The "New Fiscal Reality"
How the Continuing Resolution (CR) still affects the Entire Federal Budget and The DoD Spending Plan for FY 2011
Driving Right Up to the Brink
With all the recent hoopla focused on the Big Budget Showdown between Democrats and Republicans, we as a nation got drawn into the contentious political debates, highlighted by doomsday financial consequences. We were subjected to heated policy arguments, partisan politics, and faced the issue of a forced government shutdown. The "game of chicken" played by both political parties was high drama, and we all were on the edge of our seats on that Friday night seeing if the financial Armageddon was indeed upon us if the government was not funded. As the clock approached midnight, a deal was struck and a crisis was averted. Everyone declared victory for their side in glorious partisan terms and the American people were left shaking their heads over the whole mess. Overall Federal Deficit Reduction and huge spending cuts for FY 2011 of $38 B were outlined and agreed upon by all parties for a consensus Federal Budget for FY 2011 at the last hour. All Federal Agencies including Defense took hits in spending. And a disaster of unknown proportions was averted. When the dust settled, what really happened on the Final Fiscal 2011 Federal Budget is not as clear cut as you might think. The devil is in the details as they say. The DoD FY 2011 Budget has some real surprises and interpretations that are yet to emerge that may make it a very troublesome budget for many, both in Industry and in Government.
Making Sense out of Nonsense
I have been looking into the issue of DoD Funding under the Budget Bill recently signed by the President and have discovered the Continuing Resolution (CR) issue is still hauntingly with us as it relates to funding for acquisition programs and a large part of DoD spending authority will be hamstrung by it. I am not sure how this CR framework is being interpreted by the DoD Acquisition Professionals - USAF, USN AND USA PMOs - but it means that real issues will still be in our way as we seek funding for programs. Funding will be frozen, new starts will go unfunded, acquisition decisions will be stopped, and important defense programs will be hampered. At a minimum, however, we need to understand the rules when they actually get defined—and it won’t be anytime soon. We need to know where to look to try to understand how DoD will move forward. This is uncharted waters for all of us to navigate.
The DoD Budget: Good News
Yes, we finally got ourselves a finalized DoD Appropriations Budget Bill, passed by the Congress and signed by the President for FY 2011. The DoD is conducting its Daily business of protecting the Nation, and providing for the security of the American people. So all is well in the Universe, right? Funding is in place for all the services to pay the troops, and to continue to offer healthcare for the active duty military, their families, and all of our veterans. All DoD day-to-day operations, including Wartime OPTEMPO Funding for Two Wars and the global fight against terrorism, are all in place and being executed against predetermined plans. So, “Life is good.”
The DoD Budget: The Bad News
However, that's not the whole story here. It is not anticipated that everything is going to turn out just fine and be moving along with a Defense budget in place. Yes, a lot of things will be fine. But a lot of things won’t be fine. As a matter of fact, a lot of the problems are still there that “come with” funding by a CR. Well, I hate to rain on the parade but there is still some big trouble here and the storm clouds are approaching fast. It isn’t very pretty. The CR is still alive and well and raising havoc on acquisition issues, program new starts, funding transfers, and is a huge headache for most DoD PMOs There is paralysis in a lot of quarters. Companies are not receiving contracts, fuzziness seems to reign supreme on decisions, and nobody is going to make a “career limiting” decision if they aren’t crystal clear on direction. It’s got to be understood, legally binding, and according to legislation/regulations. There is no direction yet, so it's an open matter. Welcome to gridlock, CR style. The CR is going to become the law of the land for the balance of this year. With it come the headaches, delays, and stops and starts.
Where the Real Problems Lie
There are a slew of big problems lurking below the surface. Its origins lie in how the Budget Deal was cut between the President, The House and the Senate—and how it will be implemented. As the days go by, it will become even more troublesome. The Congress has thrown a huge monkey wrench into the works. Most people assume that the logjam of procurement actions that were held up over the past six months due to the funding constraints of the CR will now be freed up. We have a DoD Budget, right? What’s the problem here? That is not true. Even though most of these procurement actions held up by a CR were either new starts or funding shifts that are not allowed under a CR, they are not the only things that will be in limbo based on funding levels under the DoD FY 2011 Defense Bill. In addition, one must factor into the discussion all other matters that influence the process to be followed - the DoD Budget cuts that were agreed to by all parties (Congress, Pentagon and White House) and don’t forget the service efficiencies driven by SECDEF Gates. There is widespread confusion about how all these initiatives will effect programs, how they all will play together, how they will be cut or funded, and which programs will have what funding. While this is all going on, the Congress is in the middle of the mark-up of the FY 2012 Defense Bill - so everyone has an eye on that debate. There is a strong need for a lot of clarity and guidance that the DoD will have to come up with and work through. This will be necessary as they move out on acquisition programs having to consider the impacts of SECDEFs guidance and other factors. As we all have heard, the government has been operating under a CR for the past six months. The funding for FY 2011 Defense Budget will be appropriated just like another CR, except its now going to go for the balance of the year, another six months. That will be twelve consecutive months without a definitive budget. And a set of rules that put everyone in a straight jacket.
Call It an Appropriations Bill or a CR
First, let’s take a look “at the details” and see if we can "find the Devil?" The first question is on the Fiscal 2011 spending bill, is it an Appropriations Bill or is it a Continuing Resolution (CR)? The government has passed legislation and appropriated funding to operate for the rest of fiscal 2011 under a spending bill that became law April 15. Going back to high school civics, A Federal Government Authorization Bill says what you can spend money on, however, an Appropriations Bill is the legal authority and legislative vehicle to actually spend the money. Hence it “trumps” Authorization. So if you were to have asked the question: Is the FY 2011 Budget and DoD Spending legislation actually an appropriations bill or simply a CR for all funding agencies? The answer, unfortunately, is yes. It is both. Hence, the interwoven nature of the two types of Legislative authority. Only in Washington, DC can we create conundrums like this!
Rules of the CR Road
An assessment of more of the issues that I will summarize as “Devil in the Details” issues, really shows how convoluted this can be. The fiscal 2011 Department of Defense and the Full-Year US Government Continuing Appropriations Act (H.R. 1473) includes $1.05 Trillion in spending and reflects an agreement that Congress reached late on the night of April 8 to avert a government shutdown. Congress passed the new bill April 14, and President Barack Obama signed it into law April 15. As you would figure, who’s living under a CR and who has fresh 2011 appropriations depends on whom you’re talking to. The final FY 2011 Appropriations bill provided specific dollar appropriations for specific accounts, but for any account not appropriated specific dollars in this bill or in any of the preceding CRs for this fiscal year, those accounts are still under CR-like rules. The effects on the accounts without a specific appropriation in H.R. 1473 are similar to CR conditions. It’s essentially living like it was last fiscal year, although tempered by plans for reducing government spending. Your hands are tied with respect to new starts, program changes, and most acquisition decisions. Got that all straight!
Bottom Line on the Defense FY 2011 Appropriations Bill
For all the spending accounts that are mentioned in the Omnibus Congressional Legislative Bill for FY 2011 to fund the US Government, they are declared to have received their fiscal 2011 appropriations as part of the bill. If you are unsure of what your military customer may have in your funding account for your program, you are not alone. There are a lot of details to be worked through here. Be patient is the operative word on the street on how to cope with the uncertainty. The Obama Administration and ultimately the DoD Leadership, which will pass interpretations down and through the services, will let you know “in time” how things will happen. Not however “on time”. DoD Acquisition and procurement people and DoD Leadership Officials have to make apportionment decisions and instruct the agencies as to how much they can draw from the Treasury for those accounts. That won’t happen very quickly. Welcome to the new reality of DoD Contracting under the FY 2011 Appropriations, which is a Continuing Resolution in disguise. I think we all need to take a deep breath, find a padded waiting room and see how the government is going to sort this one out. Be patient and slip your orders forecast well to the right. Let your business leadership know that booking delays can be expected and may be uncertain. Nothing is going to shake out soon in this CR environment, and we need to be prepared for the delays from the acquisition side of the house which will be forthcoming.