Presidential Directive to Rebuild the Military Could Drive Growth in Key Areas of Defense Readiness
Published: February 08, 2017
On January 31, 2017, Defense Secretary Mattis issued implementation guidance for addressing the budget aspect of the Presidential Memorandum entitled “Rebuilding the U.S. Armed Forces”. The directive requires Mattis to conduct a 30-day readiness review, and according to the implementation guidance, the review will focus on 3 key areas: improving warfighting readiness, achieving program balance by addressing pressing shortfalls, and building a larger, more capable, and more lethal force.
From a budgetary standpoint, Secretary Mattis is approaching these areas in individual phases and examining the impact on budget requirements in the near- and long-term.
“PHASE 1: Improving Warfighting Readiness – FY 2017 Budget Amendment” focuses on identifying not only current gaps in readiness but also new requirements driven by an escalated campaign against ISIS. Mattis must submit a FY 2017 budget amendment requesting additional funds to support these efforts, to include an assessment of lower priority investments that can be eliminated. However, Secretary Mattis does seem to anticipate a net increase over the original FY 2017 request submitted last spring by the Obama administration. The deadline for submission to OMB is March 1, 2017.
“PHASE 2: Achieve Program Balance – the FY 2018 President’s Budget Request” focuses on identifying requirements to refine the current FY 2018 budget request (not yet made public). This phase is designed to root out additional key investments for FY 2018, and calls out several potential areas of investment, including munitions, facilities O&M, R&D and business operations.
“Buying More Critical Munitions”: Sec Mattis could potentially reverse the direction of addressable munitions spending, which Deltek analysis shows declining from $10.7B in FY 2016 to $9.4B requested for FY 2017, as seen in the chart below.
“Funding Facilities Sustainment at a Higher Rate”: The FY 2017 budget plan for addressable Facilities O&M left by the Obama administration included a $1.8B increase, from $13.1B in FY 2016 to a request of $14.9B for FY 2017. However, the original FY 2017 budget request for the Facilities Sustainment, Restoration and Modernization (SRM) segment of the budget called for a decrease. Secretary Mattis’ recommendation could result in an increase for Facilities SRM and perhaps initiate cuts in other parts of the Facilities O&M budget.
“Building Programs for Promising Advanced Capability Demonstrations”: Addressable R&D spending has been increasing over the past 2 years, from $48.5B in FY 2015 to $53.4B in FY 2016. The Obama administration requested $55.1B for FY 2017, with $15.8B potentially set aside for advanced technology development. Considering the potential focus on advanced capability demonstrations it's likely that overall R&D funding will continue to increase.
The guidance notes that the Department will deliver an updated FY 2018 budget to OMB no later than May 1, 2017.
“PHASE 3: Build Capacity and Improve Lethality – The National Defense Strategy and FY 2019-2023 Defense Program” examines the long-term positioning of defense capabilities. This phase will also examine force structure and advanced capabilities required for a wide array of potential threats. The guidance also notes an “ambitious reform agenda” based on an examination of how DOD does business. More specifically, this would include an enterprise-wide view of operations to identify areas where “horizontal integration” makes sense.
A 2015 analysis by the Defense Business Board identified potential savings across DOD in projected workforce/administration costs for basic business operations for FY 2016 to 2020. Costs could be significantly reduced through contract optimization, personnel reduction, IT modernization, and business systems and process transformation. The emphasis of the incoming Trump administration on cutting waste and costs could drive implementation of these recommendations, which could impact the roughly $1.4B that DOD spends on business systems such as finance/accounting, human resources, supply chain and contract management. Deltek analysis shows that Defense budgets for these types of business systems increased to $1.5B in FY 2016, and could be slated for another increase if the FY 2017 request submitted by the Obama Administration is accepted.
One thing that the previous and current administrations agreed on was the negative impact of budget cuts on defense readiness. Given the risk assessments noted by Former Secretary Carter, there is likely no shortage of information that Secretary Mattis could leverage for developing a new strategy.