Pentagon budget relies heavily on anticipated savings

When Robert Hale was a defense budget analyst at a think tank in 2002, he urged the Defense Department not to count on savings from efficiency efforts to pay for new weapons. Too often, he warned, the savings never materialized.

But Hale seems to have abandoned that counsel. Now the chief budget officer at the Pentagon facing grim fiscal circumstances, he's a key architect of the department's 2012 budget, which projects $154 billion in savings from efficiency efforts and banks on using $90 billion of that money to buy and upgrade weapons.

Former colleagues at the Center for Strategic and Budgetary Assessments reminded him Feb. 10 of his earlier advice. "Investments in new weapons can be risky when funded by projected savings, since history has shown that these projected savings often do not materialize as expected," Todd Harrison wrote in an early analysis of the budget Hale and his boss, Defense Secretary Robert Gates, are scheduled to release Feb. 14.

Gates revealed some of the budget details in January, including plans to use money wrung from other programs through efficiency measures to buy scores of new weapons, including 41 F/A-18 Super Hornet fighters, at least five more Navy ships and more Reaper drones, as well as modernize tanks, fighting vehicles and amphibious assault vehicles.

Savings are also expected to accelerate development of new weapons such as a long-range bomber for the Air Force, carrier-based unmanned strike and surveillance planes for the Navy and a next-generation electronic warfare jammer for the Navy. All three are designed to overcome anti-access, area denial threats that appear to be rising in China and Iran.

Harrison quoted Hale as saying in 2002 that "DoD should avoid using efficiency savings to fill budget shortfalls until the savings are actually realized."

Harrison said, "There are fundamental barriers within DoD that make it difficult to achieve planned efficiencies," and noted that Hale, too, had said as much.

Pressure to spend all the money allocated in a given year to avoid receiving less the following year, coupled with little incentive for field-level managers to hold down costs and "perennial interference of Congress" all thwart efforts to cut costs, Harrison said.

Gates said last month that he will propose a $553 billion base defense budget for 2012 -- $4 billion more than the $549 billion base budget he requested for 2011. In addition, he expects to ask Congress for about $120 billion to fight the wars in Afghanistan and Iraq, about $40 billion less than the department requested for 2011.

Congress has yet to pass the 2011 budget, so the Pentagon is operating on a base budget stuck at 2010 levels -- $531 billion.

Gates said the $553 billion he wants for 2012 is $13 billion less than he had planned to ask for earlier.

Harrison dubbed the 2012 budget the beginning of a new "age of austerity" for the Pentagon.

Gates set that tone when he announced Jan. 6 that he is planning to cancel the Marine Corps Expeditionary Fighting Vehicle and the Army's surface-launched advanced medium range air-to-air missile, and put the troubled Marine version of the Joint Strike Fighter on probation.

Other weapons also could be canceled when the full budget is unveiled.

But cutting weapons won't be enough. People are the Pentagon's biggest single expense, Harrison said. This year they will cost $247 billion -- 45 percent of the base budget total.

Providing health care for military personnel, their families and retirees alone consumes 9 percent of the defense budget, he said.

Gates has proposed raising fees for TRICARE, the military's medical insurance plan, which have remained at $450 a year for a basic family plan since 1995. Comparable insurance in the private sector costs about $5,000 a year, according to the Pentagon.

But Harrison said broader reforms "in the total compensation package should be evaluated." Rather than providing basic pay plus separate allowances for housing and subsistence, for example, it would be simpler -- and possibly less expensive -- if troops received a single paycheck, he said.

Salaries for all government civilian employees already have been frozen for two years, and Gates plans to cut the number of defense contract workers by 30 percent during the next three years.

But in the long run, rising personnel costs probably will require personnel cuts. Gates proposes to begin trimming in 2015 -- the Army by 27,000 and the Marine Corps by up to 20,000.

Meanwhile, Congress approved a 1.4 percent pay raise for military personnel beginning Jan. 1. If the 2011 appropriations bill doesn't pass soon, the Defense Department will have to begin shifting money from other programs to pay for the raise, Harrison said.