The Insider

By John Liang
December 15, 2008 at 5:00 AM

And you thought Wall Street was having a tough year? Check out some excerpts from this press release just issued by the Government Accountability Office:

For the 12th year in a row, the U.S. Government Accountability Office (GAO) was prevented from expressing an opinion on the consolidated financial statements of the U.S. government -- other than the Statement of Social Insurance -- because of numerous material internal control weaknesses and other limitations.

“While significant progress has been made in improving financial management since the federal government began preparing consolidated financial statements 12 years ago, three major impediments have continued to prevent us from rendering an opinion on the accrual basis consolidated financial statements over this period of time,” said Gene L Dodaro, Acting Comptroller General of the United States and head of the GAO. “Those include serious financial management problems at the Department of Defense, the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and the federal government’s ineffective process for preparing the consolidated financial statements.” Dodaro also noted three additional material weaknesses related to improper payments, information security, and tax collection activities. Dodaro added that at least three major agencies did not get clean opinions – the Department of Defense, the Department of Homeland Security, and the National Aeronautics and Space Administration (NASA).

“The need for reliable, high-quality financial information has never been greater,” Dodaro said, pointing out that much work remains to be done on improving the state of federal financial management. “Continued improvement needs to be a top priority of the new administration and Congress to help provide the financial accountability the public deserves and the information decision makers need to help evaluate government programs and manage the government in a cost-effective manner."

DOD earlier this month did release its "FY 2008 DOD Agency Financial Report (AFR)," in which it stated the following liabilities:

. . . the Department has significant unfunded liabilities consisting primarily of actuarial liabilities related to military retirement pension and health care benefits. While the liability presents the Department with a negative financial position, the majority of the unfunded portion will come from annual appropriations outside the Department’s budget. The FY 2008 actuarial liability estimate totaled $2.0 trillion of which $1.3 trillion will come from the U.S. Treasury to cover liabilities existing at inception of the programs. Approximately $378.9 billion is currently covered with invested U.S. Treasury securities. Due to the significant growth in liability in recent years, the Board of Actuaries accelerated the liquidation of the initial unfunded liabilities by reducing the amortization period thus increasing the annual contribution amounts from the U.S. Treasury.

By Christopher J. Castelli
December 15, 2008 at 5:00 AM

President-elect Barack Obama is slated to hold a national security meeting in Chicago in today. The Obama camp says the meeting will include Vice President-elect Joe Biden, Secretary of State-designee Hillary Clinton, Defense Secretary Robert Gates, Attorney General-designee Eric Holder, Secretary of Homeland Security-designee Janet Napolitano, Chairman of the Joint Chiefs of Staff Adm. Mike Mullen, Ambassador to the United Nations-designee Susan Rice, National Security Adviser-designee Jim Jones, Director of National Intelligence Mike McConnell, White House Chief of Staff-designee Rahm Emanuel and White House Counsel designee Greg Craig.

At the end of the day, Obama is scheduled to hold a press conference at the Drake Hotel to discuss the nation's energy and environmental future. He will reportedly announce his environmental team.

By Christopher J. Castelli
December 15, 2008 at 5:00 AM

We've just posted a story on a new interim report by the Congressional Commission on the Strategic Posture of the United States. The panel is led by former Defense Secretary William Perry, an adviser to President-elect Barack Obama.

The report is the latest to discuss the possibility of a world without nuclear weapons. Notably, however, it acknowledges such a world is rather unlikely to show up any time soon. The Wall Street Journal took up that theme in an opinion piece published yesterday.

The commission's chairman is William Perry, a former Clinton Defense Secretary and a close Obama adviser. Mr. Perry is also one of the 'Four Horsemen of the Apocalypse,' the nickname given to him, George Shultz, Henry Kissinger and Sam Nunn for an op-ed published in these pages last year offering a blueprint for ridding the world of nuclear weapons.

The commission's interim report is due out any day now, and the advance word is that Mr. Perry has come back to Earth. We're told the report's central finding is that the U.S. will need a nuclear deterrent for the indefinite future. A deterrent is credible, the report further notes, only if enemies believe it will work. That means modernization.

By Sebastian Sprenger
December 12, 2008 at 5:00 AM

A few months ago, Defense Department officials announced plans to manage two of the 2009 Joint Capability Technology Demonstration candidates under the competitive prototyping approach, we reported last month. The idea was to "showcase" the merits of this much-touted acquisition technique, officials wrote in a September report.

But plans change. According to Pentagon spokesman Cmdr. Darryn James, DOD no longer wants to try competitive prototyping on the High-Power Microwave Advanced Munitions Project (CHAMP). James said he had no information about what led to the decision.

Simply put, the project seeks to build an air vehicle emitting microwaves so powerful that they fry electronic equipment on the ground below. Exactly what that vehicle would look like is unclear. A formal announcement to industry, first released in October, talks of a Counter-electronics High-Power Microwave Advanced Missile Project -- as opposed to the term "munitions" that appears as part of the effort's name in other places.

According to a set of Air Force briefing slides from October, posted online, officials envision the vehicle to be some sort of fixed-wing craft capable of hovering over cities. (Note the graphic on page 18, including the types of buildings used in the illustration.)

The project's secrecy exceeds that of many other military high-tech efforts. Industry officials seeking a slice of the $40 million CHAMP development contract must be able to obtain the same types of clearances required for personnel working on atomic weapons, according to DOD's October notice to industry.

Defense officials still plan to pursue the Joint Medical Distant Support and Evacuation (JMDSE)  JCTD candidate as a competitive-prototyping effort, James said.

By Sebastian Sprenger
December 12, 2008 at 5:00 AM

The Army's Human Terrain Team program, which has repeatedly come under fire since its creation, is getting a shout-out from a counterinsurgency officer in Afghanistan. Army Col. John Agoglia, director of the Kabul-based Counterinsurgency Training Center-Afghanistan, told us in an interview last week he plans to soon integrate the teams' research into his organization's training curriculum.

Agoglia said he hasn't personally worked with any HTT personnel. But, he added, "the brigade commanders I've talked to felt they're getting very good information from them."

Under the HTT program, anthropologists deploy alongside U.S. forces in Iraq and Afghanistan to facilitate troops' interactions with the local population.

But before CTC-A trainers can tap into the information gathered by HTT teams, officials must build the requisite information sharing infrastructure, including ways of exchanging secret information, Agoglia said.

"We need to get our pipes set up and we need to get our information sharing capabilities improved," the colonel said. "And then we'll start looking at what they have and start pulling them into the training we're doing at the center."

Wired magazine's Danger Room blog has chronicled some of the issues surrounding the HTT program here, here, and here.

A Human Terrain Team handbook, issued by the Army's Training and Doctrine Command in September, is posted here.

By Christopher J. Castelli
December 11, 2008 at 5:00 AM

President-elect Barack Obama will meet today in Chicago with former Secretaries of State James Baker and Warren Christopher, Chairmen of the National War Powers Commission.

This bipartisan panel , whose members include Lee Hamilton, former Attorney General Edwin Meese, Abner Mikva, former National Security Adviser Brent Scowcroft, Anne-Marie Slaughter -- dean of the Woodrow Wilson School of Public and International Affairs at Princeton -- and former Deputy Secretary of State Strobe Talbott, reviewed and made recommendations about the War Powers Act. Their report was released in July 2008. The meeting is being held at the request of the commission members.

In addition, Vice President-elect Joe Biden will be in Washington on Thursday and will have a private working breakfast with retired Marine Gen. Jim Jones, Obama's choice to be national security adviser, and Sen. Hillary Clinton, who is slated to become secretary of state.

By Jason Sherman
December 11, 2008 at 5:00 AM

Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, believes the global financial crisis will force the Pentagon to “squeeze” its budget. In addition, the Pentagon's No. 1 officer passed up an opportunity during yesterday's press conference to support the Air Force's bid to buy additional F-22A fighters.

ADM. MULLEN: I think it's very clear from, obviously, President- elect Obama's public statements, also Secretary Gates, to look at -- to take a very, very intense, focused, comprehensive view at what we're buying -- and from that perspective, I think that's very healthy.

And I say that -- also, I'm obviously discouraged by the lack of cost control that we've got in so many -- in so many of our programs. And we are going to have to get a grip on that, or we will not be able to buy them. It's very clear to me. We won't be able to buy them, and we won't be able -- or we won't be able to buy them in the quantity we need.

I am -- I'm very concerned about the global financial crisis and its impact globally on security. I think it will impact on security over a period of time, and we have to recognize that. I think it's important for all of us in the Defense Department to squeeze our budgets, to draw in where we can, and for leaders to commit to that and certainly recognize that there are challenges out there which we'll continue to have to resource.

Q: Do you think, for instance, of the biggest military needs -- say the F-22, the most expensive fighter plane ever made?

ADM. MULLEN: There's been an awful lot of discussion about that. It's not a matter of do we need it.... We have it. It's a question of how many do we need for the future. And Secretary Gates has been pretty clear. This administration has been very clear about where it's been, where he is, and certainly has, you know, left it open to see what the additional numbers should be. The chief of staff of the Air Force has talked about a number that is another -- what? -- 50 or so more than the 183 right now.

So I think we're going to -- we're going to work our way through that. I do -- I am concerned that it is such an expensive system.

I think it is -- in the aviation world, our future is in the Joint Strike Fighter, but the Joint Strike Fighter is a new system. New systems usually struggle, you know, meeting exact deadlines. And I think it's very important we have capability to bridge to that system with respect to the broad range of capabilities for the country.

By Sebastian Sprenger
December 11, 2008 at 5:00 AM

The National Security Agency plays a huge role in the government's cyberspace activities. Much of what the secretive organization is doing in that area probably will never see the light of day due to classification. Regardless, or perhaps because of it, the Ft. Meade-based agency must surely be a great place to work, Army Brig. Gen. Steve Smith, who is the chief cyber officer in the Army's G-6 directorate, said at an industry conference this morning.

"What young person wouldn't want to go work for NSA?" Smith asked, given that folks there are doing "some of the coolest stuff" with state-of-the-art technology. But there's more. "And you get to hack legally," Smith said.

By Christopher J. Castelli
December 11, 2008 at 5:00 AM

The 2010 QDR just might be preceded by a brand-new, sweeping national security review.

Experts say President-elect Barack Obama’s team is likely to conduct a new kind of national security review that spans the entire U.S. government. Call it what you will -- NSR, quadrennial NSR, or QNSR; it could be a very big deal.

“With the rise in importance of stability operations and the Obama team’s desire to increase the role of ‘soft power,’ this is an idea that is likely to get a warm reception,” says Andrew Krepinevich of the Center for Strategic and Budgetary Assessments. Such a review could be done without delaying the schedule for the QDR, he said.

Opinions differ, however, on how soon such a review can be mustered, as Inside the Pentagon reports today.

Also today: Our coverage of telling essays by Michèle Flournoy, who co-chairs Obama’s DOD transition team, and Robert Gates, who will continue to lead the Pentagon. (Her essay is here; his is here.)

And see this story on the three-step process that Flournoy recommended for developing the new national security strategy. She outlined it this past summer in a book published by the Center for New American Security.

By Kate Brannen
December 11, 2008 at 5:00 AM

Sen. Carl Levin (D-MI) made the case on the Senate floor today that the future of the American automotive industry has crucial implications for the Army.

As chairman of the Senate Armed Services Committee, Levin said he wants to focus on the connection between the automotive industry and its contributions to national defense. He called this link "a central component of the debate" over making federal loans to U.S. automakers and urged other senators to "consider that important reason" when voting.

As a senator from Michigan, home of the Big 3 -- Ford, Chrysler and General Motors -- Levin has worked with the Army's Tank Automotive Research and Development Command, the Army's National Automotive Center and the Automotive Research Center in an effort to create partnerships between DOD and the automotive industry.

Levin read a statement from TARDEC director Grace Bochenek that highlighted the research and development initiatives ongoing between the Army and the American automotive industry. Listed were lightweight vehicles, robotics and alternative fuel programs among others.

Politico is reporting that Levin's press aides are circulating a memo that argues if the Big 3 go down, so too will suppliers that also provide spare parts to the military.

The link between the auto and defense industries, Levin’s memo points out, lies in the automakers’ vast supplier base.

A number of companies that aren’t household names, such as Arvin Meritor and Detroit Diesel, can’t keep supplying the military with axles and engines if they don’t have enough work from the automakers. And the military already struggles to find suppliers for the many components needed for its ground vehicles.

If suppliers disappear along with Detroit’s auto companies, the cost of replacement parts could skyrocket, Levin’s memo warns.

According to Politico, Rep. Gene Taylor (D-MS), a member of the House Armed Services Committee, wants auto companies to get involved with the manufacturing of Mine Resistant Ambush Protected vehicles.

By John Liang
December 11, 2008 at 5:00 AM

In the spirit of the term "All Politics Is Local," Boeing today released a statement about an Arizona State University report that found the company's missile defense work had contributed $193 million per year to Arizona's economy. According to Boeing:

The study looked at payroll, non-payroll purchases and expenditures, and vendor commitments in the state to determine the overall impact of Boeing's work on the GMD program.

Major economic impacts for 2007 include:

* Created 1,936 direct and indirect jobs in the state
* Distributed a payroll of $94 million
* Generated $137 million in Arizona household earnings
* Contributed $12.7 million in state and local government tax revenue.

Arizona State economics professor Lee McPheters, who has studied Boeing and other high-tech firms, said GMD gives Arizona's economy a major boost.

"Looking at the average earnings across all the jobs created by GMD, both direct and indirect, the GMD program serves not only to expand the size of the economy in Arizona, but also to raise the average standard of living of its residents," said McPheters.

Who paid for the study, might you ask?

Boeing.

By Dan Dupont
December 10, 2008 at 5:00 AM

A moment worth noting from yesterday's press briefing with Pentagon spokesman Geoff Morrell:

Q I may have missed it last week -- so can I just ask is it definite that you're staying as the press secretary?

MR. MORRELL: That's my understanding in my conversations with the secretary, yes. I will be here to work with you as best I can for the foreseeable future.

Morrell -- whose full title is deputy assistant secretary of defense for public affairs -- joined the Pentagon in June of 2007.

By Marjorie Censer
December 10, 2008 at 5:00 AM

The Pentagon has not been able to rapidly adapt to a “war footing,” according to the Center for Public Integrity's new large-scale assessment of the Bush administration, titled “Broken Government.”

The nonpartisan organization's project is a digital report intended to provide “a comprehensive assessment of executive branch failures over the course of the Bush presidency.” It looks beyond the Defense Department to areas including education, health care, financial management and the environment, among many others.

In the Defense Department section, the Center for Public Integrity says the department “has often been unresponsive or slow to react to the needs of soldiers and Marines on the ground in Iraq and Afghanistan, as well as in the United States when they return.”

In particular, it notes the Pentagon's initially slow procurement of Mine Resistant Ambush Protected vehicles, something that’s in the news this week, again.

InsideDefense.com has reported extensively on DOD efforts to adapt its acquisition efforts to meet soldier requirements. Most recently, we wrote about Defense Secretary Robert Gates' call for changes to the Pentagon's acquisition system to make it more responsive to the needs of soldiers in theater.

The CPI report singles out Gates, who will stay on under President-elect Barack Obama, for praise.

“Gates made accountability and responsiveness to the current conflicts his signature,” the online project says. “For example, he made MRAP procurement the number one DOD acquisition priority.”

By John Liang
December 10, 2008 at 5:00 AM

The House Republican Conference today selected Rep. John McHugh (R-NY) to serve as the House Armed Services Committee's ranking member in next year's Congress. In a statement, panel Chairman Ike Skelton (D-MO) said the move was a good one:

My congratulations go to Congressman John McHugh of New York on his election as the Ranking Member of the House Armed Services Committee. While we have served together in the House and on this committee for many years, I look forward to working even more closely with Congressman McHugh in the days ahead.

Congressman McHugh is a strong advocate for the soldiers of Ft. Drum and for all of our military services. His experience dealing with critical defense issues, particularly military personnel issues, will serve him, our committee, and our country well. I am confident that Ranking Member McHugh will join me in continuing our committee's long-standing tradition of bipartisan cooperation to support U.S. service members and to protect America's national security interests at home and abroad.

UPDATE: Rep. Duncan Hunter (R-CA), the current ranking member who will retire from Congress in January, also released a statement:

John McHugh brings a great intellect and strong leadership capabilities to the position of the Ranking Member. The Republican leadership of the Armed Services Committee could not be in better hands.

By John Liang
December 10, 2008 at 5:00 AM

Just because the world's economy is down doesn't mean that the aerospace and defense industry is too, according to the Aerospace Industries Association.

As AIA President and CEO Marion Blakey told attendees at the association's annual year-end luncheon at the lavish Mayflower Hotel in downtown Washington today:

I’m happy to report that, despite the challenges to our economy, our industry had a strong year in 2008. Total sales are on pace to reach $204 billion, a new record for the fifth straight year. It also represents the seventh year of growth in the last eight years, which is even more remarkable when you consider the widespread financial difficulties in our economy. This figure represents an increase of 2.1 percent, which is less growth than we’ve seen in recent years. The main reason for the drop was not the tough economic atmosphere, but the work stoppage at Boeing that trickled down through the industry. We are more than satisfied that there was continued progress throughout the aerospace industry in 2008.

Like last year, our industry saw modest growth in every sector – civil aircraft, military aircraft, missiles, space and related products. This is noteworthy because over the years these sectors were often on different, distinct cycles. When civil aviation was up, military was usually down, and vice-versa. To see this balanced growth across the sectors again is a good sign for our industry.

As for the upcoming year, Blakey said the industry "is in good position to weather the financial storm" for several reasons:

One is that funding levels for two of our three sub-sectors – defense and space – are largely set for the next fiscal year. The defense appropriations bill for fiscal 2009 was part of the continuing resolution that passed in October. The same bill also provides funding for NASA through March at largely the same levels as fiscal 2008.

While ideally we would like to see increased investment in space exploration, it at least keeps a stable base for NASA funding. Much of the groundwork for the fiscal 2010 budget is being laid right now. And the long lead times on federal budgets mean that we anticipate funding levels to remain steady -- without any major adjustments -- for the next 18 months, or even longer.

That said, defense and aerospace are not necessarily "immune" to the current recession, according to Blakey:

There is some speculation out there that the defense budget will be a source for cutbacks in future years to pay for other needs.

Defense R&D funding is expected to decrease, and supplemental budgets are poised to go down. In civil aviation, orders have decreased, passenger traffic is down and the contracting credit market makes aircraft financing deals more difficult. On top of that, anticipated fleet recapitalization by U.S. airlines does not look like it will materialize in the near-term. And, of course, the bad economic environment has traveled around the globe, and the bulk of existing aircraft customers are foreign airlines.

And lest Congress sees the multibillion-dollar defense budget as a potential till from which to pay for other government programs:

Aerospace and defense should not become a bill-payer for other areas of the federal budget, which would hurt our economy in the long-term for some temporary relief elsewhere.

Our industry provides a strong economic foundation for much of our nation’s advanced technology and innovation, and that would suffer if we don’t make adequate, sustained investment. All this effort is to underscore the message that aerospace is a cornerstone of our economy, and it deserves sustained support from our elected leaders.