Overhead: "business expenses ([such as] rent, insurance, or heating) not chargeable to a particular part of the work or product."
Robert M. Gates has Pentagon overhead expenses in his sights. The Secretary of Defense believes 10 years of rising defense budgets have spawned vast inefficiencies. He wants to wring out the waste, to the tune of $102 billion over five years.
DOD leaders emphasize that, in their opinion, these are not "cuts," because agencies and departments that slash overhead will be allowed to keep the money, and will be expected to plow it back into combat-related accounts. In other words, they will be permitted to convert "tail" to "tooth."
Gates walks a well-worn path.
Gates claimed fiscal reality forced his hand. In making a case for his efficiency push, he asserted, "Given America’s difficult economic circumstances and parlous fiscal condition, military spending ... can and should expect closer, harsher scrutiny." According to the Pentagon chief, DOD budgets must grow by two to three percent per year, in real noninflated terms, simply to maintain a constant capability. Yet future budgets probably won’t grow by more than one percent, he added.
The difference, Gates explained, will be made up with new efficiencies. DOD documents say found money will be redirected to fighting units, readiness programs, combat force structure, and investment in future capabilities.
The question, of course, is whether this push will yield substantive savings. DOD has sought "acquisition reform" for as long as it has had acquisition, and calls to eliminate "waste, fraud, and abuse" are as old as the department itself.
Moreover, it is debatable whether any freed-up money actually will find its way into service coffers. The Air Force in the past has made good-faith reductions (to F-22 force structure and end strength, to cite two prominent examples) only to see "savings" diverted to other services or to pay unexpected bills such as those stemming from higher fuel costs.
Gates is talking about significant amounts of money, and the Pentagon has laid out detailed plans for who must save what. USAF is required to identify $2 billion in efficiencies in 2012 and $3 billion more in 2013. This includes cuts to both overhead and other expenses. The get-slim effort continues to ramp up each year until, in 2016, the Air Force supposedly will be $10 billion more efficient.
USAF must identify a total of $28.3 billion in efficiencies in the next five budget years. So must the Army Department and Navy Department (which includes both the Navy and Marine Corps). The nonservice defense agencies must come up with $17 billion.
Two-thirds of this $102 billion is supposed to come from slashed overhead—noncombat tasks that can be streamlined, consolidated, or eliminated. In a May 8 speech in Abilene, Kan., Gates claimed that 40 percent of all DOD spending can be considered overhead.
He focused on manpower inefficiencies. In the 1990s, he noted, the size of the overall force shrank—the Army by 40 percent—but that the number of generals and admirals was cut only by about half of that amount. Meanwhile, new layers of management continued to spring up. According to a DOD fact sheet, savings must "focus on headquarters and administrative functions, support activities, and other overhead." It said that the cuts must be specific and measurable, and that "percentage and across-the-board reductions are not acceptable."
Deputy Defense Secretary William J. Lynn III explained in June that "we’re talking about a flatter organization, fewer headquarters, smaller staffs"—to include a smaller Office of the Secretary of Defense. This focus on manpower efficiencies does not mean a smaller military end strength, however. "The combat force structure we have right now is what we need," Lynn added.
For all the talk of overhead, however, USAF also has the option of finding the "savings" by canceling lower priority programs and shifting the money to higher priority systems. In fact, Gates explicitly said, "Some of these savings can be found by eliminating unneeded programs and activities."
Lynn said the plan is as follows: Two-thirds of the changes should be "direct transfer" from overhead accounts to force structure and modernization accounts. One-third will come through "developing efficiencies within the force structure and modernization accounts."
For the Air Force, the goal is therefore to wring roughly $1.34 billion from overhead in 2012, while also finding about $670 million in force structure or program efficiencies. "Canceling unneeded programs complements the effort I’m talking about," Pentagon acquisition chief Ashton B. Carter explained June 28. "We will continue to look for and eliminate unneeded capabilities."
It is for that reason that USAF began to ponder some drastic moves. Among them: Retire the entire fleet of 66 conventional B-1B long-range bombers, or eliminate another two wings’ worth of legacy fighters—F-15s, F-16s, and A-10s—to make ends meet.
Plans called for the Air Force to submit its specific efficiency proposals by the last day of July. It will therefore soon be known whether they are actually efficiencies or pure and simple cuts.
More information: http://www.defense.gov/speeches/speech.aspx?speechid=1467
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