Comparing Defense Savings Plans Across the Political Spectrum

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TAXPAYERS AGAINST RUNAWAY MILITARY SPENDING

Table of Contents:

1. Cato: The Cato Institute - "Budgetary Savings From Military Restraint".............................................................................................................................................4

2. CNAS (7D): Center for a New American Security - "The Seven Deadly Sins of Defense Spending".................................................................................................5

3. CNAS (HC): Center for a New American Security - "Hard Choices: Responsible Defense in an Age of Austerity...........................................................................6

4. NCFRR: National Committee for Fiscal Responsibility and Reform Report.......................................................................................................................................7

5. NSN: National Security Network - "Reshaping Pentagon Spending and Capabilities: Setting Priorities for the Future"...................................................................8

6. NTU/R Street: National Taxpayers Union/R Street Institute -

"Defending America, Defending Taxpayers: How Pentagon Spending Can Better Reflect Conservative Values"........................................................9

7. SDTF: Sustainable Defense Task Force - "Debts, Deficits, and Defense: A Way Forward".............................................................................................................10

8. Stimson (Ma): The Henry L. Stimson Center - "Managing the Military More Efficiently: Potential Savings Separate from Strategy"...........................................11

9. Stimson (SA): The Henry L. Stimson Center - "Strategic Agility: Strong National Defense for Today's Global and Fiscal Realities"...........................................12

10. Coburn: United States Senator Tom Coburn, M.D. (R-OK) - "Back In Black: A Deficit Reduction Plan"....................................................................................13

11. Appendix (Summaries of Other Reports).........................................................................................................................................................................................14


American Enterprise Institute Preserving the Military Health Care Benefit: Needed Steps for Reform This report by the American Enterprise Institute (AEI) focuses on the exponentially growing personnel costs in the United States military. Since 2001, the cost of military pay, allowances, and health care has increased by 90%, while the actual number of personnel has only increased by 3%. This rapid escalation in cost is projected to continue, and, additionally, many of these benefits end up going to individuals who are no longer in the armed forces. This pattern is unsustainable, and if programs like TRICARE are to be maintained, reforms will need to be made. The recommendations in this report were proposed by John L. Kokulis, a former Deputy Assistant Secretary of Defense for Health Budgets and Financial Policy. These proposals are: Recommendation 1: Enroll All Beneficiaries “Many TRICARE Standard and Extra retiree beneficiaries are not fully enrolled in the system and instead choose to use TRICARE selectively for its pharmacy benefit or to choose whichever insurance plan, private or TRICARE, is most advantageous for a particular episode of medical care. This results in poor communication between the health care professionals and the beneficiaries and ultimately results in bad medicine when beneficiaries seek care from multiple sources and care is not coordinated. Achieving 100 percent enrollment of all beneficiaries would help improve medical outcomes and reduce cost.” Recommendation 2A: Create Financial Incentives to Encourage Retiree Beneficiaries under 65 to Seek Care at MTFs to Lower Cost and Enhance Readiness “Mirroring best practices most other major public and private health care plans employ, cost shares for all retiree beneficiaries should be adjusted to more adequately reflect the actual cost of care with the goal of rationalizing the use of health care resources and improving accountability.” Recommendation 2B: Institute Pharmacy Copays that Encourage the Use of Low-Cost Generics and Promote the Use of Low-Cost Distribution Options such as TRICARE Pharmacy Home Delivery “In fact, in the president’s budget submission for FY 2013, DoD advanced this exact concept, proposing to raise copays for brand and nonformulary refills but keep copays for generic refills through home delivery and all refills made at the MTF [Military Treatment Facility] free. Building on the objective to strengthen the MTFs by recapturing patient care, I propose taking this a step further by lowering the generic and brand copays for prescriptions written at an MTF or by an MTF doctor via telemedicine (seeing a doctor via electronic communication) when picked up at a retail pharmacy. This will provide incentives for retirees to seek a refill prescription through an MTF. Many visits to the purchased care network are for nothing more than a simple refill for a prescription. These visits can be reduced. Better yet, coming to the MTFs to get their scripts filled may lead these retired beneficiaries to seek more of their care at that MTF.” Recommendation 3: Once These Fees and Cost Shares are Fully Phased In, Index Them to Medical Inflation “Part of the reason the MHS budget is in such crisis is that Congress has left TRICARE enrollment fees, copays, and deductibles mostly unchanged since it established the program in 1995. The FY 2012 and FY 2013 changes were a good step in this direction, but any future changes must be indexed to medical inflation - not simply a local cost-of-living adjustment.”


American Enterprise Institute Shrinking Bureaucracy, Overhead, and Infrastructure: Why This Defense Drawdown

Must Be Different for the Pentagon

This report by the American Enterprise Institute (AEI) examines alternate avenues for military sequestration cuts. The Obama administration has, so far, primarily targeted modernization programs for these cuts. This leads to a decline in readiness and fewer next-generation programs. Instead, Mackenzie Eaglen, Resident Fellow at the Marilyn Ware Center for Security Studies, argues that the structural drivers of spending should be addressed instead. Some of her recommended targets for spending reductions include: • Bureaucratic Overhead in Both the Uniformed Military Services and the Federal Civilian Workforce

1) “The first step to rein in expanding military and civilian bureaucracy within DoD is for the secretary of defense to demand the collection of requirements data. Today, DoD needs more information to properly assess workforce requirements, which are critical before deciding where to downsize.”

2) “Once DoD has better information on hand, leaders can begin to target the

elimination of excess positions. In theory, judging from historical averages, if they wish to attain gradual 3 to 5 percent reductions per year, layoffs will be unnecessary. This is because DoD’s annual turnover rate (resignations, retirements, and voluntary separation) averages over 10 percent.”

3) “This kind of reduction, along with decreased reliance on contractors, could save

an estimated $310 billion over 10 years.”

• Excess Physical Infrastructure “As the US military shrinks in size, capacity, and capability, it must also reduce its inventory of physical assets. In preparation for the 2005 Base Realignment and Closure Commission (BRAC) round, the Pentagon found that the entire department possessed 24 percent aggregate excess capacity. The most recent base closure round, however, reduced capacity by only 3.4 percent.” • Deferred and In-Kind Compensation for Military and Civilian Personnel. “Many reports in Washington examine the rising, and ultimately unsustainable, costs of military personnel absent change. While the cost of military personnel as a percentage of the defense budget has remained relatively flat in recent years, the cost of military pay, allowances, and health care has risen over 90 percent and the size of the active duty force has grown by only less than 3 percent since 2001. This is due in large part to congressionally mandated annual pay raises half a percent higher than inflation; three rounds of pay table reform designed to improve retention of experienced personnel; and substantial increases in basic housing allowance, health care, and retirement benefits.”


Center for Strategic and Budgetary Assessments Chaos and Uncertainty: The FY 2014 Defense Budget and Beyond

This report by Todd Harrison at the Center for Strategic and Budgetary Assessments attempts to forecast the future of the defense budget in a post-sequestration climate. He begins by closely examining every section of the President's FY 2014 budget request, including military personnel funding ($177 billion), operations and maintenance ($177 billion), modernization ($167 billion), and war funding ("Overseas Contingency Operations," $90 billion). In each section, Harrison details where the money is going and adds his own predictions as to whether the total costs will be higher or lower than the requested amount. The report also analyzes prior defense budget cycles; he derives trends and patterns in procurement funding, research & development funding, personnel costs, and many others. He then uses this data to provide adequate context for the 2014 drawdown and to suggest likely scenarios for the direction of the defense budget. Although he predicts that the United States will significantly revise its strategic posture due to the defense budget cuts, Harrison concludes "Given the current turmoil in the overall federal budget, it is impossible to predict with any certainty how or when the current defense drawdown will end." Todd Harrison is the Senior Fellow for Defense Budget Studies at the Center for Strategic and Budgetary Assessments. A few key points (emphasis added):

• “The 2012 Defense Strategic Guidance calls for rebalancing to the Asia/Pacific region and maintaining U.S. military presence in the Middle East. This guidance, however, was issued before sequestration went into effect. If history is any indicator, the U.S. military is not likely to emerge from this drawdown with the capacity or capability to both increase its presence in the Asia/Pacific region and maintain its current level of presence in the Middle East. While U.S. forces could still be swung from one theater to another as needed in the event of a conflict, the military may not be able to address successfully two major, overlapping conflicts in different theaters. Moreover, forces engaged in forward presence missions cannot be swung as easily from one theater to another, and yet they can be a key factor in deterring a conflict from occurring in the first place.”

• “… the current budget impasse may not be resolved until the drawdown is

effectively over, at which point many of the critical decisions will have already been made for the Department by incremental reductions that chip away at programs and force structure year-by-year or, worse, by the blunt and indiscriminant mechanism of sequestration.”

• “The 2014 Quadrennial Defense Review (QDR) and the FY 2015 budget request

are an opportunity for the Defense Department to address the rapidly evolving budgetary and strategic situation. If the Department plans for the reduced budget caps in its FY 2015 request and uses the QDR as an opportunity to revise its strategic guidance according to these more realistic budget constraints, it will give DoD greater say in how cuts are implemented in the future. To be sure, this approach is not without risks. Proposing cuts makes it difficult to also argue against the cuts, and the specific cuts proposed are likely to meet stiff political resistance regardless of how they tie into a broader strategy.”


The Mercatus Center at George Mason University Defense Spending and the Economy

This report by Robert Barro and Veronique de Rugy at the Mercatus Center attempts to forecast the economic effects of the defense budget cuts. They postulate that a reduction in defense spending would actually end up strengthening the economy. A large collection of empirical and historical evidence, some mentioned below, supports this assertion. The report’s final conclusion is that "the adverse effects on real GDP will be minor even in the short run," and that "in the longer run, when reduced public debt and taxes are factored in, real GDP should be higher than otherwise.” Robert Barro is a Professor of Economics at Harvard University and Veronique de Rugy is a senior research fellow at the Mercatus Center. A few key points (emphasis added):

• Historically, the report argues, defense-spending drawdowns have not had as severe an effect on the economy as predicted; these claims are "grossly overblown."

• For given taxes and other federal spending, the defense spending cut lowers the

federal deficit. Hence, the public debt is lower than otherwise, and this reduction means that, in the long run, taxes will decrease correspondingly when compared to a benchmark path (if other federal spending does not change).

• "…a dollar increase in federal defense spending results in a less-than-a-dollar

increase in GDP when the spending increase is deficit-financed. Combining this with a tax multiplier that is negative and greater than one, we estimate that over five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30."

• "…the adverse effects on real GDP will be minor even in the short run…in the longer run, when reduced public debt and taxes are factored in, real GDP should be higher than otherwise."

• From 1987 to 2000, under the first Bush administration and the Clinton administration, the share of defense spending in GDP fell from 7.4 percent of GDP to 3.7 percent. The average growth rate of real GDP over this period was a respectable 3.3 percent per year, despite the 1991 recession.


Project On Government Oversight Bad Business: Billions of Taxpayers Dollars Wasted on Hiring Contractors

This report by POGO examines the waste that accompanies the federal use of contractors. They found that "...the government pays billions more annually in taxpayer dollars to hire contractors than it would to hire federal employees to perform comparable services." Some key reform recommendations provided by the Project On Government Oversight include the following (emphasis added):

1. Congress should pass legislation requiring:

• “All federal agencies awarding service contracts to use service coding systems that are consistent with OPM’s job classification system. These systems should be required for all Federal Activities Inventory Reform (FAIR) Act inventories…”

• “The Office of Management and Budget (OMB) to promulgate guidance establishing a uniform set of standards and guidelines for comparing the full lifecycle costs of outsourcing federal services with the costs of having those services performed by federal employees.”

• “Federal agencies to conduct pre-award contract cost analyses to determine whether the use of contractors is less costly and provides enhanced performance over the use of federal employees...”

2. Congress should amend the FAIR Act’s service contracts reporting requirements to include:

• “The occupational classification(s) of the person(s) performing the service.” • “The actual number of all contractor and all subcontractor employees performing the

service by occupational classification.” • “The actual billing rate(s) for each occupational classification of persons performing the

service.”

3. Congress should pass legislation requiring OMB to submit to Congress and make publicly available an annual report on federal service contracts providing the following information and analysis:

• “How much money the federal government spent outsourcing services, broken down by agency and legislative program.”

• “How many contractor and subcontractor employees provided services to the federal government, broken down by agency, legislative program, and occupational category.”

4. Congress should amend the Office of Federal Procurement Policy Act (41 U.S.C. § 1127) to ensure that the maximum benchmark compensation amount applicable to contractor employees shall not exceed the compensation paid to Level I positions pursuant to 5 U.S.C. § 5312 and the Office of Personnel Management’s rates of basic pay for the Executive Schedule.

5. Agencies should:

• “Periodically consider hiring federal employees for short-term projects—existing personnel authorities are very flexible and more than adequate for this purpose.”

• “Place much more emphasis on cost analyses in their decisions to utilize contractors. Cost analyses will provide significantly greater insight into how much contractors should charge for the work to be performed and will serve as a benchmark for project costing, whether performed by contractors or federal employees.”

Comparing Defense Savings Plans Across the Political Spectrum

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