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

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.