As Congress returns to work in September, it is faced with the task of figuring out how to keep the government open past the end of the fiscal year. But while they wrestle with the fiscal 2018 budget, the Pentagon already has its sights set on next year.
David Norquist, the department’s comptroller and chief financial officer, is the point man on making the budget gymnastics work. He sat down with Defense News on Aug. 23 to discuss how the FY19 budget is coming together and what challenges lie ahead with the department’s first-ever audit.
For more from Norquist, make sure to attend the Sept. 6 Defense News Conference, where he is scheduled to speak.
You have a series of reviews ongoing, which Secretary Mattis has said will drive the next budget. How are you planning for FY19 without those being complete?
As they are doing their reviews, we will meet with them, get regular briefings on where they are on their strategy. I frankly meet regularly with the folks working on the national defense strategy, so that when I am in a budget meeting I understand where they and the secretary are headed. I want to understand where the secretary is going, so when I look at a reprogramming, a congressional mark, a budget add, some other change, I understand ‘does this support the direction we’re going or is this a challenge to it?’ That will happen even as they are working on the full pieces; when we go through the program build, we will be informed by what they are doing, we will get briefings on the strategy, they will play a part of the process.
The other challenge is, I don’t know what my ’18 number is yet. So I’m looking at an ’18 number which could be all the way down to sequestration level, all the way up to the congressional marks; you’ve got a swing there of about $70 billion in your starting point. I also don’t know what’s going to happen with ’19, if the caps are still in place or if they are removed. So that level of uncertainty creates a real challenge as you go through this.
What’s the best way to handle this, then?
You build up, you make some reasonable estimates of where you think things are and you aim towards that direction, but you’ve got to give yourself choices along the way. So you say ‘ok if the world isn’t as we think, we may have to come back and re-look at some of these tradeoffs.’ At the end of the day we will bring those to the deputy and the secretary and say ‘ok boss, here’s where we are, and here’s the situation.’ You can get closer and easier if the bills are enacted and you don’t have the caps in the way.
Outline some pressure points you’re specifically looking at for next year.
We need to be able to address the full spectrum of threats. When you’re doing a multi-year plan for the future, you can’t presume to know the kind of conflict you’re going to have next. So you have to plan for the full range of challenges. And then in that, there is a series of emerging areas – people will talk about cyber and others where you just know that those capabilities and challenges are going to continue to grow. And they’re not the traditional lane, so the president elevated [CYBERCOM], that is a reflection of [how] this isn’t going away.
Anything that could be increased? What about munitions?
There’s a lot of areas you always look at. But it would be premature of me at this point to say who I think the winners and loser are. [Munitions], yeah, that’s always an area of [focus]. How many do we have, what’s the capability, what’s the quantity we need to produce? And those are often not just near term but a long term question, which is how many do I want to have and how many do I want to keep?
This was the readiness budget. 2019 is supposed to be the start of the Trump military buildup. How do you balance that?
Well, readiness doesn’t go away. You sustain the readiness and you then start shifting, you may make choices on systems but the readiness of the force you have has to stay a priority. And I don’t think we take a step back from readiness as we’re looking at expanding the capacity and the capability.
The Pentagon, famously, has never been audited. That’s now part of your mission. Is that the biggest bugaboo of the job for you?
I don’t think of it as a bugaboo. I think of it’s as a great opportunity. And that’s part of the difference in how I approach it versus others, which is, I have a chance for someone to come through and look at financial practices and let me know where inside a service or defense agency there is a problem. Which greatly facilitates my job, in terms of where I’m going to spend my time fixing things. I don’t have to guess and poke around. I’m going to get nice, written reports saying these are the issues. We can prioritize them, I can work with that organization on a corrective action plan. I’ve got strong support from the Hill so when people try to tell me ‘I’m not sure this is a priority,’ I have strong support from the secretary, the deputy and the Hill to say ‘no, we’re doing this, we’re going to fix this, this is important.’ So from my point of view it’s a major opportunity.
As you make progress on the audit and get more reliable financial information, there are cool things you can do with data analytics. You use data analytics to analyze databases to find trends and patterns. If it’s reliable, then you can use that to drive a lot of changes. You can switch from looking for errors by sampling to just searching for the errors…. I think there is a lot of good opportunities coming out of the audit. Part of my goal is pushing the audit forward so we can get those findings, and then using that process to help drive change.
The Overseas Contingency Operations (OCO) account has been controversial in recent years. Should the Pentagon continue to use it?
Absolutely. OCO is a way of looking at the costs that relate to overseas contingencies that aren’t part of the core base operations of the department. It’s useful for analysis, it’s useful for planning. The challenge we’ve had with OCO is the budget caps. I’d think in the absence of the budget caps people wouldn’t have a problem with OCO. They would understand it for what it is and we could budget to the level of operations and what the budgets are and everyone could agree on them. It’s the presence of the caps that has created this sort of distortion, and I think that is what people tend to react to. So I don’t think OCO is the issue. I think the caps are what’s driving some of the challenges around OCO.
If the caps were replaced, should OCO still be used?
It should be used. People have to understand the challenges the caps create. But the use of OCO, as a way of tracking that kind of expense and keeping it separate, is very valuable.
Both Secretary Mattis and Chairman Dunford have said they need 3-5 percent growth, year over year, to keep the military ready. How firm is that requirement?
We’re going to see what the end state is as we get further down. What we start with is, what are the military requirements, what is the strategy? We’ll build that up first. Part of the point I make internally is, it’s not about the number. At the end, there will be a number and that’s what everyone will write too, but it’s not about the number, it’s about the strategy, it’s about the military capability you need. Based on this, now we’re not talking about is it [five percent or three percent]. It’s ‘do you want this number of ships, or that? This amount of presence or this?’ Then you’re making very specific, informed tradeoffs among capabilities that have a consequence for the number, but you’re not driven by the number. However much I like dollars – and I like numbers and that’s my bread and butter – in my view that’s what follows the decision making and informs the decision making, but it shouldn’t be the driver of decisions.
So what decisions drive where that 3-5 percent goes?
When [Mattis] walked in, he looked at sequestration and he said this is tremendously destructive, and he was very concerned about the level of readiness in the force. So step one is, we have to restore readiness and that includes spare parts, that includes filling skill set vacancies, that includes stopping the end strength drawdown that was underway. So that was the basic building block, that was a lot of the changes in ’17 and some of what’s in ’18. Then you start shifting to balancing the force, increasing capability and lethality. So if you get those increased, then you’re able to do the type of buildup that the president called for in terms of returning the strength of the military.
If you don’t,, you end up with tradeoffs of risk, and where do we take risks as we draw down. [That’s] assuming you’re talking about slight differences [3 or 5 percent]. If you’re talking about sequestration, you’re not talking about that range of choices. Now you’re talking about something vastly more destructive; and going backwards, now you’re not able to maintain the end strength, you’re not able to maintain the readiness. If you’re talking about sequestration versus those range of numbers, now you’re in a totally different world and you’re going backwards in terms of capability and you’re entering the type of environment that the secretary warned so much about.