A Shot In the Sequester Battle: GAO Report on BRAC Implementation and Implications for Civilian Cost Cutting

DoD CobraSomething for the Nevada Congressional delegation to consider while pounding away on the Sequester question is a report today from the GAO concerning the Cost of Base Realignment Actions (COBRA) by the U.S. Department of Defense.  If the intention is that our military operations become more fiscally rational, and our military system more structurally efficient — we have a way to go.

Our first clue is that when a report shifts from a complimentary tone concerning Department of Defense efforts at fiscal responsibility to the next sentence beginning with the word “however,” something is amiss.  For example, after commending the DoD’s projections about costs of base realignments, here comes the punch line:

“However, DOD’s process for providing the BRAC Commission with cost and savings estimates was hindered in many cases by underestimating recommendation specific requirements that were entered into the COBRA model. For example, military construction costs for BRAC 2005 increased from $13.2 billion estimated by the BRAC Commission in 2005 to $24.5 billion after implementation ended in 2011.”

We’re all familiar with cost overruns in construction projects, and with under-estimations of expenditures, but a +93.18% level is much more difficult to explain.   There’s (a) something wrong with the model? (b) something wrong with the estimates? or (c) something wrong with both of these inputs?  The GAO Report explains:

“GAO found that other cost estimates increased because requirements were initially understated or not identified as inputs into COBRA. DOD also did not fully anticipate information technology requirements for many recommendations. For example, the initial information technology cost estimate for one recommendation was nearly $31 million, but implementation costs increased to over $190 million once those requirements were better defined.”

In short, the difference between the idea and the implementation proved to be far more expensive than initially estimated.   Moreover, the methods used to guide its projections didn’t fill the bill:

“DOD was unable to always document the methodology used to estimate savings from reducing military personnel positions. Therefore, to increase the fidelity of the initial cost estimates that DOD submits with its recommendations to the BRAC Commission for a future BRAC round, GAO is recommending that the Office of the Secretary of Defense (OSD) improve the process for identifying and estimating the cost of requirements for military construction and information technology and update the guidance on documenting how it identifies military personnel position-elimination savings.”

Or, not to put too fine a point to it, the U.S. military (a) didn’t do a very good job of estimating the costs associated with construction and IT demands, and (b) needs to figure out a way to substantiate its estimates of the results of eliminating redundant or unnecessary positions.   The GAO provides a helpful example:

“By implementing BRAC 2005, DOD closed 24 major bases, realigned 24 major bases, eliminated about 12,000 civilian positions, and achieved estimated net annual recurring savings of $3.8 billion; however, the department cannot provide documentation to show to what extent it reduced plant replacement value or vacated leased space as it reported in May 2005 that it intended to do.” (emphasis added)

And, when the documentation is faulty it is difficult, if not nearly impossible to determine if the actions taken are producing any real savings to U.S. taxpayers.   Part of the problem associated with generating cost savings in the Department of Defense may well be related to the priority given to the implementation of the BRAC recommendations themselves.

“Although reductions in excess infrastructure to generate cost savings remained an important goal for DOD, the extent and timing of potential costs and savings, including the number of years it would take for the savings to exceed costs, was included as “other” or secondary criteria. As a result, many BRAC recommendations were not expected to produce 20-year net savings. Also, the BRAC Commission added contingency clauses to some recommendations, which allowed some outcomes to be defined by events or decisions that could occur after Congress could have prevented the BRAC recommendations from becoming binding, if it so chose. Hence, Congress had limited visibility into the potential cost of those recommendations.”

If the Department is realigning for strategic purposes then it might be logical to conclude that savings aren’t the main priority.  However, if the Department is called upon to further reduce costs as the result of sequestration, a Grand Bargain, or other Congressional maneuvers, then Congress definitely needs more “visibility” into the process.

One of the more helpful components of GAO reports is that they don’t merely criticize, but also offer recommendations for improvement.  In this case there are three:

“GAO is suggesting several matters for Congress to consider for amending the BRAC statute if it decides to authorize future BRAC rounds. First, if cost savings are to be a goal of any future BRAC round, Congress could elevate the priority DOD and the BRAC Commission give to potential costs and savings as a selection criterion for making BRAC recommendations. Second, Congress could consider requiring OSD to formally establish targets that the department expects to achieve from a future BRAC process and require OSD to propose selection criteria as necessary to help achieve those targets. Finally, Congress could consider whether to limit or prohibit the BRAC Commission from adding a contingent element to any BRAC recommendation and, if it is to be permitted, under what conditions.”

The first makes perfect sense.  If, in fact, cost savings and not strategic considerations are the priority then Congress should say so.  Secondly, more thought should be given to forming implementation targets and setting BRAC priorities.  Finally, if “contingent elements” are to be added we need more oversight into what will be allowable, and under what conditions it would be permitted.

All of this argues against the Meat Axe Approach to the reduction of federal spending.   There may very well be a message here which could be applicable to other government agencies.

There are at least two reasons why agencies, military or civilian, might adjust their operations: Strategic (providing better or more efficient service), and Monetary (getting by with less expenditures of public funds.)

The first asks the question how can we better and more efficiently implement our core mission to serve the people of the United States, while the second simply asks what can we cut in order to save money.  If we extrapolate the military situation into civilian terms then we can more readily see the implications of cost cutting for its own sake.

At this point it would be well to consider the nature of budget cutting and the rationales offered therefore.   Budgets can be cut to save money, but not so much that the agency cannot perform its central mission, or budgets can be axed to prevent an agency from conducting its basic business.   In this context, the House Republicans will be re-introducing the Ryan Budget 2.0 (or whatever version count we’ve now achieved).

“The plan by the GOP vice-presidential nominee is expected to lock in cuts to agency budgets, and curb the future growth of benefit programs like food stamps and Medicaid and contain a controversial proposal to turn Medicare into a voucher-like program for seniors younger than 55. Ryan said it’ll take relatively small additional spending cuts beyond those proposed last year to demonstrate balance.” [USAToday]

What if we were to apply the GAO recommendations on BRAC implementation to the civilian side of the budget proposed by the House Republicans (or, for that matter, to the budget amendments being compiled on the Senate side)?

The Medicare Question

Are the House Republicans proposing to voucher-ize the Medicare program into a coupon-care operation because they want to save money, or because they want to revert to a privatized system of health insurance acquisition for the elderly?  In GAO/BRAC terms — is the proposal strategic or savings oriented?  The Tea Party/GOP response could well be “both.”  Adopting their ideology assumes that privatizing the system would in theory save money and secure the basic provision of health care for elderly Americans in a “free market.”   This is an essentially locular position.

The main cavity is that health care markets in the United States aren’t working like commodity markets, never have and never can.  “Health” is not a commodity.  People don’t make economic choices about the purchase of health care services.    A “strategic” view would incorporate this concept.  As there is no logical way to argue that U.S. military presence in Korea is “unessential” at the moment — there is no way to validly argue that the access to health care service can be fobbed off into a market which commodifies the un-commodifyable.

The Oversight Question

As the GAO recommended more Congressional visibility in the issues raised by BRAC policies, we might want more transparency in the strategies asserted by Congress in others, civilian, functions.  One example might be the CFPB. The Consumer Financial Protection Bureau has never been popular with Republicans, who seek to replace it with a “committee” structure beholden to bankers and Wall Street investment houses.   Again, we come to the question of whether the proposed cuts are “strategic” or “cost saving” in nature.

Initial estimate projected  it would cost about $143 million to get the agency up and running, and Republicans immediately revised this downward in 2011 to $80 million. [HuffPo]  Budgeting for an agency in “creation mode” offers a point of comparison with Defense Department efforts to “re-create” some of its functions and their implementation.   The CFPB needs to hire employees (as the DoD needs to recruit personnel compatible with its mission) and to “build out core supervision and enforcement capability.” [BIB CFPB pdf] The FY 2013 Administration Budget calls for $261,119,000 for enforcement and supervision (up 22% from FY 2012) and $126,025,000 for consumer engagement and responses to consumer concerns about financial products being marketed to them. (Up 49% from FY 2012)

A suggested reduction in the FY 2013 budget for the practical elements (supervision of financial services and engagement of consumers in understanding financial products and services) means that someone is making a “strategic” decision about how resources are to be allocated for these basic functions.  Do we, for example, put “bases” in all major U.S. cities, or do we attempt to function with a single centralized base of operations in Washington, D.C? Do we appropriate funds for minimal staffing in all “bases,” or do we strive for moderate staffing levels in some, minimal in others?

The Final Question

Removing for the moment those ideological radicals who really want no government and no regulation of major economic or environmental factors (physical or social) in our lives (save for the defense contractors in their Congressional districts?) it’s reasonable to assert that when we say “smaller government” we say we want more efficient government.  If this is truly the object then why not consider applying the GAO recommendations to the budget conversation?

We want the best cost projection models possible. Further, we want to know if the estimations are predicated on cost savings or strategic considerations.  We deserve to know the Congressional priorities in budget allocations, and finally we should be told — in terms as clear as possible — if changes are to be made who made them and why.

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