Budget Hell: Kendall Prays For 3-Month CR, Fears 6

NATIONAL PRESS CLUB: The Pentagon’s top buyer is praying that Congress will only be three months late enacting a 2017 budget, instead of six. Frank Kendall’s frank comments made clear that on-time is off the table. Kendall’s got cause for concern. Just yesterday, the Senate failed for the third time to pass a defense funding bill.

“The election coming up is obviously drawing a lot of attention,” Kendall said this morning at the annual Common Defense (ComDef) conference. “We have to get past that, and then I hope we can resolve whatever differences there are (between House and Senate). It may have to go into the next administration.”

The timeline looks ugly. The fiscal year begins October 1st, while the elections happen November 8th, more than a month later. Clinton or Trump won’t be sworn in as president until January 20, almost three months later. If Congress can’t pass a final funding bill in the next three weeks — or if it does but then President Obama vetoes it — the only options are a government shutdown or a stopgap Continuing Resolution.

“The best I think we can see is they will pass a continuing resolution…that will fund the government until sometime in December,” said budget analyst Todd Harrison of the Center for Strategic & International Studies, speaking at ComDef after Kendall.

A CR which basically puts spending on autopilot at the previous year’s levels, with little to no leeway to adjust funding, let alone to start new programs or terminate old ones. You waste millions continuing things you want to cancel and delay new starts by months. A three-month CR — which, remember, is both Kendall and Harrison’s best case — is painful enough. A half-year CR — which some in Congress are considering — would be sheer agony.

“I’m hoping that cooler heads will prevail and we’ll get three months,” Kendall said.

Harrison thinks three months is more likely than six. “We’ve never had a resolution that spans a change between administrations,” he said. “Even if Congress passed it, why would the president sign it?” A six-month CR would punt the decision to the next President, so Obama’s signature on it would be a death sentence on his own influence, Harrison said: “if he signs a continuing resolution that extends past January 20th, he’s basically given up.”

But there are many time-consuming hurdles before we can get a proper budget passed. Even once the Senate passes its appropriations bill, the draft legislation must be reconciled with the very different House version. The House would shift $18 billion from current combat operations — the Overseas Contingency Operations account — to broader readiness and acquisition needs, which the administration has denounced as an irresponsible fiscal gimmick. “They’ve funded the war for (only) half the year,” Kendall scoffed.

The same $18 billion gap exists between the House and Senate policy bills, aka the National Defense Authorization Act, which must be reconciled in parallel to the appropriations. “There’s not an instance in modern history where congress has failed to pass an NDAA in a presidential transition year before the new president took office,” Harrison reassured the ComDef audience. “It would be unprecedented.”

But there have been plenty of unprecedented events in recent years, from the 2013 sequestration to the rise of Trump, and Congress keeps getting more dysfunctional. Last year Obama vetoed the first version of the NDAA to pass Congress, using it as leverage for a deal on the Budget Control Act (aka sequestration). This month, a leaked Pentagon memo made explicit the administration’s plan to exploit the House-Senate divide to get what it considers a more responsible budget — but all this debate takes time.

“There are conference negotiations going on now (on the authorization bill); we’re talking to both sides at the staff level,” Kendall said. “There are a lot of things we need to get adjustments on” in both the authorization and appropriations bills. Kendall particularly denounced the House-passed version of the National Defense Authorization Act, which he called the longest NDAA draft ever, for its “micromanagement” of the Pentagon as well as the $18 billion gimmick.

Funding is fundamental, Kendall made clear. There’s been a lot of talk about innovation and excitement about new ideas — the Third Offset Strategy, the Strategic Capabilities Office, the Defense Innovation Unit (Experimental) — but actually realizing new ideas costs money.

“We are at risk of obscuring the resource problem by talking about innovation,” Kendall said. “We have may have created a (misperception) that our problem is a lack of innovation… The problem we have fundamentally is a lack of resources.”

“it’s good to have options. It’s better to have actual future investments,” he said.

Meanwhile, while Kendall waits on Congress, he’s working on the fourth iteration of his Better Buying Power initiative, BBP 4.0, to make the most of whatever funding the Pentagon does get. Whereas earlier BBP roll-outs focused on cost control, professionalism, and innovation, 4.0 will look specifically at service contracts and sustainment costs. The years or decades of operations, maintenance, and upgrades which dwarf the up-front costs of actually buying a weapon.

Kendall plans to make some progress on sustainment before Obama leaves office, but a full-up BBP 4.0 package will take into the next administration — if it decides to do it at all. “A year from now,” Kendall said to laughter, “people may not care at all what I think about anything.”