A “New Deal” for Military Contractors?
Jan 10, 2012
by Ruth Flower, Legislative Director
Last August, Congress concluded a cliff-hanger episode on the mounting federal debt by agreeing to the Budget Control Act (BCA). The agreement promised to lock in limits on all kinds of federal spending if Congress wasn't able to figure out a better plan through a "super committee." By the end of November, the super committee failed to settle on a new plan, so the spending limits took effect. Six weeks later, some members of Congress want to back out of the agreement.
The mandated spending cuts will fall more heavily on domestic spending than on military spending, but it is military contractors and their allies in Congress who are most vocal about wanting a new deal. Though no legislation has appeared yet, Congressional leaders in both the House and the Senate are calling for some kind of legislative waiver, and the White House appears to be offering a compromise plan that would barely knick Pentagon spending over the next five years.
To recap, the BCA sets two ceilings on discretionary spending (the spending that Congress appropriates every year). One ceiling is for military accounts, one is for domestic accounts. In the first two years of the BCA (FY 2012 and 2013), the military accounts are lumped together with other "security" accounts under one ceiling, and all other programs are funded under a different ceiling. )The other security accounts are Homeland Security, nuclear weapons, a small intelligence community management account, and the entire international affairs budget.)
FY2012 appropriations (adopted as a "megabus" consolidated bill in late December) were adjusted to fit under those limits, which allowed a $5 billion increase in the base Pentagon budget, and an overall 6% decrease in military spending, with most of the decrease coming from winding down the war in Iraq.
FY2013 appropriations will also have to fit under the ceilings set out in the BCA. If Congress does not act to make the necessary spending reductions in both the "security" accounts or the "non-security" accounts , the Office of Management and Budget is required to announce across-the-board cuts starting next January.
What's Happening Now
Defense contractors are very upset at this turnaround.
The huge increases in Pentagon spending in the last ten years (in addition to war spending) were in "procurement" - purchase of weapons, vehicles, ships, and planes. Military contractors enjoyed having a client with a virtually limitless budget, who offered "cost-plus" accounting (if the cost goes up beyond your bid, don't worry, we'll cover it), and who always seemed to be willing to stretch out production deadlines. The Pentagon itself lost track of how many contractors it had, especially for service contracts, and has never been able to complete an audit. The golden age for military contractors could end under the limits imposed by the Budget Control Act.
So the media and lobbying campaigns have begun.
Dire predictions of a "hollow force" and the U.S. as a "minor regional power" culminated in a new defense strategy revealed by Defense Secretary Leon Panetta on December 5. In this new strategy, Secretary Panetta winds back the expectation that the U.S. should be prepared to engage in 2 ½ wars at any time. Instead, Secretary Panetta predicted a capacity for one sustained ground war at a time, plus the ability to "spoil" another adversaries ambitions, and to engage in several smaller operations simultaneously around the globe. Over the next five years, Secretary Panetta said, the Pentagon is prepared to cut $260 billion out of its budget , about half of the $450- billion-over- ten- years cut that the President and the Pentagon agreed to early last year. After factoring in inflation, this cut amounts to about a 4% reduction from this year's spending level. That's barely a knick.
What is needed to meet the requirements of the Budget Control Act is about a 15 to 17% cut over the next ten years, which amounts to about $1 trillion. This reduction would bring the Pentagon budget in line with spending in 2007, which is near a peak in recent spending. Gordon Adams , who oversaw military budgets in the Clinton administration, has commented that the trillion dollar cut is a "shallower build-down than any of the last three we've done [after previous wars]." The U.S. would "still be the world's most dominant military. We would be in an arms race with ourselves."
Congress and the Pentagon can manage this spending reduction by making the kinds of choices that every other agency has had to make, to set priorities, eliminate redundancies, and demand efficiencies within the department and with contractors. Congress should also reassess missions - those left over from World War II (bases in Europe), those that rightly belong with the State Department (diplomatic missions and international assistance, and the "mission creep" that is enticing the Pentagon into interventions in Africa, South America and other parts of the globe.
It's do-able. It takes clear thinking and a commitment to bringing federal spending in line with the nation's actual needs.
