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Pentagon Projects $35B O&M Shortfall

Mar. 5, 2013 - 03:06PM   |  
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WASHINGTON — The Pentagon is expecting a $35 billion shortfall in operations and maintenance (O&M) funding in 2013 should billions of dollars in defense spending reductions and other budget restrictions remain in place for the rest of the fiscal year.

Funding needed for the war in Afghanistan is higher than planned due to a more rapid pace of operations and the increased cost of getting equipment in and out of the landlocked nation, Pentagon Comptroller Robert Hale said Tuesday at a conference sponsored by Aviation Week.

The U.S. Defense Department is operating under a continuing resolution (CR), which has frozen funding at lower 2012 budget levels. The 2012 budget also does not take into account programs that were canceled, scaled back or increased in 2013.

“We have money in the wrong place, particularly O&M money,” Frank Kendall, the Pentagon acquisition chief, said at the same conference. “We don’t have nearly enough O&M money under the CR.”

At the same time, the Pentagon must cut $46 billion from its budget between now and the end of September, under the current law. These cuts, know as sequestration, amount to nearly 10 percent per budget account. Military personnel funding is the only part of the DoD budget not subject to the cuts.

Since war costs are subject to the cuts, the Pentagon is looking to shift money from its base budget accounts to fund operations in Afghanistan. Further complicating matters is that war costs are higher than expected, partially do to the increased price of removing equipment from Afghanistan as the operations wind down.

The 2013 budget was built nearly two years ago and many factors, such as new shipping taxes being imposed by Pakistan on trucks carrying U.S. military equipment across its territory, have raised costs.

If sequestration remains in place without modification and a yearlong CR is enacted, DoD anticipates a $35 billion shortfall in O&M funds this year, Hale said.

The Army is in the worst shape of all the services, short about 80 percent in O&M accounts.

“We have a very serious problem,” Hale said.

The Pentagon had been spending money normally throughout the majority of the past five months, thinking lawmakers would spare the military from sequestration-level cuts. However, on March 1 sequestration was triggered.

Last week, the Pentagon announced it would stop training all Army units, except those preparing to deploy to Afghanistan. The Navy is standing down four wings and the Air Force is curtailing training for non-deployed squadrons.

Last week, Deputy Defense Secretary Ashton Carter said DoD would look to reduce purchases across its 2,500 investment programs.

Senior Pentagon officials spent much of the last year lobbying against the sequestration cuts, saying DoD has already paid its share toward U.S. deficit reduction by cutting $487 billion in planned spending over the next decade. Some are still hoping lawmakers reverse sequestration and the CR.

“Our hope, and what we’re lobbying for and what we’re asking for, is that sequestration be relaxed; that the amount of money that we have to take out will be less,” Kendall said. “Nine percent [per budget account] is a lot of money to take out, particularly” halfway though the fiscal year.

Pentagon officials say they are trying to make decisions that limit damage.

“We’ll find the ways to get that money out with the least amount of damage in the near term,” Kendall said. “We’re delaying some of our decisions a little bit hoping that … we’ll get some relief.”

DoD announced a sweeping new military strategy last year that focuses heavily on the Pacific and the Middle East. If the sequestration cuts remain in place, officials say they will have to redo that strategy. It could also mean force structure reductions, Kendall said.

In the coming years, the Pentagon needs three key steps, Hale said, including “a defense strategy that maintains U.S. national security that faces very complex challenges, but that’s got to be a strategy that fits within budget limits.” He also said DoD needs to “make more disciplined use of our resources” and ultimately needs “budget stability and a more stable budget process.”

No formal work has begun on a new strategy, however the Pentagon has begun organizing for its latest Quadrennial Defense Review.

In the meantime, House Republicans unveiled a government-wide funding measure on Monday that would fund the Pentagon in 2013 at higher levels than it requested. That proposal includes about $10 billion in O&M money above the current CR level.

Hale said the House bill would help, but he would reserve full judgment until a final version was passed.

“It would help,” he said. “What the House bill does is it gets the money in the right appropriations.”

Still, Hale said there would be several remaining problems, including sequestration.

Uncertainty across the entire federal spending process has wreaked havoc on the budget planning over the past year.

The Pentagon’s 2014 budget proposal, which is expected to be sent to Congress in the coming weeks, did not factor in sequestration and was based on DoD’s 2013 spending request.

Hale said he expects the budget eventually submitted to lawmakers will factor in the sequestration-level spending cuts.

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