Defense budget crisis threatens new tech innovation

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The great devolution in military affairs may be upon the Defense Department and the thousands of private contractors that support the Pentagon’s modernization efforts.

That is the takeaway from a new analysis of the fiscal realities facing DOD by the Center for Strategic and Budgetary Assessments. According to a new assessment of the fiscal 2014 defense budget by the Washington, D.C.-based think tank, the Pentagon faces a “zero sum” accounting battle in which current operations, training and readiness are being funded by cuts to procurement and modernization accounts.

“Circumstantial evidence suggests that peacetime training activities are being funded through war funding because those contingency funds don’t count toward the sequestration spending cap,” said Todd Harrisona senior fellow for Defense Budget Studies at the Center for Strategic and Budgetary Assessments. “It’s a zero-sum game. That money has to come from somewhere else. And it will likely come from procurement and [research, development, testing and evaluation].”

The Obama administration requested $526.6 billion in discretionary funding and $6.5 billion in mandatory funding in the base DOD budget for FY 2014. In May, DOD released its FY 2014 Overseas Contingency Operations (war) budget request, which totaled $79.4 billion, bringing the total DOD budget to $612.5 billion.

But the Budget Control Act of 2011 has forced governmentwide spending cuts — known as sequestration. And DOD has not been spared. Since FY 2011 through FY 2013, Congress has slashed $80 billion from the amount of defense spending requested by the Obama administration. If the looming Jan. 15 deadline for additional sequestration cuts is allowed to go into effect, it would put the Pentagon budget at about $475 billion — a cut of approximately $50 billion from DOD’s baseline discretionary spending request.

Harrison’s analysis of how DOD has reacted to downturns in funding during past years, however, offers what he characterized as “a good indicator” of what senior DOD leaders are likely to do this time around.

For example, DOD currently has some flexibility to use prior year unobligated funds — money that hasn’t yet been put on a contract. But when it acted on this flexibility in FY 13, the result was a net increase in operations and maintenance accounts and a net decrease to procurement and RDT&E.

“Those are your modernization accounts that pay for new technology and weapons systems for the troops,” Harrison said. “They instead shifted that money into operations and maintenance accounts to fund near-term operational needs, things like readiness, training and maintenance.”

For more than 60 years, the ratio of procurement to RDT&E funding has averaged 2.1, meaning DOD has spent more than twice as much on procurement as on RDT&E, according to Harrison’s analysis. In prior downturns in defense spending, the ratio fell as the overall defense budget declined, meaning procurement funding was cut proportionally more than RDT&E funding.

“If this trend were to occur again in the current downturn, the ratio could fall below 1.0, meaning that for the first time in modern history, DOD would be spending more on developing new technologies and systems than procuring equipment,” according to Harrison’s report, “Chaos and Uncertainty: The FY 2014 Defense Budget and Beyond.”

“Since the current downturn began in FY 2010, however, the ratio of procurement to RDT&E funding has steadily increased, meaning RDT&E funding has been cut proportionately more than procurement,” the report continued.

Those proportionately larger cuts to RDT&E accounts may also force the Pentagon to get creative with its budget and how it defines certain modernization programs, said Harrison. And there is evidence that this has happened in the recent past as well, he said, pointing to the Army’s fielding of the WIN-T Increment 1 upgrade.

It was a preplanned upgrade and “all of a sudden they switched to funding it through war-related funding,” Harrison said. “It begged the question, ‘how is this war related when you were going to do it anyway?’”

Army Deputy Chief of Staff Lt. Gen. James Barclay, speaking at the annual Association of the United States Army conference last week, offered a hint at why the military has resorted to such extreme budget deceptions.

“Everyone goes after your S&T first,” he said. “It doesn’t matter whether you’re a [military] service or an industry. It’s very hard to protect those S&T dollars. Those are dollars that are easy because you haven’t gotten anything from them yet.”

And there’s plenty of evidence the Pentagon has spent a lot of taxpayer dollars on modernization and acquisition programs that produced absolutely nothing, Harrison said. Of all the new acquisition programs initiated since the Bush administration, about a dozen have failed without producing a single item of new equipment, to the tune of about $50 billion, Harrison said.

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Acquisition, Defense Budget, Department of Defense (DOD), Departments, Modernization, Pentagon, Sequestration
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