It Ain't About the Hardware

Will the wars of the future be won by management consultants?

Folks in the defense universe in Washington, DC spend a lot of time in the arcade of debates. One of these debates is about U.S. military strategy in a changing world: Should we confront, contain, or partner with China? Should we engage or confront Iran? Should we intervene in Syria or let them work it through without deploying U.S. forces? Do we need to defend the global commons, or is that a cover for American military hegemony?

Another hardy perennial debate is about what the military should buy. More cyberdefense, or is that a cover for developing an offensive cyber capability? Is the F-35 the fighter of the future, or an expensive lemon we should put over the side? Do we need a new long-range bomber to prevail against a Chinese attempt to drive us from their borders, or is that another boondoggle we cannot afford?

Still another is about the future size and deployment of forces. Should they be forward, or held in the United States? Should the Army and Marines shrink, or stay the size they plan to be by 2016? Will the Navy get smaller and smaller, or grow to 300 ships or more?

Lovely, interesting questions, rife with huge disagreements among the military services, between the services and the Office of the Secretary of Defense, left-leaning think tanks versus right-leaning think tanks. Reams of paper, videos, testimony, the vast outreach of the defense-thinking complex.

It's all great stuff; it keeps consultants, bureaucrats, elected officials, and the "chatterers" busy. But, and here's the bottom line up front, if the Pentagon does not use the Strategic Choices and Management Review (SCMR), the next budget planning cycle, and the forthcoming Quadrennial Defense Review (QDR) to deal with its management issues, and if Congress fails to heed the need for management reform, all that debate will be irrelevant.

It won't matter if you want more planes or fewer, more troops or a smaller force, the right hardware, or the opportunity to confront or befriend China. Declining defense budgets, already well underway, combined with the costs of people and property, will eat the tradeoff space that allows anyone to make sensible policy and hardware decisions.

It's not just me talking. There was a striking letter and event on Monday, June 3, in which defense analysts from left to right joined forces in petitioning the administration and the Congress to ditch the politics of defense and focus on the management dilemma.

Twenty-five defense analysts got together on the letter, folks who spend many a happy hour debating each other on defense and national security. They ranged from Mackenzie Eaglen and Tom Donnelly of the American Enterprise Institute, Dov Zakheim of the Center for Strategic and International Studies, and Todd Harrison of the Center for Strategic and Budgetary Assessments, to Larry Korb from the Center for American Progress, Chris Preble of the CATO Institute, and myself and my colleagues Barry Blechman and Russell Rumbaugh from the Stimson Center.

And we agreed on some critical fundamentals that DOD, the White House, and Congress need to tend to: the encrusted and politically reinforced barnacles of pay and benefits for the troops and retirees, the sprawling physical infrastructure of the military, and what Secretary Hagel himself once described as the "bloated" back office of administration at the Pentagon. There is no mystery meat here, no new research discoveries that need be made. The need for reform in these three things has been blindingly obvious to any observer for a very long time.

The military compensation and benefit system, generous to the forces, is now eating defense resources at an alarming rate. As the letter points out, military compensation costs per active troop rose 56 percent in constant dollars from FY 2001 to FY 2012, doubling in current, inflated dollars.

Pay for the forces has not only caught up with, but has passed comparable private sector pay, factored for age, education, and experience. We have a well-compensated military. And it retires well, too, with lifetime health care, retirement benefits after 20 years (though more than 80 percent of the enlistees do not get there, so get no retirement at all), and access to subsidized groceries through the commissary system. (For more, read this terrific piece on commissaries by Rajiv Chandrasekaran at the Washington Post.)

But now the pressure is on, in budgetary terms, and the entitlements for the military are squeezing funds for capability. As retired Gen. Arnold Punaro put it: "We don't want the Pentagon to become a benefits operation that occasionally kills a terrorist."

Without breaking any faith with the forces, the system needs to be reformed. The Quadrennial Review of Military Compensation has proposed compensation and benefit reforms for a long time; they have not moved forward.

Todd Harrison of CSBA has argued we need to look at what servicemembers value most in their compensation and benefits -- pay increases over early retirement, for example -- and adjust the system accordingly.

Infrastructure is another growing problem -- the letter points out that DOD estimates it has about 20 percent more infrastructure than it can use. Clearly, from a fiscal point of view, it is time for Congress to step up and legislate another base closure (BRAC) round. All the evaluation criteria we need to make sensible base closure decisions have been developed through four previous rounds; the administration has asked for a new one. Time to move ahead.

The big target for reform is the back office. The data are clear: DOD has too many duplicative offices, too much overhead, too much administration. The Defense Business Board estimated that the Pentagon's overhead is something like 40 percent of the total budget. A large number of people are minding this back office. On the military side, something like a fourth of the military billets are doing commercial, not military work. Nearly 40 percent of the force does not deploy. On the civilian side, there are nearly 700,000 civil servants and something like another 700,000 contractors doing civil service-type work, often in DOD offices (and this excludes hardware contractor employment). The last three defense budget declines have led to an average of more than 30 percent reduction in the civilian workforce; this one is likely to follow this course and it needs to be carefully planned.

It all sounds like common sense. Moreover, with budgets going south, if something isn't done about these management and personnel challenges, the funds to support strategy, forces, and equipment is what will get squeezed. The Center for Strategic and International Studies estimates that if the overhead and pay/benefits cost growth continue, by early in the next decade, they will reduce funding for forces and procurement to unprecedentedly low levels. 

So merrily the Pentagon system rolls along, with overhead costs eating the tracks behind it. And Congress does little about these issues; they are part of the problem. They are politically vulnerable to the lobbies for military pay and retiree benefits, to the politics of even appearing to question current practices, to the communities where the infrastructure is located, and to the services who protect back office billets.

The politics are merciless; the risks of talking common sense are real. I am certain this column will attract critique because of the politics. But the basic problem is pretty simple: If we don't find reasonable, efficient, cost-saving ways of reforming pay and benefits, infrastructure, and the back office, as Mackenzie Eaglen said on the June 3 panel, there is an important promise to the American people we will not keep: the certainty that the military we build is the right force with the right tools to do the right job.

On that, all of us agreed. Hopefully, Congress will too, and soon.

DOD photo by Erin A. Kirk-Cuomo/Released

National Security

Flexible Spending Account

How the Pentagon is wriggling its way through sequestration.

It is by now virtually certain that the sequester is with us at least through this year and, some speculate, maybe even next year as well. It is becoming equally clear that the Pentagon will survive the sequester, for all the management challenges it poses.

People have been writing about the flexibility given for air traffic controllers and the Agriculture Department as Congress tries to work its way around some of the tough issues sequestration imposes.

It might seem like it is time to pity the Defense Department, because Congress does not seem to be preparing a new set of flexible cards for the Pentagon. But there is no new deal for DOD because there doesn't have to be one. "Flexibility-R-Us" is the way the Pentagon is managing, and they are doing a mighty fine job.

As I have been writing for some time, the Pentagon already has a number of ways to play its budgetary cards under the sequester, and it is using all of them. And the flexibility cards just keep coming.

First, the definition of what was to be sequestered waived the pay and benefits funds, so no harm to the troops. Then, any funds already tied to existing contracts were off the table under the Budget Control Act, meaning the impact on defense contractors was delayed (watch for declining procurement budgets in the future, though).

Then, the Office of Management and Budget agreed that the funds that remained vulnerable to the sequester -- DOD's operating funds (civilian pay, operating the force, maintaining equipment, training, base maintenance, and operations) -- could be moved around. Not every account needed to be sequestered equally.

And Congress increased this flexibility when it passed a final appropriations bill for DOD in March, adding $10.5 billion to operating accounts for this year above the level provided in the continuing resolution that expired that month. (Not every department got a final appropriation; most just have to suck up the continuing resolution level, which was the FY 2012 amount.)

The next set of Pentagon flex-cards were dealt last week, when DOD transmitted its reprogramming request and its war budget for this year to Congress.

DOD has significant flexibility when it comes to reprogramming. Internally, without telling anyone, they can and have moved money within accounts totaling more than $10 billion a year every year since FY 2000. There is no formal report on how much they have already moved around to deal with the sequester, but they have surely used this authority up to the limits provided in law.

In addition, current law allows the department to transfer another $7.5 billion across accounts, as long as it notifies the key congressional panels (the armed services committees and the defense appropriations subcommittees).

When the department sent its reprogramming up to the Hill last week, it actually proposed moving more than $9.6 billion around, using additional transfer authorities. DOD proposed to move this money exactly in the way you might expect -- to relieve its operational account problem.

It took more than $3.6 billion out of procurement accounts (buying stuff) and put it (along with funds from other areas, including personnel, since the force is getting smaller) into the operational accounts, solving more than $6.5 billion of its operations money woes (especially for the Army, which saw its operations accounts go up $4.8 billion).

Not much for Congress to worry about here, unless some of those procurement dollars were headed to companies in members' districts, and some surely were.

The war budget request of $79.6 billion, on the other hand, should raise some questions. I have already suggested that the Pentagon might use the politically popular war funds (Overseas Contingency Operations, or OCO, funds) to cover some of its operational problem.

The reason DOD could be tempted is because in reality there is no separate war budget, in accounting terms, when it comes to operational funding. This is by far the most flexible part of the defense budget.

Operations are operations; all the money looks the same, whether it is being spent here or there. It's still training, flying, sailing, and base operations. And Congress does not do much to track exactly where these operational dollars are being spent.

So, over the years of Iraq and Afghanistan, operational funding could kind of slop back and forth, depending upon need. We tried pretty hard in the Obama transition to tighten down what DOD could ask for in a war budget. It was easier when it came to hardware -- if it wasn't lost or damaged in the war, it couldn't be in the war budget. If it was training and troop planning that would be part of what the Army would do in the absence of the war, DOD couldn't use the war budget to pay for it.

It looks like those days of discipline are over and done with. The OCO budget request already looked like it was going to be a problem when the administration delayed sending it to Congress. Then, when it was only $9 billion less than what the Pentagon asked for last year, even though the number of troops in Afghanistan has gone down by 39 percent, my suspicions rose even higher.

It's deucedly difficult to read the OCO cards, precisely because operations are operations and the OCO budget request does not specify where they are taking place. But there are some questions Congress needs to ask, unless it is willing to let DOD slide in order to deal with sequestration.

The Pentagon has once again put funds for wages and benefits of all the soldiers and Marines in excess of FY 2016 troop targets (182,000 for the Marines and 490,000 for the Army) into the OCO budget -- $5.1 billion worth -- under the dubious assumption that those folks are only there because of the war. Of course, if they could keep them, even without the war, they would -- but, ya know, budgets are coming down.

Then there are other pieces of terminology that suggest operations budget issues have crept into the OCO budget: the department estimates shortfalls in its Operations and Maintenance accounts, for example. And undisclosed amounts for undefined "personnel pay for mobilized forces." (That's not in the field -- would they be mobilized anyway?) And "pre-deployment training," training they might be doing anyway? And "various classes of supplies" not otherwise described. These categories add up to $25.7 billion of the total.

There is funding to support forces that are not in Afghanistan that "also support activities other than those in Afghanistan." You're telling me all of that is ongoing activity that has nothing to do with the war and ought to be in the base budget?

And there's a hardy perennial at least partly outside the operations accounts: $8.9 billion to "repair and replace equipment as DOD resets the force," despite the reality that the Army already substantially repaired and reset its equipment using billions of dollars of OCO and supplemental funding over the past decade, as my colleague Russ Rumbaugh has pointed out.

The OCO request provides a tempting option for repairing some of the impact the sequester has had on basic DOD operations funds. And the Hill might be lenient, providing yet more flexibility to the Pentagon.

Bottom line: DOD is the dealer when it comes to surviving the sequester, and the house usually wins. As I have said before, the sequester is not fun, but it is manageable.

Mark Wilson/Getty Images