Why Panetta’s Pentagon Cuts Are Easier Than You Think

This week, Secretary of Defense Leon Panetta is expected to announce a strategy for cutting hundreds of billions of dollars from the defense budget. Civilian and military leaders have reacted with apocalyptic warnings, decrying the disastrous impact such cuts will have. They claim that without proper resources the United States will not be able to protect its interests around the globe.

But the Pentagon does not have a resource problem. As even the Pentagon's strongest supporters agree, it has a management problem. Norbert Ryan, the president of the Military Officers Association, summed it up well in a recent Washington Times op-ed: "Almost weekly we see reports of gross mismanagement and cost overruns in expensive programs, few of which have any relevance to the wars our troops are fighting today," he wrote. "The level of mismanagement is so severe that the Pentagon's books have been deemed 'unauditable,' and Pentagon leaders have said they won't be able to pass the test before 2017." 

Senator John McCain (R-Ariz.), a career naval officer and war hero, went further. In a December 15, 2011 speech on the Senate floor, he unleashed a blistering attack on virtually every weapon system under development. He called the F-35 program a mess, lamented significant problems with the Marines' Expeditionary Fighting Vehicle, criticized the Army's Future Combat Systems as worse than a "spectacular, shameful failure," and said that the F-22 may well be the most "expensive corroding hangar queen" ever. 

The Pentagon was not always so poorly run. It has had fewer management problems whenever the administration has brought in a strong deputy secretary as the chief operations officer (the secretary usually being too busy to manage the department). For example, President Dwight Eisenhower had Charles Wilson from General Motors, Richard Nixon had David Packard from Hewlett-Packard, Jimmy Carter had Charles Duncan from Coca-Cola, and George H.W. Bush had Donald Atwood, also from General Motors. 

Under each of these administrations, defense spending dramatically declined. Even so, security improved, thanks to the deputies' management decisions. Under Eisenhower, the Air Force was forced to switch from using expensive bombers to less costly land-based missiles to deal with the Soviet nuclear threat. During the Nixon administration, the Pentagon was able to reduce the size of the active force significantly by moving some functions to the reserves. Moreover, the Pentagon radically decreased the cost of equipping fighter planes by instituting a high-low mix, in which the Air Force and Navy bought the cheaper F-16 and F/A-18 bombers to supplement small fleets of the higher cost F-14 and F-15s. Under Carter, the Pentagon canceled the Air Force's B-1 bomber in favor of the less expensive B-2 stealth bomber. During George H.W. Bush's administration, the Navy's A-12 fighter jet (its answer to the F-22) was canceled when the contractors could not stay within budget.

Yet, for the most part, the deputy secretaries of defense over the last decade have lacked the management experience or the stature to do the job effectively. Defense Secretary Donald Rumsfeld's deputy, Paul Wolfowitz; Robert Gates' deputy, Bill Lynn; and Panetta's deputy, Ashton Carter, had never managed a large organization, or even served in the military.

The upshot is that the Pentagon has allowed the core defense budget to grow in real terms for an unprecedented 13 straight years, between FY 1998 to FY 2011. Even the massive Reagan-era buildup lasted only four years, from 1981-85, and was followed by 13 years of real reductions. Today, even if Panetta announces cuts to core defense spending of $100 billion dollars per year for the next decade, the budget for 2013 will still be $472 billion -- the same as it was in FY 2007. This amount is over the United States' average yearly budget during the Cold War and will still be more than the following 17 nations combined. 

As the wars in Iraq and Afghanistan continued, the Pentagon brass hid baseline spending. Over the last decade, Pentagon leaders paid for core items, such as the F-22 Raptor and missile defense systems, which had nothing to do with the ongoing battles, out of the war supplemental budget. Doing so allowed them to cover up the escalating costs of several systems and make it appear that the investment portion of the defense budget was not growing too rapidly. A strong deputy would have been forced to make tradeoffs between high-performing systems, such as the F-22, and the less capable F-35. 

Meanwhile, Pentagon leaders have repeatedly failed to penalize defense contractors for cost overruns. They did not lack the tools to do so: In the 1980s, Congress passed a law mandating that weapons programs be voided when they exceed cost estimates by 15 to 50 percent, unless the administration requests a waiver on national security grounds. Since 1997, about half of all weapon-systems projects breached this law, and yet most were allowed to move into full production. 

In turn, since 2000 alone, the cost of programs in development and production has increased by $430 billion. Take the development of the F-35. The 2,866 planes were originally expected to cost $233 billion. Now, the estimate is at least $385 billion for only 2,400. The price tag for one plane is five times that of the F-16, which it is meant to replace. A stronger deputy would have canceled the plane or forced the company to eat the cost overruns. 

Some will argue that the Pentagon is correct in maintaining such unprecedented expenditures because the United States' weapons are getting old and need to be replaced. They are. As Russell Rumbaugh of the Stimson Center documents, the procurement budgets of the services grew exponentially in the first decade of this century, rising from $63 billion in FY 2001 to $136 billion in FY 2010. Instead of replacing obsolete weapons, however, the Pentagon spent about $50 billion on new weapons systems such as the $340 billion Future Combat Systems, which would have created brigades of new manned and unmanned vehicles linked by an unprecedented fast and flexible battlefield network. After spending about $20 billion on this system, the government canceled it.

The Pentagon's mismanagement is most prevalent in its operation and maintenance account, which will stand at more than $200 billion in FY 2012. Defense industry executives routinely argue that, although the new generation of fighter planes costs substantially more than its predecessors up front, the operating costs of those planes will drop. Not so. The operating costs of the F-35 are projected to be at least 15 percent higher than those of the F-16 C/D. And the operating and maintenance costs of the Marine Corps' V-22 Tilt Rotor Osprey have grown by $46 billion, or 62 percent, in the last three years. According to McCain, the F-22 is simply too expensive to operate in comparison to the legacy aircraft (F-15 and F-16) it was designed to replace. 

In truth, the Pentagon has become less and less efficient. In 2010, Gates, realizing that the taps for defense spending were closing, asked the services to identify inefficiencies. In a matter of weeks, they identified about $200 billion of redundant expenses. For example, the number of generals and admirals is now higher than it was in 1971, when the military was twice as large as it is today and when commands, such as the Joint Forces Command, duplicated the work of others. Yet, rather than using the gains to cover the overruns, Gates allowed the Pentagon to plow most of it back into new weapons programs.

It is clear that the Pentagon, as currently run, will continue to avoid the hard choices. And Congress will, too, because it likes the continual economic stimulus for its home districts. Therefore, the Pentagon needs a tough, hard-nosed deputy with sufficient experience to take on the military-industrial-congressional complex.

At the end of Eisenhower's first term, the defense budget was $380 billion in today's dollars; at Nixon's, it was $398 billion; and at George H.W. Bush's, it was $435 billion. At George W. Bush's, it was $478 billion and at the end of Barack Obama's, the baseline budget will be no less than $475 billion and probably closer to $525 billion. If Obama's military and civilian team cannot protect the nation with that much money, especially in the absence of an existential threat such as the Soviet Union, he needs to get a new team, especially a new deputy secretary of defense. Packard could serve as a good model. In 1968, when Melvin Laird, a Republican congressman from Wisconsin, was appointed secretary of defense, he recognized the need for a great manager. When he asked his advisers to nominate the best one in the country, they named Packard. Laird promptly flew out to California to convince him to take the job. Panetta, or whoever succeeds him, should take note.