Defense Secretary Chuck Hagel has targeted three areas for cuts: acquisition, personnel and overhead. Those areas have received more attention of late, particularly as the Pentagon's budget faces a $500 billion cut from planned levels over the next decade. (Alex Wong / Getty Images)
Defense Secretary Chuck Hagel’s call last week to overhaul the military structure focused on three primary Pentagon cost drivers: acquisition, personnel and overhead.
“I would say amen, alleluia, because [Hagel] has zeroed in on the bull’s-eye on the three areas that need to be looked at the hardest and reformed the most,” said Arnold Punaro, a retired Marine Corps major general, now a consultant member of the Defense Business Board.
These areas identified by Hagel, who has been Defense secretary for a little more than a month, have received more attention of late, particularly as the Pentagon’s budget faces a $500 billion cut from planned levels over the next decade.
Experts say the Pentagon should have been considering these types of changes even when budgets were increasing, but the current decline in federal spending now could drive major DoD reforms, even those unpopular with Congress.
During his first major policy address as Defense secretary, Hagel put DoD on notice.
“We need to challenge all past assumptions, and we need to put everything on the table,” Hagel said April 3 at the National Defense University.
Among those items on the table are weapon programs. Hagel said he is concerned the military’s modernization strategy depends on systems that are “vastly more expensive and technologically risky than what was promised or budgeted for.”
A powerful oversight group led by Deputy Defense Secretary Ashton Carter and Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, is looking at ways to put Hagel’s plans into action.
The so-called Strategic Choices and Management Review is looking at the Pentagon’s year-old military strategy to determine how planned budget cuts will affect DoD’s ability to carry out its missions. The panel is expected to report back to Hagel by the end of May.
Hagel’s speech comes at a time when the Pentagon must cut $41 billion from its 2013 budget over the next six months, with even more cuts looming.
The Pentagon is planning to submit its budget to Congress on April 10. That budget request is expected to be about $50 billion above the $475 billion cap mandated by the Budget Control Act, according to Todd Harrison, an analyst with the Center for Strategic and Budgetary Assessments in Washington.
However, the items on Hagel’s reform agenda likely will not be addressed until the Pentagon submits its 2015 budget proposal next year. This is because the Pentagon’s 2014 budget was built before sequestration was triggered March 1 and the Strategic Choices and Management Review will not be complete until the end of May.
Rising acquisition, personnel and overhead costs have been crowding out other portions of the Pentagon’s budget, especially over the past decade.
Hagel “has apparently concluded that if he doesn’t focus on significant reforms in those three areas, we’re not going to have the defense capabilities we need down the road,” Punaro said.
Punaro, a former Senate Armed Services Committee staff director, played a major role in the construction of the 1986 Goldwater-Nichols Act, which reorganized the Defense Department by increasing jointness among the military services and establishing clear operational chains of command.
The Pentagon’s overhead costs, particularly the size of the organizations and agencies that support the fighting force, which Hagel referred to in his speech as the “back office,” have ballooned, according to Punaro. At the same time, the size of that fighting force has declined.
“The tooth-to-tail ratio, which was not great to start with, has gotten worse,” Punaro said.
Hagel said the Pentagon “should never be” run like a corporation but can learn from the private sector when it comes to reducing layers of middle and upper management.
“We need to examine whether DoD is structured and incentivized to ask for more and do more, and that entails taking a hard look at requirements — how they are generated, and where they are generated from,” he said.
Data shows the Office of the Secretary of Defense, the Joint Chiefs of Staff, Defense agencies and combatant commands account for more than 240,000 people who consume about $113 billion of the defense budget annually, Punaro said. These figures do not include contractors.
“We need to relook at funding for these activities, which won’t be easy,” Hagel said.
Moreover, Hagel said that despite shrinking in size dramatically during the 1990s following the end of the Cold War, the military has not adapted, as large commands led by three- and four-star generals and elaborate support structures have remained intact.
“If you’re able to do that in a way that eliminates levels of hierarchy, flattens it a bit and reduces your headquarters staffs, that could save you some money for real,” Harrison said during an April 5 briefing.
Harrison noted this type of excess Cold War structure is an area the Pentagon should address in the upcoming Quadrennial Defense Review.
“Left unchecked, spiraling costs to sustain existing structures and institutions, provide benefits to personnel and develop replacements for aging weapon platforms will eventually crowd out spending on procurement, operations and readiness — the budget categories that enable the military to be and stay prepared,” he said.
In the past 10 years, DoD has added more than 100,000 civilian employees, Punaro said.
One way to drive the changes is by reducing funding, said Gordon Adams, who oversaw defense budgets at the Office of Management Budget during the Clinton administration and is now a distinguished fellow at the Stimson Center think tank.
“The way you get at the overhead is by removing the funding,” he said.
DoD officials, watchdog groups and analysts often point to over-budget and delayed acquisition programs as places to trim.
“What makes it compelling now is people are really beginning to understand that we’ve got to get more bang for the buck for the dollars we spend,” Punaro said.
For several months, Frank Kendall, the Pentagon’s acquisition chief, has been rewriting the DoD weapon buying framework to simplify the now-laborious process.
Personnel costs, which have doubled over the last 10 years, also have driven cost increases, Punaro said.
If personnel costs grow at 2.6 percent — about 2 percent below the current average — over the next decade, they will consume about 46 percent of the defense budget in 2021, Harrison said. This assumes current defense budget caps are still in play.
Punaro, who has studied these costs extensively, said changes in this area must be phased in.
“Because of the accrual funds that we pay the military retirement and to the health care accrual for the 2.4 million that are now retired, you could save half of the sequester cut in the next 10 years if you just change the formula for people 20 years out, and you wouldn’t have to cut a ship or a plane or a tank or a bayonet or a bullet,” he said.
Now that Hagel has laid out his ambitious goals, the questions become: Can he deliver, and how long will it take?
Instituting these types of changes takes time, from three to five years, experts said.
“The number of years is not magic,” Adams said. “The stick-to-it-iveness is.”
The Goldwater-Nichols reforms of the 1980s took between three and four years to complete, Punaro said, and involved think tanks, retired military officials and lawmakers from the House and Senate. Numerous studies were conducted and those involved needed to spend time educating all parties on the challenges.
Congress must play a major role. Hours after Hagel’s speech last week, House Armed Services Committee Chairman Rep. Buck McKeon, a Republican from California and opponent of Hagel’s confirmation, said he looks “forward to working with Secretary Hagel to reform these institutions.”
“Many of the measures he recommends, like transforming outdated bureaucracies and cumbersome acquisition processes, are long overdue and should be executed absent the military’s current resource crisis,” he said.
The magnitude and scope of the changes sought cannot be achieved overnight, and unlike the Goldwater-Nichols era, the military now faces more immediate cuts to its budget.
“The bottom line here is, can he discipline the services?” Adams said. “The back office, which is where the money is, belongs to the services.”
Hagel needs to send a message to the Pentagon’s senior leadership that he is serious about the reforms, Punaro said.
“He’s just going to have to be a bureaucracy buster,” he said. “That’s about the only way you get this stuff done.”
Hagel must keep these goals on the front burner and maintain full control of the effort.
“It won’t happen if he lets it drift, if he lets other people do it, if he doesn’t focus on it every week; we’ll end up with a peanut-butter spread,” Adams said referring to equal spreading of the budget cuts across DoD. “He’s got to become Chuck the Knife.”