Virus Intensifies Renewed Pentagon, Congress Clash Over Spending

The Pentagon and Congress are renewing a fight over cuts to the almost $120 billion in annual overhead spending by the department, as fallout from the coronavirus pandemic threatens new pressures on the defense budget,

Lawmakers are armed with a new independent study this month showing little progress on expected cuts over recent years and may scrap a chief management officer position created for the job but now seen as ineffective. Congress may also look to retool the Pentagon hierarchy hoping for savings, while some lawmakers are already demanding significant defense spending cuts.

Defense Secretary Mark Esper is doing his own review of the CMO’s performance, and so far publicly backs Lisa Hershman, who was confirmed to the position in December, as coronavirus threatens federal spending and House progressives promise a coming fight over reducing the Pentagon’s top line in fiscal 2021.

“What I do know is that the secretary and I have been very aligned in what we’re trying to accomplish,” Hershman said in an interview.

The debate over reining in support spending outside the military departments is roaring back ahead of the fiscal 2021 defense authorization bill at the urging of fiscal hawks such as Mac Thornberry (R-Texas), the House Armed Services Committee’s ranking member.

Pentagon Management Officer Job ‘Not Working Out,’ Lawmaker Says

The last defense authorization (Public Law 116-92) enacted in December called for an independent assessment of the chief management officer’s performance in overhauling Pentagon spending and the internal review now being conducted by Esper. It was a follow-up to two prior years’ efforts at savings that began with the creation of the new No. 3 Pentagon position in an authorization bill helmed by Thornberry and the late Sen. John McCain (R-Ariz.).

The Defense Business Board, an advisory body to Esper, finished the independent review ordered by the legislation this month and found the chief management officer was “mostly ineffective,” a determination based partly on dozens of interviews with top political appointees in the Pentagon as well as generals and admirals.

“It’s not working out very well, that is true over multiple administrations, over multiple CMOs,” Thornberry told reporters in late April. “We want to work with the department to figure out how to accomplish the goals that we had several years ago when we created the position.”

Overhead Spending Targeted

For years, the target has been cutting the $120 billion in Pentagon overhead spending, often called defense-wide spending or the “Fourth Estate.” Thornberry pushed the department to shoot for a 25% reduction under the new CMO. Earlier efforts to empower defense officials to go after savings date back at least to 2008.

The accounts exist outside the military service departments and constitute almost 17 percent of the total defense budget, according to the Defense Business Board. They encompass health care, missile defense, military schools, and grocery stores, as well as the Office of the Secretary of Defense, Joint Staff, and classified intelligence operations. About $65 billion in appropriated money and revenue is in working capital funds used for the operations.

The top 10 defense-wide agencies spend more than the 10 largest U.S. defense contractors receive, combined, including Lockheed Martin Corp., Boeing Co., Raytheon Co., and General Dynamics Corp., the board pointed out.

Esper, a former Raytheon vice president, oversaw $25 billion in planned Army cuts as its service secretary and made wringing savings out of the defense-wide operations a top priority when he took over the Pentagon in July.

He ordered a review of 50 of the defense-wide agencies and activities. Hershman led the review, which resulted in $5.7 billion in projected savings in fiscal 2021. Working capital fund expenses will also be trimmed by $200 million and $2.1 billion in defense-wide operations will be transferred to the military service departments.

“Lisa Hershman’s been excelling in that position, has been a real benefit to the department in working through transformation and on many of the issues that she has been tasked with,” chief Pentagon spokesman Jonathan Hoffman said at a recent briefing.

In January, the defense secretary sent a department memo putting Hershman in charge of a new model for governing defense-wide accounts. Her top responsibilities include reviewing performance, overseeing fiscal planning, and assembling a consolidated budget plan for fiscal years 2022-2026.

“We’ve sat down with each of the folks and gone through their major issues. We are looking at budget and performance reviews and performance targets,” said Hershman, who served in an acting role throughout 2019 after the first confirmed CMO was pushed out.

Neither Hershman nor Esper favors across-the-board cuts to defense-wide operations and she is now working through options with managers on how to trim costs, she said.

Political Pressure

Political pressure is already mounting on the defense budget but finding additional overhead savings in the department could be difficult. Senators on the Armed Services Committee plan to start drafting the fiscal 2021 authorization bill June 8.

Defense Policy Bill Senate Markup Will Begin on June 8

In a preview of what may be coming, a group of 29 House progressive Democrats sent a letter to the House Armed Services leaders on May 19 urging them to mark up a defense authorization bill that would keep the Pentagon budget below last year’s level.

“Congress must remain focused on responding to the coronavirus pandemic and distributing needed aid domestically,” they wrote in a push spearheaded by Reps. Mark Pocan (D-Wis.) and Barbara Lee (D-Calif.).

The pandemic has ravaged the U.S. economy, caused historic unemployment, and is already spurring a re-emergence of deficit politics that could depress defense spending in coming years, according to Doug Berenson, the managing director of Avascent, a consulting firm.

The Pentagon will probably be faced with painful budget tradeoffs that cause an even sharper focus on cutting the defense-wide overhead operations, despite the $5.7 billion already planned, Berenson said during a Bloomberg Intelligence briefing.

“This is where everyone wants to focus but they are often the hardest to realize, partly because DOD has gone to this well many times before,” he said. “A lot of further savings from overhead would probably require a base-closure round and other cuts to DOD institutions that members of Congress could oppose because they affect activities in their districts.”