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Lost in the uproar about sequestration impacts on specific programs is that much of what’s wrong with the Pentagon’s finances is systemic or process related.
The US federal budget process is based on laws, regulations and policies. One key financial management principle, “purpose, time and amount,” establishes that a program budget follows a cash flow approach similar to private businesses. Funding is requested based on what’s needed (purpose), when it’s needed (time), and how much (amount).
Annual budget executions will not perfectly fall in line with projections made about 18 months earlier, so Congress provides the Pentagon authority to move money among various programs and accounts.
At a lower level, it authorizes “below threshold reprogramming.” Between $10 million and $20 million for personnel, operation and maintenance, procurement, and research and development programs may be reprogrammed between line items without congressional approval.
For additional funding above those levels, an “above threshold reprogramming” is submitted to Congress. The cumulative amount of such above threshold reprogrammings is called general transfer authority. For fiscal 2013, this authority was set at $4 billion, with another $3.5 billion in special transfer authority authorized for the $81 billion war budget.
But budgets are still estimates. So, being able to reprogram less than 1 percent for general transfer authority and 4 percent for special transfer authority may appear sensible. A particular year’s budget may be over- or underestimated, contracts may be awarded at lower or higher prices.
Programs with excess cash (assets) are tapped to pay for programs needing cash. When the assets are insufficient, additional offsets are identified. But these offsets can carry their own negative impact: Something is deferred, inventories are not filled, something that was a priority is now less of a priority.
Emergent requirements frequently pop up, with the Pentagon including these time-critical new starts in an above threshold reprogramming request to Congress. Drawing little attention as part of an “I-need-it-now,” omnibus reprogramming, more than 1,100 above-threshold reprogramming requests have occurred since 2000 averaging more than $20 billion a year.
But these transactions occur very late in the fiscal year, distorting the program’s cash flow and execution schedule. Once approved, they spend out and typically spill over well into the next fiscal year, where another pot of money is usually available. This creates a funding backlog. Businesses like backlogs. The government shouldn’t have one.
The magnitude of these reprogrammings suggests Congress has failed in its power-of-the-purse oversight responsibility. Since combinations of below- and above-threshold reprogrammings for the same program are permitted, vast amounts of money move between programs with little congressional scrutiny.
The Army once moved $1 billion between two programs without congressional approval because the notification threshold was set at the budget activity level, not at the program level.
In the 1980s, Congress required a one-page justification for why additional money was required for each recipient program, and a one-page explanation of why money could be diverted from a donating program. Today, one sentence is all that’s forwarded — a complete lack of transparency.
Without details, Congress must rely on a semiannual summary of revised program values or a Government Accountability Office report. This is not sufficient.
The current idea that the Pentagon needs more reprogramming authority via higher caps negates good governance and proper accountability. Here’s what Congress needs to do:
First, stop all reprogrammings. Make program managers live within their estimates, forcing the Pentagon to prepare and manage programs better, lessening abuse.
Second, change all appropriations from their one-, two-, three- and five-year obligational availability periods to single, indefinite appropriations — annually replenished “checkbooks” that Congress can easily track. That eliminates a lot of meaningless audits, paperwork and contentious rules about Anti-Deficiency Act violations.
Improving the DoD’s acquisition process and outcomes means improving internal business processes. Reprogrammings cloak poor management. P.T. Barnum and Congress have something in common; there’s a sucker born every minute.
John King is a retired Pentagon budget analyst who managed $60 billion for hundreds of military programs and was a volunteer on the President’s National Commission on Fiscal Responsibility and Reform defense budget review team.