O’Keefe’s Proposal For DoD “Regulatory Holiday” Has Merit

No one ever wants to cut the bone and muscle out of defense but everyone wants to cut the fat. Even the most ardent supporters of a strong defense and robust defense budgets will in the same breath speak of reducing waste. The trouble is that there is no agreement regarding what constitutes fat or where in the defense budget the waste resides. For every voice advocating reducing unsustainable military pay and benefits or shrinking DoD’s bloated infrastructure there is another one insisting that America’s men and women in uniform deserve everything they are receiving – and then some – and that the infrastructure to be cut is in some other location, state or Congressional district. This argument has been going on since the days of the Packard Commission, some twenty years ago.

So it is refreshing when I run across a new idea or at least one that hasn’t been beaten to death. It is even more noteworthy when it comes from someone with a wealth of experience in both the Department of Defense (DoD) and the private sector. Sean O’Keefe, former NASA Administrator, DoD Comptroller, Secretary of the Navy and Deputy Director of the Office of Management and Budget, and currently chairman and CEO of EADS North America, is proposing that the President declare a holiday on government regulations. In an editorial in this week’s Aviation Week & Space Technology, O’Keefe floats the idea of a “regulatory holiday” as an alternative to sequestration.

O’Keefe argues that regulations raise the price to the government of the goods it purchases by some 20 percent. For fiscal year 2013, DoD proposed spending $178.2 billion for procurement and R&D, $208 billion for Operations and Support and $9.6 billion on Military Construction. If only half this amount is spent on goods, a procurement holiday could save the department $79 billion in its first year or 50 percent more than will have to be taken out of the defense budget due to sequestration. But government regulations also raise people costs so the savings could be substantially greater. Even if the Pentagon decides to keep some regulations, for example those related to safety, suspending non-critical regulations would save many tens of billions of dollars.

Our research at the Lexington Institute confirms O’Keefe’s argument regarding the cost of regulations to DoD. Numerous studies by independent institutions have estimated the regulatory burden on defense goods and services to be between 18 and 50 percent of the final price, depending on the particular item or activity. There is also the additional cost to the department associated with maintaining, updating and revising regulations as well as the monitoring of adherence to them by private vendors. Our analyses suggest that DoD could save between $45 and $95 billion annually by reforming its acquisition system.

A regulatory holiday for a year or two is the defense equivalent of the current payroll tax reduction. It would provide a breathing space for decision makers to consider carefully how much the nation should spend on defense. It would also create an opportunity for DoD to review all its regulations that add to the cost of government with an eye to eliminating those that are outmoded, unnecessary and excessively costly.

The President has already used his executive powers to waive enforcement of various laws and regulations dealing with domestic issues which he finds objectionable. Perhaps he should consider doing the same on national security grounds with respect to regulations impacting DoD purchases.