locked (obligated) into existing contracts. So there will be no immediate "cliff diving" on the contract side, but there will be fewer resources for the next round.

The happier folks may be those responsible for operating the Pentagon -- buying the fuel, managing the contracts, doing the planning, maintaining the bases, supplying the forces in Afghanistan, contracting with the guards and cooks at Bagram airfield, delivering training, conducting exercises, or just sailing, driving, or flying around. There, the definition of PPA may provide substantial flexibility, by being set at the account level. In other words, the roughly 10 percent reduction would apply to "Army Operations and Maintenance," which is an $82 billion account in the FY 2013 Army budget request. While nobody likes losing $8 billion, the Army would at least have the flexibility to move the remaining funds around and, as it were, cut the grass less often at Ft. Belvoir in exchange for supporting the Bagram services contracts.

Sequester is not about closing the government; it's about cutting back on spending. If I were betting, the impact will most likely be felt by services contractors (the lawn service company) and by folks almost nobody is talking about -- the civilian workforce at the Pentagon, some of whom could be taking an involuntary day or two off, without pay.

None of this will happen right away. In fact, although OMB has not said what it will do if there is no budget deal by January 3, one possibility is that it will use its existing authority to tell agencies how fast they can spend their money (apportionment) conveying to them the message: "Keep spending like you were before. We'll get back to you on sequester when we know what Congress is going to do." In other words, if OMB anticipates that Congress might reach a deal sooner rather than later, sequestration might be short-lived, even if there's no agreement by the January 3 deadline.

So this is all contingency planning. The ball is still in President Obama and Speaker Boehner's court. At least DOD may now have a clearer view of the track ahead, just in case.

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