The Defense Department ended fiscal year 2012 with $105.7 billion in unobligated funds, exposing modernization accounts to a larger portion of a potential $54.7 billion sequestration bill if lawmakers and the president do not agree to a long-term, deficit-reduction plan by Jan. 2.
The Pentagon, the White House Office of Management and Budget and the Treasury Department last week tabulated the $105.7 billion figure as part of an annual, end-of-the-fiscal-year spending analysis, according to Pentagon spokeswoman Lt. Col. Elizabeth Robbins. In February, OMB forecast that DOD would carry forward $83.5 billion in unobligated prior-year funds.
Of the final FY-12 figure, $72 billion -- or 68 percent -- sits in the modernization accounts, according to data provided to InsideDefense.com by Robbins. The total includes $59 billion in procurement funds and $13 billion in research, development, test and evaluation coffers.
Depending on the category of spending, the Pentagon has between one and five years to obligate funds appropriated in a fiscal year. For shipbuilding and military construction projects, the Defense Department has five years to put funds on contract, while weapon system procurement funding can be carried over for three years before it expires. Research and development funds are good for two years. Operations and maintenance and military personnel funding must be obligated in the year of appropriation.
Each of the military departments has substantial unobligated prior-year sums in their procurement accounts. The Navy has $16.7 billion set aside to buy ships and aircraft, including $9.4 billion in its shipbuilding and conversion accounts and $7.3 billion in its aircraft procurement coffers, according to Robbins.
The Air Force's aircraft procurement account has the largest single unobligated balance: $14.9 billion. And the Army's modernization accounts had $13.1 billion in unobligated funds at the end of FY-12, according to Robbins.
Military construction accounts as of Sept. 30 carried $14.8 billion in unobligated funds, operations and maintenance accounts had another $12.9 billion, and $6 billion for miscellaneous activities is unspent, according to Robbins.
In the event that sequestration is triggered on Jan. 2, the Pentagon will face $54.7 billion in FY-13 defense spending cuts, a sum set to be paid by taxing three different pools of military spending: accounts used to pay for war operations, new FY-13 budget authority and unobligated funds (DefenseAlert, Oct.4).
The 2011 Budget Control Act requires that the total amount of unobligated balances be cut by 9 percent. Under OMB's February forecast of $83.5 billion, many analysts calculated DOD's unobligated funds could be cut by approximately $7.5 billion in the event of sequestration. However, a 9 percent cut to the final FY-12 total -- $105.7 billion -- would amount to $9.5 billion. In such a scenario, sequestration would cut unobligated modernization funds by $6.4 billion.
At the end of June, the Pentagon had $328 billion in obligated funds (DefenseAlert, Aug. 8). By the end of August, that total was reduced to $131.8 billion. During September, the final month of the fiscal year, the Pentagon obligated on average more than $1.3 billion a day, bringing the fiscal-year-end balance to $105.7 billion.
By comparison, on Sept. 30, 2011, the Pentagon had $134 billion in unobligated FY-11 funds.
The Pentagon's budget and acquisition chiefs this fall spearheaded a new effort to address what they called "the long-standing Department of Defense problem" regarding unobligated funds management in a Sept. 10 memo.
Pentagon acquisition executive Frank Kendall and DOD comptroller Robert Hale, in the memo, set forth obligation-rate tenets designed to balance the goals of the acquisition community to negotiate the best deal possible for the government -- which can take time -- and the finance community's objective to allocate money according to a schedule (DefenseAlert, Sept. 19). -- Jason Sherman