The Pentagon Squeeze
en. Merrill McPeak, chief of staff of the Air Force, does not minimize the
downsizing tasks that await him as he arrives in his E-Ring office each
morning.
"The drawdown is an extremely difficult management problem," he says. "And
it's not like I can walk into my office, hit a switch, and solve it. Rather, I have to solve a set of complex, linear equations simultaneously. It's like a
Rubik's Cube."
The analogy McPeak drew, in a recent interview with Government Executive,
seems on the mark. For each surface on the multi-faceted Rubik's Cube is
connected to the others in ways both obvious and obscure. Similarly, with the
Defense Department's current cutback, a change in force structure will influence
weapons acquisition decisions, in turn affecting base realignments and closures,
with corresponding ripple effects on personnel needs, which drive training
requirements, and so on.
The solution to the puzzle would be a smaller force, rationally constructed,
efficiently deployed and capable of winning future conflicts.
In the interim, much change and not a little pain await. Already, the
Pentagon has announced major personnel reductions, huge changes in procurement
plans, closure of dozens of domestic and foreign military bases and
consolidation of many large management systems. Almost lost in this sea of
change are other, not-so-visible changes, such as the planned quadrupling, to $12 billion, of the Pentagon's environmental clean-up budget, and the quiet
institution of long-debated capital budgeting techniques.
With the collapse of the Soviet Union and the onset of an election year, more
change is surely in the offing for defense managers like McPeak. But in the
pause before Congress and the White House twist the Rubik's Cube again, it's
useful to see where the game stands today for the Pentagon and its workforce.
The Budget Downdraft
Dramatic changes in American defense policy have their roots in the ending of
the Cold War and the breakup of the Warsaw Pact. These important global trends
-- interrupted briefly by the Gulf War -- have made the world a safer place for
U.S. interests and consequently allowed the nation to reduce its military force.
Defense spending, adjusted for inflation, had been dropping since the
mid-1980s, but the pace accelerated after November 1990, when President Bush and
Congress agreed upon the Budget Enforcement Act, establishing what were supposed
to be firm budget-authority ceilings for DoD for fiscal 1991-93 and general
spending targets through 1995.
As compared to the defense budgets Bush had requested less than 10 months
earlier, the cuts were dramatic. Bush's original budget for fiscal 1991
included $ 295 billion in budget authority for the Pentagon. The November agreement cut that figure by 6.2 percent, to $ 277 billion. And subsequent
appropriations legislation, along with executive recissions, cut the total
further, to approximately $ 275.6 billion.
These actions froze the fiscal 1992-96 Pentagon budget at about $ 280
billion, translating into sizeable cuts in purchasing power, especially since
the capital goods accounts that make up a large share of the DoD budget are
particularly inflation-prone. Assuming 4 percent annual inflation, DoD
purchasing power was to shrink by more than 20 percent between 1991 and 1996.
The first year under the new budget agreement gave a taste of things to come.
The Pentagon cut military personnel by 78,600, with 50,000 of these troops
withdrawn from Europe; reduced the civilian personnel budget by $ 803 million ($
263 million of which came from a civilian hiring freeze instituted in November
1989); cut $ 800 million in real-property maintenance for overseas military
bases; reduced operations and maintenance by $ 4.4 billion; slashed $ 10.4
billion from procurement accounts; and reduced research development, test and
evaluation by $ 2 billion.
Major capital investment programs suffered. The Strategic Defense Initiative
sank to $ 2.9 billion, far below the $ 5 billion to $ 6 billion proposed at the
end of the Reagan Administration. All advanced procurement funding for the Air Force's B-2 bomber was eliminated, and all procurement funds for the Marine
Corps V-22 aircraft were cut, though Congress appropriated $ 238 million in R&D
funding to keep the V-22 on life-support. And other weapons programs were
stretched out or targeted for elimination in the following years.
Although the Gulf War further complicated Pentagon planning, it did give DoD
a partial reprieve on the budget cuts. Congress waived the military personnel
reduction targets for 1991, permitting DoD to downsize its force more smoothly
after withdrawal from the Persian Gulf.
Despite much war-related budget work, the Pentagon was able to deliver major
revisions in long-range planning in time for the President's budget presentation
to Congress in late January 1991. The new plan, covering the fiscal 1992-97
period, envisioned a significantly smaller force structure, reflecting the
reduced threat of war with the Soviet Union, German reunification and rapid
change in Eastern Europe. Underlying assumptions, agreed to by the President
and his national security advisers after three years of debate, included the
following:
War with the Soviet Union or its successors is unlikely in the next decade. Warning times for conflict in Europe, and to some extent in Asia, have
lengthened substantially.
U.S. combat demands in the near term most likely would involve relatively
limited regional conflicts requiring rapid response and special forces.
The conclusions flowing from these assumptions have inspired actions now in
progress. Planners concluded that there was less reason to station U.S. troops
abroad, permitting gradual and selective withdrawal of land-based forces from
Europe and the Pacific. They judged also that military manpower needs could
increasingly be met by reservists instead of active-duty personnel, and that
these forces should rely more on pre-positioned equipment. In tandem with the
military drawdown, they decided that DoD should reduce civilian employment, in
part through efficiency gains in departmental operations.
The planners concluded that the nation could afford to forgo or delay plans
to purchase large amounts of military hardware, even if this meant significant
shrinkage and restructuring of the defense industry.
They also recommended continued investment in strategic and conventional
missile defense systems. Strategic forces should be maintained until nuclear
arms reduction agreements with successors to the Soviet leaders are negotiated, implemented and verified, they said.
The Pentagon's budget plan for 1992-97 thus proposed substantially
accelerating the cutting to which Congress and the President had agreed in 1990.
As compared to President Bush's first defense budget, submitted to Congress in
February 1989, the new plan would cut spending in the 1992-97 period by 25
percent, or about $ 1 trillion. In 1992, inflation-adjusted spending for
defense would be 24 percent below its level at the peak of the Reagan buildup in
fiscal 1985. By 1996, the Pentagon's purchasing power would be 34 percent below
the 1985 level; at this point, defense spending would equal only 3.6 percent of
the gross national product, the lowest level since 1939.
As a result of the budget cuts, active-duty military personnel would decline
to 1.65 million by fiscal 1995, 24 percent below the post-Vietnam peak of 2.17
million in 1987. Reserve positions would decline to 906,000, or 21 percent
below the 1987 level.
DoD civilian employment, which totaled 1.13 million in 1987, was to drop to
976,000 by 1993 and to 940,000 by 1995.
As large as these cuts may seem, they are just the beginning. Though the
Pentagon successfully resisted several attempts in Congress last year to shave the fiscal 1992 budget well below the level agreed to in the Budget Enforcement
Act, pressure will grow this year. The Pentagon recognized this reality in late
November when it began a new look at force reductions reportedly designed to
save an added $ 50 billion over five years. And President Bush signaled his
willingness to contemplate further reductions in the defense budget in an Oval
Office interview just before Christmas.
Defense Management Efficiencies
The Pentagon, of course, has been laboring to achieve the budget reductions
already agreed upon, and while most are to come through large and relatively
well-publicized reductions in force structure, defense management reforms are
also expected to contribute a substantial share. These reforms, first outlined
in the Defense Management Report (DMR) submitted to the White House in July
1989, have proceeded under the direction of deputy defense secretary Donald
Atwood. In their latest iteration, they are slated to result in savings
totaling $ 71 billion from fiscal 1991-97, and to eliminate 30,000 civilian and
40,000 military jobs.
The management reforms are aimed at cutting costs in logistics,
administration, base operations, facilities management, automated support and information systems, finance, procurement and contract management. They also
entail consolidating many of the services' support/supply and other functions
under the Office of the Secretary of Defense (OSD).
In the fiscal 1992-93 DoD budget, DMR managers put special emphasis on
streamlining defense acquisition by eliminating unnecessary layers of
management, reducing burdensome reporting requirements and regulation, and
continuing to enhance the education and quality of the acquisition workforce.
In mid-1991 Atwood indicated that the second round of DMR initiatives for fiscal
1992-95 would seek added savings through efficiency measures, consolidation and
program reduction.
Significant restructuring under DMR's initial phase included creation of a
Corporate Information Management group to consolidate DoD information, data
processing and telecommunications systems into a single systems; consolidation
of the services' finance and accounting centers into a central Defense Finance
and Accounting Service; consolidation of the supply functions of the individual
services into the Defense Logistics Agency; and creation of a Defense Depot
Maintenance Council.
The information management initiative consolidates some 30 separate DoD
payroll systems and designates one existing system to provide payroll services for all of DoD. It also consolidates approximately 150 separate DoD accounting
systems and restructures the defense intelligence function, resulting in
elimination of redundant units in the military departments and the unified
military commands.
The supply and logistics consolidation collapses 34 separate supply depots
and approximately 3,500 separate parts and equipment warehouses into a handful
of regional centers. Administrative efficiencies in the second phase of DMR
include consolidation of DoD-wide commissary and printing operations and
correctional facilities. Also targeted for reductions are the services'
administrative staffs, including those involved in information systems and
finance, procurement and contract management.
The second phase of DMR reforms will entail increased cooperation and
consolidation in defense research and development programs and greater
competition in science and technology development between the defense research
laboratories. A consolidation of DoD labs is also planned.
A key element of the DMR initiative was the establishment on Oct. 1, 1990, of
a DoD-wide Defense Business Operating Fund to capture the costs of most
industrial support and supply services provided by the military departments and
defense agencies. The $ 70 billion revolving fund, operating on a reimbursable basis, includes both operating and capital budget accounts, with
capital items defined as assets costing more than $ 15,000 and with a useful
life of two or more years.
DoD has operated many of its industrial and service activities on a revolving
fund basis since 1951, but these funds had been decentralized among the services
and defense agencies. A key component of the new fund is the use of "unit cost"
methodology for determining charges to military department and defense agency
customers. Prices for services bought through the fund now will reflect their
full cost, not just those direct costs that were visible under the old system.
That way, it is reasoned, customers will become fully aware of the costs of the
services they are buying.
The capital budget portion of the initiative was implemented with little
notice, despite long controversy over the feasibility and wisdom of capital
budgeting in the federal government.
The new fund, obviously, is supposed to save money, and the services haven't
always been pleased. As with other DMR initiatives, proposals for the savings
were developed in OSD's Management Improvement Division, and then forwarded for
quick review to the military departments and agencies. Atwood and his staff
sometimes revised the estimates in response to agency objections. And in some instances, the services successfully argued for changes in the reform proposals.
While displaying some flexibility, Atwood and DoD Comptroller Sean O'Keefe
maintained their strong commitment to change, and stressed that implementation
was to be decentralized to the greatest extent possible. Service officials,
however, complained that the trend toward centralization of authority in OSD was
costing them power.
To support the need for radical change, OSD officials argued that
restructuring would boost efficiency, thus preventing even deeper cuts in
military force structure and manpower. Joint Chiefs of Staff chairman Colin
Powell supported the DMR initiatives with some reservations, while the military
departments at first objected to, and then moved to comply with, the reforms.
They continued to protest, however, that the reforms were budget-driven and in
some instances would actually promote inefficiencies. In the end, Cheney's and
Atwood's unwavering commitment to implementation of the DMR initiatives gave the
military departments little choice but to comply.
Cutting Weapons, Force Structure
Reductions in force structure to conform to the revised 1992-97 spending plan
represent the most substantial defense cuts since the late 1940s.
In its approach to procurement, the Pentagon is emphasizing termination or
reduction of programs relying on relatively old technology, while at the same
time pursuing modernization through highly selective development and acquisition
of more sophisticated systems.
Other budget accounts, meanwhile, are shrinking rapidly, in part to make sure
that some weapons modernization can proceed. Planners decided to reduce the
Army by six divisions, including two in the reserves. The Navy was directed to
eliminate 81 battle force ships from the fleet, reduce its carrier fleet from
the 13 programmed in 1990 to 12 (compared to a program of 15 only two years
earlier), cut carrier air wings from 15 to 13 (11 active), and program the
deactivation of older attack submarines and amphibious ships plus its two
remaining battleships. The size of the Navy fleet was reduced to 451 ships, a
significant drop from the 600-ship fleet planned during the Reagan
Administration. The Air Force cut nine tactical fighter wings (eight active).
The Pentagon jealously guarded training programs, fighting to sustain
previous targets for Army ground exercises, Navy steaming days, and Air Force
and Army flying hours. An active training schedule is viewed within the services as key not only to maintaining readiness, but also to preserving a high
quality force. The latter goal is also apparent in DoD's request for military
pay increases of 4.2 percent in 1992 and 4.7 percent in 1993.
Cuts in strategic forces include retirement of the Minuteman II missile
system beginning in 1992; accelerated retirement of Poseidon submarines and
reduction of the Trident submarine fleet to 18; a decrease in Air Force
strategic bombers from 268 in 1990 to 171 by 1993; and retirement of B-52s and
transfer of FB-111 bombers to tactical use. Conventional force structure places
increased emphasis on airlift and sealift capacity, maritime and amphibious
forces, and special operating forces.
Perhaps the most dramatic element of the force-structure reduction plan is
the termination of acquisition programs. High-profile weapons program
terminations include the Trident submarine, the P-7A anti-submarine aircraft,
the F-14D aircraft, the Navy's Advanced Tactical Fighter and A-12 attack fighter
airplane, the Peacekeeper missile, the Mark XV aircraft identification system,
the Boost Surveillance and Tracking System, and the TACIT Rainbow cruise
missile. These terminations came on top of programs axed in the fiscal 1991
budget, including the V-22 vertical take-off and landing aircraft, the M-1 tank,
new production of the F-14D fighter, the F-15E aircraft, the P-3A anti-submarine
aircraft, the Apache helicopter, and the Army Helicopter Improvement Program.
The termination of all these programs ended the wave of procurement begun under
President Reagan, with many programs ending before planned purchases were
completed, or even before buys had begun.
Other programs were delayed, as production was slowed or buys pushed further
into the future. Examples include the Anti-Satellite Defense System and the
Milstar satellite program. Planned purchases of the Air Force B-2 bomber were
scaled back dramatically, to just four aircraft in 1992 and seven in 1993
(though Congress cut the program further). The SDI program was restructured to
place greater emphasis on theater missile defense. Procurement of the Navy's
SSN-21 Seawolf attack submarine was reduced to one buy per year from the
previous plan to build two per year. Similarly, Air Force C-17 purchases were
scaled back.
Nevertheless, modernization efforts continue. The SDI program was reoriented
to include the Global Protection Against Limited Strikes program, emphasizing
state-of-the-art transportable theater missiles. The Army continues its light
helicopter and armored vehicle modernization programs. The Navy is proceeding
with purchase of SSN-21 attack submarines and Aegis destroyers (at reduced
rates), and with buys of F/A 18 fighter aircraft and modern tactical missiles.
The Navy also plans to purchase additional roll-on/roll-off ships and to
increase its Ready Reserve force from 96 to 142 cargo ships, the object being a quicker response time in crises like the Desert Shield buildup.
Modernization efforts in the Air Force include continued procurement of F-16
fighter aircraft, C-130 transport aircraft and AMRAAM air-to-air missile
systems. Significantly, the Air Force Advanced Tactical Fighter program
continues in development. And the C-17 airlifter program is still alive. The
R&D budget this year and next emphasizes high-performance computers and improved
technology in electronics, gas turbine engines and airframe components.
Base Realignment and Closure
DoD's budget cutting and force restructuring have given a much-needed boost
to its long-held goal of rationalizing the huge network of U.S. military bases
at home and abroad. Domestic politics had long stood in the way, but in 1988
and again in 1990, Congress ceded substantial power to specially created base
closure and realignment commissions. As a result, DoD has been able to proceed
toward closure of 47 domestic bases and realignment of 28 others, out of a total
of nearly 500 domestic bases.
Estimated costs of these steps from 1992-97 are $ 5.7 billion, while savings
are put at $ 6.5 billion. The net savings of $ 850 million could be increased
by revenues from sales of land that DoD says is worth $ 1.9 billion. Beginning
in 1998, annual savings from the base closures and realignments are projected at
$ 1.7 billion.
Revenues generated by sale of land or facilities at closed bases are now
deposited in a DoD base closure account Congress authorized in 1990. Up to half
the money may be used to finance the costs of sales and of cleanups at the
bases. DoD must comply with federal, state and local environmental cleanup
standards before closed facilities may be converted to non-military use, and the
cost of these cleanups will be substantial. DoD environmental spending will
grow an estimated $ 3 billion in 1991 to $ 12 billion in 1995, and the financing
of the clean-up program remains at issue between Congress and DoD. Congress
insists, over DoD objections, that the work be financed by transfers from other
DoD accounts.
The domestic base-closure process will continue for years, as more bases will
be targeted by new commissions Congress has mandated in 1993 and 1995.
At the same time, DoD has been targeting foreign bases for closure, and by
mid-1991 it had made decisions to end or reduce operations at 232 foreign bases
to achieve further savings. Following the Persian Gulf War, DoD also urged the
establishment of small, permanent bases in the Middle East which, if combinedwith new plans for pre-positioning of weapons and supplies, would enhance U.S.
capability to respond to regional conflicts.
Painting the Golden Gate
Judged against management theory on the downsizing of large organizations,
DoD's long-term cutback strategy appears relatively balanced. It includes a
combination of across-the-board cuts, program reductions, program terminations
and restructurings, and considerable reorganization.
Yet continuing reviews by the White House and Congress will surely bring
changes in the plan over the next few years. And each round of this game forces
Pentagon managers to reorient their programs and budget, and to renegotiate
agreements struck previously to satisfy both Congress and DoD component
organizations.
The Rubik's Cube, in other words, is continually being reconfigured, with
each move raising disputes that must be negotiated by OSD. At the same time,
budget planners, not to mention officials responsible for ongoing programs, are
left in a state of confusion.
So when managers such as Air Force Chief of Staff McPeak approach their
offices in the Pentagon early each morning, they can be forgiven for wondering
with some anxiety what the new day will bring. "This is really a question of
managing at the margins, and just trying to make a little progress each day,"
says McPeak. "Sometimes it feels like painting the Golden Gate bridge, though.
When you finally get to the end, it's time to start all over."
L.R. Jones is a professor of financial management at the Naval Postgraduate
School in Monterey, Calif.
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