DoD lectures Congress on budget ‘rules of the game’

The Defense Department continues to beat the “don’t change our budget” drum to get the attention of lawmakers on Capitol Hill.

The Pentagon, again, is sending a warning to Congress: Every dollar legislators add back into DoD’s budget and every program lawmakers keep alive that the military wants to end, will leave the department with an imbalance in how it meets its mission.

Deputy Defense Secretary Ashton Carter (DoD photo)
“The package that we submitted is one that is not only strategic, but the thing I want to stress, is carefully balanced. We are building the force we need for the future,” said Ashton Carter, the deputy secretary of defense, Wednesday during a speech at the American Enterprise Institute in Washington. “We made decisions within the constraints of the Budget Control Act. We had to. When additions are made to that package in one area, we have necessity to take something out elsewhere — the rule of the game. That’s what it means to be in, once you have a budget, a zero-sum game.”

Carter’s speech was a signal to Congress after the Defense Authorization bill advanced in both chambers. The House passed its version earlier this month. The Senate Armed Services Committee approved its version May 25.

“Pentagon leadership is facing opposition all across town,” said Mackenzie Eaglen, a resident fellow who works on DoD issues at AEI. “Obviously, conservatives disagree with a lot of the budget and strategic priorities of this administration.”

While the authorization sets some of the direction for DoD, the appropriations committees will have the final say on how DoD’s budget will fall. The House Appropriations Committee approved a DoD spending bill May 17, but the full chamber has not yet voted on it.

TRICARE increases rejected

Still, Carter wanted to make no mistake that issues such as sequestration, not increasing health care fees under TRICARE, force structures that are too high in DoD’s estimate, and many others, will cause a ripple effect across the department.

“Every dollar the U.S. spends on old and unnecessary programs is a dollar we lose from new necessary strategic investments,” he said. “When we’re forced to hold onto older, less capable systems, we cannot buy newer and more capable systems. So others can pick one item or another that they favor, but we have to balance them all.”

DoD’s increasing costs to provide health care for veterans and service members under the TRICARE program is one of those areas where the military could lose investment money.

Both the House and Senate authorization bills rejected DoD’s proposal to raise TRICARE fees.

DoD proposed to raise fees for working-age retirees, impose fees for the first time on Medicare-eligible TRICARE beneficiaries and raise prescription co-pays at retail pharmacies in an effort to push TRICARE users to use DoD’s less-expensive mail order prescription service. Military health care facilities would continue to fill prescriptions at no cost.

The higher health premiums would all be phased in over a period of four years and would not affect active duty servicemembers or their families. For TRICARE Prime, fees would increase from $520 per year for family coverage to $850 in 2016 in the lowest pay tier, which includes retirees who earn less than $22,589 per year in retired pay. The fees would be much steeper for those with larger pensions. In the highest tier, made up of retirees who earn more than $45,179, the annual fee would rise to $1,950.

Mackenzie Eaglen, resident fellow, American Enterprise Institute (AEI photo)
“We did not believe that compensation could be exempt in this climate,” Carter said, explaining why DoD included the increase in fees in the 2013 budget proposal. “Health care costs consist of about 10 percent of our budget, and we want to give our troops and retirees the very best health care at the lowest price in the country and we do. But in order to deliver high-quality health care, we need to control spiraling costs. So we made some modest proposals respecting TRICARE, and we need these savings to balance and maintain investments in the military. We need them. We understand it’s a difficult step to take, but we think it’s a fair one and the right one.”

Eaglen said DoD’s timing of the request is the bigger problem than the request itself. But military leaders have explained exactly what would happen without the increases in fees.

“Senior Pentagon leadership previously has indicated in hearings before Congress if they don’t agree to this year’s TRICARE increases it will require further active duty military and end strength cuts. It really is a zero-sum budget,” Eaglen said. “It’s not just retiring ships and aircraft and not being able to buy new ships and aircrafts. Now we are looking at the current people we have serving and their fees and we may have to cut the force further. Those are the trade-offs on the table because Defense has been cut for three years now.”

Eaglen said Congress eventually will address TRICARE fees, but not during a presidential election year, and when it does, probably not to the extent DoD wants them to.

No plans for sequestration

Carter also offered a warning about sequestration. He said Congress must avoid it because it would not only affect DoD, but every agency and contractor.

“People have asked, are we planning for sequestration. The Secretary of Defense has said ‘no, we’re not,'” Carter said. “Maybe later in the summer the Office of Management and Budget will have to request that we take a look at it and try to determine what steps could be taken, but I don’t want to mislead you here. Planning has a certain rational tone to it. But Congress, in writing the Budget Control Act, did not design sequester to be rational. Sequester was supposed to be the trigger, a trigger so irrational that the prospect of it would drive and force the leadership to do what was needed, which is to put together an overall budget package for the nation’s finances that could win wide support. Sequester was designed to be irrational.”

DoD is paying closer attention to its vendors than in previous draw downs. In the 1990s, the defense industrial base went through consolidations and mergers, which affected the Pentagon in the long run by reducing competition and much-needed skills in the base.

Carter said DoD benefits from a financially successful defense industry base.

“We’ll be looking, as we make changes, for any parts, any skill sets that are now in the defense industry that, if we allowed them to go away, would be very difficult, or time consuming, or expensive to create, and which skill sets can’t be found in commercial industry,” he said. “Those I, we, have an obligation to sustain. And I’ve invited my partners in industry to identify those opportunities for us. That’s an example of something we didn’t do in 2013, but that is–as we put together the 2014 budget, we definitely want to look at those holes and, within the regions of our budget constraint, make those kind of investments.”

DIB just as important to DoD

DoD has been working on a comprehensive and continually-updated map of the companies in every tier and every sector of the defense contracting industry.

DoD said it needs the data so it can make better decisions to keep the industries it depends on healthy: as defense budgets come down, the department is worried about losing the industrial capabilities it needs.

Carter said DoD also will continue to press the services to reduce procurement spending on back-office services from technology to base operating to other non-critical functions.

“If you have a program that’s not doing well, that’s over-running, that’s behind schedule, that’s not going well, there is a presumption against you in this environment,” he said. “And I say that to all our program managers in government and all my colleagues in industry, as well. You need to make it possible for us to continue to have you do what you’re doing for us. And if you’re running up the bill by a few percent every year, we cannot sustain that. So you are presumptively on the block if you’re a poor performer.”


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