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Department of DefenseBudget Update for the

ASNE Flagship Section

RDML (ret) Joe CarnevaleSenior Defense Advisor

Shipbuilders Council of America5 December 2012


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DoD Budget Update

Budget Background

Sequestration Fiscal Year 2013 Shipbuilding &

Ship Depot Maintenance Budgets


3/31

DoD Budget Update

Looking for the Peace Dividend


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DoD Budget Authority 1988-1996

240

250

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270

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290

300

1 9 8 8 1 9 8 9

1 9 9 0 1 9 9 1

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1 9 9 6

B i l l i o n s o f d o l l a r s

DoD cut by $42B


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The Peace DividendDoD Budget Authority 1980-2010

0

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B i l l i o n s o f D o l l a r s

1989:

Soviet troops withdrawfrom Afghanistan,

Poland & Hungary becomeindependent,

Berlin Wall falls,

Governments fall in

Czechoslovakia, Bulgaria,and Rumania;

Soviet empire ends

1991:

Warsaw Pact ends,

The Soviet Uniondissolves,

The Cold War Ends

1990: Germanyreunited

Total DoD (FY10$) 92%Defense Wide 89%

Army 187%Navy 51%

Air Force 56%

Increase in Budget FY98-08


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Total Federal Budget Authority1980-2011

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Total Federal Budget Authority National Defense


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Total Federal Budget Authorityand Receipts 1980-2011

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Total Federal Budget Authority Total Receipts National Defense


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The National Debt

Asia $3T:China $1T,Japan $900B

Europe: $1T

Middle East $292BNorth America $253BSouth America $245BRest of World $199B

Total foreign debt$5.2923 trillionas of June 2012


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Total Federal Budget Authorityand Receipts 1980-2011

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2 0 0 2

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2 0 1 1


Total Federal Budget Authority Total Receipts National Defense

$100B per year reduction

$100B per year increase in receipts


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Entitlements (FY2011)

550 Health:

551 Health care services including Medicaid ($322B)552 Health research and training ($33B)554 Consumer and occupational health and safety ($4.5B)

570 Medicare ($502B)600 Income Security:

601 General retirement and disability insurance ($8.0B)

602 Federal employee retirement and disability ($123B)603 Unemployment compensation ($119B)604 Housing assistance ($44B)605 Food and nutrition assistance ($105B)609 Other income security ($184B)

650 Social Security ($732B)700 Veterans Benefits and Services:

701 Income security for veterans ($55B)702 Veterans education, training, and rehabilitation ($10B)703 Hospital and medical care for veterans ($50B)704 Veterans housing ($1.3B)705 Other veterans benefits and services ($6.1B)


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0

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1 9 9 1

1 9 9 2

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Total Federal Budget Authority National Defense: Entitlements

Total Federal Budget AuthorityDefense and Entitlements 1980-2011


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0

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1 9 8 0

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Total Federal Budget Authority Total Receipts National Defense: Entitlements

Total Federal Budget AuthorityDefense and Entitlements 1980-2011

$100B per year increase in receipts

$100B per year reduction


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Sequestration


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Budget Control Act of 2011

Security includes: DoD, DHS, VA, NationalNuclear Security Administration, and BudgetFunction 150 International Affairs

Implemented $917 billion in cuts over 10 yearsto increase debt limit by $900 billion.

Joint Select Committee on Deficit Reduction,the Super Committee, failed to produce debtreduction of at least $1.5 trillion over 10 years.

Sequestration of $1.2 trillion is now the law.

Goes into effect on January 2, 2013


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Impact of Budget Control Act and Sequestration onNational Defense Base Budget Topline

(Constant FY2012 $)

Source: House Armed Services Committee


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Impact of Budget Control Act and Sequestration onNational Defense Base Budget Topline

(Constant FY2012 $)

Source: House Armed Services Committee

FY13 Total = $585B


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Impact of Sequestration

Pre BCA FY 2013 budget was $585B. PRESBUDG cut $49B (8.4%). Sequestration cuts another $54B (9.2%). Total reduction of $103B (17.6%).

Post sequestration budget would be $482B. MILPERS exempt Funds already obligated cant be used. Overseas Contingency Operations a factor. Unobligated prior year balances can be used.

Approximately 9.2% of all operations,procurement, research and construction getcut from the PRESBUDG level.


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Mechanics of Sequestration

Percentage Cut = $54.7B

$525.4B + $88.5B + $105.7B + 25.1B - $149.4B= 9.2%

Base DODBudget

OCOBudget

UnobligatedBalances

MilPersExemption

RequiredDefenseCut

Approximate 9.2% Reduction AcrossInvestment and O&M Accounts

Reduction of roughly 12.3% in final 9 months of FY13 would beneeded to achieve a 9.2% reduction in FY13 budget authority

Non-DODDefense

* Function 050


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Peace Dividend 1988-1996

240

250

260

270

280

290

300

1 9 8 8 1 9 8 9

1 9 9 0 1 9 9 1

1 9 9 2 1 9 9 3

1 9 9 4 1 9 9 5

1 9 9 6

B i l l i o n s o f d o l l a r s

DoD cut by $42B

From 1990 to 1994:

458,000 leave military service166 ships retiredSCN cut by $7.4B

14.2% reduction over four years vs 17.6% reduction in one year.


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The term fiscal cliff describes several big fiscal events

set to occur at the end of this year and in early 2013:

The impact of all these actions taken together would be a fiscal

shock on the order of $300 billion to $600 billion in just one year

1. Expiration of the 2001 & 2003 tax cuts and the 2009 stimulus tax cuts

2. Expiration of the alternative minimum tax patch

3. Expiration of the payroll tax holiday

4. Expiration of the extenders

5. Scheduled tax increases under the Affordable Care Act

6. Sequestration

7. Expiration of expanded unemployment compensation

8. Expiration of the "doc fix"

9. Debt limit

The Fiscal Cliff


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Mar FebJanDecNovOct

Continuing Resolution

Election DayNov 6

Lame Duck CongressTreasury Reaches $16.4T Debt Ceiling

113 th CongressJan 3

Tax Cuts Expire

InaugurationJan 20

FY14 BudgetSubmitted to

Congress

FY13 CRExpires

March 27

FY13Begins

Calendar Key Dates

SequestrationJan 2


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Fiscal Year 2013

Shipbuilding &Ship Depot MaintenanceBudgets


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FY 2013 Shipbuilding Plan

-1

+1

-1 +1-1

-1

-2

-1-1-1

-1 -2-2


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25

FY 2012 Maintenance &Modernization Budget

FY11 FY12 FY13 O&MN Base & OCO PRESBUDG PRESBUDG Ship Depot Maintenance $ 7,173,659 $ 6,026,107 $ 6,399,991Ship Depot Maintenance Base $ 4,532,935 $ 5,089,981

Ship Depot Maintenance OCO $ 1,493,172 $ 1,310,010Ship Depot MaintenanceReserve $ 88,590 $ 53,916 $ 49,522

OPN DDG Modernization $ 288,118 $ 117,522 $ 452,371CG Modernization $ 348,934 $ 573,349 $ 101,000Small Boats $ 72,665 $ 33,653 $ 30,131


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26

Maintenance Funding History

$0

$1,000$2,000

$3,000

$4,000$5,000

$6,000

$7,000

$8,000

F Y 0 4

F Y 0 5

F Y 0 6

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F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3

Total Base Budget Adjustments


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Congressional Action

HASC retains 6 CGs and 2 LSDs Allows CG 73 to retire Adds $84M to CG Modernization ++ Adds $68M to Ship Depot Maintenance

HAC retains 3 CGs Adds $507M to CG Modernization Adds $68M to Ship Depot Maintenance

SAC retains 7 CGs and 2 LSDs Puts $2.4B into the Ship Modernization, Operations and

Sustainment Fund. Adds $150M to Ship Depot Maintenance for MIAMI

Navy announced it will retain four of thecruisers as a result of Congresss actions.


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CR funds Agencies at FY12 levels + .6% $4.56B CR level vs $5.09B in base budget. OCO funded at FY13 request of $1.31B. Base plus OCO CR Level is $5.87B.

8% lower then the $6.40B total in the budget. Operate at a minimal level

Scenario 1: No sequestration. CR ends with maintenance atbudget level.

$2.9B spent in 1st

half of year. $3.5B to spend in 2 nd half of year. $600M more in the last 6 months then the first 6 months. Adds for cruiser retention not included in the $600M.

The Continuing ResolutionApplied to Ship Depot Maintenance


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Factors for maintenance & modernization:

Deploying ships will get priority. Submarines and aircraft carriers will get priority. Naval shipyard workload is a sunk cost based on workforce.

Canceling surface ship availabilities is contractually easy.

Result 1: A disproportionate number of canceledand deferred availabilities will be of surface ships.

Result 2: The disruption of adding an additional$600M in the second half of the year will be bornmostly by the private sector.

The Continuing ResolutionApplied to Ship Depot Maintenance


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Approximate 9.5% Reduction AcrossInvestment and O&M Accounts

Reduction of 9.5% from budget levels means $5.8Btotal available for maintenance.

Scenario 2: CR ends with sequestration. Maintenance reduced by $600M . $2.9B spent in 1 st half of year. $2.9B spent in 2 nd half of year.

Adds for cruiser retention not likely.

Result: A disproportionate number of canceled anddeferred availabilities will be of surface ships.

SequestrationApplied to Ship Depot Maintenance


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Questions?Joe Carnevale

Senior Defense Advisor Shipbuilders Council of America

655 Fifteenth Street, NW, Suite 225 Washington, DC 20005

t 202.772.5578f 202.783.6947

[email protected]

https://shipbuilders.org/
mailto:[email protected]://shipbuilders.org/https://shipbuilders.org/mailto:[email protected]

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