Like the rest of the government, the Defense Department starts a new fiscal year Wednesday without a final budget in place.

Department leaders are working under the assumption that Congress will eventually reject up to $70 billion in proposals the department made to cut costs in its fiscal 2015 budget, so that it could fund more urgent priorities.

The estimates come from a “reading of the tea leaves” that department leaders have derived from the votes that four key congressional defense committees have taken on DoD’s annual authorization and appropriations bills this year, said Deputy Defense Secretary Robert Work.

While the committees reached different conclusions on DoD’s individual proposals to shift some spending from personnel and force structure to readiness and modernization, this year’s committee process wound up with an almost universal rejection of the department’s proposed reforms to military compensation. DoD tallies the costs of those decisions at anywhere between $11 billion and $39 billion.

Congressional committees also have turned back $31 billion worth of proposed retirements and modifications to weapons programs.

“These were what we considered to be pretty reasonable approaches, but Congress said ‘No,'” Work told the Council on Foreign Relations Tuesday. “‘No, you can’t get rid of the A-10. No, you can’t get rid of the U-2. No you can’t get rid of those cruisers, no, no, no, no, no, no.’ And then we can’t do the compensation reforms. So starting in our fall review, we’re trying to figure out whether we have to entirely reshuffle the deck to the tune of $70 billion. This is la-la land. I have never been in a situation where we have been faced with such strictures on the way we should go about this. And compensation is a really big deal for us.”

Work said DoD also is operating under the assumption that it still will be running under a continuing resolution when the department releases its 2016 budget in February.

Waiting for the results of the review

The Military Compensation and Retirement Modernization Commission is set to release its final recommendations for reform at the same time. Members of Congress who have resisted DoD’s own proposals to cut back on personnel spending have insisted that any reforms wait until that panel’s final report.

Work said next year will probably be the last opportunity to enact changes before the next presidential election.

“We have to do this if we’re going to maintain the force structure we need. And it’s going to be a tough, tough fight next year,” he said.

Besides the gap DoD is likely to deal with next year, as a result of congressional disapproval of its cost-cutting ideas, the military has taken on new and expensive activities since it first submitted its budget proposal in March, as it has responded to various global crises during the course of the year.

A new estimate this week from the Center for Strategic and Budgetary Assessments puts the cost of the U.S. bombing campaign against the Islamic State at up to $930 million so far.

Assuming the intensity of the U.S. effort stays about the same, CSBA projects the expenses will reach $3.8 billion over the next year. A higher-intensity air campaign would push the costs to $6.8 billion, and the introduction of ground troops would increase the bill to up to $22 billion.

Congress allowed DoD to reprogram its existing funding in order to conduct the Islamic State campaign when it passed a continuing resolution earlier this month, but it didn’t appropriate any new money for the air war in Iraq and Syria, nor for the U.S. government’s response to the Ebola outbreak in Africa.

Work said DoD’s response to those operations has been funded thus far almost entirely out of the department’s overseas contingency operations (OCO) account, which is likely to begin shrinking significantly once most of the American military’s troops depart Afghanistan at the end of this calendar year.

“On OCO, we have one of three choices,” he said. “We have a lot of money in OCO that should probably be in the base budget, so that money can come into the base with a concomitant increase in our topline, but Congress has indicated they’re not ready to do that. It can also come into the base budget in a way in which we eat [the difference], which really constrains us, or we can agree that OCO will continue in the future, and we’ll establish some rules to do it. I believe the latter one is what we’re going to have to do. With the crisis in Ebola, with all of these things going on, we’re going to have to have OCO funding for some time. But that is in debate now.”

Work said the Budget Control Act caps compound a problem the military has been facing for more than a decade.

The military has long held the view that it could keep enough “surge” forces trained and ready to respond to a new crisis, even while it was engaged in an ongoing conflict.

That strategy became increasingly difficult to sustain as U.S. forces dealt with two simultaneous counterinsurgency operations. Congress then imposed across-the-board budget cuts on the government just as one of those operations was ending in Iraq and one was still ongoing in Afghanistan.

Something has to give

DoD leaders expect to spend at least the next five years rebuilding from what they view as a readiness “crisis,” a scenario in which the only troops they can afford to adequately train are those who already are scheduled to deploy to a conflict zone.

“Something has to give,” Work said. “Maintaining our military at such a high operational tempo in this resource-constrained environment is no longer sustainable — period, end of story. It prevents us from preparing for future contingencies across the full spectrum of conflict, and that’s what wakes me up at night. Our commanders want more forces that are forward- deployed and ready to fight tonight, but that just can’t happen without us sacrificing the readiness of the surge forces. It really, really is a tough problem, because we have to take time and money to reset and repair our equipment and train for some very demanding scenarios.”

Work said DoD will try to restore the readiness of its surge forces by coming up with more creative and less costly methods to employ troops who are deployed or about to deploy.

For example, the Navy decided to permanently station four destroyers in Rota, Spain, replacing 10 ships that would have otherwise been continuously moving back and forth between the Mediterranean and the U.S.

Work said the military also is moving to use lower-cost platforms wherever possible.

“You probably all saw the movie Captain Phillips. It was remarkable what we did, but the way we did it was to have a $1 billion Arleigh Burke-class destroyer chasing a skiff. Maybe in the future we might want to have a Joint High Speed Vessel or a Littoral Combat Ship that is much less expensive and that has a smaller crew, so that we can maintain overmatch,” he said. “The Army is developing regionally-aligned forces and tailored packages. They’re brigades, but they never actually go out into the field that way. They go as packets of platoons. We’re looking for low-cost, low-footprint approaches that emphasize skillsets that are particular to the regions of the world where they’re operating. We’re all getting away from a one-size-fits-all mentality.”

DoD also is looking at different ways to allocate military forces to its combatant commanders across the world, Work said. The operating model until recently has meant that each regional commander should define his own needs, and the military services would send their forces forward to meet each commander’s requests to the best of their ability.

Combatant commanders no longer have final say

Work said the Pentagon is shifting toward a “dynamic presence” concept, in which the demands of the combatant commanders are no longer the end-all objective in how the military deploys its forces.

“Normally what we’d do is to push every single bit of our ready forces forward into a combatant commander’s area of responsibility. Once they got there, we could sometimes shift them into different lines of responsibility, but it was difficult and laborious. What we’re trying to do is figure out what’s the minimum deterrent force needed by that combatant commander, and the rest of that force can then be used more dynamically across the world,” Work said. “This is a tough, tough problem, because it’s a different way of operating. We’re going from a demand-side model, where the COCOMs demand forces and we provide them everything we possibly can, and moving to a supply-side model. We are sending forces out in a way that keeps the balance between surge and forward presence and then dynamically tasking it across the world.”

All of the above assumes that Congress will find a way to modify the current caps in the Budget Control Act. While DoD’s budget for 2015 lines up with those caps, the lines begin to diverge in 2016 and beyond. The Obama administration already has asked Congress for $115 billion more than the caps allow between 2016 and 2019.

Work said the defense strategic guidance the department has been operating under since 2012 can’t be executed unless Congress makes further changes to the budget caps.

“Sequestration will not work, period,” Work said. “It will, without question, result in a major reevaluation of our current strategy.”

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