The Pentagon's Stages of Budget Grief

There's been denial and anger, and now bargaining with the SCMR. When do we get to acceptance?

The defense budget is going down. The Defense Department has been through the first two stages of grief: denial and anger. Denial was from FY 2010 to FY 2012 -- "the budget should not go down, we need more." Anger was 2012 -- the Aerospace Industries Association campaign to halt sequestration, Senators McCain, Graham, and Ayotte touring bases and plants, "defending defense" and hoping to influence the election and reverse the tide.

Now we are at "bargaining," the stage where the department and the services try to make a deal that will slow the decline, delay the effects. Secretary Chuck Hagel and Admiral Sandy Winnefeld, the vice chairman of the Joint Chiefs of Staff, made this clear on Wednesday, July 31, when they rolled out the Strategic Choices and Management Review (SCMR). The key signal that we have arrived at "bargaining" was the demand the secretary made for "time." Just give us more time because these cuts cannot come so fast, he argued. We cannot manage them.

He particularly argued for time in his commitment to cut 20 percent out of the tiny staffs for the Office of the Secretary of Defense and the Joint Staff -- by 2019, not this year or next.

The reality, however, is that budget cuts are coming fast. Time is not available; the time is now. But nothing the secretary announced on Wednesday demonstrated anything more than the fact that the Department of Defense is able to implement the president's budget request, if that's the funding they get in the end.

Any cuts beyond that budget, the secretary warned, would be lethal to the department and the nation's military capability. Sequester-level cuts ($500 billion over 10 years) "would be a huge strategic miscalculation that would not be in our country's best interests."

Note that he said "sequester-level cuts," not "sequester." The resistance at DOD is not to sequestration -- which is bad enough -- but to any approach that would reduce the defense budget by $500 billion over 10 years from the current Defense Department projections. Any approach at all.

That's just not reasonable. A $500 billion reduction from the current projection would be consistent with prior defense drawdowns, not a "strategic miscalculation." That kind of grandstanding may play to the president's desire to get a budget deal by threatening to kill the DOD "hostage," but it is not good planning.

So the secretary set up another "bargain." If we have to make those cuts, we can shrink the forces, driving the Army down as deep as 380,000 troops and eliminating air wings, and use the funds to buy technology to keep up the defense investment budget. Or, bargain the other way, we can keep up the size of the force, but then we have to make "massive cuts" to procurement and take the risk, globally, that entails.

This is a false choice. The reality is that the "big money" is in the department's overhead. Secretary Hagel knows this -- he focused on overhead at the start of his briefing. But his statement on overhead was simply a confession that it is hard to get savings from the overhead. He noted that Secretaries Gates and Panetta had sought $210 billion in savings; that he himself has proposed $34 billion, all over 10 years. And he offered up such things as his 20 percent cut in the secretary's office and the Joint Staff, reductions in direct reports to him as ways to, maybe, get another $40 billion over 10 years. Maybe we get the overhead czar he proposed.

But if this is the extent of the overhead reforms he proposes, no wonder he is facing a tradeoff between forces and technology if budgets go down by $500 billion. These reforms barely scratch the surface of the Pentagon's "back office." The secretary threw up his hands on doing a lot more: "Unlike the private sector ... the department simply does not have the option of quickly shutting down excess facilities, eliminating entire organizations and operations, or shedding massive numbers of employees."

Or maybe DOD lacks the political will. If not now, when? What are we to do with a contractor force in the Pentagon that is almost as large as the civil service? Where once we had twice as many active-duty combat forces as civil servants, we now have more civil servants and "ghost" civil servants than we have soldiers, sailors, and pilots. What do we make of the duplicative offices, bureaus, and agencies among the services; when are finances, health, personnel functions consolidated?

After World War II, in four years, the United States cut the Pentagon civil service 50 percent; after Korea, 24 percent; after Vietnam, 28 percent; after the Cold War, 37 percent. These were "moral, responsible and legal" reductions. When do we start this time? The secretary did not address this option in any detail; he did not propose to start now. Nor did the secretary address in any detail the question of how much technology costs and how much could be saved by more senior-level attention to the projected costs for programs like the F-35 or the long-range strike aircraft.

The budgetary reality is that the resources are going away. And they are disappearing at a pace that is faster than the secretary would like. But bargaining gives the illusion of delaying those reductions and the impacts -- and it is an illusion, not the reality for which the Pentagon needs to be planning. With planning, the secretary could, over time, buy the space to alleviate his draconian choice between technology and forces by stepping up firmly on the issue of the back office.

Unless the secretary, and the service chiefs, step up to this back office issue, the secretary's draconian choice risks becoming a self-fulfilling prophecy. He rightly pointed to the huge obstacle of getting savings through the military personnel accounts -- most of the reforms he proposed for personnel and retiree policy are either small or politically impossible. He didn't talk to the big ones: overhaul of the retirement system, consolidation of the services' duplicative health care infrastructure, an end to "across the board" pay raises -- they all fall in the "too hard" basket.

If the back office doesn't shrink, and the budgets continue to come down, there are bigger issues, strategic ones, the department should address, but there's no sign in the SCMR it will do so: Waging offensive cyberwar is getting expensive; maybe there is a role for deterrence and "cyberarms control" that is a cheaper option. Should Special Operations Forces be in 75 countries, making U.S. commitments that risk drawing in larger U.S. forces downstream? Do we actually need to modernize every leg of our strategic nuclear forces, or, in a world where we vastly exceed the nuclear capabilities of anyone but Russia, and where our nuclear forces are unlikely to be used in combat, can we "deter" with a monad of stealthy submarines? Why is going to a 380,000 person Army and parking the capability for recall in the reserves not a good answer to a world of asymmetrical war?

Secretary Hagel has a huge burden, but also a huge strategic opportunity -- to slenderize DOD, focus on the core missions, and reshape America's strategic choices. The Strategic Choices and Management Review does not appear to have set the table for such a dramatic change; it sounds more like a classic budget drill.

Sequestration, and the deep cuts that seem likely even without sequestration, may force such a reconsideration on more difficult terms, the longer we wait. Bargaining is not enough; acceptance is the stage the department needs to reach.

Flickr/Office of the Secretary of Defense

National Security

Have You Heard the One About the Pentagon's Budget?

They're all fat jokes. And that needs to change.

There's a joke about lawyers (one of many) that goes, "What do you call 10,000 lawyers chained together at the bottom of the sea?" The answer, for those who think we have too many lawyers (well over 1.2 million, according to the American Bar Association), is "a good start." Well, what do you call a 20 percent cut in the staffs of the Office of the Secretary of Defense and the Joint Chiefs of Staff (closer to 9,000 people in a DOD military and civil service workforce of 2.2 million)? A symbolic start, at best.

The headquarters staff cuts, announced by Secretary Hagel last week are, of course, welcome, even though they will apparently take place over a five-year period, much of it after Secretary Hagel is gone. But they do not begin to address the problem of the Pentagon's "back office," the most serious managerial challenge the secretary faces.

And it is a big back office, indeed, ranging from 1.1 to 2 million people, depending on who you count. If you count the 800,000 civil servants working for DOD and add the 340,000 active-duty uniformed personnel who are performing civilian or commercial functions (according to the Defense Business Board) you get to the lowest estimate. If you add those 800,000 civil servants to the separately-counted 560,000 active-duty military personnel the DBB says "never deploy," you get 1.36 million. And if you add to either total the 700,000 "ghost" civil servants -- contractor personnel who work side-by-side with the civil servants doing government jobs (as estimated by Pentagon Comptroller Robert Hale) -- you get to at least 1.8 million, and maybe 2.2 million who are contractors, civil servants, or uniformed military who are not at the point of the spear.

That's one heck of a back office. The DBB estimates, without contradiction, that 42 percent of the defense budget is spent on overhead. Some overhead is clearly needed for every enterprise, including the military. But 42 percent? No private sector business, non-profit, or public charity would survive for long with an overhead rate even 20 percentage points lower than that.

It seems to be the problem nobody wants to tackle. In the average defense drawdown (and that is where we are heading), we cut dollars invested for hardware purchases and we cut forces more deeply than we cut the budgets that support the back office. Take a look at this graphic measuring what we did in the drawdown of the 1990s, for an illustration; the pattern is the same for post-Korea and post-Vietnam.

The back office is Hagel's biggest and most difficult challenge. Getting $100 billion in "efficiencies" was the toughest challenge Bob Gates faced as secretary (and it is not clear he got that much -- there are no reports telling us he did). But if Hagel cannot develop a detailed, long-range plan for cutting the back office, here's what could happen, even without a sequester: Investment dollars shrink even further while the costs of the hardware continue to grow, pay and benefits continue to rise because cutting even the rate of growth is political suicide, and the size of the force, according to the Center for Strategic and International Studies could shrink as much as 455,000 troops from where it is today.

So it is time to get beyond symbolism. And, with the possibility of sequestration looming again next year, it is time for the secretary to plan for the long, Battan-like death march it will take, struggling through service and congressional resistance, to shrink the back office. It will not be easy.

One could describe DOD as a "Department of Government" (as a friend at the State Department once did to me) -- reproducing virtually every function the government does in large and small ways: personnel management, financial systems, health care insurance and delivery, education systems, counseling, recreation facilities. Over the past decade or so, the costs of providing these services has basically doubled per active-duty troop.

And while the civil service has grown more than the active-duty military over the past decade, the core problem is not in the headquarters staff -- it is in the 70 percent of DOD overhead that is in the military services, according to the DBB.

Too many defense spokespersons want to avoid this problem. The secretary told Senators Carl Levin and James Inhofe on July 11 that sequester-level cuts to Operations and Management (O&M) next year (even with flexibility to move the cuts around) would cripple readiness. And, indeed, the Pentagon response to the sequester cuts this year, which largely hit O&M, was to make visible, dramatic, but, in the end, hardly crippling cuts to training, flying, sailing, and equipment maintenance. (Congress approved a reprogramming that already reversed these cuts for the Air Force.)

The politics of readiness are a form of resistance. There is no doubt that the O&M budget funds training, flying, sailing, and equipment maintenance. But, as the Congressional Budget Office (CBO) has said for 20 years, using virtually the same language every time, DOD cannot tell you what the link is between O&M spending and any specific measure of the readiness of military units. The CBO thinks that more than half of O&M spending is going for things other than readiness, like recruiting, administration, base operations, financial and personnel management, virtually all of the salaries paid to the civil servants, and the contracts for all those "ghost workers" from the private sector.

If the secretary and the services want to protect the point of the spear (combat forces) and make sure it is nice and sharp (investment), they are going to have to tackle overhead, for real. And the back office scrub needs to be something a lot more serious than the usual budget drill. You know, tell the services they will have however-many billions of dollars less for the back office; now, go find the savings. That's a recipe for "hollowness," as the services use funding reductions to justify getting the money back. And it means more than an "efficiencies" drill, driven by a savings target, especially when you don't ever measure whether the "savings" were really obtained.

It means doing better than just "guessing" how many contractors are sitting at Pentagon desks and really counting them. And then deciding whether they are needed and those jobs really need to be done.

It means going with a scrub brush through all those civilian and commercial functions active-duty forces are performing, and making the same kind of decision about whether the military should be doing it, whether a civilian could do it more cheaply, and whether it needs to be done at all.

And it means doing the same with the civil service. The secretary would like to avoid furloughs next year, as he said to Levin and Inhofe. Then he warned that would mean the dreaded Reductions in Force (RIFs). This was meant as a political warning, but, in fact, reductions in the civil service would be part of a sensible approach to personnel management in a drawdown.

After all, the civil service at DOD shrank 50 percent after the Second World War, 24 percent after the Korean War, 28 percent after the Vietnam War, and 37 percent after the end of the Cold War. A low-end reduction of 25 percent would shrink the Pentagon's civil service to 600,000, only 50,000 smaller than what it fell to in the 1990s.

It means the secretary needs to steel himself against the "readiness = Operations and Maintenance budgets" mentality. The process he uses needs to sort out these two things and hold the services' feet to the fire on what funding actually contributes to measurable "readiness."

And it means the scrub has to include not only the people in back office functions, but the back offices themselves. Which command flags can go, which offices are performing duplicative functions, which ones no longer have a mission?

These inventories and the evaluation process need to be done from the secretary's office, with the participation of a dedicated team of experienced military, civilian, and private sector personnel who know and understand the DOD and its business. Reform and consolidation will not happen if the services are asked to do it to themselves.

The process should start now, for three reasons:

First, sequestration is likely to hit defense again in five months and a plan would put the secretary ahead of the curve. He could argue the cuts make sense and get away from the blackmail of readiness impacts.

Second, even without the sequester, he will need a plan to be sure he and his successors have the right resources for the point of the spear.

And, third, the politics of the back office are as difficult as the politics of pay and benefits, base closings, and hardware "kills." The secretary is going to have to start to build a track record with the services (which like the back office to grow) and Congress (which likes the back office when it is near home). He will need to overcome political resistance by convincing them that if they are serious about maintaining a reliable, agile, trained, and ready point of the spear, only serious savings in the back office will make that possible.

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