(February 23, 2010) Border Security Still Not Paying its Dues

Funding for the U.S. Customs and Border Patrol’s Secure Border Initiative (SBI) was cut nearly 30 percent to $574 million in DHS’ FY2011 budget request released earlier this month. The decrease is mainly attributable to the fact that completion of SBInet’s first phase in Arizona was pushed back yet again to 2013. But after a series of tests later this year, according to the agency’s FY2011 budget justification, DHS will decide whether to “acquire and complete the remaining Arizona Border Patrol stations.” Translation: They might just put the kibosh on the whole thing. Funding for the second phase is eliminated in the FY2011 request.

A close read of the budget document reveals other interesting SBI developments. The other major driver of the budget reductions is the ongoing conversion of contractor jobs to federal positions. A June 2009 report by the DHS Inspector General slammed CBP for relying on contractors so extensively—more than half of the SBI office’s 340 employees in 2008 were contractors—and with so little oversight that many performed governmental duties such as drafting Congressional testimony. Interestingly, the document claims that replacing contractors with federal employees “offers significant overall cost savings for the government,” which might be news to advocates of private-sector solutions.

Nothing in the budget documents give any indication of what SBI will cost over the long haul, a figure Congress has sought for years to no avail. The appropriations committees have withheld funds for border infrastructure in the past until DHS produces an “expenditure plan.” But DHS hasn’t delivered on this either. DHS admits in the document that “all of the conditions (for the plan) have yet to be fully met,” but blames this on Congressional demand for overtly technical information and an annoyingly high standard for compliance. Their suggestion? “Limiting requirements to the minimum essential information and conditions needed to determine the overall quality of the plan.” Sounds like that determination has already been made.

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(February 5, 2010; 5:15 p.m.) Space and Missile Defense Catch Some Air

Anyone who thought that last year’s cancellation of spendthrift missile defense programs was a harbinger of things to come can think again. The FY2011 budget actually increases funding for missile defense by $577 million to $9.4 billion, including $500 million more for the Missile Defense Agency. The White House sustains its emphasis on short and near-term missile defenses, giving Terminal High Altitude Area Defense (THAAD) a 20 percent bump to $1.2 billion. Ground-Based Missile Defense, which took a big hit last year, gets a lot of it back with a 30 percent rise to $1.3 billion. Some of the programs cut last year are reappearing in other parts of the defense budget: The Airborne Laser (ABL) is going to the Directorate of Defense Research & Engineering, which will incorporate it into a “directed energy” research program.

The budget was released in tandem with a Ballistic Missile Defense Reivew Report, which takes a long look into the program’s future a la the Quadrennial Defense Review. The BMR identifies six policy priorities which include making sure new capabilities “must undergo testing that enables assessment under realistic operational conditions” and are “fiscally sustainable over the long term.” But the report also says that MDA will still operate outside the Defense Department’s acquisition system.

As for space spending, the big news concerned DOD’s decision to pull out of the tri-agency National Polar Orbiting Environmental Satellite System (NPOESS). This problematic program has been a joint effort with NASA and NOAA, and received money in last year's stimulus bill. DoD is still putting a lot of money into it—nearly $400 million—but will develop its own weather-tracking sensors. In all, space-based and related programs received $9.9 billion in the request, a 7 percent decrease from last year. The Advanced Extremely High Frequency satellite saw major drop in funding, while the massive SBIRS program got a large boost thanks to its absorption of the 3GIRS satellite (see below).

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(Feb. 3, 2010, 6:20 p.m.) Nuclear Complex Gets A Budget Boost

In light of President Obama’s speech in Prague last April calling for a world without nuclear weapons, arms control advocates expected a slimmed-down budget for the country’s nuclear labs. Instead, the White House's FY2011 budget adds money for weapons-related activity, including construction of buildings with warhead-creating capacity.

The National Nuclear Security Agency—charged with the care and feeding of the U.S. nuclear complex—receives $11.2 billion in the FY11 request, a 13.5 percent increase over 2010. Within that, the “weapons activities” budget category receives $7 billion, a nearly 10 percent increase. These activities include “life extension programs” to maintain the viability of nuclear warheads without testing, as well as “upgrades to the infrastructure supporting” them.

Two of these infrastructure projects have raised eyebrows in the past for racking up exorbitant costs while seemingly in search of a mission. The Chemistry and Metallurgy Research Replacement Nuclear Facility (CMRR-NF) at Los Alamos National Laboratory in New Mexico and the Uranium Processing Facility (UPF) at the Y12 plant in Oak Ridge, Tennessee will both have the capacity to produce new warheads, even though the Obama adminstration killed a program to produce new warheads last year. Total costs for each are marked “TBD” in the Department of Energy budget request, though at last count costs for CMRR had more than quadrupled to $2.6 billion.

Many nuke watchers believe the White House invested in the country’s aging nuclear complex as a tradeoff for Congressional support for ratifying arms control treaties. In all, nuclear facility construction gets a 25 percent boost to $400 million. Nonproliferation activities get $2.6 billion, a 26 percent increase, while reactors to fuel the Navy’s nuclear subs get a 13 percent increase to $1 billion.

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(February 2, 2010; 5:15 p.m.) FY11 Budget Cuts Agriculture Waste 

The President’s proposed FY2011 Department of Agriculture (USDA) budget is $25.8 billion, slightly reduced from the FY2010 level of $26.9 billion with the budget freeze. The budget proposal achieves these reductions by proposing to eliminate funding for wasteful programs:

• The FY2011 budget reduces the payments to wealthy farmers whose average farm adjusted gross income exceeds $500,000. This is a modification of a proposed cut from last year. The proposed change will save taxpayers $2.3 billion over the next 10 years.

• Eliminates cotton and peanut storage credits, saving $2 million over the next 10 years. The government currently pays for the storage of cotton and peanuts, but not any other crops. The administration suggests that this is an unfair subsidy that encourages unnecessary storage. This was also an unrealized cut from last year.

• Reduces funding to the Market Access Program (MAP) by 20%. MAP reimburses organizations for some the costs associated with overseas marketing and promotional activities to help sell U.S. Agricultural goods. Reducing this program would save $366 million from 2011-2020.

• Modifies the cellulosic biofuel producer credit to save an estimated $24 billion over 10 years. Cellulosic biofuel producers currently receive a $1 per gallon tax credit.

• Continues the President’s 2010 cut subsidies to crop insurance companies, a government-backed risk insurance program that in 2010 will provide $81 billion in risk protection for 286 million acres of farm land. The budget would reform contracts with crop insurance companies, saving $8 billion in payments to insurance companies over 10 years.

• The largest budget increase, $252 million, would go to the Food and Nutrition Service to boost food security funding for low-income families.

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(6:59 p.m.) EFV Among Skimpy Defense Reductions

Two Defense Department programs ended up on the White House budget reduction list, but the savings turn out to be less than meet the eye. First, the Marines’ Expeditionary Fighting Vehicle is a white elephant that has floundered in the ocean too long. Originally conceived in 1995, the EFV was supposed to move Marines from ships through the sea and onto land at high speeds. 15 years later, the prototype breaks down repeatedly, is derailed by the roadside bombs of Afghanistan and has almost doubled in price to $14 billion. The White House admitted that the program suffers “severe cost growth and technological problems” but cut only $50 million from the program’s nearly $300 million annual budget.

Second, replacements for the Navy’s two Command and Control Ships (LCC-R), which “house Fleet Commanders and their staff by providing work space and living quarters,” were deferred until 2020 because the Navy can still use the ones they have. Though the White House says the delay will save $3.8 billion over the next five years, the “reduction” is really only a delay, so just pushes the costs onto the next defense ledger. The White House needs to work a little harder than this if it really wants to reduce Defense Department bloat.

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(6:22 ) Revenue Generators in the President's Budget

Much has been made of the revenue provisions such as letting some of the Bush tax cuts expire. But the budget also assumes a lot of revenue that is far from clear whether it will be realized.

For instance, there is a plug for revenue generated by health care reform. It assume $743 billion in revenue over the next 10 years, which “reflects the average budget impacts of the House- and Senate-passed health care reform bills, extrapolated to 2020”, when you removed other proposals also listed in the budget the remaining savings would be $150 billion.

There’s also a plug for Climate policy change that is assumed to be deficit neutral because revenue would be redistributed.

An old favorite reappears, repealing Last In First Out (LIFO) accounting method for inventories, which would yield nearly $59 billion over 10 years. Reforming the tax credit for cellulosic biofuels would yield $24 billion over 10. Or something Congress has been slow to embrace, taxing carried interest (targets hedge fund and other investment managers) as ordinary income – $39 billion over 10 years. There’s also – and this represents dozens of proposals – $49 billion from reducing the tax gap.

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(5:45 p.m.) President Expands Cuts to Fossil Fuel Subsidies

Similar to last year’s budget request, the Fiscal year 2011 budget request eliminates several longstanding oil and gas subsidies.  TCS is pleased to see the President’s continued commitment to eliminating fossil fuel subsidies reflected in the budget request, and is eager to see a more aggressive plan to cut unnecessary and wasteful subsidies to the profitable oil, gas and coal industries.

Ending eight tax preferences to the oil and gas industry will save taxpayers an estimated $36.536 billion from 2011-2020. Taxpayers would save $17.314 billion by repealing the Domestic Manufacturing Tax Deduction for oil and gas companies, $7.839 billion by repealing expensing of intangible drilling costs and $10.026 billion by terminating Percentage Depletion for oil and natural gas wells.  In addition, the budget terminates several oil and gas research and development programs, saving taxpayers $240 million from 2011-2020 and reforms the Foreign Tax Credit, ending a multi-billion dollar tax loophole for businesses. The President proposed similar terminations in last year’s budget for the same subsidies. 

On top of the cuts proposed last year, the President’s FY2011 budget includes four new eliminations of coal industry tax preferences, saving taxpayers $2.28 billion from 2011-2020. This includes a $413 million savings from ending tax write-offs for coal exploration and $1.06 billion for repealing percentage depletion for hard mineral fossil fuels. Combined, the President’s fossil fuel subsidy eliminations would save taxpayers $38.816 billion from 2011-2020. Now it’s up to Congress to enact these eliminations and completely end tax preferences for the established and profitable coal, oil and gas industries.

(4:48 p.m.) Administration Puts Off Heavy Lifting on Transportation

The early attention being paid to the president’s FY2011 transportation budget seems to be primarily focused on the $4 billion “National Infrastructure Innovation and Finance Fund”; the $1 billion committed to high speed rail (in addition the $8 billion awarded in last year’s stimulus bill); and the millions the president has committed to the inter-agency push to create “Livable Communities.”

More concerning for taxpayers, however, is the discussion about the Highway Trust Fund (HTF), the account that holds our federal gas tax dollars and is used to pay for building and repair of the nation’s highways and transit systems.  It is no secret this fund is broke, and yet the president proposes pushing off for another year the thorny question of what to do to raise enough revenue to keep the program functioning.

“The Administration recognizes that surface transportation programs and the system for paying for them must be fundamentally reformed and has called for extending current authorities through spring 2011.”

The biggest problem with this approach is that the HTF can’t support current authorities through spring of 2011.  As it is, the president’s budget estimates that the HTF will have a scant $91 million left (in a budget of approximately $50 billion) in it at the end of the FY2010, and therefore won’t need an additional cash infusion before the end of the fiscal year.  That’s like leaving a nickel in your checking accounting and assuming nothing could possibly go wrong that would cause you to overdraw.

In FY2011, it gets really dicey, as the HTF will end the year nearly $14 billion in the hole.  So it’s almost a guarantee that an additional general fund infusion would be necessary if that spring 2011 deadline were to slip at all.

Pushing off the tough decisions about how to fix the HTF and keep our nation’s transportation program functioning properly until after the 2010 elections may be smart politics, but it’s not smart policy.

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(3:20 p.m.) Administration Triples Risky Loan Guarantees for Nuclear Reactors

The President’s FY2011 budget proposal triples funding to the Department of Energy Loan Guarantee Program.  This includes $36 billion in new budget authority for Treasury-backed loan guarantees to the nuclear industry and $3-5 billion in loan guarantee authority for renewable and energy efficiency projects.  The DOE Loan Guarantee program currently has more than $50 billion in loan guarantee authority, $18.5 billion of which is earmarked for nuclear reactors, bringing the total available to nuclear reactors up to $54.5 billion.  With tens of billions of dollars in guarantee authority already available, providing the DOE with billions in additional loan guarantee authority is nothing more than a needless giveaway to the nuclear industry that puts billions of taxpayer dollars on the line.

Two Defense Department programs that dodged the budgetary knife in FY 2010 are back for another round in 2011, and are shaping up as the next big-ticket fights. The White House identified six defense programs for cancellation in its FY 2011 budget released today, two less than last year but more than some budget watchers had expected. “Even though the Department of Defense is exempt from the budget freeze, it’s not exempt from budget common sense,” said President Obama in his first public statement on his budget.

But two of them are the same ones that survived FY 2010’s list of terminations because of Congressional favor. Of those two, the C-17 Globemaster aircraft has pulled ahead from the smaller pack of weapons cuts in the White House’s 2011 budget as the F-22 for 2011. Obama singled out the $2.7 billion added last year by Congress for the Air Force cargo plane as “waste, pure and simple.” Stay tuned for pushback from the plane’s long list of Congressional supporters. 

The alternate engine for the F-35 Joint Strike Fighter was the White House’s other big loss. Congress added $465 million to the FY 2010 defense spending bill to continue developing a second engine for the U.S. military’s next-generation aircraft, bringing total investment in the second engine to $3 billion over the past 12 years. Most of that was added by Congress: DOD proposed cancelling the engine in 2007 because the primary engine was progressing fine, and several analyses indicated that any savings from the second program would be negligible at best. Unfortunately, lawmakers’ success in adding funds will just strengthen their argument that too much cost has already been sunk into the program to just junk it. (For more on the C-17, F-35 and other FY2010 terminations see our report, 2010 Weapons Winners and Losers.)

The other defense programs painted with a bulls-eye will likely be less controversial. The EP-X, a survelliance aircraft still in early development, was cut from the Navy’s five-year budget plan last September. The Navy’s CG-X, a “surface combatant” ship with ballistic missile and radar capabilities, was falling so far behind schedule that its per-ship cost had grown unsupportably, though we can still expect shipbuilding-state lawmakers like Roscoe Bartlett (R-MD) and Gene Taylor (D-MS) to back it up. The Net-Enabled Command Capability (NECC) was being developed as the next-generation, military-wide electronic information system, but the White House decided to upgrade the existing system because NECC was “highly unlikely to be completed on schedule.” And the Third Generation Infrared Surveillance (3GIRS) system is a space program that DOD decided could be folded into its SBIRS satellite effort in an effort to stop another defense space program from hurtling into a fiscal black hole.

(12:51 p.m.) Administration Proposes $2.3 Billion Cut in Giveaways to Coal Companies

The President’s budget proposes to eliminate four tax giveaways to coal companies for a savings of $110 million in 2011 and nearly $2.3 billion over the next 10 years. Coal companies have a decades-long history of receiving taxpayer subsidies (pdf) even when they are highly profitable (pdf).

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(12:09 p.m.) $3.5 Billion cut from NASA for the Constellation Systems Program

One of the first things we look at is the Terminations, Reductions, and Savings document. There are a lot of repeat customers on this table, with some significant new additions. The biggest new cut is $3.5 billion from NASA for the Constellation Systems Program. This would be the death knell for the planned manned return to the moon and the future manned mission to Mars. However, this decision was entirely predictable and appropriate.

A bit of history is instructive. The mission to Mars (and the moon as a intermediate goal) were announced as part of President Bush’s FY05 budget proposal in January 2004, at the beginning of the 2004 presidential election season. In a politically savvy but cynical maneuver, the plan called for winding down the U.S role in the international space station and only design and planning for the moon mission during the remainder of the Bush administration. Big costs for ramping up activities in designing the Crew Exploration Vehicle, boost rockets and other developments were put off until the next administration. So President Bush got to claim this big new vision and a return to space, while leaving the check for his promises to the next guy.

Manned space exploration is prohibitively expensive. Considering the budgetary hole we are in, it makes sense to pursue private partnerships and continue unmanned space exploration rather than dump more cash into a bloated, delayed, over budget political gleam in the last President’s eye.

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The FY2011 Presidential Budget Request is in the process of being released.  TCS staff will be posting relevant documents and analysis as we digest this proposed budget.

President's message

Terminations, Reductions, and Savings (870 KB)

Analytical Perspectives (10 MB)

Historical Tables (1.91 MB)

Appendix (11.9 MB)

Budget Overview (7.19 MB)