Streamlining the Military: Victory Without Bankruptcy

An Excerpt from The New Terrorism: How to Fight It and Defeat It

IN FRANKLIN ROOSEVELT'S FIRST TERM, Douglas MacArthur was chief of staffof the Army. Despite their political differences, MacArthur claimed they were friends long before FDR was elected.

Either that or that FDR considered him invaluable was the reason he didn't kick MacArthur out of the Army for good. Faced with problems of the Great Depression, FDR proposed cutting the Army's budget by 51 percent to pay for the New Deal. As the conversation became more heated, MacArthur wrote in his memoirs:

"In my emotional exhaustion, I spoke recklessly and said something to the effect that when we lost the next war and an American boy, lying in the mud with an enemy bayonet through his belly and an enemy foot on his dying throat, spat out his last curse, I wanted the name not to be MacArthur, but Roosevelt."

MacArthur quickly apologized for his outburst and offered his resignation. FDR was quick to respond with a joke. "Don't be foolish, Douglas. You and the budget must get together on this."

Today, the American people, regardless of party, must understand we can responsibly cut the defense budget. And in the current economic climate, we will have to cut other areas of the federal budget along with defense.

To be blunt, outside of the interest on the national debt, everything in the federal budget can and should be re-examined. While defense spending must be part of that equation, we cannot hollow out our military and pretend that defense is the biggest part of our spending problem.

As President Roosevelt said in his first inaugural address, "This is pre-eminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today."

The truth, "frankly and boldly," is that Democrats usually think that the only part of the federal budget that needs any cuts is defense, while Republicans are conservatives on domestic spending. We must all recognize that in working to solve our fiscal problems, we must also accept the fact our nation is working to win the first war of the 21st century.

While the wars in Afghanistan and Iraq have been costly, they are a small component of federal spending. According to the Congres- sional Budget Office (CBO), from 2001 to 2012, the cumulative federal spending in this period was $33.3 trillion. Approximately four percent of that federal spending ($1.4 trillion) was spent on fighting the wars in Afghanistan and Iraq.

In the last 50 years, two great trends have occurred in federal spending: the relative decline of the defense budget and the growth of entitlements. Defense spending declined from 52.2 percent of the federal budget in 1960 to only 20.1 percent in 2010. Entitlement spending has more than doubled from 28 percent of the federal budget in 1960 to 66 percent by 2010.

In 2010, the federal government was spending $2.2 trillion on entitlements. The breakdown of this spending in 2010 was 53 percent for the elderly (65 and over), 20 percent for the disabled, 18 percent for the working poor, and 9 percent for various programs, including survivor benefits in Social Security, medical services, and unemployment insurance.

We cannot fully predict how severe the problem will become because the growth in the economy over the next 30 years is harder to predict than demographics. What experts do know is that people are living longer. This is a good thing, but it comes with a cost. If the trends of the last century are an indicator, we may be heading toward a fiscal disaster.

From 1900 to 2000, the population of the United States increased from 76 million to 281 million. The number of Americans who were 65 and over increased from 3.1 million in 1900 to 35 million in 2000 while the number of Americans who were 85 and over increased from 122,000 to 4.2 million in the same period. So the total population increased about three-and-a-half times while the population 65 and over increased tenfold and the population 85 and over expanded 40-fold.

Before the 1960s, our country raised the national debt during wars (from the Revolutionary War to World War II) and in national emergencies such as the Great Depression, but in times of peace, it usually paid down the debt. In 1835, Andrew Jackson actually paid offthe entire national debt.

This did not last long. In the 1920s, the country was able to pay back about a third of the debt we accumulated to pay for World War I. During the Depression and World War II, the debt rose substantially. The debt was actually falling in constant dollars and percentage of the gross domestic product until 1975. Today, there is little political will to hold down spending.

Politicians must confront the growing fiscal problem in all areas of the budget. Meanwhile, the purpose of this chapter is to provide recommendations on how to responsibly cut defense spending.

To say that cuts cannot be made, without hollowing the force, is absurd. Gordon England, who was deputy defense secretary from 2006 to 2009, wrote in an op-ed that we could cut 100,000 of the 700,000 civilian employees at the Defense Department without the need for any contractors to replace them. In the same op-ed, England pointed out that the defense secretary would require blanket authorization from Congress because civilian employees have union protections and regulations that military employees do not have. I am all for cutting the fat out of the defense budget. I just don't want us to cut the muscle and the bone.

RECOMMENDATION 1: BAN MEMBERS OF CONGRESS FROM OWNING STOCKS OR BONDS IN COMPANIES THAT HAVE DEFENSE DEPARTMENT CONTRACTS

Members of Congress have many incentives to keep defense spending high. For example, military bases can bring jobs to a congressional district. Beyond the electoral politics, there are also direct financial gains that should be of concern to American taxpayers. For example, in 2010, it was reported that 19 of the 28 members of the Senate Armed Services Committee held stock/bonds with companies that had contracts with the Pentagon.

While committee staffers and key presidential appointees are banned from owning stock, members of Congress are not. This recommendation can begin the conversation about how the purpose of our defense budget should be to provide for the common defense of the nation and its people.

RECOMMENDATION 2: REPLACE COST-PLUS CONTRACTING WITH A PROSPECTIVE PAYMENT SYSTEM

In 2010, Defense Secretary Robert Gates noted that submarines and amphibious ships were three times more expensive than their 1980s counterparts. "At the end of the day, we have to ask whether the nation can really afford a Navy that relies on $3 billion to $6 billion destroyers, $7 billion submarines, and $11 billion carriers." These types of increases are not limited to the Navy. According to the Government Accountability Office (GAO), from 2001 to 2008, the Pentagon's major acquisition programs altogether went over $300 billion from their initial estimates.

While we cannot take back the money we have lost, we can stop the bleeding. The problem lies in the "cost-plus" contract system. That is, the Defense Department provides a contract and pays extra for any overruns. The structure of the contract along with the inherent need for bureaucracies to provide more requirements for weapons systems leads to increased costs. What we need is a prospective payment system in defense contracting.

There is a historical precedent for this idea. In 1983, the Reagan Administration implemented a major reform in Medicare by creating Diagnosis Related Groups. DRGs were introduced in the 1980s by Medicare to bring down health-care costs through a prospective payment system.

Before the PPS, Medicare gave hospitals as much money as the hospitals billed following the treatment of patients. Such a system only encouraged hospitals to keep people longer to get more money. A DRG is designed to assess how much should be spent for a patient before the money is spent.

This way, the hospital has an incentive to get the job done as quickly as possible so that it can spend the money it is given efficiently and make as much of a profit as possible. This is to compensate for people who are either uninsured or people on Medicaid thus forcing hospitals to spend more money than they take in for certain services. Hospitals that succeed in this model are those that promote effectiveness and efficiency. A prospective payment system in defense contracting could be a real "game changer" in terms of reducing costs.

RECOMMENDATION 3: END UNNECESSARY PENTAGON SPENDING PROGRAMS

The Pentagon has many examples of programs that no longer have a purpose. For example, earlier I quoted Gordon England, the former deputy defense secretary, saying that we could afford to cut 100,000 civilian employees at DoD without having a negative impact on military forces.

In 2010, Secretary Gates proposed efficiency initiatives worth $100 billion. The largest item, which comprises a quarter of these savings, was a proposed 30 percent cut in "service support contractors." This would cut over 30,000 civilian jobs from DoD that can be absorbed through efficiency. The National Commission on Fiscal Responsibility and Reform recommends that we can go further with a cut of over 20 percent. This cut could result in $37.8 billion in savings over the next 10 years.

The commission also recommended that we can actually replace 88,000 military personnel who are not performing defense-related activities with 62,000 civilians. This could begin saving $5.4 billion annually by 2015. If this rate can be continued it could produce over $50 billion in savings over the next decade. Advances in information technology have made it possible to cut at least 5 percent of civilian jobs within the decade. This could save the Defense Department $22.5 billion.

Now that the United States has withdrawn from Iraq and is likely to withdraw from Afghanistan at the end of 2016, it can seriously reduce its travel budget. In 2008, the federal government spent $13.8 billion on travel for its employees. Approximately two-thirds of that spending ($9.1 billion) was in the Defense Department.

With advances in teleconferencing, as well as fewer soldiers deployed in Iraq and Afghanistan, we could reduce that budget from $9.1 billion and hold spending to $7 billion a year. In addition, promising new technologies from the private sector can reduce paperwork and improve efficiencies in travel programs. Over a 30-year period, that could save another $20 billion.

RECOMMENDATION 4: CUT THE NUMBER OF GENERALS AND FLAG OFFICERS

A perennial Pentagon problem has been the fact that there are far too many generals and flag officers for a force our size. The U.S. military is almost 30 percent smaller than it was prior to the end of the Cold War, yet the number of three- and four-star generals and admirals has grown by 19 percent in the same period. The base pay of each is over $225,000 dollars a year-not including combat commands. The headquarters' support costs were $459 million in fiscal year 2007 and rose to $1.06 billion in fiscal 2012. In the same period, support costs for their subordinate commands grew from $395 million to $604 million.

By following Secretary Gates' 2010 recommendation to cut 102 generals and flag officers, we could also cut the bureaucracy that comes with them. So far, the Defense Department has cut 48 onestar generals and six two-star generals, but has cut the number of three- and four-star generals by only three.

Beyond the costs, the officer-to-enlisted personnel ratio can lead to a weaker military. Retired Army Maj. Donald E. Vandergriffhas compared this ratio throughout history. From the data, it is clear that successful militaries have a higher officer-to-personnel ratio than their enemies. For example in 1806, Prussia had more officers (23,789 to 4,215) and generals (528 to 423) than France. The French Army of 350,000 troops was victorious because the Grand Army was almost twice as large as the Prussian Army.

In 1940, the German army was able to outperform both the French and the British armies. While Germany's army (4,555,000) was almost as large as the combined forces of France (3,333,000); and the United Kingdom (1,615,000), Germany had fewer officers (133,970) than either France (666,600) or the United Kingdom (177,650). Germany's ratio of generals to personnel in 1940 was roughly half that of Britain and France.

At the beginning of 2012, the Navy had more admirals (336) than ships (285). If the sequester on the defense budget is not stopped, the Navy will be reduced from 285 ships in 2012 to 235 commissioned ships by 2021. Our Air Force will be reduced from 1,493 aircraftto 1,157.

The Army will decline from 10 active divisions in 2012 to six in 2021. The top brass cannot be immune to sacrifice. We must address the personnel costs, growing health-care costs within the military and inefficient procurement, lest the massive overhead of our military in a decade comes to resemble the hollow post-Vietnam force.

RECOMMENDATION 5: REFORM TRICARE AND TRANSFER IT OUT OF THE DOD

TRICARE is the health-care program currently run by the Defense Department. With the exception of prescription payments, our active-duty troops and their families essentially have free health care. In the past decade, they have also increased eligibility for military retirees, which now makes 9.7 million Americans eligible for TRICARE.

From 2001 to 2012, the TRICARE budget grew from $19 billion to $52.8 billion. This is almost 10 percent of the Pentagon's budget. This does not include the Department of Veterans Affairs, which proposed $51 billion in spending out of a total budget of a $132 billion for fiscal 2012. It is understandable why people believe that low health-care costs are a way to honor the sacrifices of our veterans. Even a discussion of the effectiveness of this spending could result in serious political consequences for members of Congress.

Yet, the American people cannot ignore this part of the budget. The defense budget as a whole cannot be treated as a sacred cow. With the exception of the interest on the national debt, every part of the federal budget, including entitlements, must be on the table. Critics of defense spending only talk about total defense spending and rarely take a deep look at what is actually in the budget.

If TRICARE remains unaddressed, the defense budget will increase as our military capability degrades. If TRICARE remains in the Defense Department's budget, it will give the Democrats the best of both worlds. It allows them the ability to criticize the Republicans for defending the total spending of the Pentagon. If the Republicans try to cut it, they will be crucified by veterans and seniors.

This is why TRICARE should be moved out of the Pentagon's budget. It could become a part of the Department of Health and Human Services or the Department of Veteran Affairs. The best option is to make it an independent agency. Either option could make it more likely to consolidate health services among the different branches.

Currently the Office of the Assistant Secretary of Defense for Health Affairs, along with the Army, Navy and Air Force, each has its own headquarters and the bureaucracy that comes with it. According to the General Accounting Office, the savings from consolidation could be at least $200 million annually.

With all the complexities of consolidating services, this is politically much easier than reducing funding for TRICARE. The most cost-effective proposal from the Congressional Budget Office would be to limit TRICARE Prime to active-duty personnel and their families; military retirees and their dependents would be eligible for TRICARE Standard. This reform could save as much as $115 billion.

To be clear, TRICARE Prime has the lowest out-of-pocket costs. If this option were limited to active-duty personnel and their families, military retirees would still have access to TRICARE Standard and TRICARE Extra. This option is limited to working-age retirees who are too young to receive Medicare. The savings in this option come from military retirees paying more, and from the fact that three quarters of the retirees are eligible for health insurance from their civilian employers.

Another option in this CBO report talked about providing some out-of-pocket cost-sharing requirements under TRICARE For Life for Medicare-eligible retirees. This would save $43 billion over the next decade. Cost-sharing could provide savings in military retirees who are too young for Medicare, ($30 billion) or cost sharing in pharmaceuticals ($26 billion).

While the Veterans Health Administration medical care system is technically an issue for the Department of Veteran Affairs, some people could confuse the VA system as a part of the defense budget.

For this reason, we should also propose ending enrollment in the VA medical care for veterans in Priority Groups 7 and 8. This could save at least $30 billion annually. The 1.3 million veterans in these two groups have incomes that exceed the VA threshold. While technically, this option would save $62 billion, half the savings would be offset because some veterans would be eligible for Medicare and Medicaid and they would just charge more spending to those programs.

The retirement of 78 million "Baby Boomers" will put so much stress on our federal budget that means-testing of entitlement programs becomes inevitable. We can't balance the federal budget on the backs of veterans. We can't even balance the federal budget if all defense spending were cut. Politicians at some point must be honest with the American people.

While there is fat to cut in the defense budget, there is also plenty to cut elsewhere before we talk about increasing taxes or cutting benefits to senior citizens. For example, the number of people receiving disability payments went up from 455,000 people in 1960 to 8.6 million in 2010. Half of these claims are "mood disorders" or back pain (which is difficult to disprove).

I am sure that many of these people have legitimate claims, but such a dramatic increase should make us pause. There are clearly some people who are defrauding the system. If we are going to ask 1.3 million of our richest veterans to accept means-testing, we should also work much harder to means-test entitlements and also go after people who engage in fraud. Recently, physicians have developed promising technology aimed at making disability exams more objective. A pilot program of this technology should be implemented and, if successful, rolled out nationally.

RECOMMENDATION 6: PRIVATIZE THE VA HOSPITAL SYSTEM

We must address the fact that hospital monopolies are one of the biggest drivers of health care costs. In the case of Massachusetts, even before "Romneycare" took effect, the 1993 merger between Massachusetts General Hospital and Brigham and Women's Hospital allowed the two most powerful hospitals in the state to dictate the cost of care. No insurance provider could afford to leave out either of these two prestigious Harvard-affiliated hospitals in their plans.

Anyone who has read about the scandals in the VA hospital system and even at the Army's Walter Reed, should reconsider the supposed benefits of any government-run health care.

Furthermore, the monopolies of regional hospitals must be broken up. Privatizing VA hospitals could inject enough supply to keep the demand from spiraling out of control. This could reduce costs and also provide an alternative to cutting veterans' benefits. Under a private system, the hospital would likely improve the quality of its care.

RECOMMENDATION 7: MAKE MAXIMUM USE OF THE NATIONAL GUARD AND RESERVE FORCES, AND MAKE CERTAIN THEY'RE ADEQUATELY EQUIPPED

One of the best bargains for the American taxpayer is the use of our National Guard and Reserve Forces. We can train and equip roughly three to four National Guard or Reserve troops for every one activeduty soldier; however, when we need them, we must be prepared to use them and make sure they are adequately equipped.

The Founding Fathers and the Continental Congress understood the "citizen-soldier" concept-a vital tradition that made our military unique and has withstood the test of time. We've seen the Guard and the Reserve in action in Afghanistan and Iraq. We've also seen them in action on the homefront as first responders.

Because the Pentagon had a history of not properly equipping the National Guard, over 30 years ago Congress wisely established the National Guard and Reserve Component Equipment Account to ensure America's reserve forces had adequate equipment and supplies to respond to national security and homeland needs. The NGREA has been a lifeline for the Guard in recent years. It has enabled Guardsmen to fight alongside active-duty troops at a fraction of the cost and respond quickly to national disasters and homeland security threats.

Unfortunately, in the summer of 2013, some 20 Republicans joined 171 Democrats in supporting the Van Hollen Amendment to the National Defense Authorization Act. It would have severely affected the National Guard's readiness. It specifically included a provision to eliminate $400 million from the NGREA.

Fortunately, 22 Democrats joined nearly 90 percent of all House Republicans in defeating the Van Hollen Amendment by a 232-191 vote. House Armed Services Committee Chairman Buck McKeon and NGAUS were key players in defeating the amendment and maintaining the readiness of the National Guard. They knew the consequences. Without an adequately equipped National Guard, the nation might eventually be forced to shiftthis capability to the active force at a cost of many billions of dollars to the taxpayers.

The citizen-soldier concept envisioned by our Founding Fathers and Continental Congress continues to make good sense.

RECOMMENDATION 8: ENGAGE SMALL BUSINESS

Small business is the backbone of the free enterprise system in America. It's also the source of most ingenuity and innovation. The Defense Department, like other departments and agencies, has a Small and Disadvantaged Business Utilization Office, which assists small business in navigating the Pentagon's procurement maze.

In addition, there needs to be an active effort on behalf of technology program offices to engage especially the small business community from which so many of our technological advances come.

The Joint IED Defeat Organization was established by the Defense Department to reduce the threat of improvised explosive devices against the U.S. military. Since its inception in 2006, JIEDDO has spent billions of dollars. Promising technologies to deal with the suicide bomber scenario have been identified, but the problem of the car bomber has been a more difficult challenge.

I've seen a number of invitations JIEDDO has sent out over the years advertising industry conferences, but they almost always require a "secret" clearance in order to attend. The problem is obvious. Many small businesses which have the technologies to counter IEDs and the suicide bomber threat don't have a "secret" clearance to get in the front door to show JIEDDO their capabilities. This is a typical problem throughout the DoD and the homeland security arena. We must do a better job at reaching out to small businesses, many of which have the capabilities we will need to successfully thwart the next terrorist threat.

RECOMMENDATION 9: REPLICATE THE RAPID FIELDING DIRECTORATE MODEL

The Defense Department's Rapid Fielding Directorate has had several names since the early 1990s, including the Advanced Concepts Technology Demonstration program and the Joint Concepts Technology Demonstration program. It identifies mature technology capabilities and works with major commands to get their "buy in" on final development, testing and procurement.

By taking this approach it ensures the most efficient use of research and development dollars in acquiring needed technologies. It also works closely with homeland and civil authorities, as well as the intelligence community. Its predecessor, the ACTD program, was best known for bringing the concept of the unmanned aerial vehicle to fruition.

This program has been an effective, efficient use of taxpayer dollars in ensuring that our fighters have the latest technology available. Things happen here and they happen quickly. This model should be replicated throughout each of the military services, as well as the Department of Homeland Security.

PROCEEDS BENEFIT SCHOLARSHIP FUND

The book is available for purchase at www.thenewterrorism.com and major retailers. All of the proceeds from book sales go to a new scholarship fund administered by the National Guard Educational Foundation for the family members of National Guardsmen killed in the Global War on Terrorism and those who were wounded and their family members.

EXCERPT

From the book, The New Terrorism: How to Fight It and Defeat It by Van Hipp (Countinghouse Press Inc.).© 2015 Van Hipp. Reprinted with permission. All rights reserved. NGAUS does not necessarily endorse the book's recommendations.

ABOUT THE AUTHOR

Van Hipp is chairman of American Defense International Inc. in Washington, D.C. He has been immersed in defense issues for most of his adult life. An Army veteran, he was appointed deputy assistant secretary of the Army for reserve forces and mobilization in 1990 and later served as principal deputy general counsel of the Navy. Today, he speaks on national security matters at public forums and appears as an expert commentator on Fox News, MSNBC, CNN and other networks.