Soaring Deficits May Impact FY10 DoD Budget

January 8, 2009

Government Relations Update - Defense

Facing a staggering budget deficit that the Congressional Budget Office says will swell to $1.2 trillion in Fiscal Year (FY) 2009, President-elect Obama will be forced with confronting the dual challenge of fighting an economic recession in the short-term and implementing comprehensive budget reform in the long-term. Ultimately, such initiatives will likely result in enhanced scrutiny of all federal programs, and perhaps a drawdown in Pentagon funding levels.

Although many defense industry analysts expect moderate DoD spending growth during the next few budget-cycles, big-ticket weapon items such as the Army’s Future Combat Systems and F-35 fighter jets, along with certain navy shipbuilding and missile defense programs may be at risk. Compounding fears within the defense industry, a November report completed by the Defense Business Board, a DoD internal oversight body, found that recent defense budgets are "not sustainable" in the middle of the present economic downturn.

Currently, the Obama transition team has provided no indication as to when the official FY10 budget proposal will be released, but rumors have circulated in Washington that the President-elect will opt for a strategy last seen in 1993 when the Clinton Administration released a broad economic policy statement entitled "A Vision of Change for America." If a similar strategy is pursued, Obama would issue a statement in February and postpone the FY10 budget release until April. The Pentagon has thus far completed their FY10 budget proposal, but defense officials are expecting modifications during the Obama budget review process.

War Supplemental Discussions Continue

In a letter sent to Congress on December 31, Secretary of Defense Robert Gates estimated that $69.7 billion would be necessary to "fund operations [wars in Iraq and Afghanistan] through the remainder of the fiscal year; replace combat losses, worn-out or stressed equipment; and replenish supplies." Under the Secretary’s FY09 supplemental proposal, $53.5 billion would be directed to current military operations—including $1.5 billion to counter improvised explosive devices (IEDs), $1.3 billion for construction of military projects on the domestic and international levels, and $7.5 billion to replace aging military aircraft and ground vehicles.

Emphasizing to lawmakers that this spending figure is merely a "personal estimate" that is unaffiliated with the Bush or incoming Obama administrations, Gates said he expects a more concrete supplemental figure following defense budget and policy reviews from the new administration. Additionally, Gates said his estimate does not include funding to implement President-elect Obama’s proposed troop increases for Afghanistan, leading many to believe that the $69.7 billion figure will inevitably rise.

On Capitol Hill, Rep. John Murtha (D-PA), chairman of the House Defense Appropriations Subcommittee, countered Gate’s proposal by stating his plans to submit a war supplemental that provides between $86 billion and $88 billion. According to Murtha, legislation is currently being drafted by his subcommittee that would distribute $16 to $18 billion more than Gates’ estimate, while inserting additional items such as servicemember benefits and increased funding for military facilities and procurement.

Another potential military funding vehicle will be the $800 billion stimulus package that is currently being debated in Congress, which according to Murtha, will contain $10 billion in domestic infrastructure spending for military-related projects. President-elect Obama has expressed a goal of signing the stimulus package into law by late-January or early-February; and a House Appropriations staffer told Congressional Quarterly that Congress will likely debate the FY09 war supplemental in the spring.

DoD Personnel Reorganization Kicks Into High Gear

According to recent reports, Obama transition officials have currently dismissed 90 out of roughly 250 Pentagon officials currently serving as Bush administration political appointees. Despite this seemingly dramatic personnel shift, political appointees have historically all resigned following the completion of a President’s tenure—but Gates’ unprecedented reappointment status and the ongoing wars in Iraq and Afghanistan have created unusual circumstances at the Pentagon.

"Given that our nation is at war, we have asked several political appointees at the Department of Defense to stay in their jobs past January 20 to help ensure a smooth transition," said an Obama transition official.

According to Jim O’Beirne, the special assistant to the Secretary of Defense for White House liaisons, Secretary Gates "sought to keep virtually his entire team in place pending the availability of Obama replacements," as evidenced in a December 19 memo sent to senior DoD officials that extended formal offers to retain their positions beyond Inauguration Day. Like Gates, some additional DoD officials will keep their jobs for the foreseeable future with the new administration, but Army Secretary Pete Geren and Assistant Secretary of the Air Force for Acquisition Sue Payton, have publicly stated that they do not intend to serve in the Obama administration and will conclude their official duties as soon as successors have been confirmed.

Top Pentagon Brass Convene Triennial Summit

On January 6 and 7, Secretary Gates and Chairman of the Joint Chiefs of Staff Adm. Michael Mullen chaired the Defense Senior Leadership Conference (DSLC), a summit of officials that likely included combatant commanders, the deputy defense secretary, armed services secretaries, and other high-level DoD officials. Although no public information is currently available regarding the DSLC, topics slated for discussion included Obama administration priorities, the 2010 Quadrennial Defense Review, the annual DoD budget, and the transition of top department personnel.

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.