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Cuts are coming: Will the entire budget be on the table?

As expected, President Obama’s address last night focused heavily on the deficit.  Most points we saw coming:

So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. (Applause.) Now, this would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was President.

This freeze will require painful cuts. Already, we’ve frozen the salaries of hardworking federal employees for the next two years. I’ve proposed cuts to things I care deeply about, like community action programs. The Secretary of Defense has also agreed to cut tens of billions of dollars in spending that he and his generals believe our military can do without. (Applause.)

(For a translation of that last part, on Defense, see Josh Rogin’s post at The Cable or mine yesterday.)

More importantly, though, in terms of the budget, the President’s speech contained lines like this:

Now, most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12 percent of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won’t. (Applause.)

The bipartisan fiscal commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it –- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes. (Applause.)

Today, the Congressional Budget Office raised its estimate of the budget deficit to $1.5 trillion for this year, on track to beat out the previous record of $1.4 trillion, set in 2009.

House majority leader Eric Cantor, House budget chairman Paul Ryan and others have echoed the president’s insistence that the entire budget be on the table.  It has yet to be seen what, if anything, will come of these statements.  No doubt, cuts are coming.  The question is where.

Security Spending Conspicuously Absent from Budget Cut Proposals

By now, you’ve probably heard that the theme of tonight’s State of the Union will undoubtedly be the economy.  The President is expected to propose a five year freeze on non-security discretionary spending (déjà vu?) and a ban on earmarks, while Rep. Paul Ryan, who is no doubt practicing his best Reagan impression in front of the mirror as we speak, is gearing up to deliver the Republican response.

Meanwhile, House Republicans hoping to go into the evening with a little extra rhetorical firepower spent the day working to pass another bill because they said they would.  The measure, passed 256-165, would permit Rep. Ryan to reduce all non-security discretionary spending to fiscal 2008 levels or below, but it is another hortatory exercise that is not going anywhere.

Left or right, though, one thing is certain, most proposals have been carefully crafted to exclude “security spending”: Defense, Homeland Security, and Veterans Affairs.

CBS News correspondent Mark Knoller reports via Twitter that the President will call for $78 billion in defense cuts over the next five years.  One would assume this means he will echo Secretary Gates’ recent announcement citing the same numbers.

The problem here is that the term “cut” is used very loosely in Gates’ plan for the defense budget.

Last year’s $100 billion efficiencies initiative was never meant to reduce the Pentagon’s budget, nor contribute to deficit reduction.  Rather, it was meant to reduce Pentagon waste and boost more important mission-critical projects, since the entire $100 billion would be reinvested in DoD.  More importantly, though, it was meant to stave off the harsh and inevitable reality that eventually, the Pentagon may have actually to reduce its budget.

Unfortunately for Gates, the Obama Administration was not satisfied.  When Jacob Lew took over as the new director of the Office of Management and Budget (OMB), he directed Gates to trim $150 billion more, and would not allow the Defense Department to keep the savings.

Gates eventually negotiated the $150 billion figure down to $78 billion, the same $78 billion President Obama is expected to discuss tonight, but as Gordon Adams points out in his remarks to The Cable, the math is a little 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…

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.

Moreover, in Gates’ proposed cuts, the Pentagon’s base budget will not actually go down at any point in the next five years.  It will instead amount to slower growth that will eventually stop, and then begin to grow again.  This is considered a reduction only because the budget will eventually stop growing with the rate of inflation, so further waste will have to be cut.

The president’s fiscal 2012 budget request, to be released on February 14 or 15, is expected to include $554 billion in base Pentagon funding (not including the costs of the wars in Iraq and Afghanistan), $12 billion less than the Pentagon had planned before negotiating with the White House, but $5 billion more than last year’s request.

What does this all mean in reality: domestic discretionary programs are told to go on a strict diet to lose 30 pounds while the Pentagon is supposed to cut down from two cupcakes a day to one.

Congress Doesn’t Show the Money for Nuclear Security

As most observers of Capitol Hill know, the appropriations process for FY 2011 has been a disaster.  The 111th Congress did not pass any of the 12 annual appropriations bills that would fund the government for the current fiscal year.  An Omnibus appropriations bill that would have combined these 12 bills into a single bill failed in the Senate during the lame duck session due to Republican opposition.  This gridlock has claimed a number of casualties, none of which is more alarming than the budget for key programs to prevent dangerous nuclear materials from falling in the hands of terrorists.    

Instead of operating through normal appropriations bills, the government is being funded by a stopgap spending bill known as a Continuing Resolution (CR).  The current CR funds most government programs at FY 2010 enacted levels through March 4, 2011.  

A notable exception to this flat funding rule is the National Nuclear Security Administration’s (NNSA) weapons activities account, one of the few programs funded at FY 2011 levels.  The CR matches the President’s FY 2011 budget request of $7 billion for NNSA, a $624 million increase over the FY 2010 appropriation.  The administration and key Senators lobbied hard for this exception as part of their effort to win Senate approval of the New START treaty.

Unfortunately, the equally essential cause of nuclear terrorism prevention didn’t receive the same special treatment – despite efforts to produce a different outcome…

In FY 2011, the Obama administration requested over $2 billion for international WMD security programs, including a $320 million increase over the FY 2010 budget in support of the global effort to secure all vulnerable nuclear materials within four years. The request includes significant increases for key threat-reduction and nonproliferation programs such as the Global Threat Reduction Initiative, the International Materials Protection and Cooperation Program, and the “Nunn-Lugar” Cooperative Threat Reduction Program.

But the CR only funds these programs at FY 2010 levels for the first half of FY 2011.  This is a significant setback to efforts to prevent nuclear terrorism because the overall funding request and congressional appropriations for threat reduction in FY 2010 are not enough to meet the four year goal, something to which the administration has openly admitted.  The FY 2010 request was actually less than the amount Congress appropriated in FY 2009.  

For a detailed analysis of how the budget numbers for nuclear security under the CR will impact the four year goal, I highly recommend Michelle Marchesano’s recent policy update.  Michelle notes that NNSA might be able to perform some accounting gymnastics to boost funding for NNSA’s Global Threat Reduction Initiative.  But this program is only one piece of the nuclear security puzzle.  The bottom line is that failure to correct the shortfalls in the CR would significantly hamper the administration’s ability to meet the four year goal, generally, and meet its FY 2011 nonproliferation goals, more specifically.

How did we get to this point?  Last summer, both relevant House and Senate subcommittees fully funded the President’s FY 2011 request for nuclear security despite the current economic climate and competing funding demands.  Funding for these programs was also included in the original version of the CR prepared by the House and in the Senate version of the Omnibus bill. But it was dropped in the final CR in the last days of the lame duck.

From what I can tell the omission had very little to do with the merits of securing vulnerable nuclear materials – which enjoys overwhelming bipartisan support – and almost everything to do with the failure of the omnibus and some indiscriminate across the board cuts in the final CR.  In the end, these programs suffered because they weren’t deemed important enough to be treated as individual priorities (contra NNSA’s weapons activities account).  The “anti-spending” craze that currently grips Washington no doubt created a backdrop that contributed to this outcome.

The appropriations picture moving forward remains murky.  It’s certainly not out of the question that Congress could pass a year-long CR for FY 2011.  If an extended CR contains more exceptions than the current version, there’s a good chance the nuclear security money would be added.  If not, nuclear security program managers might have to look elsewhere to meet their FY 2011 commitments, perhaps via the reallocation of funds intended for other purposes.  An additional complicating factor is that the Republican-controlled House could try to increase funding for a litany of higher-profile defense-related programs, including missile defense.  Nuclear security is not likely to be its top priority.  

The Obama administration will of course have to play an active roll in lobbying for its nuclear security budget, just as it did for the FY 2011 money for nuclear “modernization” last fall.  By all accounts the administration remains strongly committed to its nuclear security goals.  Yet it was disconcerting to read a recent GAO report outlining the many gaps in the administration’s plan, including ill-defined objectives and benchmarks.  The report also revealed that the National Security Council apparently “does not consider the 4-year time frame for securing nuclear materials worldwide to be a hard and fast deadline.”

Last fall Duyeon Kim and I noted that despite numerous successes on the nuclear security front in 2010, “even greater international financial and political support will be required to meet the four-year deadline.”  Other countries must of course do their part, but U.S. leadership is critical to this effort.  As Alex Toma and Sarah Williams rightly put it:

Compelling critical programs to operate with insufficient budgets while expecting financial and political pledges from other countries is both hypocritical and irresponsible. Congress can – and should – take responsibility for their 11th hour edits to the CR and include funding that will meet our national security needs.

New Poll: Americans Would Cut Military Spending Over Entitlements

A new New York Times/CBS News poll, based on telephone interviews conducted Jan. 15-19 with over a thousand US adults, contains some interesting statistics on the priorities of the American public.  

It is clear from the numbers that the deficit is a major concern, and Americans would, not surprisingly, prefer the deficit be addressed through spending cuts, rather than higher taxes.  When asked what they would cut, however, that preference seems to disappear.  Nearly two-thirds of Americans chose higher payroll taxes for Medicare and Social Security over reduced benefits in either program.  And when asked to choose among cuts to Medicare, Social Security or military spending – all programs that have grown exponentially over the past decade – 55 percent said cut the Pentagon.

NYT/CBS News Poll

By the way, the House is set to vote this week on a measure that would reduce all non-security spending to fiscal 2008 levels or below.  Clearly, Congress has been listening.

Dueling Quotes of the Day, Uranium Processing Facility (UPF) Edition

Note: Sorry for the lite blogging as of late.  Expect it to pick up over the next couple of weeks.

Asked if the final cost [of the UPF] will be somewhere between $4.2 billion and $6.5 billion, [John] Howanitz [B&W Y-12’s senior vice president for transformation and projects] replied: ‘That’s the question of the day. If you ask me today, I will tell you that based on the information we have acquired, the pricing we have on hand, I’m very confident that this is a good estimate. But I’m not at 90 percent design. …Will it go down? I don’t know. Will it go up? I don’t know. But, if someone were to say, can someone come in and validate this, I would welcome anyone to come in and look at our product — in fact, the government has — and we have a good product.”

Via Frank Munger, January 18, 2010

NNSA is developing 10 new technologies for use in the UPF and is using a systematic approach—Technology Readiness Levels (TRL)—to gauge the extent to which technologies have been demonstrated to work as intended….However, NNSA does not expect all 10 new technologies to achieve the level of maturity called for by best practices before making critical decisions….In addition, DOE’s guidance for establishing optimal TRLs prior to beginning construction is not consistent with best practices or with our previous recommendations. As a result, 6 of 10 technologies NNSA is developing are not expected to reach optimum TRLs consistent with best practices by the time UPF construction begins. If critical technologies fail to work as intended, NNSA may need to revert to existing or alternate technologies, possibly resulting in changes to design plans and space requirements that could delay the project and increase costs.

GAO Report on the UPF, November 2010