Spartacus Report: Will the Bush/Rumsfeld Pentagon Endorse
June 26, 2001
Discussion Thread - Comment #s 169, 414
 Byrd - Rumsfeld Dialogue, Hearing Of The Senate Armed Services Committee, Subject: Defense Strategy Review, 216 Hart Senate Office Building, Washington, D.C., 9:04 A.M. Edt Thursday, June 21, 2001. Attached
Separate Attachment in Adobe Acrobat Format: (32 KB PDF file)
Coverage of the Spartacus Report by defense reporter Elaine M. Grossman.
The FY 2001 Supplemental Appropriation and FY 2002 Budget Amendment bring the nation's defense budget (the DoD plus the defense-related expenditures in DoE) to $343 billion, or as much as the next 15 largest countries combined - the so-called "15 Power Standard". Yet, as we saw in Comment #414, pressure is building to cut back the strategy used for determining the size of the force to what a cold warrior would label the "Half War Plus" Scenario.
If adopted, the "Half War Plus" Scenario would justify a reduction in forces and troop strength. These changes would reduce the growth in the operating budget, despite the fact that operating costs per unit of combat power will continue to rise, thus setting the stage for more problems in the future. The reduced demands of the new strategy and the smaller force structure would also make it cheaper in the short term to maintain appearances with statistically satisfactory "C-1" or "C-2" readiness ratings in the Quarterly Readiness Reports to Congress. Moreover, the "savings" from the reduced increases in operating budget plus the real-growth effects of the budget increases attending the rise to the "15 Power Standard" would generate gobs of money that could be safely be plowed into the modernization budget. And voila!! Š the porkers in the Military - Industrial - Congressional Complex (the MICC) will avoid the horrors of having to terminate the high cost modernization programs that are leftover from the Cold War.
Will such a plan work?
Probably not - here's part of the reason why.
While the expediencies promoted by this plan seem rational, if somewhat bizarre, unintended consequences rule in Versailles. Part of this plan, for example, depends on the theory that the money spent to improve the readiness of the smaller force will actually improve its readiness. This simple cause and effect assumption might be a reasonable in a capitalist economy, where market forces rule. But the MICC economy is decidedly not a capitalist economy. In fact, the American MICC is now the world's largest centrally planned economy - which is why the consequences of this plan may be far different from those intended.
In The Fatal Conceit: The Errors of Socialism (University of Chicago Press, 1988), the conservative economist and libertarian social philosopher F. A. Hayek showed convincingly how centrally-planned economies naturally corrupt the information flowing up and down the chain of command. This produces a top-down decision-making process that becomes progressively disconnected from the environment it purports to cope with, as was spectacularly demonstrated by the collapse of the Soviet Union.
Hayek's predictions are clearly evident in today's Pentagon, which is in a tightening death spiral, because it can not solve three interrelated problems of its own making: a modernization program that can not modernize the force in a timely manner because the new weapons cost far more than the weapons they are replacing, a deteriorating readiness posture brought about by the rising cost of low readiness, and a corrupt accounting system that makes it impossible to assemble the information needed to understand and fix the first two problems [See Comment #169].
There is a growing evidence, for example, that money spent on readiness may not improve readiness. In FY 1999, Congress gave the Pentagon an extra $1.1 billion in emergency supplemental funds specifically earmarked for spare parts. Of this $1.1 billion, a recent audit by the General Accounting Office concluded that $87 million did go into an account for Navy aircraft spares, but the rest disappeared into general operations and maintenance accounts and could have been used for most anything. the complete report can be downloaded from here.
The GAO report triggered a recent exchange between Senator Byrd and Defense Secretary Rumsfeld at a hearing of the Senate Armed Services Committee, which is attached below as Ref. 1. Note how Byrd, a Democrat, echoes Hayek (a darling of conservative Republicans) by asking Rumsfeld, "how can this committee here have any confidence that these funds that are being requested in the Supplemental Appropriations Bill which we're marking up today will be used as Congress intends them to be?" [emphasis added].
Byrd is suggesting budget decisions made by Congress and the Pentagon are based on information that is disconnected from reality. But a recent analysis by a long serving member of the congressional staff suggests that Byrd's question may be reaching into the tip of a far larger "Hayekian" iceberg.
Submitted herewith are the summary and conclusions of Spartacus Report. The complete report, which I urge you to read, is attached separately to this message in DF format.
Spartacus, who must remain anonymous, concludes that despite budget increases of $117 billion between FY 1999 and 2002 to improve readiness, spending for "core readiness" has actually declined by somewhere between $300 million and $2.9 billion.
---------[Summary of Spartacus Report]--------
Will the Bush/Rumsfeld Pentagon Endorse Existing Plans to Worsen Military Readiness?
Since 1998, there has been rhetoric from both Defense Department officials and Republican and Democratic Members of Congress about low military readiness and the need to increase defense spending to address it. Largely as a result, Department of Defense (DoD) budgets for fiscal years (FYs) 1999-2002 have increased by $117 billion. 
Despite this $117 billion increase, spending for core military readiness  activities, as enacted by Congress up to calendar year 2001, has declined. By one measure the decline has been $300 million; by another it is 2.9 billion.  These data calculate to a 0.7 to 8.3 percent reduction over the same period (1999-2002).
Readiness in "first deployer  units remains a significant problem, and undelivered spending increases for readiness remain needed. However, that is not the expressed plan of the Joint Chiefs of Staff (JCS). Based on their statements in September 2000, the Joint Chiefs want to shift future spending increases away from DoD's Operations and Maintenance account (O&M) toward the Procurement account. More recent statements by the Joint Chiefs show no intention to alter this plan. If the dollar shift proposed by the Joint Chiefs occurs, current problems in the readiness of U.S. military units can be expected to worsen.
With defense spending increasing and with readiness spending declining, the current defense budget has achieved a condition of declining readiness at increasing cost. When Secretary of Defense Rumsfeld completes the proposed 2002 defense budget, it should be carefully inspected to determine whether it helps or hurts funding for the core readiness of combat units.
The complete text of this analysis is in Adobe Acrobat Format at separate Attachment 1.
 The author is a member of the congressional staff, and because this paper includes his personal views, he has made the paper available using a pseudonym to avoid any mis-association of his views with the office where he works.
 The data bases and methods of calculation used are explained below.
 First deployer" units are those combat formations of the military services that are designated in DoD planning documents as those units most likely to be employed in the early stages of a conflict or peacekeeping contingency operations where combat skills may be employed.
--------[End Summary of Spartacus Report]------
If Spartacus is correct, then Senator Byrd's "Hayekian Iceberg" is far larger than he suspects.
I repeat Š Job 1 in the Pentagon is to fix the books, then we might have enough reliable information to forge a coherent strategy that will work in the real world.
[Disclaimer: In accordance with 17 U.S.C. 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.]
[Dialogue between Senator Robert Byrd and Defense Secretary Donald Rumsfeld]
Hearing Of The Senate Armed Services Committee
216 Hart Senate Office Building, Washington, D.C.
SEN. ROBERT C. BYRD (D-WV): I thank you, Mr. Chairman, for your courtesy. And I thank you, Secretary Rumsfeld, for your statement, and I thank you, General Shelton, for appearing her today.
The General Accounting Office -- let me say parenthetically once again that I favor the strategic review. I, of course, don't what the results will be, nor do any of the others of us. The General Accounting Office released a report on Monday, June 11, on the Pentagon's use of $1.1 billion that was earmarked in the FY 1999 Supplemental Appropriations Act to address the critical shortage of spare parts for the military. The GAO found that 8 percent of that money, or $88 million, was used by the Navy to purchase spare parts. The remaining 92 percent of the appropriations was transferred to the Operations and Maintenance accounts of the military services and thus became indistinguishable from other Operations and Maintenance funds used for activities that include mobilization and training and administration. [This report can be downloaded from the following link here]
While funds in the Operations and Maintenance accounts can be used to purchase spare parts, the GAO report states that the military services, quote, "could not readily provide information to show how these funds were used," close quote, therefore confounding the GAO's attempt to verify that the funds were actually used to purchase the spare parts that were urgently needed.
Now Mr. Secretary, the reason I can't come back here today is because I'm chairing the markup of the Appropriations Committee on the 2001 Supplemental Appropriations Bill. So this question comes at a very important time. I find it shocking that the Pentagon requested funds to meet an urgent need and then is unable to show Congress that it used those funds to address the problem. [emphasis added]
Now, while you're not responsible for the department's use of appropriations before you assumed your current position, the FY 2001 Supplemental Appropriations Bill that was submitted to Congress contains $2.9 billion that will go to the same Operations and Maintenance accounts that lost track of the $1 billion that was appropriated two years ago.
Now, how can Congress, how can my Appropriations Committee, how can this committee here have any confidence that these funds that are being requested in the Supplemental Appropriations Bill which we're marking up today will be used as Congress intends them to be? [emphasis added]
SEC. RUMSFELD: Senator Byrd, you know better than most anybody that the financial reporting systems of the Department of Defense are in disarray; that is to say, they are perfectly capable of reporting certain things, but they're not capable of providing the kinds of financial management information that any large organization would normally have.
At your suggestion in my confirmation hearing, we have asked -- we had a team of people take a look at the financial reporting systems. They've reported to the new comptroller general, Dr. Dov Zakheim. He has begun the process of finding ways to see that the ability to track transactions is improved.
The problem here -- and, of course, needless to say, I don't know about the specific instance you're describing. But the problem, insofar as it's been characterized to me, is not that the money is necessarily going to something other than it should be, it is that the financial systems don't enable one to track the transaction sufficiently that we can go to the Congress and say in fact of certain knowledge they went where the Congress indicated they should go.
SEN. BYRD: Yes. Now, Mr. Secretary, I know that you're working on this, we've discussed this before in this committee. But here we have a request today before the Senate Appropriations Committee -- I'm the chairman, and I'm going to follow this. And as I say, you can't be held accountable for what has happened before your watch began, but your watch is beginning. Now, we're being requested for, as I say, over $2 billion -- $2.9 billion, to go to the same O&M accounts that lost track of the $1 billion that was appropriated two years ago.
Now, if we appropriate that money in the appropriations bill which I'm reporting out -- and I'm adding language in the committee report to tighten the screws on the Defense Department in this respect. If we put that bill out with that money in it, what assurance can this committee have, and what assurance can the Appropriations Committee have that that money is going to be trackable and that the money that's being asked for spare parts will be used for spare parts and that we can follow the tracks, that the GAO can follow those tracks, because, Mr. Secretary, you're going to come back next year and want more money. Now, what assurance can I have?
SEC. RUMSFELD: Well, I tend to like to under-promise and over- deliver, if I can. So I'm going to be just brutally frank. I am told by the experts that it will take years to get the financial systems revised and adjusted to a point where they will be able to track in a real-time basis each of the transactions that takes place in the department.
So the assurance -- I can't give you assurance that the financial systems will be fixed in five minutes or a year or two years because the estimates are multiple years.
SEN. BYRD: Yeah, I understand that.
SEC. RUMSFELD: What I can assure you is that in terms of this administration, what we will do is do everything humanly possible to be absolutely certain that the instructions are very clear as to where funds should be spent, and to the extent there's going to be any shifting or reprogramming, that we come to the Congress, under the law, and seek appropriate approval.
SEN. BYRD: I have every confidence that you're going to do that. But specifically now, specifically with respect to the spare parts -- this is what I'm talking about -- where $1.1 billion was earmarked last year for spare parts -- or two years ago, in the FY 1999 supplemental appropriation, GAO found that 92 percent of those funds were transferred to O&M accounts. What assurance do we have that the $2.9 billion that are being requested in today's supplemental appropriations are going to be trackable?
I know you're undergoing this systems review. I have great respect for your efforts and I know that's what you intend to do. But I am specifically upset because of the earmarking that went on here with respect to spare parts; the General Accounting Office is not able to track those. Now, what's going to happen with the $2.9 billion that I'm going to mark up for your department today -- or may not -- what's going to happen?
I want some assurance that there be some way to track this item, because I think we're --
Mr. Secretary, you spoke about the erosion of confidence by the American people, and you're exactly right. But there's going to be an erosion of confidence in the Appropriations Committee. As I say, I don't expect you to be accountable for previous administrations, but we're being asked for $2.9 billion here. And I want to be responsible to my constituents, and I want to hold the department responsible for this money that is being asked for today, or else our confidence is going to erode pretty fast.
SEC. RUMSFELD: Well, what I'll do is I'll look into what happened in the past and see if it's possible to see if there was some sort of a reprogramming authority that was presented to the Congress; I just simply don't know. And if there was, I'll be happy to have you briefed as to exactly what took place.
As to the future, to the extent that we are asking for funds for a specific purpose, I can assure you they'll either be spent for that purpose, or we will come before the Congress and say that the circumstances changed, which happens in life, and that we request permission to spend those funds for some other purpose according to the law.
SEN. BYRD: Well, I thank you for that assurance, Mr. Secretary. Let me assure you that I'm going to be watching this. I think it's indefensible for the agency not to be able to show the General Accounting Office, which is the arm of the Congress, what happened to this money that we appropriated specifically and earmarked specifically for spare parts. We're being asked for similar monies again, as I say. Now, we need to know that this problem, whether or not it's going to take years to solve. But I understand you to say -- on this specific area, we're going to watch that closely. Am I correct?
SEC. RUMSFELD: You are.
SEN. BYRD: I hope, Mr. Secretary, that you'll be able to do that. I am confident that you intend to keep that promise. And the promise has to be kept, because we're going to -- if I'm still living a year from now -- and that's up to the Good Lord. The people of West Virginia have already signed my contract, five years -- I'll be back. And you'll want more money next year. And I don't mean to be pointing my finger at you personally. But this -- I ought not be asking this question. We need in the Congress to mean it when we say it, and the department needs to mean it when it says it needs that money and will spend that money for spare parts.
I hope, General Shelton, that you'll have something for the record on this, because I have to go answer this roll call.
GEN. SHELTON: Well, thank you, Senator Byrd, and let me say that I have not seen the report. However, I certainly agree that this is an extremely important issue. And I would want to have all the facts laid out and make sure that we responded to your question in as accurate and timely a manner as we could. I also would say that we need to be able to track. We need to be able to make sure that the funds that have been allocated are, in fact, accounted for in the proper manner.
The one thing that I do see that indicates that -- I could believe the funds went to the intended purpose, has been in the readiness rate since '99, where they have been -- a lot of our readiness rates were suffering drastically.
That was particularly true in some of our aviation --
SEN. BYRD: Well, I'm complaining about that. If the O&M accounts are suffering badly, tell us about it, but don't tell us that this money will be spent for spare parts when it ends up that the General Accounting Office can only track 8 percent of the $1.1 billion for spare parts.
GEN. SHELTON: Yes, sir. As you indicated, Senator Byrd, in your statement, the funds in the O&M account actually do provide for spare parts on the day-to-day basis, and I think that the readiness rates that we have seen turn around would indicate that a large amount of that money went to its -- if not all of it -- went to its intended purpose.
SEN. BYRD: The question isn't about that at all. We can go around and around on the head of a pin all day, but this ought not to happen.
GEN. SHELTON: Yes, sir. I agree.
SEN. BYRD: If Congress is going to be asked for monies for spare parts and we earmark it for that purpose, then it ought to be used for that purpose, and the department ought to be able to show that it was used for that purpose.
Now, we're up against a very tight budget here and our domestic needs are being -- are not being met. And the president's budget, for the most part, the supplemental is going to be defense. And not one thin dime is being added, as far as I'm concerned, in that appropriations bill today, not one thin dime is being added to the president's request. And I'm going to do everything I can to help him get that money, but there's got to be a responsibility here. And I'll guarantee you're going to be asked the questions when you come here, if you don't follow these earmarks for defense, when the agency requests this money -- I didn't request it -- for spare parts. There has to be better bookkeeping and better accounting.
So if the president's going to narrow his budget down to where he's going to ask for about 7 percent increase for defense and less than 4 percent for non-defense, then I want the president and the administration to be sure it does its bookkeeping right. I want to help the Defense Department. I'm as interested in the security of this country as anybody else, but we've got to have better accountability. Whether it's Democrat or Republican doesn't bother me. We're all in this together.
And I thank you very much. Thank you, Mr. Secretary.
Mr. Warner, I'm going to go vote. Did you vote before you --
SEN. WARNER: Yes, my good friend and neighbor state, I did vote early and so that I could carry on in this hearing, and therefore I'd utilize our time with these two very valuable witnesses.
SEN. BYRD: Yes. Thank you very much.
SEN. WARNER: I thank my colleague from West Virginia.
SEN. BYRD: Thank you, Mr. Secretary.