WASHINGTON — As it puts the finishing touches on its fiscal 2017 budget plan, the Pentagon is preparing to slow down programs in production and limiting R&D funds in order to protect end strength and readiness levels.

Over the past week, two top Pentagon officials, Comptroller Mike McCord and Frank Kendall, undersecretary for acquisition, technology and logistics, made it clear that to make up an expected $15 billion delta between what the congressional budget deal gave the department and what the Pentagon planned on having will require targeting the equipment, and not personnel, side of the budget.

On Nov. 30, McCord said, "There will probably be some slowdowns in modernization programs," in the Pentagon's budget request, noting that he does not see "any major changes to the size of the force" being included.

Then on Dec. 2, Kendall warned that "the disproportionate hits on '17 are going to be on modernization. I think that will probably be more on production than R&D."

The focus on cutting modernization shows that end-strength reductions have hit their limits, said Mark Gunzinger of the Center for Strategic and Budgetary Assessments,

In recent years the Pentagon "prioritized modernization over maintaining a larger force in the near term," Gunzinger said. "So, it reduced its end strength, attempted to retire some legacy capabilities such as the A-10, and proposed initiatives to cut its overhead, including a new round of base closures and modest compensation reform."

But many of those proposals were killed in Congress, and the services have expressed concern that further end-strength cuts would create too much risk, leaving the Pentagon no alternative but to "begin modest reductions in some modernization programs," Gunzinger added.

Mackenzie Eaglen of the American Enterprise Institute said believes that the reductions may indeed be modest. saying "Many programs may take a hit, but it will be like in 2013 — there can still be winners that lose relatively less or only a few production units," rather than whole programs being gutted, she said.

And, she noted, the Pentagon is hoping to save some money through creative accounting, including fuel pricing and optimistic economic assumptions, perhaps getting the total delta down to about $10 billion, with anything cut potentially finding its way back to funding via the overseas contingency operations (OCO) fund once Congress gets involved.

Asked after his speech if production of the F-35 joint strike fighter could be slowed down, Kendall indicated it was likely.

"The F-35 is not — it is impossible in this budget to entirely protect it, just put it that way," Kendall responded. "Dollar for dollar, it probably gives us more combat capability than any other investment we're making, but we have a lot of other things that we have to do as well. So it's not entirely fenced. I can't say it's entirely fenced [off from cuts]."

However, he did say programs that make up the nuclear triad — the Ohio-class submarine, Long Range Strike-Bomber and new ICBM designs — would be a "priority" in the budget.

At the same time, McCord said to expect some savings from the bomber program compared with the Future Years Defense Program, FYDP, the result of the contract award sliding to the right. Simply put, because the contract was delayed, less money is needed in FY17 and it can be pushed to the next year.

What else could be cut? Eaglen highlighted Army helicopter procurement as one area that could be slowed. The CH-47F and UH-60M helicopters are currently operating under a multiyear procurement and so are unlikely to see big production dips. The AH-64E and UH-72 Lakotas are not under multiyear and so may be more attractive targets for the Pentagon, although the Lakota is seen as a priority for training and the AH-64E is expected to enter a multiyear in 2017.

Another target area could potentially come from procurement of Naval aviation assets, such as the V-22 or F/A-18, although the latter has proved intensely popular in Congress. And the Air Force, in the midst of a series of large modernization programs, could once again kick funding for the T-X trainer replacement and the Joint Surveillance Target Attack Radar System (JSTARs) aircraft down the road.

Speaking Dec. 1 at an event hosted by the Atlantic Council, Gen. Mark Welsh, Air force chief of staff, said he would continue to "push hard" to fund the JSTARS recapitalization program in the fiscal 2017 budget, but noted that nothing is certain — particularly given discussions inside the Pentagon about whether the current JSTARS plan is the right way forward or not.

R&D Concerns

Those looking for good news can turn to McCord, who said that the Pentagon's OCO request will include a "pretty significant increase" for the European Reassurance Initiative, the umbrella term for spending to support exercises, training and equipment in Europe in the wake of Russia's invasion of Ukraine.

That increase will be focused on a "more robust" version of what the US has done so far, in part by "continuing a higher level of presence and exercising, especially with our Eastern European partners," McCord said.

The biggest difference from the current funding, he said, will come from "some more permanent investment, whether it be prepositioning or basing for some additional presence and additional posture capability in Europe that would be a little more long term in nature."

Despite the hit going most to production taking the biggest hit, Kendall said he was "most concerned about R&D" funding in the FY17 budget.

"If you don't do the R&D you won't have a product at all," Kendall said. "It's a fixed cost. Once you take the R&D out you are denying yourself future products, in any quantity, period."

His comments were notable, given the focus from Defense Secretary Ash Carter and Deputy Defense Secretary Bob Work on the "Third Offset" strategy to develop new technologies that will maintain the US military advantage.

"Given the pressure on our budget and given the things we talked about earlier, the best we're going to be able to do is to start the earlier phases of [the technology programs that make up the Third Offset]," Kendall said. "We don't have the money to make the major investments."

"We're trying to fit as much of that [R&D funding] in the budget as we can, at least to move the technology forward to position ourselves for starting EMD in a few years from now," he later added.

Both Gunzinger and Eaglen agreed that does not mean the Pentagon is walking away from the Third Offset strategy, but instead shows the disconnect between what the Pentagon wants to do and is able to do under the current budget environment.

At the same time, any limit on R&D funding hurts the Pentagon's ability to develop the new game-changing technology it needs to fulfill the goal of the Third Offset, Eaglen said.

And while noting the Pentagon is "dead serious" about getting technology up and moving, Gunzinger warned that any delay may "extend the window of opportunity for our adversaries to implement their own offset strategies."

Jen Judson and Lara Seligman in Washington contributed to this report

Email: amehta@defensenews.com

Twitter: @AaronMehta

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

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