Panetta Presents New Defense Budget

Yesterday, Secretary of Defense Leon Panetta fleshed out the widely-anticipated FY 2013 defense budget. The budget showed to some extent how the Obama Administration plans on meeting the defense reductions that are necessary because of the discretionary spending caps in the Budget Control Act.

While Panetta's briefing was not as detailed as next month's budget, it included more details than we had heard in previous speeches and laid down the topline defense numbers the Administration will propose over the next five years.

The new defense budget will seek to save $259 billion over five years and $487 billion over ten years relative to last year's President's budget (it is difficult to compare to CBO numbers since OMB and CBO define "defense" differently). It will result in the first nominal cut to defense spending (from 2012 to 2013) since the wars in Iraq and Afghanistan began, and it will limit spending roughly to inflation thereafter.

Secretary Panetta emphasized the fact that a shift in priorities was necessary with the coming budget reductions. The new budget will emphasize presence in the Middle East and the Asia-Pacific region, with the withdrawal of two of four brigades from Europe. Overall, the Army will shrink from 562,000 troops to 490,000 -- 30,000 more than originally planned -- and the Marines will shrink from 202,000 to 182,000.

A number of scheduled procurements would be either delayed or eliminated and many vehicles would be retired. The Navy would see a number of lower priority ships retired or eliminated; procurement of the F-35 Joint Strike Fighter would be slowed; the airlift fleet would be significantly cut down; and the Army Ground Combat Vehicle would be delayed.

Panetta stated that they had identified $60 billion in additional savings over five years through efficiencies. Steps to save $60 billion include reducing the cost of contracting purchases through competition, using information technology better, streamlining staff and contracting, and using the BRAC base closure process more aggressively.

The budget also includes a number of changes to military benefits. Panetta proposed to limit pay raises to private sector wage inflation in 2013 and 2014 and below that in 2015; in recent years, Congress has approved pay raises beyond even what the Pentagon has recommended. Panetta also mentioned introducing a fee for TRICARE-for-Life, the Medigap-like plan for military retirees, and increasing fees, copays, and deductibles for TRICARE for non-elderly, non-disabled military retirees. In addition, he recommended creating a commission to examine military retirement benefits, although the budget would not make any changes itself to military pensions.

Reductions that some people were anticipating did not occur. In a somewhat surprising move, the Administration did not choose to reduce the size of the nuclear warhead stock -- despite previous indications that it might do so -- and it kept all three legs of the nuclear triad (bombers, submarine missiles, and land missiles). The Navy's aircraft carrier fleet stayed at 11, although it was rumored to be cut in the lead-up to the speech. One would look to these areas, in addition to further procurement cuts, as places the Administration could go if it had to abide by the lower post-trigger defense caps.

P.S. See Fred Kaplan's piece in Slate on the case for going further with defense cuts.