ASMC Viewpoint

DEFENSE FINANCIAL HIGHLIGHTS

On the Hill

President's State of the Union Address set for January 27:  The President will address both houses of Congress on Wednesday night January 27th in the traditional annual State of the Union Address.  He will give his evaluation of the current condition of the nation and lay out the framework for his FY2011 budget and legislative plan.  The White House is scheduled to release the FY2011 federal budget on Monday, February 1st.  This address fulfills the President's constitutional responsibility to report "from time to time" to the Congress "on the State of the Union."  President George Washington gave the first address on January 8, 1790.  This address will mark the 221st time Presidents have reported to Congress (either in person or in writing).  The Congressional Research Service has historical information on the history of the State of the Union Address.

Defense Budget and Financial Management News

GAO recommends changes to national security planning and budgeting:  In a speech to the National Defense University, the General Accountability Offices' (GAO) Acting Comptroller General, Gene Dodaro, urged DoD to work in a more collaborative way with other agencies, particularly State and the Agency for International Development (AID), to meet the changing "complexities" in the national security environment.  Dodaro was critical of existing planning and budgeting processes that reflect individual agencies' concerns rather than a collective, interactive approach to meeting national security goals.  He cautioned that the current fiscal environment facing DoD and other agencies make the need for stronger partnerships, interactive planning, and mutually-addresses solutions even more important today.  The complex nature of emerging threats to US security "transcend the scope and authority of any one agency" he said.  Dodaro also criticized DoD's business management failures, lapses in cost control, and its stove-piped approaches to planning and budgeting.  He said they have produced inefficiencies and program and budget mismatches.  Regarding DoD's financial management improvement efforts, Dodaro thinks the current prioritization of efforts identified by the DoD Comptroller is reasonable, but a long-term commitment by senior leadership is essential to success.  He also encouraged DoD to continue its efforts to address GAO-identified contracting and asset management weaknesses.  On Interagency planning cooperation, he listed four opportunities where agencies can improve their collaboration efforts:  1) develop and implement overarching and integrated national security strategies; 2) formalize coordination mechanisms; 3) develop well-trained workforces; and 4) share and integrate security information across agencies.

Rule would allow payments withhold from contractors with business systems problems:  A DoD draft ruling published in the Federal Register this week, would amend the Defense Federal Acquisition Regulation Supplement (DFARS) to add a new contract clause requiring contractors to certify that they have no major business systems defects.  The ruling defines business systems are comprising: accounting, estimating, purchasing, earned value management, and material management systems.  This clause would be added to cost reimbursement, incentive type, time and materials, and labor-hours contracts, as well as fixed-price contracts with progress payments, and some military construction contracts.  It a contractor has business systems deficiencies documented by Defense Contract Audit Agency (DCAA) auditors, and does not provide DoD within 45 days with a plan to correct those systems, contract officers could withhold 10 percent of contract payments.  This withhold could rise to 50 percent if it is determined that a contractor has deficiencies in multiple systems and to 100 percent if defects could lead to improper payments or represent an unacceptable risk of loss to the government.  DoD will take comments on this proposed ruling until March 16, 2010. 

DoD names John James to shut down NSPS:  DoD has named John H. James as the Director of the National Security Personnel System (NSPS) Transition Office.  James is currently serving as the executive director for logistics, maintenance, and industrial operations at the Naval Sea Systems Command.  His new job will be primarily to: 1) close down the NSPS (repealed in the FY2010 Defense Authorization Act); 2) direct the transition of former NSPS employees to other pay systems; and 3) design a new DoD-wide performance management and bonus distribution system for civilian employees.  He has said that he would work closely with employee union representatives during the transition a development of a new system.

Defense Financial Highlights

DoD on the Hill

Congress returns to full time work next week:  Both the House and Senate will return next week to regular schedules as they move to complete action on two important issues by the end of January:  the debt ceiling limit and Health Care Reform.  Congress passed a short-term increase in the debt ceiling in December, but deferred any longer-term action until this month.  The Senate will address it on the floor next Wednesday.  Final congressional action is expected to increase the debt ceiling by about $1.8 billion to avoid the necessity to act again this year.  House and Senate Democratic leadership negotiators are working with the White House on a compromise on Health Care Reform that resolves the differences in the two bills.  They hope to reach a deal soon, possibly as early as late next week, so they can send a final bill to the President before he delivers his State of the Union Address (which has not yet been scheduled).  Congressional action on defense issues will be very limited as they await arrival of the President's FY2011 budget due on Feb. 1.   Next week, the House Armed Services Committee will hold a hearing (with DoD witnesses) on recent security developments in China.  The Senate Armed Services Committee will hold a hearing on an independent review of events relating to Ft. Hood (with non-DoD witnesses).

Defense Budget and Financial Management News

Administration reported to request $33 billion more for Afghanistan operations in FY2010: Although neither the White House nor DoD have announced details of the upcoming budget request, a number of news reports (The Hill and Army Times) out this week have stated that the administration will request an additional $33 billion in FY2010 for operations in Afghanistan.  This amount is to pay for the 30,000 troop "surge" the President announced last month.  At that time, President estimated that the surge would cost another $30 billion.  FY2010 Appropriations included $128 billion for Iraq and Afghanistan.  This additional amount would bring the total for FY2010 Overseas Contingency Operations (OCO) to around $160 billion.

DoD website provides valuable information on In-sourcing:  Are you interested in following DoD's In-sourcing Initiative?  If so, you can find valuable information on the DoD In-sourcing Initiative Clearinghouse website.  The In-sourcing Initiative (introduced in the FY2010 DoD budget request) is to guide the Department's efforts to reduce the private contractor share of contract services and increase the Department's performance, oversight, and control.  The website was established as a central location for collecting costing, personnel and human resource, and other relevant information (including commentary and analysis from non-government sources), as well as for communicating policy and guidance.

Defense Financial Highlights

DoD on the Hill

Congress reconvenes:  The Senate returned this week from its winter recess to begin the second session of the 111th Congress.  The House held a pro forma session on January 5th and will return next week to begin its work.  The Senate began to debate the House-passed bill to increase the public debt limit.  The main issue this month will be the Health Care Reform bill.  Congressional Democrats are working to resolve the differences between the House and Senate versions of the Bill.  It remains unclear when negotiators will have a final bill ready for a vote.  Some had hoped that the bill would be ready for the President's signature before he gave his State of the Union speech (normally presented to a joint session of Congress sometime in late January).  House Speaker Nancy Pelosi (D-CA) has said that it was "possible" that they may finish by the end of the month. 

Defense Budget and Financial Management News

FY2011 Budget countdown:  The FY2011 federal budget is scheduled to go to Congress on Monday February 1, 2010.  Highlights will track progress towards that date and provide readers with scheduling information (press conferences, congressional hearings, etc) as it becomes available.

FY2010 Enterprise Plan to be digital:  The Business Transformation Agency (BTA) announced that the FY2010 Enterprise Transition Plan (ERT) will be entirely digital.  The new electronic plan will replace earlier print versions that had become very bulky and increasingly difficult to use.  The new digital version has been streamlined and will present program milestones for DoD's business information investments and IT systems in easy to use charts and graphs. 

Other Issues of Interest

President issues executive order to set pay for FY2010:  The President set pay levels (beginning January 11, 2010) for federal civilian employees (executive level, senior executives, and general schedule employees), uniformed military personnel, and judges.  The pay levels (and locality pay) set in an executive order issued late last month comply with statutory pay caps and pay raises for civilian employees in the FY2010 Consolidated Appropriations Act, and for uniformed personnel in the FY2010 Defense Authorization Act.  Tables attached to the executive order list the pay levels by grade/rank and by years of service for each category of pay plan.  The Office of Personnel Management (OPM) website includes a detailed explanation of each pay plan and their originating authorities.

GSA issues new POV reimbursement rates:  Effective january 1, 2010,the new reimbursement rate for the use of privately-owned vehicles used for government business was set at 50 cents per mile.  The new rate is 5 cents lower than the previous rate of 55 cents, which was set last January.  This change marks the second consecutive rate reduction since it reached a high of 58.5 cents in March of 2008.

Secretary Gates agrees to stay on the job:  According to Army Times and other news sources, Secretary Robert Gates has agreed to remain as Secretary of Defense at least through the end of 2010.  Gates is the only holdover from the previous administration.  Pentagon press spokesperson Geoff Morrell told reporters that the Secretary and the President agreed to review the situation again at the end of the year. 

DEFENSE FINANCIAL HIGHLIGHTS

DoD on the Hill

Senate passes and President signs FY2010 DoD Appropriations bill:  The Senate passed the final FY2010 DoD Appropriations bill early Saturday morning and the President signed it on Monday.  Overall, the DoD bill provides over $507 billion (excluding Military Construction, which is funded in a separate appropriations bill) for the FY2010 DoD baseline budget, $3.5 billion below the request.  The bill funds the 3.4 percent military pay raise that was approved in the FY2010 Defense Authorization Act.  Procurement funding is $800 million below the request, while R&D is almost $2 billion above the request.  Congress did agree to some of the President's proposals to reduce or terminate a number of programs (e.g., F-22).  However, the final bill is at odds with the request on some high profile programs.  Over the threat of a presidential veto, the bill includes funds to develop a second engine for the F-35 (Joint Strike Fighter) and to capture technology already developed for the presidential helicopter program.  Congress also added nine more F/A-18E/F aircraft and 10 more C-17s than requested.  In addition to the baseline budget, the bill appropriates $128 billion for Overseas Contingency Operations (OCO), essentially the same as the request.  New funds for the surge in Afghanistan announced last month will be provided in a supplemental appropriations bill the President is expected to request early in the new year.  For those keeping score with the numbers published in the committees' bill summary, the bill also includes $1 billion in appropriations for non DoD programs.  As stated in ;last week's Highlights, the bill also includes nondefense items, such as extended unemployment benefits and subsidized health insurance (COBRA) for people who have lost their jobs in the current economic downturn and assistance for highways and transit systems.

Defense Budget and Financial Management News

President issues guidance for Quadrennial Review of Military Compensation:  Every four years, DOD reviews the compensation system for the uniformed services of DoD, the Coast Guard, and those commissioned officers in the National Oceanic and Atmospheric Administration (NOAA) and the Public Health Service.  In a memorandum to the Secretary of Defense, President Obama identified four focus areas he would like addressed in this year's review: 1) compensation for service in combat zones, combat operations, hostile fire areas, or exposure to a hostile fire event; 2) Reserve and National Guard compensation; 3) benefits for wounded warriors, caregivers, and survivors; and 4) incentives for critical career fields (mental health professionals, linguists, remotely piloted vehicle operators, and special operations personnel).  The President also directed that other relevant agencies, principally Homeland Security (Coast Guard), Commerce (NOAA), and Health and Human Services (Public Health Service) participate as appropriate. 

GAO analyzes new rules for preparing Overseas Contingency Operations budgets:  The General Accountability Office (GAO) issued a report this week that describes and evaluates the revised guidance used by DoD to prepare the FY2010 budget for Overseas Contingency Operations (OCO).  According to GAO, some of the assumptions used by the Joint Staff were inconsistent with the Army's rotational plans and may not have considered factors that effect funding estimates, such as continuing changes in security conditions and decisions on plans for equipment disposition.  GAO also questions the reliability of DoD's financial obligations reporting.  The GAO report, issued in briefing form, provides a description of how DoD developed the FY2010 OCO budget and allocated related cost between the OCO budget and the DOD baseline budget.  There has been a running debate in recent years over which costs, especially for war-related equipment, should be moved from the war budget to the baseline.  The FY2010 budget marks a significant change in how these costs were allocated.  The GAO report shows how this allocation was changed and the effect of these changes on the baseline budget.

Other Issues of Interest

DoD issues guidance on NSPS transition:  Earlier this month, the National Security Personnel System (NSPS) Program Executive Office issued guidance on how vacancies should be filled while it transitions personnel out of NSPS.  (The FY2010 Defense Authorization Act repealed the authority for the NSPS.)  The transition period is between October 28, 2009 and January 1, 2012.  In all cases, transitions from the NSPS to a General Schedule (GS) or other statutory pay system are to result in no pay loss.  As NSPS jobs become vacant, DoD will begin to appoint replacements to non-NSPS statutory pay systems.  However, federal employees union representatives have criticized the plan because it would allow the categorizing of new hires under NSPS until March 2010.    DoD will continue to issue transition guidance as appropriate.  You can follow them on the NSPS website. 

DEFENSE FINANCIAL HIGHLIGHTS

DoD on the Hill

President signs one of two remaining FY2010 Appropriations bills:  The President signed on Wednesday the FY2010 Consolidated Appropriations bill.  This bill includes six appropriations bill wrapped up in the FY2010 Transportation/HUD Appropriations bill.  The other five bills are Military Construction/VA (see below), Commerce/Justice/Science, State/Foreign Affairs, Financial Services, and Labor/Health and Human Services/Education.  The remaining bill, FY2010 DoD Appropriations, is being considered separately.

A new CR may not be necessary:  The current Continuing Resolution (CR) expires tonight, so the House passed an extension of the CR until December 23rd.  However, according to reports, OMB has told the Hill that an extension would not be needed if the Senate passed the final FY2010 DoD Appropriations bill (the House has already passed it) and sent it to the President Saturday.

FY2010 Military Construction/VA Appropriations bill increases Homeowners' Assistance:  The President signed the Military Construction/VA bill this week (Division E of the FY2010 Consolidated Appropriations bill highlighted above).  The bill provides $23.3 billion for total Military Construction appropriations, more than $300 million above the request.   Congress added $300 million to the Homeowners Assistance Fund for the remaining requirement for the temporary expansion of the Homeowners Assistance Program (HAP) provided in economic stimulus legislation.  This expansion provides additional funding to assist military members and certain civilians who have orders to relocate and have difficulty selling their homes or experience extreme losses as a result of the current economic downturn.  For military facilities construction, the bill increases active forces funding by over $360 million and adds $560 million to reserve forces construction.  Congress made no change to the request for Family Housing construction and operations request, added over $70 million to funding for base closures costs (BRAC), and reduced the request for NATO National Security Investment Program (NSIP) projects by over $70 million.  The funding request for Chemical Demilitarization Construction projects was increased only slightly.  To pay for some of these increases, Congress reduced FY2010 military construction funds by $500 million for lower inflation and bid savings and rescinded prior-year Military Constructions appropriations by $400 million.

House passes FY2010 DoD Appropriations bill; Senate to act soon:  The House passed the FY2010 DoD Appropriations conference agreement this week and sent it to the Senate.  The Senate voted at 1:00 am this morning to cut off debate on the bill and has scheduled a vote for Saturday morning.  One of the last issues resolved was funding for a new presidential helicopter.  The House had included funding to keep the program going in its version of the bill.  The Senate, however, had bowed to the President's veto threat and excluded funding from its bill.  But, the veto threat notwithstanding, conferees agreed to provide enough funds to keep the program alive.  They also funded a second engine for the F-35 (Joint Strike Fighter), for which the President had threatened veto (although only halfheartedly, it seems).  Overall, the bill provides $507.4 billion for the FY2010 DoD base program (excluding Overseas Contingency Operations), $3.5 billion below the request.  (Next week's Highlightswill include a more complete explanation.)  The bill also carried a few nondefense items, such as extended unemployment benefits and subsidized health insurance (COBRA) for people who have lost their jobs during the economic downturn.  Earlier, Hill watchers thought that the bill would also include an increase in the debt ceiling and major jobs growth legislation.  However, resistance by Republicans and some Democrats to adding major non-appropriations item to the bill forced Congress to consider separate legislation for these items.

Defense Budget and Financial Management News

OMB asks for help to improve payment accuracy and efficiency:  As part of the "Open Government" initiative, OMB has asked taxpayers, state and local government officials, and contractors for ideas on ways to improve government's financial and management efficiency.  OMB will collect ideas and recommendations on: 1) delivery of services; 2) accuracy in payments; and 3) efficiency in administering programs via a Partner4Solutions website The White House notes that state and local government have had good success in soliciting innovative approaches to improving service to taxpayers, and hopes to replicate this success at the federal level.

Other Items of Interest

Some NSPS employees likely to see smaller future pay raises:  Some DoD employees, who are under the National Security Personnel System (NSPS) that was canceled in the FY2010 Defense Authorization Act, could see their future pay raises reduced significantly.  As reported on FederalTimes.com, up to 4,000 NSPS employees moving back into the GS pay framework will probably see only half of future designated pay raises.  These employees' past pay raises have moved their pay to levels higher than the salary caps that exist for GS employees of equal grade.  According to a statement to FederalTimes.com by acting NSPS program executive Tim Curry, former NSPS employees whose pay exceeds the salary cap will be placed in pay retention, which means they will get half of future annual GS pay raises until their pay falls below the cap.  You can keep up with the effects of the NSPS transition on the NSPS website.