The Insider

Pentagon Comptroller Robert Hale is seeking congressional authorization to shift $24 million from the Defense Security Cooperation Agency to the Global Security Contingency Fund to help the Philippine government transition some of its missions from the military to civilian law enforcement.

"Funds are required to support the Philippine government's efforts to accelerate transition of internal defense and counterterrorism responsibilities to civilian law enforcement and ensure the Philippine military can provide a credible defense posture in response to rising geopolitical proessures, particularly in the South China Sea," the Aug. 12 reprogramming request states.

Hale's reprogramming request "provides funding in support of higher-priority items, based on unforeseen military requirements, than those for which originally appropriated; and are determined to be necessary in the national interest. They meet all administrative and legal requirements, and none of the items have previously been denied by the Congress."

Late last month, Defense Secretary Chuck Hagel visited the Philippines, where he told reporters during a briefing in Manila:

One theme that I want to emphasize is that the United States is committed to the mutual defense treaty between our nations. It was borne out of Americans and Filipinos fighting shoulder-to-shoulder during World War II. And it has formed the foundation of the U.S.-Philippine security relationship for more than 60 years.

In the spirit of that treaty, and its continuing relevance today, President Aquino and I reaffirmed the progress being made in the ongoing discussions for our framework agreement. This agreement will strengthen cooperation between our two militaries and help them work together more effectively, so both now and the future that relationship will strengthen.

This progress is welcome and encouraging. I noted that our negotiating teams are working hard to finish the framework agreement in the near future. The United States does not seek permanent bases in the Philippines. That would represent a return to an outdated Cold War mentality. Instead, we are using a new model of military-to-military cooperation befitting two great allies and friends, and looking to increase our rotational presence here, as we have done recently in Singapore and Australia. Such an arrangement would benefit both our militaries by increasing our ability to train and operate together.

Deepening engagement opportunities between our forces would further support President Aquino's defense modernization agenda. The United States has a great deal of experience in building a modern military and we would like to share what we've learned with our Filipino allies.

U.S. officials have launched a new study on the "strategies for and challenges to" American efforts to negotiate status of forces agreements (SOFAs), according to a memo obtained by InsideDefense.com. Such agreements -- the United States is party to more than 100 -- define the legal status of Defense Department personnel and property on foreign soil and lay out rights and responsibilities between the United States and the host government.

The Aug. 23 memo, prepared by acting Under Secretary of State for Arms Control and International Security Rose Gottemoeller for the International Security Advisory Board, states the review will examine the results and status of recent SOFA efforts; the "widening gap" between provisions desired by DOD and what host nations are willing to provide; host-nation perspectives on as well as objections to U.S. SOFAs, and improved strategies for negotiating future SOFAs. The board, led by former Sen. Gary Hart (D-CO), is due to complete its assessment by June 2014.

China's ownership of 95 percent of the supply of rare-earth minerals that are crucial to high-tech equipment -- military and civilian -- has in recent years caused concern among lawmakers on Capitol Hill.

A new Congressional Research Service report -- originally obtained by Secrecy News -- notes that lawmakers in their 2011 Defense Authorization Act called on the defense secretary to "conduct an assessment of rare earth supply chain issues and develop a plan to address any vulnerabilities."

The law mandated that the secretary "assess which rare earths met the following criteria: (1) the rare earth material was critical to the production, sustainment, or operation of significant U.S. military equipment; and (2) the rare earth material was subject to interruption of supply, based on actions or events outside the control of the U.S. government."

DOD subsequently issued its report in March 2012, which found there wasn't that much to worry about:

Rare earth materials are widely used within the defense industrial base. However, such end uses represent a small fraction of U.S. consumption. As a result, when looked at in isolation, the growing U.S. supply of these materials is increasingly capable of meeting the consumption of the defense industrial base. Over the past year, there have been a number of positive developments with regard to both supply and demand within the rare earth materials markets. Reactions to market forces have resulted in positive developments, such as prices decreasing by half from their peak levels in July 2011, increased investment and domestic supply of rare earth materials, corporate restructuring within the supply chain, and lower forecasts for non-Chinese consumption. By 2015, the Department believes this will help to stabilize overall markets and improve the availability of rare earth materials.

The Department remains committed to pursuing a three-pronged approach to this important issue: diversification of supply, pursuit of substitutes, and a focus on reclamation of waste as part of a larger U.S. Government recycling effort. In addition to the many positive developments that indicate an increasingly diverse and robust domestic and global supply chain for rare earth materials, the Department will continue to monitor these supply chains, prepare possible contingency plans for ensuring their availability, and implement such plans as appropriate.

The Sept. 17 CRS report also notes that Mountain Pass, CA-based mining company Molycorp recently announced it was buying Canadian company Neo Material Technologies. "Neo Material Technologies makes specialty materials from rare earths at factories based in China and Thailand. Molycorp also announced the start of its new heavy rare earth production facilities, Project Phoenix, which will process rare earth oxides from ore mined from the Mountain Pass facilities," CRS states.

Given all that, the CRS report states that Congress "may choose to use its oversight role to seek more complete answers" to four questions:

* Given Molycorp's purchase of Neo Material Technologies and the potential for the possible migration of domestic rare earth minerals to Molycorp's processing facilities in China, how may this move affect the domestic supply of rare earth minerals for the production of U.S. defense weapon systems?

* Given that DOD's assessment of future supply and demand was based on previous estimates using 2010 data, could there be new concern for a possible rare earth material supply shortage or vulnerability that could affect national security?

* Are there substitutes for rare earth materials that are economic, efficient, and available?

* Does dependence on foreign sources alone for rare earths pose a national security threat?

CRS concludes with this:

Congress may encourage DOD to develop a collaborative, long-term strategy designed to identify any material weaknesses and vulnerabilities associated with rare earths and to protect long-term U.S. national security interests.

The White House Office of Management and Budget has directed the Defense Department and other federal agencies to prepare for a possible government shutdown at the end of the month in the event Congress does not pass a spending bill to fund operations at the start of the new fiscal year, which begins on Oct. 1. “At this time, agencies should be updating their plans for operations in the absence of appropriations,” Sylvia Burwell, OMB director, wrote in a Sept. 17 memo. She added:

The Administration does not want a lapse in appropriations to occur. There is enough time for Congress to prevent a lapse in appropriations, and the Administration is willing to work with Congress to enact a short-term continuing resolution to fund critical Government operations and allow Congress the time to complete the full year 2014 appropriations. However, prudent management requires that agencies be prepared for the possibility of a lapse. To that end, this guidance reminds agencies of their responsibilities to plan for agency operations under such a contingency.

The Aerospace Industries Association has released a new white paper on the "State of the Defense Budget."

Developed by AIA's National Security and Acquisition Policy division, the document "analyzes how the United States arrived at this budget impasse and the initial impacts of sequestration, followed by a look ahead at the potential cuts in 2014 and beyond."

Here are some excerpts:

Given the President's announced intent to once again exempt Military Personnel spending, expect between 15-20 percent reductions in investment spending should full sequestration be implemented in January 2014. . . .

Should sequestration occur in fiscal year 2014, the defense topline including overseas contingency funding will be reduced to its lowest level in constant dollars since 2002. While the topline dollars may be similar to 2002, the overhead costs within that total are not: DOD's military personnel costs have inflated by 29 percent and its health care costs by 45 percent since 2002.

As for the "way ahead":

Given the need to resolve the extension of the nation's debt ceiling this fall, Congress and the president may well come to some sort of agreement on a revised defense budget for fiscal year 2014 and fiscal year 2015 at the same time. Such a deal will be achieved only in the context of a number of issues that have little to do with defense and will almost certainly only be agreed upon with great acrimony. It is certain that any deal will not result in a defense topline below the Budget Control Act and it is probable that we will see a total budget somewhere between the BCA cap and the president's current request.

Bingen, WA-based Insitu Inc. has been awarded a $300 million Scan Eagle unmanned aerial system support contract, the Pentagon announced this afternoon.

The firm-fixed-price, indefinite-delivery/indefinite-quantity contract is for "hardware and operational and maintenance services in support of the Scan Eagle Unmanned Aerial Systems operated by the U.S. Special Operations Command," the Defense Department contract announcement reads, adding: "The hardware and services to be provided include replacement air vehicles, spare and consumable parts, and in-theatre field service representatives to supplement naval special warfare operators."

Work will take place in Bingen "and is expected to be completed in September 2016," according to DOD.

The Navy has obligated $85 million in fiscal year 2013 overseas contingency operations contract funds, all of which will expire at the end of this month, according to the statement.

House Speaker John Boehner (R-OH) said today that GOP lawmakers are eying "a million options" for dealing with a stopgap spending bill designed to prevent a government shutdown. House Republicans were forced to withdraw the measure from consideration this week due to objections from GOP conservatives focused on defunding "Obamacare."

"There are a lot of discussions going on . . . about how to deal with the CR and the issue of 'Obamacare,' and so we're continuing to work with our members," Boehner told reporters. He said he is mindful that the prospect of a government shutdown is looming at the end of the month. "There's all this speculation about these deadlines that are coming up," he said. "I'm well aware of the deadlines. So are my colleagues. And so we're working with our colleagues to work our way through these issues. I think there is a way to get there. I'm going to be continuing to work with my fellow leaders and our members to address those concerns."

"There are a million options that are being discussed by a lot of people," Boehner added. "When we have something to report, we'll let you know."

House Minority Leader Nancy Pelosi (D-CA) told reporters, "Now Americans face the prospect of another Republican-manufactured crisis to shut down the government." Pressed on whether she could support a short-term CR if it does not seek to defund "Obamacare," she replied, "We'll see what they do. It would have to be a very short time, and that's part of our discussion, what is the timing and what would the -- would there an omnibus? Would there be minibuses that come next? You know, what comes next?"

Meanwhile, the Congressional Budget Office today released a letter about the CR. "CBO has underscored that the House's CR funds defense at sequester levels, though that point is obscured because CBO talks about budget function 050, which is $20 billion or so lower than DOD's topline," Russell Rumbaugh, the director of the Stimson Center's Budgeting for Foreign Affairs and Defense program, told InsideDefense.com.

"What CBO made crystal clear is that such a level sets up yet another ding to the defense budget," said Rumbaugh. "The [fiscal year 2014] caps are lower than the FY-13 sequester, so funding DOD for three months at the higher level means the last nine months have to pay more." It remains to be seen, however, whether the government would opt to spend at that higher rate given last year's debacle, even if the CR allows it.