On Feb. 2, the White House and Department of Defense unveiled their $585 billion fiscal 2016 defense budget, which includes $534 billion in base budget funds and $51 billion in overseas contingency operations (OCO) funding for operations in Afghanistan and Syria/Iraq. The request overshoots the 2011 Budget Control Act's $499 billion spending cap by about $34 billion, which if enacted would trigger the across-the-board sequester cuts so feared by the Pentagon and the defense industry. Pentagon Comptroller Mike McCord spoke about the issues he expects to tackle in the coming months.
Q. Why does the department need more money, and what's different about this budget?
A. This budget in a way is very consistent with the path that we've laid out, the path we told Congress and the public in our budget last year that we would be pursuing for this year. It is certainly more than we've had the last three years, and our leadership is united in saying that was not enough. We've been taking risks and underfunding modernization in a way that can't continue; so this increase — which gets us back to the level that we were at the first couple years of this administration, before we got run over by the Budget Control Act — puts us back on the track we need to get on.
Q. Lawmakers are skeptical, and much of the Republican leadership has not made defense a top priority. How are you going to be making your case to Congress to give you the additional money you say you need?
A. Our case is going to be based on what we feel the national security needs are, and the need to modernize in order to dig out of the readiness trough that we've been put in under sequester. But we understand that we're part of a larger political discussion where defense isn't necessarily segregated from non-defense in terms of what's doable and what can pass to Congress. So we know that there's going to be a difficult discussion and we're only a piece of that puzzle probably, but we're going to make our case.
Q. How do you respond to those who argue that DoD must spend more wisely before it gets any more dollars?
A. We need to do both, and we do try and spend wisely. You're never going to eliminate every bit of inefficiency out of something the size of the Defense Department. But we have done our best. We've had efficiency initiatives, as you probably recall, starting with Secretary [Robert] Gates. We've had four rounds in the last four years and we have a number of efforts under way with Deputy Secretary Bob Work right now, and we're undertaking a new one that we're going to build into the FY17 budget. This year is really about processing and following through on all the things we've already gotten under way.
Q. Tell us a little bit about Secretary Work's new initiative coming up in the FY17 budget.
A. We have an outside group called the Trans Business Board that's been looking at our operations from a big-picture point of view and a defense business perspective. As well, we have internal groups looking at each organization doing its own scrub of its own operations. Everyone is going to report to the deputy, myself included for my organization, and we're going to then look at ways we can try and reduce spending on common functions like IT.
Q. Ash Carter in his confirmation testimony said that without more money, the National Security Strategy starts to become undoable. Obviously there's an update to that National Security Strategy that National Security Adviser Susan Rice has put forward. How does that translate from budget to execution of strategy?
A. That's a tricky point, and often people sort of get trapped into arguing that at this level it's OK and that level it can't work. There's always a little nuance. You can do a strategy at any budget level. The question is, is that a strategy that really supports what the nation needs and what the nation expects? We think at the sequestered level it's not doable, but at the level we have asked for it is, and I think we've been consistent on that. In the Strategic Choices and Management Review that we did in the summer of 2013, we sketched out what supports the strategy with increasing levels of risk but doesn't break it. And the budget that we have this year puts us right back up to that level.
Q. There's a sense that you don't really have until the end of the year to get a budget deal; that lawmakers actually have a couple of weeks at most to be able to strike a deal. What sort of deal do we need?
A. I don't expect it to be in the first couple months of the year. People are going to have to work out their different positions and we'll probably see some opening negotiations, but I don't expect a conclusion. I think we would like to see the DoD [budget] certainly by the fall; by that point it gets to be pretty late if you don't have something. I think the authorization committees will have to probably get started under an assumption that they will make in concert with their own leadership in the House and Senate, whether they're going to support our request or come in with something lower that looks more like the Budget Control Act.
Q. What happens if sequestration returns? Have you built a contingency plan in this budget that says here are the things that we trade off?
A. The answer right now is no, we do not have an alternate plan. We have a budget that we think is right for the country and is right for the national security needs. We'll be prepared to talk about federal levels if we need to but we want to come out of the gate and get Dr. Carter up for his hearings in the next couple weeks to talk about what we do think is the right answer. There will be a time and a place to talk about if we have to take less and what would we do, how would it be done? Yes, the readiness and modernization is really what you would have to do if you did have to go lower.
Q. You have asked for a slight increase in readiness funding, and some senior leaders, including Deputy Work, have said that fixing the readiness problem we've created for ourselves over the last couple of years is more time issue than a money issue. Why?
A. Money is a part of it, and of course that's the part that is most of concern to me. Then you have issues like when you have squadrons stop flying, as we had with sequestration in 2013. When you've had an Army that's been focused on a certain type of operations in Afghanistan and Iraq for a decade, people don't have the experiences that they need to have to really do every kind of operation we expect; so no matter how much money you give someone, you have to give them time to train to a full-spectrum standard. If they don't have that training themselves, they can't pass it down to their units.
Q. You admitted that the OCO has become a little bit of a crutch. Is the OCO actually ever going to go away, in which case doesn't that sort of solve our budget problems?
A. It's probably too soon to predict if OCO will go away. We have an initiative underway to come up with a plan to do so, but it's solely dependent on sequestration getting fixed. We don't think it's feasible for us to bring any money back into the base budget that's in the war budget now under the caps that are already well below what we think we need for current operations. It's heavily dependent on there being a broader solution to the budget situation.
Q. A couple of weeks ago you said that if the price of fuel stays below $50 a barrel over the whole fiscal year you'll save about $2 billion, so the question is whether or not you reap or that savings is used for other priorities.
A. We have lowered the price to our customers, that is the Army, Navy, Air Force, at the beginning of February. And so some of that money is going to start flowing to reap some savings and be able to hopefully reinvest in some current readiness activities in their operating accounts this year. The balance of that, if there are still savings to be realized, will be held for the department by me through the spring, when we do our annual midyear review and look at the bills that have come along. This will be my sixth year here and we've never had a year where we didn't have bills come up.
Q. What are some things to remember when you're trying to save money in such a massive organization?
A. Personal opinion, the best way to make wide savings in the defense market is to start with requirements. What could you stop doing or do differently? What is it that you don't want us to do? When resources shrink, people aren't willing to give up a task and then you start trying to figure out how to do it with less. The other way to come at it is benchmarking it, which is kind of what the Defense Business Board is doing, benchmarking against private entities that have a different operating environment than we do.
Q. The Defense Business Board recently came up with a blueprint for $125 billion in savings where they project cutting stability in workforce, for example, outsourcing IT and payroll and a series of other initiatives. Which of the recommendations are most attractive to you?
A. Given the pace at which the IT world evolves that's something that always needs to be looked at and the deputy secretary has empowered our deputy chief management officer and our CIO to be more involved in working with the rest of us to make sure we're looking at opportunities.
Q. The military compensation and retirement modernization report made 15 recommendations that could save the DoD up to $10 billion a year. Have you seen any recommendations that look promising.
A. We have had about a week to look at it and we have only 60 days to come up with our views. We understand the recommendations but the data behind it is just coming in. For example retirement is a huge driver … retirement and healthcare are the two biggest things. And retirement, we don't have a competing department of defense proposal. ■
By Vago Muradian and Paul McLeary in Washington.
