Gates Plan To Save Money Likely To Come Up Short

Faced with essentially flat defense budgets, increasing personnel costs and the need to recapitalize an aging force structure, Secretary of Defense Robert Gates has a plan to save $100 billion over five years. Two-thirds of the savings are supposed to come from reducing overhead and one-third from cuts in weapons systems and force structure (this means fewer people in uniform to fight our wars). For the 2012 budget, the military services and defense agencies will be directed to find $7 billion in savings. The good news is that DoD components can keep the money they save and use it to pay for critical programs and activities.

While I wish the Secretary all the best in his effort to save money, the odds of success are not good. The only way to save serious money from overhead accounts is by getting rid of people. But virtually all the people that would have to be let go are civil servants. Unlike private contractors who can be terminated at the convenience of the government, civil servants are almost impossible to get rid of if the government needs to reduce costs. Just ask any school board superintendent who tries to trim his budget by cutting teachers. If history provides any lessons on cutting overhead they are that the process will inevitably take longer and produce less savings than desired.

Remember the base closure effort to reduce excess physical infrastructure and save the Pentagon money? There were five rounds of cuts. The net savings were virtually zero. The reasons were that the people employed at closed bases were often moved to other facilities. The remaining facilities were often expanded, requiring the expenditure of military construction funds and higher maintenance costs. In the end, there were no savings.

Secretary Gates also has made it harder for his department to achieve the cost saving goals he set. In an earlier diktat, the Secretary decided to reduce the number of private contractors supporting DoD and increase the number of government personnel by tens of thousands. Moreover, the costs of more bureaucrats is a gift that keeps on giving through all their pay raises, health care cost increases and retirement benefits. In addition, the Secretary is allowing the services to engage in an orgy of insourcing of maintenance and sustainment work once done by private contractors. Although the claim is that the government will save money this is an unproven assertion. Overall, the Secretary has created a situation in which DoD will be trying to reduce costs in some areas while increasing them in others. The net effect is likely to be no savings or even cost growth.

So a larger percentage of cuts are likely to come in force structure and weapons systems. The only problem with this solution is that the country is fighting two wars. The Secretary has also told the services that they need to think about radically changing their platforms and weapons systems which will cost hundreds and hundreds of billions. Also, the Secretary last year cut some $300 billion from the weapons systems accounts. The result is that there are not a lot of major weapons programs left which can be cut. The fact is that there is not as much fat in the defense budget as the Secretary thinks. Deep cuts mean destroying bone and muscle.