For Gates’ successor, Obama needs a budget expert

When Robert Gates was chosen to be defense secretary, his primary mission was clear: fix the wars in Iraq and Afghanistan. Now, after President Barack Obama’s Wednesday speech declaring he would cut $400 billion from "security" spending over 12 years, the primary credential for Gates’ successor is that he be an expert on budgets… and how to cut them.

The White House made the decision to call for $400 billion in cuts to security spending hastily; in fact, it didn’t even tell the Pentagon until the day before the speech was delivered. They knew that Gates, who has been simultaneously scrubbing the defense budget while warning against future cuts, won’t be the one to implement the new proposal. Gates is expected to leave his post this summer and will pass on to his replacement the unenviable task of finding new cuts in the defense budget and then selling them to Congress.

The successful candidate to replace Gates must therefore have three qualities in spades: deep experience and knowledge about national security budgeting, influence on Capitol Hill, and full agreement with the Obama decision to make the cuts in the first place.

"They’re not going to hire somebody who disagrees with the cuts. It would have to be somebody who will unequivocally go along with what they’ve proposed," says Dov Zakheim, the Pentagon’s chief financial officer during the George W. Bush administration.

Which of the rumored candidates to replace Gates saw their chances bolstered when Obama set forth his new budget cutting plan? Several experts told The Cable that CIA Director Leon Panetta and CSIS President John Hamre are the candidates best suited to be Obama’s budget hawks atop the Pentagon.

Panetta, in addition to being a sitting administration official with the close trust of the White House, was a Democratic congressman for years and has strong relationships among both parties on Capitol Hill. In fact, Panetta was House Budget Committee chairman under President Bill Clinton during the last period of a balanced budget, so his fiscal bona fides are strong. He was also White House chief of staff, which means he has a top-level understanding of how the interagency process works.

Hamre was the Pentagon’s chief financial officer and then deputy secretary of defense under Clinton. With eight years as a senior defense official, he knows the Pentagon inside and out, has dealt with the smallest details as well as the top level issues regarding the defense budget, and has extensive ties with the defense industry. Hamre is also well respected on the Hill and is considered a moderate who deals well with both Democrats and Republicans. That could come in handy when it comes time to convince skeptical lawmakers in both parties to go along with the administration’s future defense cuts.

Undersecretary of Defense for Policy Michelle Flournoy could also now emerge as a more attractive candidate to succeed Gates. She is well positioned to lead the Pentagon’s portion of the "fundamental review of America’s missions, capabilities, and our role in a changing world," that Obama announced in his speech. Flournoy led the Pentagon’s Quadrennial Defense Review (QDR); the new review will be similar to the QDR except that it is meant to specifically identify budget items that can be cut and spell out their consequences. But Flournoy could theoretically lead that review without actually being named defense secretary. Also, her congressional ties and political experience aren’t as extensive compared with Panetta and Hamre.

The details of where exactly the $400 billion in cuts will come from — and the details of how the review will be conducted — haven’t been worked out yet. Obama said he would work with Gates on the review, but the White House hasn’t told any of the agencies what their role will be or if they will have to do separate reviews of their own.

The White House isn’t exactly proposing cutting $400 billion over 12 years from the Defense Department alone. Obama intentionally, according to officials, used the phrase "security spending," not "defense spending." For the administration, security spending includes the Pentagon, the State Department, USAID, foreign assistance, Homeland Security, Veterans Affairs, the National Nuclear Security Administration, and the intelligence community, according to Office of Management and Budget (OMB) senior advisor Kenneth Baer.

Pentagon spokesman Geoff Morrell told The Cable that the Pentagon’s portion of the review will be initiated by Gates — but will not be completed soon and will not alter Gates’ departure timeline. Morrell suggested that the review won’t be ready for the debate over next year’s budget, which will begin in Congress in June.

"We have not yet determined how this is going to be conducted but we do know it will be a serious, comprehensive and consequential review. That means it can’t be done in a matter of weeks so as to impact the fiscal 2012 budget, but will likely take months, meaning the effects won’t likely be felt until fiscal 2013," Morrel said. "We still have not determined the who, what, where, when, and how."

Although the Obama administration has amortized the $400 billion reduction across a number of department, the Pentagon is likely to suffer the brunt of the cuts as its budget dwarfs the budgets of other "security" agencies. But by having each agency do its own review, the administration may be missing an opportunity to genuinely reform the national security bureaucracy through a process that makes trade-offs and finds efficiencies across agencies.

"American foreign-policy institutions and personnel, moreover, are fractured and compartmentalized, and there is not an adequate interagency process for developing and funding a smart-power strategy," wrote Joseph Nye in an article for Foreign Policy. "Many official instruments of soft or attractive power — public diplomacy, broadcasting, exchange programs, development assistance, disaster relief, military-to-military contacts — are scattered around the government, and there is no overarching strategy or budget that even tries to integrate them."

Gordon Adams, former national security spending chief at OMB, now a professor at American University, has calculated that the administration can get the entire $400 million of savings solely from the Pentagon budget. If that budget (which will be $529 billion in fiscal 2011 — not counting the additional emergency spending on Iraq and Afghanistan), was increased only at the rate of inflation, it would save $428 billion over 12 years compared to the administration’s current defense budget plan.

"Even if you only targeted defense, the actual numbers show that defense budgets would continue to grow over the next 12 years, marginally above inflation," he said. "This is a challenge for the next defense secretary but it’s not the end of the world as we know it."

Gates was adept at handling budget politics but was sometimes accused of passing off budget gimmicks as real cuts, such as adjusting the expected inflation rate to change his analysis of how much things would cost in the future. Gates’ replacement won’t be able use such gimmicks, Adams said.

"It’s going to take somebody who knows how to manage and is going to make the tough decisions. That becomes the number one attribute for the candidate for the next secretary of defense."