Bloomberg News

Senate Panel Rejects Pentagon Cuts in Spending Bill

July 17, 2014

The U.S. Senate Appropriations Committee approved a $548 billion Pentagon spending measure that would rebuff Air Force plans to retire the war-tested A-10 aircraft and pour $1.3 billion into Boeing Co. (BA:US)’s radar-jamming jets.

The Democratic-led panel approved the draft bill by voice vote, rejecting some of the Obama administration’s major Pentagon budget and cost-cutting proposals.

Instead, senators said they found $11.7 billion in savings from unobligated funds and wasteful spending to shift to congressionally popular programs such as the A-10 close air support aircraft, called the Warthog; Boeing’s radar-jamming EA-18G Growlers; and ships, including the preservation of the aircraft carrier USS George Washington.

“The bill makes prudent and sensible reductions to duplicative programs and projects that are inefficient or behind schedule,” said Senator Barbara Mikulski, the committee’s chairwoman.

The measure in total would provide the Pentagon with $489.6 billion in discretionary spending in the next fiscal year as well as $58.3 billion for war operations. Separately, the bill includes $1.4 billion for the State Department’s war-related operations.

The legislation next must go to the full Senate. It eventually will have to be reconciled with the version passed by the Republican House, H.R. 4870, which similarly bucked the Pentagon’s proposals for fiscal year 2015.

Discount Tobacco

The Senate measure also seeks to make some potentially controversial policy changes.

Richard Durbin of Illinois, who drafted the legislation, included a provision that would do away with military commissaries’ discounts for tobacco and tobacco-related products.

Service members use tobacco “at a higher rate than the general population” Durbin said, questioning the subsidy of those products “when we know -- flat out know -- that this is going to lead to addiction, it’s going to lead to health problems and sadly, in some cases, death.”

Pentagon policy directs exchanges to give a 5 percent discount on tobacco products to all service members, though those discounts shouldn’t result in a price more than 5 percent less than the most competitive price in the local community.

In practice, the discount can be much higher than that, Durbin said.

“Not all discounts are 5 percent; the actual discount is closer to 25 percent,” he said. Durbin said that it costs the military an estimated $1.6 billion every year in health care costs because of the use of tobacco.

Warthog Money

The bill would allot $338 million for A-10 operations in fiscal 2015. The Pentagon wants to retire the A-10s to save more than $4 billion over five years.

“The sentiment among members is very strong when it comes to the A-10,” Durbin told reporters. The House measure barred the retirement of the close-air support planes without apportioning money for flying the planes for another year.

The last A-10s, built by Fairchild Republic, now part of Northrop Grumman Corp. (NOC:US), rolled off the line in 1984.

The $1.3 billion would buy the Navy 12 Boeing Growlers, according to the committee. Boeing has its headquarters in Chicago, in Durbin’s home state. The production line is in St. Louis.

“I’ve been there, I’ve seen that,” Durbin said of the plane production. He said the “the value of the asset” prompted him to fund the program.

The Pentagon didn’t ask for the money, although the Navy has told lawmakers that the radar-jamming planes are its top unfunded priority. The House measure includes $975 million for 12 planes.

F-35 Funding

Even with the recent temporary grounding of the F-35, the joint strike fighter made by Lockheed Martin Corp. (LMT:US) of Bethesda, Maryland, the Senate panel approved full funding for the 34 jets that the Pentagon requested. The House added four more planes in its bill.

The Senate bill includes $848.7 million for the overhaul of CVN 73, the USS George Washington aircraft carrier.

Defense Secretary Chuck Hagel has said the overhaul of the carrier by Huntington Ingalls Industries Inc. (HII:US) based in Newport News, Virginia, may have to be called off, reducing the U.S. carriers to 10 ships, if automatic budget cuts known as sequestration resume in full force as planned in fiscal 2016. The House took a similar step with about $800 million allotted for the George Washington.

LCS Procurement

The Senate bill also would pay and an additional amphibious ship made by Huntington Ingalls. It also funds the three Littoral Combat Ships requested by the Navy and adds $80 million for the advance procurement of materials for a ship to be built in fiscal 2016. The House only funded two ships.

The Littoral Combat Ship is made in two versions by Lockheed Martin and Henderson, Australia-based Austal Ltd. (ASB) Austal could also stand to gain from the additional $200 million included to buy another High Speed Vessel.

The Senate panel’s bill wouldn’t pay for a helicopter swap that the Pentagon wants to make. The Army estimates it would save roughly $12 billion by shifting about 100 UH-60 Black Hawks to the National Guard and taking Apache helicopters in exchange. Defense Department officials have said that an Apache trade would let them replace OH-58 Kiowa Warrior helicopters for combat missions.

The Senate panel also sought to boost combat vehicles, including $37 million for BAE System Plc (BA/)’s Bradley Fighting Vehicle and $120 million for General Dynamics Abrams tanks.

The measure includes $125 million to allow for new competitors, most likely billionaire Elon Musk’s Space Exploration Technologies Corp., known as SpaceX, in the Evolved Expandable Launch Vehicle program. “Our goal here is to have a competition and see what happens to the cost of the program,” Durbin said. “Competition generally reduces cost and let’s see if it happens here.”

The Senate legislation would provide $70 million less than requested for Huntington Ingalls’ new aircraft carrier, CVN 79; $208 million less than the Pentagon sought for the WIN-T radio program; and $135 million less than requested for the Joint Tactical Radio System. The radio systems are built by General Dynamics. (GD:US)

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editors responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net Terry Atlas


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