On February 13, 2012, President Obama rolled out his $3.8 trillion budget plan. The election-year budget proposes cuts to defense funding, but an increase in education, highways and bridges, and manufacturing research funding. It contains tax hikes on the wealthiest Americans and corporations, sparking immediate push-back from Congressional Republicans who have criticized the President’s budget as overtly political in nature and aimed at pleasing key voting blocs. The administration’s budget has almost no chance of passing in its current form, and Congress will likely be forced to pass a long-term continuing resolution.

The Department of Defense (DOD) budget request would provide a total of $613.9 billion in funding. This includes $525.4 billion in base discretionary funding, $6.3 billion in mandatory funding, and $88.5 billion in Overseas Contingency Operations (OCO) funding, mostly for the wars in Iraq and Afghanistan. The base funding is $5.1 billion below the FY12 enacted funding. The OCO funding is $26.6 billion below the FY12 enacted funding, mostly due to the withdrawal of combat troops in Iraq. The budget request incorporates the $487 billion in defense spending cuts required by the Budget Control Act (BCA) of 2011 until FY2021.

The administration’s FY2013 Navy budget request is $155.9 billion, down from the $156.8 enacted budget in FY2012. This represents a 5.4 percent cut from last year’s projected FY2013 budget. Overall, the Navy fares better than the Army in the proposed budget with regard to procurement. The overall number of ships in the fleet declines, to 284 ships, but the request maintains 11 aircraft carriers and maintains funding for the Ford-class replacement carrier. Instead of cutting carriers, the request delays several shipbuilding programs over the five- year defense plan (FYDP), including one Virginia-class attack submarine, one Joint High Speed Vessel (JHSV), and delays work on the Ohio-class replacement submarine (SSBNX). The Littoral Combat Ship (LCS) funding remained flat.

The proposed FY2013 Army budget increases nominally to $134.6 billion, up from $133.9 billion. However, Army modernization and ground programs face significant cuts under the administration’s proposed budget. The Army Wheeled Tactical Vehicles, Tracked Combat Vehicles, and Helicopters all saw steep cuts. The Army and Marine Corps. Joint Light Tactical Vehicle (JLTV) is one of the few Army ground programs that was not hit hard, and faces only a slight reduction under the administration’s budget. The Army M1 Abrams tank also saw only a slight reduction of about $2 million in FY2013.

The administration’s proposed budget cuts the Air Force’s funding to $140.1 billion, from the FY2012 enacted level of $144.9 billion, its third consecutive fiscal year of decline. The Air Force plans to retire 38 C-27Js aircraft and 18 new Global Hawk Block 30 aircraft. These aircraft are some of the newer planes in the Air Force’s inventory, and it would be forced to rely on its older inventory. The decision to retire some of the Air Force’s newer aircraft has come under criticism from defense experts who argue that one of its biggest challenges is the aging of its fleet.

Defense Committees Begin Budget Hearings

The Senate Armed Services Committee (SASC) and the House Armed Services Committee (HASC) both held hearings on the proposed budget this week, on Tuesday and Wednesday respectively. Secretary of Defense Leon Panetta and General Martin Dempsey, Chairman of the Joint Chiefs of Staff, testified before the committees. Secretary Panetta told both committees that Congress must do everything in its power to avoid sequestration and said that the administration has not made any plans to comply with the effects of sequestration that are due for 2013. Panetta and Dempsey both agreed that sequestration would be devastating for the military because it is already absorbing more that $50 billion in cuts over the next decade, as mandated by the Budget Control Act of 2011. During the SASC hearing, General Dempsey said that sequestration would force cuts to operations, maintenance and training, resulting in a “hollow force.”

Secretary Panetta faced criticism from congressional Republicans for the administration’s insistence that tax hikes be included in any plan to roll back sequestration. Senator John McCain (R-AZ) has proposed a bill to replace the automatic cuts with reductions to the federal workforce, and HASC Chairman Buck McKeon (R-CA) has introduced similar legislation. Neither bill has gained traction in Congress and Congressional Democrats immediately voiced their opposition to the plans. President Obama has vowed to veto any legislation that repeals sequestration but does not include tax hikes. In the SASC hearing, Secretary Panetta warned that there is “little room for modification” in the $614 billion budget request, and stressed that the plan is a balanced package based on the military’s strategic needs. He encouraged the committee to review the proposal as a whole and not make ad hoc cuts or other changes to the budget request. During the hearings Secretary Panetta acknowledged that there are inherent risks in any proposal that makes significant cuts to DOD’s budget. One example he provided during the HASC hearing is that it will be harder to deploy quickly with a smaller force. He told the committee that when the defense budget is cut by half a trillion dollars, there is very little margin for error.

The House Appropriations subcommittee on defense also held a hearing on the FY13 budget this Thursday. Secretary Panetta and General Dempsey appeared before the committee and were joined by DOD’s comptroller, the Undersecretary of Defense, Robert Hale. Secretary Panetta reiterated his assertion that sequestration will hollow out the military and create serious national security concerns. However, he announced his opposition to the legislation proposed by Senator McCain and Chairman McKeon, saying that "I don't think you should de-trigger sequester on the backs of our civilian workforce”. Chairman McKeon said during Thursday’s hearing that the chance of averting sequestration “doesn’t look good”. Secretary Panetta told the committee “I don’t think it’s going to happen. I don’t think Congress is going to allow it to happen. But at the same time, the threat that it may happen is something that’s having an impact.”

Next Week On Capitol Hill

The House and the Senate are in recess next week for the President’s Day holiday and will return on Monday, February 27th.

Quote of the Week

“When you shave the budget by a half a trillion dollars, it leaves very little margin for error,” Panetta told the committee. And that, I think, is probably the biggest risk of all.”

Defense Secretary Leon Panetta, Testifying before the Senate Armed Services Committee on 2/14/12

For more information, please contact:

Maj. Gen. Tony L. Corwin, USMC (Ret.) – Corwin@BlankRome.com
Stephen Peranich – Peranich@BlankRome.com
Pete Giambastiani – Giambastiani@BlankRome.com
Kate Scontras - Scontras@BlankRome.com
Mike Stakias- Stakias@BlankRome.com