National Security

Obama Proposes Shifting Funds from Nuclear Nonproliferation to Nuclear Weapons

Hundreds of millions of dollars proposed in new spending on warheads.

The Obama administration will propose a deep cut in funding for nuclear nonproliferation programs at the Energy Department largely so it can boost the department's spending to modernize its stockpile of nuclear weapons, according to government officials familiar with the proposed 2014 federal budget to be unveiled Wednesday, April 10.

The half-billion-dollar shift in spending priorities reflects an administration decision that nuclear explosives work the Energy Department performs for the military should be both accelerated and expanded. But Democrats on Capitol Hill and independent arms control groups predicted the decision will provoke controversy and a substantial budget fight this year.

Under the 2014 proposal, the Energy Department's nuclear weapons activities funding -- which includes modernization efforts for bomber-based and missile-based warheads -- would be increased roughly 7 percent, or around $500 million, above the current level of $7.227 billion for these activities.

The department's nonproliferation programs, aimed at diminishing the security threat posed by fissile materials in other countries that can be used for nuclear weapons, would be cut by roughly 20 percent, or $460 million, below the current level of $2.45 billion, the officials said.

The new weapons-related spending would expand efforts to upgrade the W76, W88, W78, and B-61 warheads, and help fund construction of a new facility in Tennessee for processing uranium, a nuclear explosive used in these and other warheads. These programs have experienced billions of dollars in cost overruns in recent years, forcing the administration to look elsewhere in the DOE budget to find the money it needs to keep them alive.

Much of the reduction in nonproliferation spending -- around $183 million -- would come from a controversial plant designed to transform excess plutonium from the U.S. nuclear weapons arsenal into fuel for reactors that generate electricity, known as the Mixed-Oxide (MOX) fuel fabrication plant in Savannah River, South Carolina. That plant was initially budgeted at $1.8 billion, but the price tag has ballooned to at least $7.5 billion, provoking widespread criticism and allegations of mismanagement.

The plant is about 60 percent completed, but one senior administration official called it "managerially and programmatically, a nightmare," with continuously rising costs.

Under the Obama administration's proposal for fiscal year 2014, spending for the MOX plant would be around $330 million, or 47 percent of the budget it was supposed to get next year. Its construction would be greatly slowed, while the Defense Department and the Department of Energy's National Nuclear Security Administration study alternative ways to safeguard tons of the excess plutonium.

Secretary of Energy nominee Ernest Moniz, speaking at a Senate confirmation hearing Tuesday, ducked multiple questions from Sen. Tim Scott (R-SC) about whether he supports completing the MOX plant. "I will certainly look into this with high priority" if confirmed, he told Scott.

Under the Obama proposal, the budget for other DOE work related to nuclear nonproliferation would also be curtailed by about $277 million. That would include a 16 percent cut in spending on efforts to halt the use of fissile material in civilian nuclear reactors and collect or secure weapons-usable fissile materials in other countries; an 8 percent cut in spending on policy to control the spread of nuclear weapons-related technologies; and a 36 percent cut in efforts to monitor potential illicit commerce in fissile materials.

Only one category of Energy Department nonproliferation work would be increased -- research and development, mostly to finance work on a new nuclear detonation sensor to be placed about Air Force satellites.

The priority shift "is going to be a disaster," said a Democratic congressional aide, who asked not to be identified because he was not authorized to speak on the budget before its official release. "These cuts are going to be huge," and will be particularly problematic amid budget boosts for weapons programs that many lawmakers believe "have been mismanaged for the last five to six years."

Joan Rohlfing, president of the Nuclear Threat Initiative, a nonprofit arms control group founded by Ted Turner and former Sen. Sam Nunn, said, "the U.S. programs for securing, reducing and eliminating weapons-usable nuclear materials are a critical part of our strategy for combating nuclear terrorism and preventing the proliferation of these deadly dangerous materials...A decision to significantly cut these programs, including our near-term ability to dispose of excess plutonium, would be a setback to our ability to reach critical security goals."

As recently as December 3, President Obama described the government's nuclear nonproliferation efforts -- including some directed by the Defense Department -- as "one of our most important national security programs." Speaking at the National Defense University, Obama said the effort was "nowhere near done. Not by a long shot." He also proudly said the government has been "increasing funding, and sustaining it....because our national security depends on it."

But several officials and other sources familiar with the administration's budget deliberations this year said the DOE nuclear weapons-related cost overruns and the new austerity climate gripping Washington -- including the demand under so-called "sequestration" legislation for $54 billion in national security spending cuts each year until 2021 -- had upended the administration's plans to spend more on nonproliferation.

Specifically, officials said, the Energy Department determined in consultation with the Pentagon that it would likely need $10 billion in new funds to fulfill all of its promises to the military for the production of modernized warheads over the next decade alone.

The Energy Department needs at least $3 billion to $5 billion more to upgrade the B61 nuclear bomb -- meant for deployment aboard strategic and tactical aircraft -- than it initially expected, and several billions of dollars more to cover cost overruns in construction of the uranium processing facility. (Work on the facility and its equipment were well along when DOE abruptly realized it would not be large enough to accommodate needed machinery, forcing a costly redesign and lengthy delays.)

The department also needs more funds than anticipated for improvements to the W76 warhead, which is carried by Trident submarine-based missiles.

To cover the $10 billion total cost overrun, the Energy Department and its National Nuclear Security Administration agreed to transfer roughly $3 billion into weapons work from management accounts and other internal savings. It then asked the Pentagon to provide the additional $7 billion.

But former Secretary of Defense Leon Panetta, after hearing from aides that these overruns were due in part to poor management and inaccurate cost accounting at DOE, initially said the department would not provide any new funds to DOE, on top of the $4.5 billion it previously promised to give to DOE over a five-year period, to cover earlier overruns.

In the end, the Pentagon was cajoled into contributing $3 billion more. But that still left a $4 billion gap between DOE's nuclear weapons-related promises to the military and its ability to complete that work, forcing a scramble during the department's budget deliberations to cut from other programs, officials said.

One, who asked not to be named, said the DOE shortfall had set off "months of wrangling" about the issue, not only within the department but at the highest levels of the administration. At the end of it, a $250 million DOE "nuclear counterterrorism incident response" program previously considered a weapons activity was shifted to the nonproliferation budget account, a change that has the effect of making the bottom line for that program look better than it otherwise would have.

Moniz, in his confirmation hearing, tread carefully around the topic of what the department should be spending on nonproliferation. "If confirmed, I intend to make sure that [DOE laboratories and intelligence experts]...continue to sustain the nation's nuclear security," he said, without delving into budgetary issues or specific programs.

Asked for comment, NNSA spokesman Robert Middaugh said he could not respond until the budget has been formally released. A Pentagon spokeswoman, Jennifer D. Elzea, declined to address the issue in detail but confirmed that "over the past year DOD and DOE carried out a joint study regarding DOD's nuclear weapons requirements and funding options for those requirements. The study determined that the modernization program was underfunded, and steps have been taken to ensure adequate funding for essential modernization needs moving forward."

Tom Collina, research director for the Arms Control Association, a Washington-based nonprofit group, said "in a way," it seems inconsistent for the administration to promote arms control while cutting the DOE's nonproliferation budget. But he said officials may have calculated that they cannot win congressional support for further cuts in nuclear arsenals with Russia without spending billions more to refurbish America's remaining stockpile of nuclear weapons, under a bargain Obama struck during his first term.

The Center for Public Integrity has previously reported that administration officials have agreed that the number of nuclear warheads that the U.S. military deploys could be cut by at least a third, below a limit of 1,550 agreed with Russia in 2010. They have also agreed to discuss a potential joint agreement for such reductions with Russian President Vladimir Putin.

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Democracy Lab

Ten Questions for the New BRICS Bank

The great emerging markets want to start their own bank. But it doesn't seem like they've really thought it through.

The recent BRICS summit in Durban, South Africa concluded with its first tangible outcome since the countries began meeting formally five years ago: The commitment to create a new BRICS development bank. What more do we know about this ambitious project? Not much. So below are ten questions to consider as the bank takes shape.

1. Is the BRICS Development Bank a done deal?

Not necessarily. The joint statement from the BRICS leaders announcing that they "have agreed to establish the New Development Bank" sounded pretty definite, but then there seemed to be some hedging going on too. President of South Africa Jacob Zuma struck a cautious note, saying only that "...we have decided to enter formal negotiations" on the BRICS bank, while Russian officials muttered about the devil being in the details. Newspaper headlines reflected the ambiguity, with the Financial Times declaring "BRICS agree to create development bank [sic]," while on the same day, Voice of America led with the more cautious "BRICS Summit Ends Without Development Bank Deal." Obviously, there's still a lot of work to do and a lot can happen.

2. Do the BRICS have enough in common to sustain a shared institution?

Maybe. Maybe not. Some lack of consensus is undoubtedly behind the hedging. The BRICS encompass very different political systems -- from thriving democracy in Brazil to entrenched oligarchy in Russia -- and their economies are little integrated, inherently competitive, and are different in size by orders of magnitude. In 2011, China's GDP was over $7.3 trillion, about eighteen times larger than South Africa's economy, the smallest of the BRICS, and three times larger than Brazil's economy, the second biggest of the BRICS. It's also unclear to what extent the BRICS share a vision with respect to economic development, other than not being "the West." Still, while such differences create challenges, success is not impossible.  Remember, the economy of the United States dwarfed those of its allies when it created the Bretton Woods institutions in the postwar years. And there was no lack of disagreement about the postwar order among the European powers and Washington, but somehow the Bretton Woods system survived.

3. What will the new development bank focus on?

Infrastructure, it seems. The BRICS themselves have an estimated $4.5 trillion in infrastructure needs over the next five years, and coincidently, have about the same amount in foreign exchange reserves. A safe bet is that the new BRICS bank won't be doing the governance and democratization work that is popular at the World Bank these days, such as the "open data" project to make information about international development easily accessible to anyone. It is similarly difficult to imagine that the BRICS, which are not known for their transparency, would share the World Bank's enthusiasm for anticorruption efforts. 

4. Will developing countries welcome the BRICS development bank?

Probably. China is known for extending loans and resources without conditionality around touchy subjects like governance, and if the BRICS development bank follows suit, it's hard to imagine many countries saying no to easy money. Still, there's likely to be some skepticism, in no small part because of China's inevitably outsized role in the new bank and also because of the mixed reviews China gets from its global south trading partners. Across Africa, various leaders have criticized China's export of labor to the continent, and bemoaned the onslaught of cheap Chinese manufactured goods that undercut local production. In a particularly pointed criticism, Nigeria's central bank governor Lamido Sanusi, lambasted China as "a significant contributor to Africa's de-industrialization and under-development."  Nevertheless, if the BRICS bank offers economic assistance, most countries are likely to be interested. Money talks, and can even produce changes of heart. Look at the turnaround in attitude of Zambian president Michael Sata, who went from making scathing comments about China in 2006 to encouraging Chinese investment in his country in 2011.

5. Will the Bank be dominated by China?

Pretty likely, given China's relative economic weight. And that prospect is unlikely to delight the other BRICS. Some speculate that South Africa wants to host the bank and that an African seat for the bank could be one way to reduce China's influence. But that's wishful thinking. Even if the bank is physically located on another continent, China will hold the purse strings, and with that comes privilege. Look how the United States, nearly seventy years after the creation of the World Bank, still gets to pick the institution's president.

6. How will the bank be capitalized?

Not clear. There is talk of each country putting in $10 billion for an out-of-the-gate capitalization of $50 billion. But $10 billion would be an enormous commitment for South Africa. Presumably the other countries -- notably China -- would have to lend South Africa the money to meet its share. And this gets tricky quickly. China lending South Africa money to lend to Mozambique? In any event, $50 billion doesn't go very far in the world of global economic development. The World Bank committed $52.6 billion in "loans, grants, equity investments, and guarantees" in 2012 alone.

7. What currency will the new bank use?

Very possibly the Yuan. China will no doubt want to make loans denominated in yuans, a borrowing option it extended to other BRICS countries in 2012. It has already pushed for lending in its own currency to protect it against currency risk in Africa's enticing but volatile emerging markets. But making the Yuan the currency of the new development bank might only deepen unease about China's outsized role.

8. Aren't the BRICS "doing development" already?

Yes, a lot of it, by some measures, which is surprising given the high levels of poverty that persist across the BRICS. China is the big player; in recent years, it has substantially grown its activities abroad, particularly in Africa.  However, traditional metrics of development aid are difficult, if not impossible, to apply to what China is doing, and estimates of its aid vary hugely, from $1.5 billion to $25 billion. Brazil is also emerging as a more active donor, giving more than $1 billion in various forms of aid to more to sixty-five countries in 2012. Russia, too, is a re-emerging as donor. During the Cold War, the Soviet Union competed with the United States for influence by giving away wads of cash and assistance -- in 1986, it gave away a whopping $26 billion. But after the country fell apart in the 1990s, Russia became a net recipient of aid. Today, it is once again a donor, distributing $514 million in Official Development Assistance in 2011 (compared with around $5.3 billion from Canada and $30.7 billion from the United States). India is just beginning to establish itself as a foreign donor. In 2012, it collected its aid programs into the Development Partnership Administration, which has a five-year coffer of some $15 billion. South Africa, meanwhile, is supposed to put an aid agency into action in 2013. How a BRICS bank would interact with these unilateral efforts is not clear. 

9. Do the BRICS already invest in each other?

Not much. In 2011, only 2.5 percent of FDI from BRICS countries went to other BRICS, whereas over 40 percent of their FDI went to developed countries. Presumably, one of the purposes of a BRICS development bank is to change this, but such a change would require a considerable shift in current priorities. Meanwhile, the World Bank has recent projects of some kind or another in all the BRICS countries, such as financing for sustainable rural development in Brazil.

10. Will a new development bank pose a challenge to the World Bank?

Perhaps. It is certainly intended by its creators as an alternative to the World Bank, although it's still a long way from meeting that challenge. Comments from BRICS leaders don't do much to hide a sense of schadenfreude over the declining economic circumstances of the West versus the rising fortunes of their own countries, and a deepening level of frustration that the rules of the game have not changed to reflect that reality. "We still have a situation where certain parts of the world are over-represented," declared South African finance minister Pravin Gordhan. Despite years of promises to give the global South more say in both the IMF and the World Bank, no big structural changes have happened. And stagnating aid budgets among OECD countries only create more openings for the BRICS. So if a BRICS bank does emerge as a challenge, the West has no one to blame but itself.