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Public Affairs

The FY2015 Defense Budget: Cuts, Efficiency, and Return on Investment

By Neal Urwitz

The FY2015 Defense Budget for the U.S. Department of Defense – now released – will be a source of tremendous controversy for the foreseeable future. The budget is dense, and includes everything from basic military pay to the most advanced technology development in the entire U.S. government.

As dense as the budget is, it has a clear takeaway for defense contractors. The days of free-spending are over. Almost everything is on the table. To win contracts moving forward, defense contractors will need to show return on investment, and show how they will be good stewards of taxpayer dollars.

To paraphrase Commissioner Ervin Burrell on The Wire, “The politicians will not save you.”

As first reported by The New York Times, the FY2015 defense budget pulls few punches in going after programs with entrenched constituencies. Among many other cuts, the budget:

  • Shrinks the U.S. Army to its smallest size since 1940 (i.e., before World War II), proposing just 440,000 active duty soldiers;
  • Slows the growth of the tax-free military housing allowance;
  • Cuts the commissary benefit for active-duty military;
  • Eliminates the A-10 Thunderbolt aircraft from the Air Force;
  • Retires the U-2 spy plane;
  • Forces 11 cruisers into reduced operating status.

The tacit reason for most of the cuts? The expenditures simply aren’t worth it. Explaining the cut in the size of the force, a senior Pentagon official said “You have to always keep your institution prepared, but you can’t carry a large land-war Defense Department when there is no large land war.”

The explanations for other cuts are similar. The A-10 was originally designed to fight Soviet tanks, and, of course, Soviet tanks are no longer an active security concern. The A-10 is a valuable training plane, but the Department apparently felt that benefit was not worth the cost of keeping the plane in operation. The budget implies the U-2 is an obsolete plane whose job can be better done by the Global Hawk UAV. Commissaries and the housing allowances face cuts because the Department feels they are not necessary enticements to get enough recruits to fill out the new, smaller army.

The arguments above may be right or they may be wrong. Those arguments are highly technical, and require tremendous expertise to speak about intelligently. That said, this budget’s tea leaves are easy to read. If you’re a defense contractor, it’s not enough to sell your product as a good project anymore – you need to sell it as a good investment. Otherwise, your deeply valuable program could end up cast as a relic of a bygone era, and your chances of landing a new contract will shrink toward zero.

Neal Urwitz is a Director at LEVICK. He is also a contributing author to LEVICK Daily.

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