Smoke & Mirrors Alert: Pentagon’s 2014 Budget Proposal Drops Wednesday

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[WARNING: For serious national-security budget experts only. May cause headaches, blurry vision and heart palpitations among normal taxpayers. The editors.]

Pentagon budget rollouts are always part fact, part fiction, with dollops of gimmickry to illuminate — as well as obfuscate.

Here’s your guide to what you need to know come April 10, when the Defense Department is slated to release its 2014 budget proposal.

Addressing the tricks of the trade can give the public a more-informed view of the new budget and how it compares to the past and the future.

For starters, the 2014 defense-spending plan is even more problematic than usual.


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The new budget is usually released in early February; this year’s April 10 disclosure comes after more than the usual confusion thanks to Congress. That is because the members palavered until late March 2013 to pass the indispensable appropriations bill, relying on a so-called “Continuing Resolution” to control—in an extremely clumsy and obtuse manner—Pentagon and other spending for the first five and a half months of fiscal year 2013.

However, even the overdue March spending bill did not clarify precisely what DOD spending was to be for 2013.

Congress failed to set spending accounts at the specific levels required by the “sequester” provisions of its own Budget Control Act of 2011. Congress left that calculation to the President’s Office of Management and Budget (OMB). It is both confusing — and a stunning misuse by Congress of its constitutional power of the purse.

Bottom line: the suspense of this year’s budget rollout won’t be limited to what the 2014 numbers are. A matter of great interest will be: what are the 2013 numbers?

The 2013 appropriations legislation did not make them particularly clear: press releases from the appropriations committees in the House and Senate were even more deceptive than usual, and the text of the official documents accompanying the enacted bills were a rabbit’s warren of disconnected parts.

Some unfortunate souls in the Congressional Budget Office and OMB make a living sorting out what Congress does to the budget numbers.

Their reports are reliable and informative, even when they disagree. One of the more useful (and publically accessible) presentations I know of, and that I will turn to first when the budget comes out next Wednesday, will be a table in OMB’s 2014 budget materials.

This table typically goes back a couple of years and forward 10 years; it is a vast improvement over what the appropriations committees put out; it is even an improvement over what DOD puts out. It shows all DOD spending (which DOD usually does not reveal), and it shows other spending outside DOD that is defense-related.

Unfortunately – Surprise! — this data-rich table is not easy to find.

It’s at the OMB website, but you will need to hunt down a document called “Analytical Perspectives,” usually listed in the column of materials on the left. Click on Analytical Perspectives” and then go to the “Supplemental Materials” down below. Find a table titled “Policy Budget Authority and Outlays by Function, Category, and Program.”

For the past few years, it’s been numbered Table 32-1. You can see it here in last year’s budget materials.


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All the spending categories for the National Defense budget function are there: not just the DOD numbers, but the Department of Energy spending on nuclear weapons activities as well. It also includes various cats and dogs in a category titled “Defense-related activities.” The latter includes the Selective Service, the National Defense Stockpile (of commodities), the international, anti-terror activities of the FBI, and other national-security spending.

The table also includes some spending inside the DOD budget that DOD frequently does not report.

The table includes “Mandatory” spending, also known as “entitlements.” No, there is no Social Security or Medicare spending in the DOD budget, but there is retirement and other spending that is based on multi-year, rather than annual, appropriations. This money is a necessary and proper part of DOD spending, even if it is not usually in DOD’s press release-style budget materials.

Get all these numbers straight, and for completeness and accuracy you will be heads and shoulders above the herd using the materials that the Pentagon puts out each year on budget day.

In table 32-1 you can also find what OMB understands to be Congress’ final word for 2013; you should even find 2012—which has also been a little chaotic.

You can also find in this table the projections for the next 10 years.

But remember: those predictions are based mostly on bureaucratic politics involving the Pentagon and OMB, and external politics between the White House and Republicans—and many Democrats.

So those 10-year projections are set in Jell-O, not stone. History shows that the projection even for one year out is persistently wrong; the numbers for 2023 are pure prognostication.

You might want to assess national-security spending not in the Pentagon or even the “National Defense” budget function. In this OMB table you can also find the budgets for Veterans Affairs (budget function 700) for the additional costs of past and current wars, and International Affairs (function 150) for military and economic aid and other State Department programs integral to national security.

You can also find some spending for military retirement and DOD health care that is not in the National Defense budget function. They are hard to tease out. You can find them if you word search in the pdf version of Table 32-1, especially in functions 550, 600 and 900 for “military retirement” and “DOD Retiree Health Care.”


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But they are a thicket of positive and negative numbers and tricky to net out to an accurate number. Perhaps it is best simply to be aware that they are there, and can amount to low double-digits of billions of dollars. Ask your favorite budget geek what they net out to (if he or she can’t sort it out in a day or two, get a new budget geek).

Having come this far, brave soul, you’ll no doubt be dispirited to learn you still do not have all the defense-related numbers.

You don’t have the Department of Homeland Security (DHS), but unfortunately, the DHS numbers are not explicitly presented in Table 32-1. Go back to the “Supplemental Materials” for “Analytical Perspectives.” There find “Appendix — Homeland Security Mission Funding by Agency and Budget Account.” (At least, that’s what they called it for 2013.)

They should list the budget for DHS which is embedded inside the various budget functions in Table 32-1. But be careful; make sure you are not double-counting any homeland-security funding that shows up in the National Defense budget function or the State Department or Veterans related spending in Table 32-1. There should be tables that help you avoid the double counting. But, this too is not fun.

Don’t look for any intelligence-community spending; it’s $80 billion, give or take, but it’s not shown. It’s classified, and buried in the National Defense Budget Function numbers. Don’t try to add anything for intel; if you do, you will be double counting.

Perhaps you will decide to include the defense share of the national debt, specifically the share of the interest payment in 2014 for the debt that can be attributed to DOD, or National Defense, or all of the above for 2014. Find the total interest payment in function 900 and make your calculation.

Add it all up, and you will get close to $1 trillion.


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Next you may want to make comparisons to show where defense spending is headed in the future, or has been in the past. Some will compare the 2014 defense-budget request to previous plans, showing a large reduction.

Be careful.

The politicians like to use arbitrarily high “baselines,” such as the obsolete 2012 budget plan, or Obama’s dead-on-arrival 2013 long-term budget request for comparison purposes. In doing so, they like to add up all the numbers for 10 years to show the reductions to be in the hundreds of billions, if not trillions, of dollars.

But it is more revealing to compare spending to amounts actually appropriated, rather than a dead plan. Doing this makes the heretofore inscrutable 2013 numbers quite relevant.

Perhaps, the most important “baseline” to use is that set by the Budget Control Act and the “sequester” it imposed on 2013. It also established spending levels, by statute, out to 2022.

That “baseline” is the existing statutory reality. Iit will show Obama’s 2014-2023 plan to be a substantial increase. Keep that in mind when you hear all the hysteria about unprecedented budget cuts in Obama’s plan.

If you want to go viral on phoniness, compare contemporary spending to historic defense spending using the percent of Gross Domestic Product (GDP) dedicated to defense as the yardstick. That way you can pretend recent increases are big decreases, and more huge increases should be oh-so affordable. Avoid this gimmick and those who use it. Apply that thought also to people who use the same gimmick for non-defense spending.

There’s one more trick to know. Defense budget analysts like to pretend they can more accurately measure historic Pentagon spending using an adjustment for inflation.

Analysis of the DOD budget is unique in this use of “constant” dollars: that is, all dollars in a graph or table adjusted to the value of a specific year. For example, this year many will adjust all previous and future DOD dollars to the value DOD sets for dollars in 2014. That way, they say, we can measure “real,” not “nominal,” growth or reductions in future and past DOD budgets.

There are two problems with this approach.

First, it establishes a potentially false comparison to other forms of federal spending that are not typically converted to “constant” dollars. Former House and Senate Budget Committee staffer Mike Lofgren explained the problem in a recent e-mail, shown here with his permission –

What is significant is that this [constant dollar] presentation tends to trick the layman reader into thinking present and future DOD’s budgets are lower than they are because the reader has few benchmarks in daily life for comparison. He generally does not think of his own income history in terms of constant dollars; he only thinks in terms of the nominal dollars in his pocket: most people do not carry … deflator tables around with them. Likewise, virtually all other agency budgets are done solely in nominal dollars, including Medicare and Social Security, which are supposedly eating us alive.

Thus, a graph showing future Pentagon budgets in constant dollars will show significantly less growth than a Social Security or Medicare graph that is in “nominal” dollars. The civilian entitlement spending can easily be shown to be out of control, while the growing Pentagon spending will appear restrained.

Be aware of such optics.


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The second problem with the Defense Department’s “constant” dollars is that DOD cooks the books. Several parties, including the Government Accountability Office, have looked at this in the past.

A study I did in 2011 tries to explain: the Pentagon understates its cost growth, and overstates its inflation, through its use of a unique set of self-serving deflators. If one uses OMB’s deflators instead, you can see that Pentagon spending has risen in the past more than Pentagon deflators show, and for the future the Defense Department predicts more inflation for itself than any other federal agency—thus allowing more money to flow to its coffers.

In the future, it is my plan to ban the Department of Defense’s version of constant dollars from my work and instead use OMB’s quite different deflators. The latter are not perfect, but they are less cooked.

Numbers that are incomplete; numbers that show decreases when increases are occurring — or the reverse — and numbers that purport to be scientific but are mostly alchemy: it’s all par for the Pentagon’s course.