Fiscal Realities Require Budget Restraint at Pentagon

By Shai Akabas

Thursday, November 17, 2011

Jonathan Goldstein contributed to this post.

Secretary of Defense Leon Panetta recently outlined a variety of cuts to military spending as part of an effort to save hundreds of billions of dollars over ten years. With a defense budget that has reached $700 billion due to multiple overseas engagements, Sec. Panetta, Congress, the president, and even many defense hawks have concluded that the Department will have to participate in increased fiscal discipline. As a result of the sentiment epitomized by Admiral Mike Mullen’s oft-repeated line – that the national debt is the “greatest threat to our national security” – and the widely acknowledged fact that Washington is not as prudent with U.S. defense dollars as it should be, Panetta appears willing to propose cuts that would not generally be considered under normal circumstances.

Panetta’s recommendations come in the context of discretionary spending caps established earlier this year by the Budget Control Act (BCA), which was supported by both parties in Congress. If the cuts are distributed evenly between defense and domestic spending, the law calls for over $400 billion in savings from the Department of Defense (DoD) over the next ten years. In Restoring America’s Future, the Bipartisan Policy Center’s (BPC) Debt Reduction Task Force presented a path that achieves roughly similar defense savings over the next decade through a five-year hard freeze – meaning that the annual dollar amount allotted to the DoD would remain constant over that period – followed by caps on growth thereafter.

Pegging a topline number is one thing, but from a results-driven perspective, the underlying policy decisions are even more important. Both Panetta and the Task Force report provide some details, and substantial overlap exists between the two. Panetta’s outline focuses on four key areas: pay and compensation, modernization, efficiencies and force structure.

The U.S. maintains an all-volunteer force, leading to programs designed to “take care” of military personnel during and after their service. These benefits are important in attracting a talented pool of men and women, but the DoD must adjust them to increase their cost-effectiveness. “Since 2001, costs for military compensation and health care have risen by about 80 percent, while military end strength has increased less than 5 percent,” Panetta said in October.

Two major drivers of pay and compensation costs are military healthcare (TRICARE) and the military retirement program. Commendably, Panetta has placed these programs on the table for reform. Senator Coburn (R-OK) also included them in his Back in Black report from earlier this year. Adjusting TRICARE likely will entail asking some military retirees and their families to participate in modest additional cost-sharing (e.g., premiums, co-pays), as the Task Force outlined last year. Changes that have relatively minor impacts on individuals can play a significant role in improving the solvency of the program.

On the retirement front, Panetta is capitalizing on the current fiscal situation as an opportunity to improve the system. “Are there ways, looking at the retirement piece, where those who serve 10 or 12 years might be able to take that retirement with them?” asked the Secretary. Along these lines, BPC’s Task Force report discussed a solution that would: A) remove the requirement that personnel must serve for 20 years in order to receive benefits, and B) set a certain age when retirement benefits can be vested, in place of providing them immediately upon departure from the military. This type of reform would help to prevent a buildup of personnel who serve for exactly 20 years and then leave the force to begin collecting retirement benefits. The new system would be more equitable and comprehensive, thereby improving the force structure, and serve as a truer retirement program. Retired U.S. Marine Corps Major General Arnold Punaro, a visiting scholar at BPC, will further discuss the topic of military entitlement reform over the coming weeks.

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Another priority for Panetta is modernization, with a focus on reevaluating investment in costly weapons systems. Given that the U.S. spends as much on defense as the next 20 highest nations combined, there appears to be room for some modest cutbacks in this area. Scaling back or shutting down projects, such as the F-35, is feasible without jeopardizing the overall strength of our military. The Task Force report listed a variety of additional options.

Finally, additional savings can be garnered through efficiencies within the military and by reconfiguring its force structure. The military’s “tail” has grown substantially relative to the “tooth” – in other words, its overhead accounts have expanded compared to the costs of maintaining its combat forces. The DoD could follow the initiatives set forth by former Secretary of Defense Robert Gates, and build upon them to achieve more efficiency on the management side of the military.

At the same time, the active duty forces representing the military’s “tooth” would not go untouched. The New York Times reported based on an interview with Panetta that he “held out the possibility of cutting the number of American troops based in Europe.” Going back to January, then-Secretary Gates also indicated that ground forces would begin to shift and consolidate as the wars in Iraq and Afghanistan wind down. This will allow the U.S. to reduce its overseas footprint, and trim the force accordingly. BPC’s Task Force demonstrated how these realignments and others could be done in such a way that would produce a military tailored to meet the types of priority missions that it will be asked to perform when the conflicts in Iraq and Afghanistan conclude.

As policymakers consider cuts to defense spending, they must ask themselves a pivotal question: Will these changes make our military more intelligent and effective while keeping the essential strength of the U.S. armed forces intact? The challenge of answering this question in the affirmative represents the fine line that Panetta must walk in his pursuit. The Task Force believes, however, that he and his staff have the capability to do just that. In addition to achieving budgetary objectives, the fiscal adjustments described above will allow the Pentagon to prioritize its needs for the 21st century, targeting new threats and protecting against those that persist.

In these times, economic security cannot be taken any more lightly than national security – in fact, the two are in some ways synonymous. We must ensure that our military maintains its standing as the finest in the world, but also increase the bang for the buck from our taxpayer dollars. Even a relatively small savings of $100 million from cutting back on new flight suits, for example – which Rep. Adam Kinzinger (R-IL) pushed through earlier this year – can signify an inflection point on sacrosanct military spending for many members of Congress and the defense secretary. We owe it to active military personnel, veterans, and all Americans to approach defense cuts in a smart manner that preserves our national security, but also puts the Pentagon on a path towards fiscal responsibility.

Retired U.S. Marine Corps Major General and BPC visiting scholar Arnold Punaro and Matthew Leatherman of the Stimson Center were consulted for this post.

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Secretary Panetta’s proposals echo BPC’s recommendations on pay, modernization and force structure