Gates won't change 2008 budget, industry believes

Robert Gates, the incoming Pentagon chief, has spurred high expectations of change in U.S. strategy in Iraq, but the defense industry does not anticipate any major changes in budget and policy decisions that could curtail their business, at least for now.

Robert Gates, the incoming Pentagon chief, has spurred high expectations of change in U.S. strategy in Iraq, but the defense industry does not anticipate any major changes in budget and policy decisions that could curtail their business, at least for now.

The Senate confirmed Gates this week, allowing him to start his new job at the Pentagon this month, about a month and a half before the Department of Defense submits its budget request for 2008.

There will be very little Gates can change regarding a process begun months ago and nearly finished, several defense insiders said. But he will come into his own after a few months and be able to influence the 2009 defense budget, lobbyists said.

During his Senate Armed Services confirmation hearing Tuesday, Gates said that he is prepared to consult the administration and Congress if he thinks changes to the 2008 budget are needed.

“But I would also say, just looking at it as I understand it, as a percentage of GDP, defense spending, even with the cost of the war in Iraq, [is] at a relatively low level compared to most of post-World War II experience,” he said during the hearing.

Lobbyists are less concerned with assessing Gates’s impact at the Pentagon than with trying to gauge decisions that defense-related committees and subcommittees will make under Democratic leadership.

Congress already is under pressure to reduce, or steady, spiraling defense spending and expensive programs. “It is hard to imagine that the next five years are going to be nearly as generous to the [Defense Department] as the past five years have been,” cautioned Steve Kosiak, director of budget studies at the non-partisan Center for Strategic and Budgetary Assessments.

But the Army’s and Marine Corps’ war-torn equipment desperately needs replacement and repair. Big modernization programs that many companies count on for profits could be cut to pay the bill.

Along with balancing current and future needs, some in defense circles expect Gates to redirect the military’s “transformation” toward creation of a force capable of fighting so-called shadow wars.

Gates could focus on honing counterinsurgency skills, special operations and policing, according to Greg Treverton, senior analyst at the RAND Corp., a nonprofit research organization, and former vice chairman of the National Intelligence Council in the first Clinton administration. This could affect the defense industry, he said.

Tricky political matters such as defense transformation and emergency supplementals are where Gates could have a positive impact, said several defense insiders.

“Apart from the fact that Gates is supposed to be a quick study, he does have a reputation of reaching out to both Democrats and Republicans,” said Dov Zakheim, a Pentagon comptroller in President Bush’s first administration, and now a vice president for global defense at Booz Allen Hamilton.

Gates has said that he recognizes “the importance of balancing immediate and future needs.”

The industry is anxiously waiting to see how the Pentagon’s emergency supplemental request for 2007, which could reach $160 billion, will play with lawmakers increasingly fed up with using emergency spending to pay for what they consider predictable war expenses.

The emergency supplemental is a “more discreet issue” than the regular budget, and Gates could have a say in that, said Kosiak.

In his answers to the standard SASC questionnaire before his hearing, Gates said he would comply with new legislation that requires the Pentagon to submit a funding request for the wars in Iraq and Afghanistan with his budget request, as well as an estimate of all funds expected to be required for the fiscal year for the operations. He said, however, that it is difficult to forecast “the scope and nature of wartime operations many months ahead of time.”

“The issue is less about spending the money than [about] how it is spent. The major issue is … being honest about the request,” offered Jon Kutler, founder and CEO of Admiralty Partners, a private investment firm that works with defense companies. “Part of the [solution] is just reaching out to Congress more than Rumsfeld did, and he can smooth over some issues.”

House and Senate Democratic leaders intend to conduct relentless oversight of money going into the wars in Iraq and Afghanistan. Approval of the supplemental could come with strings attached.

“It is very late into the process to affect what goes into the ’08 budget,” said Kosiak. “You can make last-minute alterations in one or two programs, but it is something people in the Pentagon do not like to see.”

What the Pentagon buys, and how much, is largely driven by the military services’ plans. And the services push for programs and force structure “in a way that is very difficult for any individual to have a major kind of impact [upon],” said Kosiak.

Gates also is coming in with no Pentagon experience, but that doesn’t necessarily make him the exception. Rumsfeld is the only defense secretary to have served twice. But Gates’s lack of experience inside the Pentagon is not going to affect the Defense Department’s dealings.

“The Pentagon has a great deal of institutional knowledge,” said Kutler, who served in the Navy for 10 years. “The Pentagon budget is a long-cycle process and it is rare that a secretary sees many reiterations of the budget. His position is more of a leadership priority type of a job than micromanaging.”

In addition, if Deputy Secretary of Defense Gordon England decides to stay, he would be tremendously helpful to Gates as he transitions to the Pentagon, Zakheim said.

With Gates’s arrival at the Pentagon, several appointed administration officials are expected to resign. Already, Under Secretary for Intelligence Stephen Cambone, one of Rumsfeld’s trusted allies, has departed. All Pentagon political appointees have been asked to submit their resignations “pro forma,” as they would be asked to do in any regime change, according to a source.

Gates’s answers on the SASC questionnaire were deliberately vague, said a former appointed administration official. “He cannot really take a position until he is confirmed; he cannot talk about any decisions that require him to make a judgment on policy.”