The way Bob Hale sees it, there are three scenarios on the horizon as the fiscal year comes to an end and another round of sequestration looms. The Pentagon comptroller hasn’t lost hope for the best-case scenario — a grand bargain in Congress that would reduce the deficit and undo sequestration. “Entitlement cuts, probably some tax increases, end of sequestration,” he said. “Seems pretty unlikely in this environment.”
Indeed with things like Syria, Benghazi, Obamacare and gun control on the docket, it’s very unlikely that Congress will come to any major agreements before Sept. 30, when fiscal year 2013 ends. So that leaves two other options, Hale said in a wide-ranging interview with Defense One at his Pentagon office. “Maybe some kind of mini-deal that is much scaled down but would restore at least some funding in the discretionary areas, including defense [spending]. I could conceive of it being some fairly modest entitlement cuts, perhaps, maybe some loophole closing and perhaps some further cuts in discretionary spending — but not to the full sequestration, not to the $52-billion level that we would experience.”
“And then there is, unfortunately, I’m afraid, the continued gridlock, which is so far what we’re seeing. And that would mean probably another continuing resolution, maybe extended, maybe even for six months or the whole year, and perhaps at the sequestration levels,” Hale said. “We are trying to plan for a full range to the extent time permits, but time is getting in our way here. We’re struggling to be able to do all of this.”
“But they have to agree and so far I don’t see that happening,” he said. “Again, I don’t want to give up hope. I don’t want to lose our sense of optimism. I still hope sometime over the next few months that we will reach some kind of agreement.”
Time is not on Hale’s side. The House, which is not in session next week, has postponed a vote on a continuing resolution for the FY14 defense budget. And the Senate and the president also have to sign off, he said. “If they don’t, we’ll be, I guess, potentially in a shut-down planning mode again, which would be very unfortunate.”
So Hale is planning for a number of budget milestones with a wide range of options for fiscal 2014. There’s President Obama’s budget request for $527 billion. There’s the continuing resolution which allots $496 billion for defense. And then there’s the capped budget of $475 billion put in place by the Budget Control Act of 2011, which will trigger another round of automatic, across-the-board sequester cuts — about $52 billion — on Jan. 1, if no deficit deal is reached.
“It would be nice to say we do a strategy and then we derive a budget.”
After two years of defense officials and President Obama saying they didn’t believe that sequestration would happen, Hale and his colleagues at the Pentagon are more clear-eyed this time around.
“We could say we think this is somehow going to all go away, pretty much what we did last year — and we really did think at the time. I mean, we had the president of the United States saying last year in the debates that sequestration will never happen. Most people on the Hill were saying that. I don’t think we want to repeat that approach this year. It didn’t work out real well. We found ourselves a quarter into the year and had to sort of jam on the fiscal brakes.
“And of course, we had another bad event happen, in that we underestimated the costs that we would need for the war [in Afghanistan] so we took a bad situation and made it considerably worse with that OCO [Overseas Contingency Operations account, or war spending] shortfall. Really had to jam on the brakes, and it generated cuts in training, and it generated cuts in maintenance, it generated furloughs. Some of those will happen again if we’re at this low level but I think we believe we should at least start out at [continuing resolution] level. If they’ve cut $30 billion you’d probably better execute at that and maybe even be a little risk averse and go below that.”
“Hindsight is better than foresight,” Hale said. “If we knew that Congress was going to kind of not be able to reach any sort of agreement, I suppose we would have done this last year. It’s just nobody believed that was going to be true, including most of the leaders of the Congress were saying, ‘Hey we’re not going to do this. We’re going to reach a deal.’ They didn’t.”
Hale listed the ways that sequestration has hurt the military — readiness, training, modernization and possibly even retention — but he also said it’s affecting military commanders who are trying to fulfill the president’s national security strategy.
In other words, the budget, in some instances, is driving the strategy.
“We try to keep it in mind and make the decisions based on it,” Hale said. “It is an interactive process. It can’t be any other [way]. It would be nice to say we do a strategy and then we derive a budget. And in good times, in normal times, we’re a lot closer to that. So I think it would be disingenuous to say that we aren’t — there are budget-driven decisions that are happening right now. We are trying to keep in mind the strategy in every way that we can, but we have meet some of the legally binding budget targets.”
As September comes to an end, Hale and other leaders at the Pentagon are in what he calls “triage mode.” He’s also become fond of quoting Winston Churchill. “He once said that you can always trust Americans to do the right thing, after they’ve tried everything else first. I keep hoping that we’ve tried everything else first.”
“Normally you would like to be planning ahead. You’d like to be focusing now on the fiscal year ‘15 budget that we will submit, presumably, next February to the Congress. Instead, I think we’re in, I call it triage mode. Up until a few weeks ago, it was, ‘How do we get through fiscal year 13?’ We’re pretty much on final approach there. Syria was a bit of a curveball. But now the issue of the day has to be what we do in fiscal ‘14 and we’re waiting to see what happens with this continuing resolution and we’ll certainly have to execute it at lower levels if they pass that because it is about $30 billion below our budget request. But we recognize that if they were to pass it and extend it, it will generate a formal sequestration in early January that will bring us down to the full cap levels.”
“The uncertainty in the financial area is unprecedented. I don’t ever remember a circumstance when we were finishing up changes in the budget we’re about to complete, making potentially major changes in the fiscal 14 budget and then I might add, planning for a wide range in [fiscal year] 15 because we don’t know what decisions the president will make, understandably he probably doesn’t know what decision he’ll make yet as to what level he’ll want us to submit the budget at for fiscal 15, so certainly the range of uncertainty — that is unprecedented, at least in my 30 or so years’ experience working in and around this department’s budget. And its unprecedented and bad because it drives us to this triage, when you don’t have enough time to plan, quality suffers. It’s a bad situation.”
Hale put the seriousness of the budget showdown like this: “As long as we don’t get into any other conflicts, we’re probably okay. But that’s not why you have a military.” He said, “Defense is an insurance policy. We’ve kind of cut the premiums and cut the coverage. You’re okay if nothing goes wrong. But if it does, you will regret it.”
Still, Hale remains hopeful that some kind of deal can be reached in Congress. “There are bigger issues at work that are beyond our control,” he said. “I think the best we can do is to try to keep stating our message and hope that Winston Churchill was right. We’ll figure it out eventually. We’ll do the right thing.”