The Cable

Bob Gates' fuzzy math on defense budgets

Defense Secretary Bob Gates is among the most savvy officials in a long time when it comes to navigating the budget debates between Congress, the White House, and the Pentagon. But as the Pentagon's fiscal crisis reaches critical mass, Gates' budget gymnastics are pleasing neither the right nor the left.

Gates held a press conference on Thursday to announce a new set of measures that he said would save $100 billion in "efficiencies," and reduce defense spending by another $78 billion on top of that, over the next five years. He said that these steps were necessary "to tackle the budget deficit and the debt problem."

Gates said that his plan would allow the Defense Department to maintain "modest" growth going forward. He has spoken openly about how his strategy is meant to defend the defense budget from both those on the right that seek ever-increasing military budgets and those on the left, as well as conservative deficit hawks, who seek steep cuts in defense funding as part of the U.S. efforts to reduce the government's massive deficits.

"My hope is that, as we go through the hearings for the fiscal year '12 budget, that we will be able to show those who are interested in protecting defense that we have done that, and those who think that defense ought to contribute to reducing the deficit, that we have done that as well," he told PBS News Hour's Jim Lehrer.

That requires Gates to portray his new saving announcements as "cuts" to please those who are concerned with deficits -- which angers the right -- while simultaneously portraying his efforts as a defense of steadily increasing budgets to mollify defense hawks, which angers the left and those concerned with the deficit.

"We will have modest growth in the defense budget for the next three fiscal years. And, then, the last two years of the five-year period, we will be protected against inflation, but not have real growth," Gates told the press conference.

"These cuts are being made without any commitment to restore modest future growth, which is the only way to prevent deep reductions in force structure that will leave our military less capable and less ready to fight," shot back Rep. Buck McKeon (R-CA), the new head of the House Armed Services Committee.

Gates is not only stuck between two sides of Congress, but also must deal with the White House, which is changing the rules on him in the middle of the game. The whole reason that Gates was forced to find $78 billion in new savings over five years was the agreement he struck with the White House on future budgets was cancelled by Jacob Lew, the new director of the Office of Management and Budget (OMB).

Back in August, Gates announced he would find $100 billion in savings but would allow the military services to "keep what they catch." This was Gates' way to incentivize the services to find waste and get out ahead of Congressional drives to cut deeper into the defense budget. But when Lew came in, he directed Gates to trim $150 billion from defense spending over the next five years, and would not allow the Defense Department to keep the savings.

"Gates defended to the teeth the budget request that he thought the White House had agreed to,"
said Gordon Adams, who directed national security spending at OMB during the Clinton administration and now teaches at American University. "Then Jack Lew comes in and asks him to cut $150 billion more."

Gates eventually negotiated the $150 billion figure down to $78 billion, the amount he announced Thursday. But that's where the math gets really fuzzy, because Gates' $78 billion in cuts aren't really cuts at all. $54 billion comes from the president's announcement to freeze federal civilian worker pay. So Gates is capitalizing on Obama's decision without making any additional sacrifices, Adams said.

Another $14 billion comes from "shifts in economic assumptions... for example, decreases in the inflation rate and projected pay raises," Gates said. Adams explained that means the Pentagon simply changed its figure for projected inflation, which changes how much it predicts everything will cost in the future.

The irony is that the Pentagon for decades has used its own mysterious method to measure inflation, rather than using the common GDP deflator that OMB uses. But usually, the Pentagon is arguing that inflation will be higher. Now, because it suits his needs, Gates is arguing inflation will be less than previously expected.

"It's economic magic," said Adams. "If you believe the rate of inflation will be lower than what you thought it was last year, then you can claim you will have modest growth in the defense budget. But there's no way of knowing. And there's no reason in the last 12 months to think that inflation experienced by DOD is in any way different than what the Pentagon thought it would be last year."

What really irritates Adams and other defense budget analysts is Gates' contention that "ever since World War I, when we have come to the end of wars, we have dramatically reduced our defense spending, cut our military forces, and then ended up in another war."

As this chart of defense spending clearly shows, after World War II, that's just not the case. Spending tapered off somewhat after the Korean War and President Clinton sought a reduction in the 1990s, but defense reformers point out that the biggest shift in defense spending is the drastic increases since 2001.

"The point of reference is the amount of spending we had just before the current wars in the base budget, which in the year 2000 was under $400 billion," said Winslow Wheeler, director of the Strauss Military Reform Project at the Center for Defense Information. "So we've gone up a huge amount and now they're calling $530 billion a disaster? Their rhetoric doesn't match their actions on both ends."

The Defense Department is slated to receive $530 billion for the 2011 fiscal year if Congress fails to pass a budget for the Pentagon when the current temporary funding measure expires in March. $530 billion is also the amount the Pentagon received in fiscal 2010, but it is $18 billion less than what the administration requested and $23 billion less than they would have gotten if Congress had passed the bill last year.

"That will be a disaster for us. We will have real problems," Gates said, about the possibility that the Defense Department would receive $530 billion in funding.

"They're going to have to live within that $530 billion so they better go ahead and plan on that basis," said Wheeler.

For fiscal 2012, the White House has agreed to allow the Pentagon to request $554 billion, which is $12 billion less than what the Pentagon had planned for before negotiating with the White House.  That request will be vetted by a new Congress full of Tea Partiers, fiscal conservatives, anti-war lawmakers, and many others who may oppose further budget increases. These lawmakers will also be able to point to calls by the President's deficit commission to take big chunks out of the defense budget in support of their case.

"When you have a potential coalition of Republican budget hawks and those on the left side of the spectrum, that's very real," said Wheeler.

Gates is as skilled as anyone when it comes to handling these competing interests. But his Herculean effort to please all sides may become too difficult even for him this year.

"Gates has been very effective at kicking the can the road and not facing the music," said Wheeler. "But the problem is, that is now catching up to him because the deficit problem is real, the Republicans are under the gun to deal with this, and most of them understand that defense is on the table."

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