Budget Blunders and Funding Follies

The secretary of defense is resigning midstream. It was not expected, but perhaps it is not surprising. While the bulk of the press coverage of his departure focuses on disagreements between the White House and the Pentagon on foreign-policy issues, notably options for dealing with the Islamic State (IS), there may be much more to the story than that. The Pentagon is at a critical turning point with respect to its budget and its internal management. Secretary of Defense Chuck Hagel had not succeeded in dealing with either challenge, which may have contributed to his premature departure.

It has become clear over the past four years that the permanent leadership of the department — the military services — has been chafing under constrained resources and has become increasingly resistant to disciplined leadership from the office of the secretary. The consequence has been growing pressure from the services to raise the defense budget, pressure that the secretary has not resisted.

The military services have been pushing hard since the Budget Control Act (BCA) was passed in 2011 for the secretary to fight, and fight hard, to eliminate the BCA caps and raise the budget. Under pressure, the FY 2015 to 2019 defense budget plan ignored the caps and asked for $115 billion more over five years. They didn’t get it from Congress this year, but the services have already started to clamor for even more.   

Chairman of the Joint Chiefs Gen. Martin Dempsey and Army Chief of Staff Gen. Ray Odierno have been leading the charge. The world has changed since the president’s last defense budget was submitted, they say. Russia has become aggressive, IS has taken vast parts of Iraq and Syria, and troops had to go to Africa to fight Ebola.

It matters not to the chiefs that the U.S. military’s response to Putin is minimal ($1 billion for a slightly more visible U.S. military presence in Europe), the air operation against IS forces is being funded out of the ubiquitous funds in the Overseas Contingency Operations (OCO) account and not the base defense budget, or that the Ebola mission costs little and is also to be funded through OCO. What the virtually unprecedented, and unrestrained campaign suggests is a full collapse of budgetary discipline at DoD, with a defense budget request next February so high — maybe as much as $50 billion above the BCA caps — that even a Republican Congress cannot swallow it.

Budgets are not the only area where Hagel’s leadership faltered. Management inside the Pentagon is another. There have certainly been management efforts underway — Deputy Secretary Bob Work is trying to reform the Pentagon’s planning system (a good thing) and Undersecretary Frank Kendall is undertaking the Sisyphean task of reforming the acquisition system. But these are both works in progress, with Hagel who initiated them leaving, and savings, if any, only appearing in the long term. If savings through management reform are to become real, however, they will come from a source that neither Secretary Leon Panetta nor Hagel dealt with: the Pentagon’s back office.

Resources for the back office — the infrastructure for training, education, contracting, managing programs, accounting and finance, maintaining and reworking equipment — are huge. Roughly 1.8 million people are in that back office, something like 340,000 of them in uniform but doing civilian or commercial tasks (the rest are the 800,000 civil servants and an estimated 700,000 contractor service personnel). Hagel never took a bite out of this back office. Instead, like his predecessors, he went after pay and benefit reform and base closures to find savings. However worthy those two reforms, they are the least likely to survive a Congress determined to support the troops and protect U.S. military bases.

Both of these challenges — money and the back office — require a secretary of defense who can deal from a strong position with the senior military leadership of the building. He or she needs to be prepared to send the service chiefs and the joint staff a very clear message: I will work with you, but, when push comes to shove, I am responsible for the decisions. Work with me, in a disciplined way, and we will get along fine. Do not work with me, and we will have trouble.

Hagel has not disciplined the budget process (or the chiefs) and has not focused in on management savings where the savings are to be had. The big challenge for the next secretary will be to step up to both challenges, focus the chiefs on realistic plans within the framework of the BCA caps, and dig deep for management savings.